HSBC 2005 Annual Report Download - page 23

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persons who hold, or intend to hold, 10 per cent or
more of the voting power of a financial institution.
The regulatory framework of the UK financial
services system has traditionally been based on
co-operation between the FSA and authorised
institutions. The FSA monitors authorised
institutions through ongoing supervision and the
review of routine and ad hoc reports relating to
financial and prudential matters. The FSA may
periodically obtain independent reports, usually from
the auditors of the authorised institution, as to the
adequacy of internal control procedures and systems
as well as procedures and systems governing records
and accounting. The FSA meets regularly with
HSBC’s senior executives to discuss HSBC’s
adherence to the FSA’s prudential guidelines. They
also regularly discuss fundamental matters relating
to HSBC’s business in the UK and internationally,
including areas such as strategic and operating plans,
risk control, loan portfolio composition and
organisational changes, including succession
planning.
UK depositors and investors are covered by the
Financial Services Compensation Scheme which
deals with deposits with authorised institutions in the
UK, investment business and contracts of insurance.
Institutions authorised to accept deposits and
conduct investment business are required to
contribute to the funding of the scheme. In the event
of the insolvency of an authorised institution,
depositors are entitled to receive 100 per cent of the
first £2,000 (US$3,442) of a claim plus 90 per cent
of any further amount up to £33,000 (US$56,798)
(the maximum amount payable being £31,700
(US$54,560)). Payments under the scheme in respect
of investment business compensation are limited to
100 per cent of the first £30,000 (US$51,634) of a
claim plus 90 per cent of any further amount up to
£20,000 (US$34,423) (the maximum amount
payable being £48,000 (US$82,615)). In addition,
the Financial Services Compensation Scheme has
been extended to cover mortgage advice and
arranging, certain long term and general insurance
products, and the provision of general advice and
arranging services. Differing levels of compensation
limits apply to each of these additional areas.
The EU Savings Directive took effect on 1 July
2005. Under the directive, each member state other
than Austria, Belgium, and Luxembourg is required
to provide the tax authorities of each other member
state with details of payments of interest or other
similar income paid by a person within its
jurisdiction to individuals resident in such other
member state. For a transitional period beginning on
the same date, Austria, Belgium, and Luxembourg
have imposed a withholding tax on such income.
The withholding tax rate is 15 per cent, increasing to
20 per cent from 2008 and 35 per cent from 2011.
Subject to future conditions being met, Austria,
Belgium, and Luxembourg may cease to apply the
withholding tax and instead comply with the
automatic exchange of information rules applicable
to the other member states. These future conditions
will depend on other key financial centres –
Switzerland, Liechtenstein, San Marino, Andorra and
the US – not exchanging information. These
financial centres and several other European
countries and related offshore territories have also
entered into similar agreements to the Savings
Directive with the EU states.
Hong Kong regulation and supervision
Banking in Hong Kong is subject to the provisions
of the Banking Ordinance of Hong Kong (Chapter
155) (the ‘Banking Ordinance’), and to the powers,
functions and duties ascribed by the Banking
Ordinance to the Hong Kong Monetary Authority
(the ‘HKMA’). The principal function of the HKMA
is to promote the general stability and effective
working of the banking system in Hong Kong. The
HKMA is responsible for supervising compliance
with the provisions of the Banking Ordinance. The
Banking Ordinance gives power to the Chief
Executive of Hong Kong to give directions to the
HKMA and the Financial Secretary with respect to
the exercise of their respective functions under the
Banking Ordinance.
The HKMA has responsibility for authorising
banks, and has discretion to attach conditions to its
authorisation. The HKMA requires that banks or
their holding companies file regular prudential
returns, and holds regular discussions with the
management of the banks to review their operations.
The HKMA may also conduct ‘on site’ examinations
of banks, and in the case of banks incorporated in
Hong Kong, of any local and overseas branches and
subsidiaries. The HKMA requires all authorised
institutions to have adequate systems of internal
control and requires the institutions’ external
auditors, upon request, to report on those systems
and other matters such as the accuracy of
information provided to the HKMA. In addition, the
HKMA may from time to time conduct tripartite
discussions with banks and their external auditors.
The HKMA, which may deny the acquisition of
voting power of over 10 per cent in a bank, and may
attach conditions to its approval thereof, can
effectively control changes in the ownership and
control of Hong Kong-incorporated financial
institutions. In addition, the HKMA has the power to