HSBC 2012 Annual Report Download - page 136

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Top and emerging risks
134
filed in the US with respect to the setting of Libor,
including putative class action lawsuits which have
been consolidated before the US District Court for
the Southern District of New York. The complaints
in those actions assert claims against HSBC and
other panel banks under various US laws including
US antitrust laws, the US Commodities Exchange
Act, and state law.
Potential impact on HSBC
• It is difficult to predict the outcome of the
regulatory proceedings involving our
businesses. Unfavourable outcomes may have
a material adverse effect on our reputation,
brand and results, including loss of business
and withdrawal of funding.
• In relation to the DPA, the Group has committed
to take or continue to adhere to a number of
remedial measures. Breach of the DPA at any
time during its term may allow the DoJ or the
New York County District Attorney’s Office to
prosecute HSBC in relation to the matters which
are the subject of the DPA.
• In relation to the GLBA Agreement, if all of our
affiliate depositary institutions are not in
compliance with these requirements within the
time periods specified in the GLBA Agreement,
HSBC could be required either to divest HSBC
Bank USA or to divest or terminate any
financial activities conducted in reliance on the
Gramm-Leach Bliley Act (‘GLB Act’). Similar
consequences could result for subsidiaries of
HSBC Bank USA that engage in financial
activities in reliance on expanded powers
provided for in the GLB Act. Any such
divestiture or termination of activities would
have an adverse material effect on the
consolidated results and operation of HSBC.
• The UK and other regulators may identify future
industry-wide mis-selling or other issues that
could affect the Group. This may lead from
time to time to: (i) significant direct costs or
liabilities (including in relation to mis-selling);
and (ii) changes in the practices of such
businesses which benefit customers at a cost
to shareholders. Further, decisions taken in the
UK by the Financial Ombudsman Service in
relation to customer complaints (or any overseas
equivalent that has jurisdiction) could, if applied
to a wider class or grouping of customers, have
a material adverse effect on the operating
results, financial condition and prospects of
the Group.
Steps to address many of the requirements of
the DPA and the GLBA Agreement have either
already been taken or are under way. These
include simplifying the Group’s control structure,
strengthening the governance structure with new
leadership appointments, revising key policies and
establishing bodies to implement single global
standards shaped by the highest or most effective
standards available in any location where the Group
operates, as well as substantially increasing spending
and staffing in the anti-money laundering and
regulatory compliance areas in the past few years.
There can be no assurance that these steps will be
effective or that HSBC will not have to take
additional remedial measures in the future to comply
with the terms of the DPA or the GLBA Agreement.
Dispute risk
The current economic environment has increased the
Group’s exposure to actual and potential litigation.
Further details are provided in Note 43 on the
Financial Statements.
Potential impact on HSBC
Dispute risk gives rise to potential financial loss
and significant reputational damage which could
adversely affect customer and investor confidence.
Risks related to our business operations,
governance and internal control systems
• Regulatory commitments and consent
orders including under the Deferred
Prosecution Agreements.
• Challenges to achieving our strategy in
a downturn.
• Internet crime and fraud.
• Level of change creating operational
complexity and heightened operational
risk.
• Information security risk.
• Model risk.
Regulatory commitments and consent
orders including under the Deferred
Prosecution Agreements
There is a risk that we fail to meet our deadlines or
we are judged to have material gaps in our plans or
implementation compared with the requirements of
the DPAs and other orders. Further details of this
risk are provided on page 128.