HSBC 2006 Annual Report Download - page 166

HSBC HOLDINGS PLC
Report of the Directors: Financial Review (continued)
Other financial information > Off balance sheet arrangements / Regulation and supervision
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party. The cash flows received by SPEs on pools of receivables are used to service the finance provided by
investors. HSBC administers this arrangement, which facilitates diversification of funding sources and the
tranching of credit risk. HSBC also typically provides part of the liquidity facilities to the entities, together with
secondary credit enhancement.
HSBC also has relationships with SPEs which offer management of investment funds, provide finance to public
and private sector infrastructure projects, and facilitate capital funding through the issue of preference shares via
partnerships.
All SPEs used by HSBC are authorised centrally upon initial establishment to ensure appropriate purpose and
governance. The activities of SPEs administered by HSBC are closely monitored by senior management. The use
of SPEs is not a significant part of HSBC’s activities and HSBC is not reliant on the use of SPEs for any material
part of its business operations or profitability. For a further discussion of HSBC’s involvement with SPEs and
the accounting treatments under IFRSs and US GAAP, see Note 47(j) on the Financial Statements on page 429.