HSBA Hsbc Holdings Plc

HONG KONG—A unit of HSBC Holdings PLC is appealing what would be the largest fine ever imposed by Hong Kong's securities regulator.

Lawyers representing HSBC Private Bank (Suisse) SA on Wednesday began their appeal of the 605 million Hong Kong dollars (US$78 million) fine handed down in July of last year by the Securities and Futures Commission. The regulator in a civil case has alleged misconduct surrounding products sold to HSBC's private banking clients between 2003 and 2008, including notes that were issued and or guaranteed by Lehman Brothers Holdings Inc.

The details of the case haven't previously been made public.

The regulator alleged that the unit should have told clients about the risks associated with Lehman Brothers in the summer of 2008, and also said certain private banking clients were sold financial products that were too risky for them, a lawyer for HSBC said on Wednesday.

In addition to the fine, the Securities and Futures Commission has sought to revoke a license from the HSBC entity and prevent it from advising on securities in Hong Kong.

HSBC is appealing the fine and the revocation, a spokesman said, declining to comment further on the case. A spokesman for the Securities and Futures Commission declined to comment on the hearing.

Anthony Neoh, counsel for the bank and a former chairman of the Securities and Futures Commission, said during Wednesday's hearing that the fine "cannot be justified" and that HSBC "couldn't forecast" Lehman's eventual bankruptcy in September 2008. Lehman had high credit quality that didn't change very much until the firm went bankrupt, he said.

He said the Securities and Futures Commission was "wrong" not to take into account the "contractual relationship between bankers and clients." The nature of a private-banking relationship is "different," he said, than a relationship a bank has with a retail customer. Private banks require clients to have higher minimums of investible assets that can run into the millions of dollars.

A lawyer familiar with the proceedings said complaints from HSBC clients over the financial products came from those with so-called execution accounts, for which the bank handled clients' orders and trades but didn't give investment advice or recommendations.

Private banking clients are considered knowledgeable investors who agreed to take on risks and retain control of their investments, the person added.

The hearing, which is being held in the city's Securities and Futures Appeals Tribunal, is expected to continue this week and next and possibly a few days in August.

Write to Julie Steinberg at julie.steinberg@wsj.com

(END) Dow Jones Newswires

May 04, 2016 08:05 ET (12:05 GMT)

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