HSBC 2005 Annual Report Download - page 25

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BHCA, including requirements that its US
depository institution subsidiaries, HSBC Bank
USA, HSBC Bank Nevada and HSBC Bank
Delaware, be ‘well-capitalised’ and ‘well-managed’,
and that such institutions have achieved at least a
satisfactory record in meeting community credit
needs during their most recent examinations
pursuant to the Community Reinvestment Act. These
requirements also apply to Wells Fargo HSBC Trade
Bank, N.A., in which HSBC and HNAH have a 20
per cent voting interest in equity capital and a 40 per
cent economic interest. Each of these depository
institutions achieved at least the required rating
during their most recent examinations. At 31
December 2005, HSBC Bank USA, HSBC Bank
Nevada, HSBC Bank Delaware and Wells Fargo
HSBC Trade Bank, N.A. were each well capitalised
and well managed under Federal Reserve Board
regulations.
In general under the BHCA, an FHC would be
required, upon notice by the Federal Reserve Board,
to enter into an agreement with the Federal Reserve
Board to correct any failure to comply with the
requirements to maintain FHC status. Until such
deficiencies are corrected, the Federal Reserve
Board may impose limitations on the US activities of
an FHC and depository institutions under its control.
If such deficiencies are not corrected, the Federal
Reserve Board may require an FHC to divest its
control of any subsidiary depository institution or to
desist from certain financial activities in the US.
HSBC and HNAH are generally prohibited
under the BHCA from acquiring, directly or
indirectly, ownership or control of more than 5 per
cent of any class of voting shares of, or substantially
all the assets of, or exercising control over, any US
bank or bank holding company without the prior
approval of the Federal Reserve Board.
The US is party to the 1988 Basel Capital
Accord and US banking regulatory authorities have
adopted risk-based capital requirements for US
banks and bank holding companies that are generally
consistent with the Accord. In addition, US
regulatory authorities have adopted ‘leverage’ capital
requirements that generally require US banks and
bank holding companies to maintain a minimum
amount of capital in relation to their balance sheet
assets (measured on a non-risk-weighted basis).
The Federal Deposit Insurance Corporation
Improvement Act of 1991 provides for extensive
regulation of insured depository institutions (such as
HSBC Bank USA, HSBC Bank Nevada and Wells
Fargo HSBC Trade Bank, N.A.), including requiring
federal banking regulators to take ‘prompt corrective
action’ with respect to FDIC-insured banks that do
not meet minimum capital requirements.
HSBC Bank USA, HSBC Bank Nevada and
Wells Fargo HSBC Trade Bank, N.A., like other
FDIC-insured banks, may be required to pay
assessments to the FDIC for deposit insurance under
the FDIC’s Bank Insurance Fund. Under the FDIC’s
risk-based system for setting deposit insurance
assessments, an institution’s assessments vary
according to the level of capital an institution holds,
its deposit levels and other factors.
The USA Patriot Act (‘Patriot Act’) imposes
significant record keeping and customer identity
requirements, expands the US federal government’s
powers to freeze or confiscate assets and increases
the available penalties that may be assessed against
financial institutions for failure to comply with
obligations imposed on such institutions to detect,
prevent and report money laundering and terrorist
financing. Among other things, the Patriot Act
requires the US Treasury Secretary to develop and
adopt final regulations with regard to the anti-money
laundering compliance obligations of financial
institutions (a term which, for this purpose, includes
insured US depository institutions, US branches and
agencies of foreign banks, US broker-dealers and
numerous other entities). The US Treasury Secretary
delegated certain authority to a bureau of the US
Treasury Department known as the Financial Crimes
Enforcement Network (‘FinCEN’).
Many of the anti-money laundering compliance
requirements of the Patriot Act, as implemented by
FinCEN, are generally consistent with the anti-
money laundering compliance obligations previously
imposed on the then HSBC Bank USA and
Household Bank (now HSBC Bank Nevada) under
the Bank Secrecy Act (which was amended in certain
respects by the Patriot Act) and applicable regulations.
These include requirements to adopt and implement
an anti-money laundering programme, report
suspicious transactions and implement due diligence
procedures for certain correspondent and private
banking accounts. Certain other specific requirements
under the Patriot Act involve new compliance
obligations. The passage of the Patriot Act and other
recent events have resulted in heightened scrutiny of
the Bank Secrecy Act and anti-money laundering
compliance by federal and state bank examiners. On
30 April 2003 the then HSBC Bank USA entered into
a written agreement with the Federal Reserve Bank of
New York and the New York State Banking
Department to enhance its compliance with anti-
money laundering requirements. HSBC Bank USA
implemented certain improvements in its compliance,
reporting, and review systems and procedures to