HSBC 2004 Annual Report Download - page 23

21
The regulatory framework of the UK financial
services system has traditionally been based on
co-operation between the FSA and authorised
institutions. The FSA monitors authorised
institutions through ongoing supervision and the
review of routine and ad hoc reports relating to
financial and prudential matters. The FSA may
periodically obtain independent reports, usually from
the auditors of the authorised institution, as to the
adequacy of internal control procedures and systems
as well as procedures and systems governing records
and accounting. The FSA meets regularly with
HSBC’s senior executives to discuss HSBC’s
adherence to the FSA’ s prudential guidelines. They
also regularly discuss fundamental matters relating
to HSBC’s business in the UK and internationally,
including areas such as strategic and operating plans,
risk control, loan portfolio composition and
organisational changes, including succession
planning.
UK depositors and investors are covered by the
Financial Services Compensation Scheme which
deals with deposits with authorised institutions in the
UK, investment business and contracts of insurance.
Institutions authorised to accept deposits and
conduct investment business are required to
contribute to the funding of the scheme. In the event
of the insolvency of an authorised institution,
depositors are entitled to receive 100 per cent of the
first £2,000 (US$3,900) of a claim plus 90 per cent
of any further amount up to £33,000 (US$63,800)
(the maximum amount payable being £31,700
(US$61,300)). Payments under the scheme in respect
of investment business compensation are limited to
100 per cent of the first £30,000 (US$58,000) of a
claim plus 90 per cent of any further amount up to
£20,000 (US$38,700) (the maximum amount
payable being £48,000 (US$92,800)).
The EU reached final agreement on a new
directive regarding the taxation of savings income on
3 June 2003. Under the directive, each member state,
other than Austria, Belgium, and Luxembourg, will
be required, beginning in 2005, to provide the tax
authorities of each other member state with details of
payments of interest or other similar income paid by
a person within its jurisdiction to individuals resident
in such other member state. Beginning on the same
date, Austria, Belgium, and Luxembourg will impose
a withholding tax on such income. The withholding
tax rate will initially be 15 per cent, increasing to 20
per cent from 2008 and 35 per cent from 2011.
Subject to future conditions being met, Austria,
Belgium, and Luxembourg may cease to apply the
withholding tax and instead comply with the
automatic exchange of information rules applicable
to the other member states. Implementation of the
directive is dependent upon Switzerland,
Liechtenstein, San Marino and Andorra applying
equivalent measures.
Hong Kong regulation and supervision
Banking in Hong Kong is subject to the provisions
of the Banking Ordinance of Hong Kong (Chapter
155) (the ‘Banking Ordinance’ ), and to the powers,
functions and duties ascribed by the Banking
Ordinance to the Hong Kong Monetary Authority
(the ‘Monetary Authority’ ). The principal function
of the Monetary Authority is to promote the general
stability and effective working of the banking system
in Hong Kong. The Monetary Authority is
responsible for supervising compliance with the
provisions of the Banking Ordinance. The Banking
Ordinance gives power to the Chief Executive of
Hong Kong to give directions to the Monetary
Authority and the Financial Secretary with respect to
the exercise of their respective functions under the
Banking Ordinance.
The Monetary Authority has responsibility for
authorising banks, and has discretion to attach
conditions to its authorisation. The Monetary
Authority requires that banks or their holding
companies file regular prudential returns, and holds
regular discussions with the management of the
banks to review their operations. The Monetary
Authority may also conduct ‘on site’ examinations of
banks, and in the case of banks incorporated in Hong
Kong, of any local and overseas branches and
subsidiaries. The Monetary Authority requires all
authorised institutions to have adequate systems of
internal control and requires the institutions’ external
auditors, upon request, to report on those systems
and other matters such as the accuracy of
information provided to the Monetary Authority. In
addition, the Monetary Authority may from time to
time conduct tripartite discussions with banks and
their external auditors.
The Monetary Authority, which may deny the
acquisition of voting power of over 10 per cent in a
bank, and may attach conditions to its approval
thereof, can effectively control changes in the
ownership and control of Hong Kong-incorporated
financial institutions. In addition, the Monetary
Authority has the power to divest controlling
interests in a bank from a person if they are no
longer deemed to be fit and proper, if they may
otherwise threaten the interests of depositors or
potential depositors, or if they have contravened any
conditions specified by the Monetary Authority.