HSBC 2015 Annual Report Download - page 115

HSBC HOLDINGS PLC
113
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
outcomes for customers and orderly and transparent
operations in financial markets. For further details, see
‘Compliance risk’ on page 178.
Potential impact on HSBC
• 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
• We have taken a number of steps including introduction
of new global policies, enhancement to the product
governance processes, establishment of a global conduct
programme and review of sale processes and incentive
schemes (see ‘Compliance risk’ on page 178).
US deferred prosecution agreement and related
agreements and consent orders
An independent compliance monitor (‘the Monitor’) was
appointed in 2013 under the 2012 agreements entered
into with the US Department of Justice (‘DoJ’) and the UK
Financial Conduct Authority (‘FCA’) to produce annual
assessments of the effectiveness of our AML and sanctions
compliance programme. Additionally, the Monitor is serving
as HSBC’s independent consultant under the consent order
of the FRB. HSBC Bank USA is also subject to an agreement
entered into with the Office of the Comptroller of the
Currency (‘OCC’) in December 2012, the Gramm-Leach-Bliley
Act Agreement and other consent orders. In January 2016,
the Monitor delivered his second annual follow-up review
report as required by the US DPA. The Monitor’s report is
discussed on page 116.
Potential impact on HSBC
• The design and execution of AML and sanctions
remediation plans are complex and require major
investments in people, systems and other infrastructure.
This complexity creates significant execution risk, which
could affect our ability to effectively identify and manage
financial crime risk and remedy AML and sanctions
compliance deficiencies in a timely manner. This could, in
turn, impact our ability to satisfy the Monitor or comply
with the terms of the US DPA and related agreements
and consent orders, and may require us to take additional
remedial measures in the future.
• Under the terms of the US DPA, upon notice and an
opportunity to be heard, the DoJ has sole discretion to
determine whether HSBC has breached the US DPA.
Potential consequences of breaching the US DPA could
include the imposition of additional terms and conditions
on HSBC, an extension of the agreement, including its
monitorship, or the criminal prosecution of HSBC, which
could, in turn, entail further financial penalties and
collateral consequences.
• Breach of the US DPA or related agreements and consent
orders could have a material adverse effect on our
business, financial condition and results of operations,
including loss of business and withdrawal of funding,
restrictions on performing dollar-clearing functions
through HSBC Bank USA or revocation of bank licences.
Even if we are not determined to have breached these
agreements, but the agreements are amended or their
terms extended, our business, reputation and brand
could suffer materially.
Mitigating actions
• We are continuing to take concerted action to remedy
AML and sanctions compliance deficiencies and to
implement Global Standards. We are also working to
implement the agreed recommendations flowing
from the Monitor’s 2013 and 2014 reviews, and will
implement the agreed recommendations from the
2015 review.
• During 2015, we continued to make progress toward
putting in place a robust and sustainable AML and
sanctions compliance programme, including continuing
to build a strong Financial Crime Compliance sub-
function, rolling out improved systems and infrastructure
to manage financial crime risk and improve transaction
monitoring and enhancing internal audits.
Dispute risk
HSBC is party to legal proceedings and regulatory matters in
a number of jurisdictions arising out of its normal business
operations. Further details are provided in Note 40 on the
Financial Statements.
Potential impact on HSBC
• Dispute risk may give rise to potential financial loss as
well as significant reputational damage. This in turn could
adversely affect customer, investor and other stakeholder
confidence.
Mitigating actions
• We continue to focus on identifying emerging regulatory
and judicial trends, and sharing globally lessons learned in
an effort to avoid or limit future litigation exposure and
regulatory enforcement action.
• We continue to review and enhance our financial crime
and regulatory compliance controls and resources.