HSBC 2005 Annual Report Download - page 22

HSBC HOLDINGS PLC
Governance, Regulation and Supervision
20
Governance
With listings of its ordinary shares in London, Hong
Kong, New York, Paris and Bermuda, HSBC
Holdings complies with the relevant requirements
for listing and trading on each of these exchanges. In
the UK, these are the Listing Rules of the Financial
Services Authority; in Hong Kong, The Rules
Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited; in the US, where
the shares are traded in the form of ADSs, HSBC
Holdings’ shares are registered with the US
Securities and Exchange Commission. As a
consequence of its US listing, HSBC Holdings is
also subject to the reporting and other requirements
of the US Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and
the New York Stock Exchange’s Listed Company
Manual, in each case as applied to foreign private
issuers. In France and Bermuda, HSBC Holdings is
subject to the listing rules of Euronext, Paris and the
Bermuda Stock Exchange applicable to companies
with secondary listings.
A statement of HSBC’s compliance with the
code provisions of the Combined Code on Corporate
Governance issued by the Financial Reporting
Council and with the Code on Corporate Governance
Practices in Appendix 14 to the Rules Governing the
Listing of Securities on The Stock Exchange of
Hong Kong Limited is set out in the ‘Report of the
Directors’.
Regulation and supervision
HSBC’s operations throughout the world are
regulated and supervised by approximately 490
different central banks and regulatory authorities in
those jurisdictions in which HSBC has offices,
branches or subsidiaries. HSBC estimates the cost of
this regulation and supervision to be approximately
US$635 million in 2005. These authorities impose a
variety of requirements and controls covering, inter
alia, capital adequacy, depositor protection, market
liquidity, governance standards, customer protection
(for example, fair lending practices, product design,
and marketing and documentation standards), and
social responsibility obligations (for example, anti-
money laundering and anti-terrorist financing
measures). In addition, a number of countries in
which HSBC operates impose rules that affect, or
place limitations on, foreign or foreign-owned or
controlled banks and financial institutions. The rules
include restrictions on the opening of local offices,
branches or subsidiaries and the types of banking
and non-banking activities that may be conducted by
those local offices, branches or subsidiaries;
restrictions on the acquisition of local banks or
regulations requiring a specified percentage of local
ownership; and restrictions on investment and other
financial flows entering or leaving the country. The
supervisory and regulatory regimes of the countries
where HSBC operates will determine to some degree
HSBC’s ability to expand into new markets, the
services and products that HSBC will be able to
offer in those markets and how HSBC structures
specific operations.
The Financial Services Authority (‘FSA’)
supervises HSBC on a consolidated basis. In
addition, each operating bank, finance company or
insurance operation within HSBC is regulated by
local supervisors. The primary regulatory authorities
are those in the UK, Hong Kong and the US, the
Group’s principal areas of operation.
In June 2004, the Basel Committee on Banking
Supervision introduced a new capital adequacy
framework to replace the 1988 Basel Capital Accord
in the form of a final Accord (commonly known as
‘Basel II’). Details of the European Union’s
implementation of Basel II and how this will affect
HSBC are set out on page 174.
United Kingdom regulation and supervision
UK banking and financial services institutions are
subject to multiple regulations. The primary UK
statute is the Financial Services and Markets Act
2000 (‘FSMA’). Other UK primary and secondary
banking legislation is derived from European Union
(‘EU’) directives relating to banking, securities,
investment and sales of personal financial services.
The FSA is responsible for authorising and
supervising UK financial services institutions and
regulates all HSBC’s businesses in the UK which
require authorisation under the FSMA. These
include retail banking, life and general insurance,
pensions, mortgages, custody and branch share-
dealing businesses, and treasury and capital markets
activity. HSBC Bank is HSBC’s principal authorised
institution in the UK.
FSA rules establish the minimum criteria for
authorisation for banks and financial services
businesses in the UK. They also set out reporting
(and, as applicable, consent) requirements with
regard to large individual exposures and large
exposures to related borrowers. In its capacity as
supervisor of HSBC on a consolidated basis, the
FSA receives information on the capital adequacy of,
and sets requirements for, HSBC as a whole. Further
details on capital measurement are included in
‘Capital Management’ on pages 176 to 177. The
FSA has the right to object, on prudential grounds, to