HSBC 2014 Annual Report Download - page 30

HSBC BANK PLC
Strategic Report: Principal Risks and Uncertainties (continued)
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Desist Order and may require HSBC to take additional
remedial measures in the future.
• Failure to comply with the requirements of consent
orders or the GLBA Agreement within the time
periods specified in them, or otherwise as may be
extended, could result in supervisory action. Any such
action could have a material adverse effect on the
consolidated results and operations of HSBC.
Mitigating actions
• Steps to address many of the requirements of the US
DPA, the FCA Direction and the GLBA Agreement have
either already been taken or are under way in
consultation with the relevant regulatory agencies.
These include simplifying the Group’s control
structure, strengthening the governance structure
with new leadership appointments, revising key
policies and implementing Global Standards to detect,
deter and protect against financial crime. In addition,
HSBC has substantially increased spending and
staffing in the Financial Crime Compliance and
Regulatory Compliance functions in the past few
years.
• During 2014, the Group approved a new global
strategy for transaction monitoring. Globally
standardised AML investigations processes have been
developed and are being implemented, starting in
priority countries.
Conduct of business
Regulators in the UK and other countries have continued
to increase their focus on ‘conduct’ matters relating to
fair outcomes for customers and orderly/transparent
markets, including, for example, attention to sales
processes and incentives, product and investment
suitability, product governance, employee activities and
accountabilities as well as the risks of market abuse in
relation to benchmark, index, other rate setting
processes, wider trading activities and more general
conduct of business concerns. In the UK, this includes
increasing focus on whether competition is working
effectively in financial markets or whether firm conduct
is contributing to poor market outcomes.
In the UK, the FCA is 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.
The FCA is also regulating areas of activity not previously
regulated by them, such as consumer credit, and
considering competition issues in the markets they
regulate. Additionally, the FCA and other regulators
increasingly take actions in response to customer
complaints or where they see poor customer outcomes
and / or market abuses, either specific to an institution
or more generally in relation to a particular
product. There have been examples of this approach by
regulators in the context of the possible mis-selling
of payment protection insurance (‘PPI’), of interest rate
hedging products for SMEs and of wealth management
products.
The group also remains subject to a number of other
regulatory proceedings including investigations and
reviews by various national and European regulatory,
competition and enforcement authorities relating to
certain past submissions made by panel banks and the
process for making submissions in connection with the
setting of Libor and Euribor. There are also investigations
into currency benchmarks and credit default swaps.
Potential impact on the group
• HSBC may face regulatory censure or sanctions
including fines and/or be exposed to legal
proceedings and litigation.
• Regulators in the UK and other countries may identify
future industry-wide mis-selling, market conduct or
other issues that could affect the group. This may
lead from time to time to significant direct costs or
liabilities and/or changes in the practices of such
businesses. Also, decisions taken by the Financial
Ombudsman Service in the UK (or similar overseas
bodies) 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.
Mitigating actions
• Programmes to enhance the management of conduct
of business are progressing in all global businesses
and functions.
• Performance management arrangements for
managers and staff are being reviewed, focusing on
reward linked to values-based behaviour and good
conduct.
• Enhancements to surveillance capabilities and
benchmark rate setting processes are ongoing and
HSBC and its subsidiaries are cooperating fully with
all regulatory investigations and reviews.
Competition Risk
The European Commission and other national level
competition authorities in Europe are continuing to focus
on the financial sector when enforcing laws against
anticompetitive practices. In the UK, the level of scrutiny
is likely to rise further when the FCA and the Payment
Systems Regulator become enforcers of these laws for
the first time as of 1 April 2015. In the UK this is also
being accompanied by a rise in private damages litigation
relating to alleged competition law infringements,
including ongoing litigation by UK retailers regarding
consumer credit and debit card interchange fee levels
under the Visa and MasterCard schemes.
In the UK, there is also continued intensification of
regulatory focus on proactive investigation of concerns
that competition may not be functioning effectively in
the interests of consumers in financial services markets
in the UK. To date their main focus has been on retail
banking markets but this is expected to widen to
wholesale markets in 2015. The markets subjected to
extensive review so far include: personal current
accounts and SME banking services; consumer cash
savings; and consumer credit cards. Details of these
investigations can be found at Note 37 on the Financial
Statements.