HSBC 2015 Annual Report Download - page 420

Notes on the Financial Statements (continued)
25 – Financial liabilities at FV / 26 – Debt securities / 27 – Accruals / 28 – Liabilities under insurance contracts
HSBC HOLDINGS PLC
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25 Financial liabilities designated at fair value
Accounting policy
The criteria for designating instruments at fair value and their measurement are described in Note 15. The fair value designation, once made,
is irrevocable. Designated financial liabilities are recognised when HSBC enters into contracts with counterparties and are normally
derecognised when extinguished. Examples of such designations include:
Long-term debt issues
The interest and/or foreign exchange exposure on certain fixed rate debt securities issued has been matched with the interest and/or foreign
exchange exposure on certain swaps as part of a documented risk management strategy. An accounting mismatch would arise if the debt
securities issued were accounted for at amortised cost, and this mismatch is eliminated through the fair value designation.
Financial liabilities under unit-linked and non-linked investment contracts
HSBC issues contracts to customers that contain insurance risk, financial risk or a combination thereof. A contract under which HSBC accepts
insignificant insurance risk from another party is not classified as an insurance contract, but is accounted for as a financial liability. See Note
28 for contracts where HSBC accepts significant insurance risk.
Customer liabilities under linked and certain non-linked investment contracts issued by insurance subsidiaries and the corresponding
financial assets are designated at fair value. Liabilities are at least equivalent to the surrender or transfer value which is calculated by
reference to the value of the relevant underlying funds or indices. Premiums receivable and amounts withdrawn are accounted for as
increases or decreases in the liability recorded in respect of investment contracts. The incremental costs directly related to the acquisition
of new investment contracts or renewing existing investment contracts are deferred and amortised over the period during which the
investment management services are provided.
Financial liabilities designated at fair value – HSBC
2015 2014
$m $m
Deposits by banks and customer accounts 193 160
Liabilities to customers under investment contracts 6,027 6,312
Debt securities in issue (Note 26) 37,678 46,364
Subordinated liabilities (Note 30) 21,168 21,822
Preferred securities (Note 30) 1,342 1,495
At 31 December 66,408 76,153
The carrying amount at 31 December 2015 of financial liabilities designated at fair value was $4,147m more than the
contractual amount at maturity (2014: $5,813m more). The cumulative amount of the change in fair value attributable to
changes in credit risk was a gain of $158m (2014: loss of $870m).
Financial liabilities designated at fair value – HSBC Holdings
2015 2014
$m $m
Debt securities in issue (Note 26):
–
owed to third parties 7,897 8,185
Subordinated liabilities (Note 30):
–
owed to third parties 11,100 9,513
–
owed to HSBC undertakings 856 981
At 31 December 19,853 18,679
The carrying amount at 31 December 2015 of financial liabilities designated at fair value was $2,127m more than the
contractual amount at maturity (2014: $2,694m more). The cumulative amount of the change in fair value attributable to
changes in credit risk was a loss of $172m (2014: loss of $520m).
26 Debt securities in issue
Accounting policy
Financial liabilities for debt securities issued are recognised when HSBC enters into contractual arrangements with counterparties and are
initially measured at fair value, which is normally the consideration received, net of directly attributable transaction costs incurred. The
subsequent measurement of financial liabilities, other than those measured at fair value through profit or loss and financial guarantees, is
at amortised cost, using the effective interest method to amortise the difference between proceeds received, net of directly attributable
transaction costs incurred, and the redemption amount over their expected life.