HSBC 2010 Annual Report Download - page 369

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Overview Operating & Financial Review Governance Financial Statements Shareholder Information
There are many factors affecting the range of possible outcomes, and the resulting financial impact, including the
extent to which one or both of PS 10/12 and the FOS Guidance are upheld, and the underlying rationale for each
decision; the ways in which PS 10/12 and or the FOS Guidance are found to impose additional requirements over and
above the common law and the FSA Conduct of Business rules in force at the time relating to the sale of general
insurance products, and in the handling of firms’ PPI complaints; the effect of any decision on the nature and volume
of customer complaints; and the extent to which, if at all, HSBC might be required to take action, and the nature of
any such action, in relation to non-complainants. The extent of any redress that may be required as a result of a
decision to uphold PS 10/12 and the FOS Guidance, in whole or in part, would also depend on the facts and
circumstances of each individual customer’s case. For these reasons, among others, HSBC does not at this time
consider it practicable to provide a reliable estimate or range of estimates of the potential financial impact of an
adverse decision.
Pending resolution of the dispute, HSBC continues to review all complaints received which allege that PPI has been
mis-sold and, where possible, seeks to resolve them. Where HSBC considers it is not in a position to reach a final
decision on a complaint until the conclusion of the application for Judicial Review of PS 10/12 and the FOS
Guidance and any subsequent appeals, it informs the complainant that this is the case.
In December 2007, the Group decided to cease selling PPI products in the UK and a phased withdrawal was
completed across the HSBC, first direct and M&S Money brands during 2008. HFC Bank Ltd (‘HFC’) ceased selling
single premium PPI in 2008 and sales of regular premium PPI will reduce as HFC exits its remaining retail
relationships. During the consultation process in 2009, the FSA reported that it had obtained agreement from firms
representing 40% of the market for face to face single premium PPI sales to review all such sales since July 2007. No
HSBC subsidiary or associate was included in that group of firms.
Regulatory and law enforcement agencies investigations
HSBC Bank USA entered into a consent cease and desist order with the Office of the Comptroller of the Currency
and the indirect parent of that company, HSBC North America, entered into a consent cease and desist order with the
Federal Reserve Board in the first week of October 2010. These actions require improvements for an effective
compliance risk management programme across the Group’s US businesses, including US Bank Secrecy Act (‘BSA’)
and Anti Money Laundering (‘AML’) compliance. Steps continue to be taken to address the requirements of these
Orders and to ensure that compliance and effective policies and procedures are maintained.
Various HSBC Group companies are the subject of ongoing investigations, including Grand Jury subpoenas and other
requests for information, by US Government agencies, including the US Attorney’s Office, the US Department of
Justice and the New York County District Attorney’s Office. These investigations pertain to, among other matters,
HSBC Bank USA’s bank note and foreign correspondent banking businesses and its compliance with BSA and AML
controls, as well as various HSBC companies’ compliance with Office of Foreign Asset Control (‘OFAC’)
requirements, and adherence by certain customers to US tax reporting requirements.
The consent cease and desist orders do not preclude additional enforcement actions against HSBC Bank USA or
HSBC North America by bank regulatory or law enforcement agencies, including actions to recover civil money
penalties, fines and other financial penalties relating to activities which were the subject of the cease and desist
orders. In addition, it is likely that there could be some form of formal enforcement action in respect of some or all of
the ongoing investigations. Actual or threatened enforcement actions against other financial institutions for breaches
of BSA, AML and OFAC requirements have resulted in settlements involving fines and penalties, some of which
have been significant depending on the individual circumstances of each action. The ongoing investigations are at an
early stage. Based on the facts currently known, it is not practicable at this time for HSBC to determine the terms on
which the ongoing investigations will be resolved or the timing of such resolution or for HSBC to estimate reliably
the amounts, or range of possible amounts, of any fines and/or penalties. As matters progress, it is possible that any
fines and/or penalties could be significant.