HSBC 2011 Annual Report Download - page 388

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
33 – Provisions / 34 – Subordinated liabilities
386
33 Provisions
Restruc-
turing
costs
Contingent
liabilities and
contractual
commitments
Legal
proceedings
and
regulatory
matters
Customer
remediation
Other
provisions Total
US$m US$m US$m US$m US$m US$m
At 1 January 2011 .............................. 21 405 969 442 301 2,138
Additional provisions/increase
in provisions .................................. 221 14 896 1,078 184 2,393
Provisions utilised ............................. (58) (5) (367) (386) (71) (887)
Amounts reversed .............................. (14) (41) (28) (87) (86) (256)
Unwinding of discounts ..................... – 1 56 – 5 62
Exchange differences and other
movements ..................................... (1) (168) (53) 20 76 (126)
At 31 December 2011 ....................... 169 206 1,473 1,067 409 3,324
At 1 January 2010 .............................. 25 449 744 401 346 1,965
Additional provisions/increase
in provisions .................................. 31 46 294 196 197 764
Provisions utilised ............................. (28) (29) (202) (94) (211) (564)
Amounts reversed .............................. (8) (8) (35) – (81) (132)
Unwinding of discounts ..................... – – 38 – 10 48
Exchange differences and other
movements ..................................... 1 (53) 130 (61) 40 57
At 31 December 2010 ........................ 21 405 969 442 301 2,138
Further details of legal proceedings and regulatory matters are set out in Note 44. Legal proceedings include civil
court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or
counterclaim) or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory
matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulators or
law enforcement agencies in connection with alleged wrongdoing by HSBC.
Customer remediation refers to activities carried out by HSBC to compensate customers for losses or damages
associated with a failure to comply with regulations. Customer remediation is initiated by HSBC in response to
customer complaints, and not specifically initiated by regulatory action.
Additional provisions include US$257m for the US mortgage foreclosure practices review (see Note 44 for further
details), and US$785m in relation to the review of sales of payment protection insurance (‘PPI’) in the UK.
Payment Protection Insurance
Following the High Court judgement on the Judicial Review application on 20 April 2011, HSBC has been working
with the FSA and the Financial Ombudsman Service in order to ensure all PPI complaints are handled and, where
appropriate, redressed in accordance with the FSA’s Policy Statement PS 10/12.
PS 10/12 sets out the process to be followed and the issues to be considered when reviewing individual complaints.
It also requires firms to ensure that root cause analysis is undertaken and, if any systemic issues are identified in the
way in which PPI was sold, this may require proactive contact exercises to be undertaken for certain categories of
non-complainants who purchased PPI at various times.
The key assumptions relevant to calculating the potential liability in respect of PPI sales are likely to evolve over
time as root cause analysis is completed and more experience is available regarding actual complaint volumes
received. The main assumptions currently in use are the number of customer complaints expected to be received, and
for how long a period; the number of non-complainant customers who will have to be contacted if systemic issues are
identified following root cause analysis; the response rate from customers who are contacted pro-actively; and the
expected uphold rate for complaints and the amount of redress payable in upheld cases.
In addition to these factors and assumptions, the extent of the required redress will also depend on the facts and
circumstances of each individual customer’s case. For these reasons, there is currently a high degree of uncertainty as
to the eventual costs of redress for this matter. There is a provision of US$506m as at 31 December 2011 (2010:
US$37m) in respect of the estimated liability for redress in respect of the possible mis-selling of PPI policies in
previous years.