HSBC 2012 Annual Report Download - page 135

133
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
these various regulations are in their early
stages, it is not possible to estimate the effect,
if any, on our operations.
We are closely engaged with the governments
and regulators in the countries in which we operate
to help ensure that the new requirements are properly
considered and can be implemented in an effective
manner. We are also ensuring that our capital and
liquidity plans take into account the potential effects
of the changes. Capital allocation and liquidity
management disciplines have been expanded to
incorporate future increased capital and liquidity
requirements and drive appropriate risk management
and mitigating actions.
Regulatory investigations, fines, sanctions
and requirements relating to conduct of
business and financial crime negatively
affecting our results and brand
Financial service providers are at risk of regulatory
sanctions or fines related to conduct of business
and financial crime. The incidence of regulatory
proceedings and other adversarial proceedings
against financial service firms is increasing.
In December 2012, HSBC reached agreement
with US authorities in relation to investigations
regarding inadequate compliance with anti-money
laundering, the US Bank Secrecy Act and sanctions
law. This includes a DPA with the US Department of
Justice (‘DoJ’). We also reached agreement to
achieve a resolution with all other US government
agencies that have investigated our past conduct
related to these issues, and finalised an undertaking
with the FSA to comply with certain forward-
looking obligations with respect to anti-money
laundering and sanctions requirements over a five-
year term. Under these agreements, we made
payments totalling US$1,921m to US authorities
and undertook to continue cooperating fully with US
and UK regulatory and law enforcement authorities
and take further action to strengthen our compliance
policies and procedures. Over the five-year term
of the agreement with the DoJ and the FSA, an
independent monitor (who will, for FSA purposes,
be a ‘skilled person’ under section 166 of the
Financial Services and Markets Act (FSMA)) will
evaluate and assess our progress in fully
implementing these and other measures it
recommends and will produce regular assessments of
the effectiveness of our Compliance function.
As reflected in the agreement entered into with
the Office of the Comptroller of the Currency
(‘OCC’) in December 2012 (the ‘GLBA
Agreement’), the OCC has determined that HSBC
Bank USA is not in compliance with the
requirements which provide that a national bank and
each depository institution affiliate of the national
bank must be both well capitalised and well
managed in order to own or control a financial
subsidiary. As a result, HSBC Bank USA and its
parent holding companies, including HSBC, no
longer meet the qualification requirements for
financial holding company status, and may not
engage in any new types of financial activities
without the prior approval of the Federal Reserve
Board. In addition, HSBC Bank USA may not
directly or indirectly acquire control of, or hold an
interest in, any new financial subsidiary, nor
commence a new activity in its existing financial
subsidiary, unless it receives prior approval from the
OCC.
In the UK, the FSA has continued to increase its
focus on ‘conduct risk’ including attention to sales
processes and incentives, product and investment
suitability and conduct of business concerns more
generally. These measures are concerned principally,
but not exclusively, with the conduct of business
with retail customers and in conjunction with this
focus, the UK regulators are making increasing use
of existing and new powers of intervention and
enforcement, including powers to consider past
business undertaken and implement customer
compensation and redress schemes or other,
potentially significant remedial work. Additionally,
the UK and other regulators increasingly take actions
in response to customer complaints either specific to
an institution or more generally in relation to a
particular product. We have seen recent examples of
this approach in the context of the mis-selling of
payment protection insurance and of interest rate
derivative products to SMEs.
The Group also continues to be subject to a
number of other regulatory proceedings, including
investigations and reviews by various regulators and
competition and enforcement authorities around the
world, including in the UK, the US, Canada, the
EU, Switzerland and Asia, who are conducting
investigations and reviews related to certain past
submissions made by panel banks and the process
for making submissions in connection with the
setting of London interbank offered rates (‘Libor’),
European interbank offered rates (‘Euribor’) and
other benchmark interest and foreign exchange rates.
As certain HSBC entities are members of such
panels, HSBC and/or its subsidiaries have been the
subject of regulatory demands for information and
are cooperating with those investigations and
reviews. In addition, HSBC and other panel banks
have been named as defendants in private lawsuits