HSBC 2006 Annual Report Download - page 170

HSBC HOLDINGS PLC
Report of the Directors: The Management of Risk (continued)
Regulation and supervision
168
Kong (the ‘Securities and Futures Ordinance’).
Entities engaging in activities regulated by the
Securities and Futures Ordinance are required to be
licensed. The HKMA is the primary regulator for
banks involved in the securities business, while the
Securities and Futures Commission is the regulator
for non-banking entities.
In Hong Kong, insurance business is regulated
under the Insurance Companies Ordinance and by
the Insurance Authority of Hong Kong (‘IA’). The IA
is responsible for the licensing of insurers and
insurance brokers, although insurance business can
also be licensed by the Confederation of Insurance
Brokers (the ‘CIB’). Separately, insurance agents are
licensed by the Hong Kong Federation of Insurers
(the ‘HKFI’). Both the HKFI and the CIB have
enacted Codes of Conduct for insurance agents and
brokers respectively and can impose sanctions for
misbehaviour or breach.
HSBC Insurance (Asia-Pacific) Holdings
Limited (‘INAH’) is licensed by the IA as an insurer.
The Hongkong and Shanghai Banking Corporation,
which is authorised by the HKFI, acts as an agent for
INAH, and HSBC Insurance Brokers (Asia-Pacific)
Limited act as insurance brokers licensed by the
CIB.
US regulation and supervision
HSBC is subject to extensive federal and state
supervision and regulation in the US. Banking laws
and regulations of the Federal Reserve Board, the
Office of the Comptroller of the Currency (‘OCC’)
and the Federal Deposit Insurance Corporation
(‘FDIC’) govern many aspects of HSBC’s US
business.
HSBC and its US operations are subject to
supervision, regulation and examination by the
Federal Reserve Board because HSBC is a ‘bank
holding company’ under the US Bank Holding
Company Act of 1956 (the ‘BHCA’). HSBC and
HSBC North America Holdings Inc. (‘HNAH’),
formed to hold all of its North American operations,
are ‘bank holding companies’ by virtue of their
ownership and control of HSBC Bank USA, N.A.
(‘HSBC Bank USA’), HSBC National Bank USA
(‘HSBC Bank Maryland’), and HSBC Trust
Company (Delaware), N.A. (‘HSBC Bank
Delaware’). These three banks are nationally
chartered commercial banks and members of the
Federal Reserve System. HSBC Bank Maryland is a
new bank that opened for business on 30 October
2006. HSBC Bank Delaware opened on 1 July 2005,
as an institution limited to trust activities. On
24 November 2006, having received federal deposit
insurance, it expanded to become a full-service
commercial bank. HSBC also owns HSBC Bank
Nevada, N.A. (‘HSBC Bank Nevada’), a nationally
chartered bank limited to credit card activities which
is also a member of the Federal Reserve System.
These four banks are subject to regulation,
supervision and examination by the OCC and, as
their deposits are insured by the FDIC, they are
subject to relevant FDIC regulation. Both HSBC and
HNAH are registered as financial holding companies
(‘FHCs’) under the BHCA, enabling them to offer a
broad range of financial products and services
through their subsidiaries. HSBC’s and HNAH’s
ability to engage in expanded financial activities as
FHCs depend upon HSBC and HNAH continuing to
meet certain criteria set forth in the BHCA,
including requirements that their US depository
institution subsidiaries, HSBC Bank USA, HSBC
Bank Maryland, HSBC Bank Nevada and HSBC
Bank Delaware, be ‘well capitalised’ and ‘well
managed’, and that such institutions have achieved at
least a satisfactory record in meeting community
credit needs during their most recent examinations
pursuant to the Community Reinvestment Act. These
requirements also apply to Wells Fargo HSBC Trade
Bank, N.A., in which HSBC and HNAH have a
20 per cent voting interest in equity capital and a
40 per cent economic interest. Each of these
depository institutions achieved at least the required
rating during their most recent examinations. At
31 December 2006, HSBC Bank USA, HSBC Bank
Maryland, HSBC Bank Nevada, HSBC Bank
Delaware and Wells Fargo HSBC Trade Bank, N.A.
were each well capitalised and well managed under
Federal Reserve Board regulations.
In general under the BHCA, an FHC would be
required, upon notice by the Federal Reserve Board,
to enter into an agreement with the Federal Reserve
Board to correct any failure to comply with the
requirements to maintain FHC status. Until such
deficiencies are corrected, the Federal Reserve
Board may impose limitations on the US activities of
an FHC and depository institutions under its control.
If such deficiencies are not corrected, the Federal
Reserve Board may require an FHC to divest its
control of any subsidiary depository institution or to
desist from certain financial activities in the US.
HSBC and HNAH are generally prohibited
under the BHCA from acquiring, directly or
indirectly, ownership or control of more than 5 per
cent of any class of voting shares of, or substantially
all the assets of, or exercising control over, any US
bank, bank holding company or many other types of
depository institutions and/or their holding
companies without the prior approval of the Federal