HSBC 2015 Annual Report Download - page 336

Report of the independent auditors to the members of HSBC Holdings plc
Appendix
HSBC HOLDINGS PLC
334
Impact of the DPA
Nature of the area of focus Matters discussed with the GAC
HSBC and HSBC Bank USA NA entered into a DPA with the US
Department of Justice (‘DoJ’) and Financial Conduct Authority in 2012
regarding non-compliance with the US Bank Secrecy Act, anti-money
laundering rules, and sanctions laws. The duration of the DPA is five
years.
If the DOJ concluded that a breach of the DPA had occurred, there
are a number of potential penalties that could be imposed that could
have a material adverse effect on HSBC’s business. This could include
loss of business and withdrawal of funding, restrictions on US dollar
clearing functions through HSBC Bank USA or revocation of bank
licences. The loss of this ability could have a significant adverse
impact on the going concern status of HSBC and its individual
subsidiaries in the future.
In considering going concern as the basis of preparation of the
financial statements, a discussion was held with the GAC about the
progress being made in responding to the requirements of the DPA.
The conversation specifically considered the 2015 report of the
Monitor. In the report he expressed significant concerns about the
pace of progress, instances of potential financial crime and systems
and controls deficiencies, whether HSBC is on track to meet its goal
to the Monitor’s satisfaction within the five-year period and, pending
further review and discussion with HSBC, did not certify as to HSBC’s
implementation of, and adherence to, remedial measures specified in
the DPA.
Assurances were sought from the Directors that they were not aware
of any information to suggest that the DoJ had concluded that the
DPA had been breached.
Procedures performed to support our discussions and conclusions
• The likelihood of the DPA being breached and a restriction to US dollar clearing imposed was independently assessed through:
– Inquiry with the Monitor, whose role is explained on page 116, to understand the status of his work, the outcome of his most recent
country reviews, his assessment of management’s progress against the requirements of the DPA and his reporting to the DoJ and FCA.
– Reading the 2015 and 2014 Monitor reports and the 9 country reports issued during the year.
– Reading the detailed reports produced by the compliance function that undertook testing of controls and processes related to the
DPA, and an assessment of the findings.
• Each Group Risk Committee meeting was attended during the year. At each meeting a report was provided by Group Risk on the status of
Global Standards Programme, which aims to address all of the DPA recommendations. The related discussion was observed.
• The papers supporting the Financial System Vulnerabilities Committee meeting at the year-end were reviewed. This meeting discussed
the 2015 Monitor report and management’s response.
• Compliance with the DPA was discussed with Group Legal and other members of senior management.
Relevant references in the Annual Report and Accounts 2015
Top and emerging risks, page 43.
Areas of special interest: the Monitor, page 116.
Financial System Vulnerabilities Committee, page 268.
Going concern and viability statements, page 277.
Note 40: Legal proceedings and regulatory matters, page 445.