HSBC 2015 Annual Report Download - page 456

Notes on the Financial Statements (continued)
40 – Legal proceedings and regulatory matters / 41 – Related party transactions
HSBC HOLDINGS PLC
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In addition, HSBC Holdings, HSBC Bank plc and HSBC Bank USA were named as defendants, amongst others, in numerous
putative class actions filed in the New York District Court and the Illinois District Court. These class actions allege that the
defendants, which include ISDA, Markit and several other financial institutions, conspired to restrain trade in violation of US
antitrust laws by, amongst other things, restricting access to credit default swap pricing exchanges and blocking new entrants
into the exchange market. The plaintiffs in these suits purport to represent a class of all persons who purchased credit default
swaps from or sold credit default swaps to defendants primarily in the US.
In October 2013, these cases were consolidated in the New York District Court (the ‘Consolidated Action’). In September 2015,
the HSBC defendants reached an agreement with plaintiffs to resolve the Consolidated Action, subject to court approval. In
October 2015, the court granted preliminary approval of the settlement. The final settlement approval hearing is scheduled for
April 2016.
Economic plans: HSBC Bank Brasil S.A.
In the mid-1980s and early 1990s, certain economic plans were introduced by the government of Brazil to reduce escalating
inflation. The implementation of these plans adversely impacted savings account holders, thousands of which consequently
commenced legal proceedings against financial institutions in Brazil, including HSBC Bank Brasil S.A. (‘HSBC Brazil’), alleging,
amongst other things, that savings account balances were adjusted by a different price index than that contractually agreed,
which caused them a loss of income. Certain of these cases have reached the Brazilian Supreme Court. The Supreme Court has
suspended all cases pending before lower courts until it delivers a final judgement on the constitutionality of the changes
resulting from the economic plans. It is anticipated that the outcome of the Supreme Court’s final judgement will set a
precedent for all cases pending before the lower courts. Separately, the Brazilian Superior Civil Court is considering matters
relating to, amongst other things, contractual and punitive interest rates to be applied to calculate any loss of income.
There is a high degree of uncertainty as to the terms on which the proceedings in the Supreme Court and Superior Civil Court
will be resolved and the timing of such resolutions, including the amount of losses that HSBC Brazil may be liable to pay in the
event of an unfavourable judgement. Such losses may lie in a range from a relatively insignificant amount to an amount up to
$564m (based on the exchange rate between the USD and the BRL as at 31 December 2015), although the upper end of this
range is considered unlikely.
Regulatory review of consumer ‘enhancement services products’
HSBC Finance, through its legacy Cards and Retail Services business, offered or participated in the marketing, distribution, or
servicing of products, such as identity theft protection and credit monitoring products, that were ancillary to the provision of
credit to the consumer. HSBC Finance ceased offering these products by May 2012. The offering and administration of these
and other enhancement services products, such as debt protection products, has been the subject of enforcement actions
against other institutions by regulators, including the Consumer Financial Protection Bureau, the OCC, and the Federal Deposit
Insurance Corporation. Such enforcement actions have resulted in orders to pay restitution to customers and the assessment
of penalties in substantial amounts. We have made restitution to certain customers in connection with certain enhancement
services products, and we continue to cooperate with our regulators in connection with their ongoing review. In light of the
actions that regulators have taken in relation to other non-HSBC credit card issuers regarding their enhancement services
products, one or more regulators may order us to pay additional restitution to customers and/or impose civil money penalties
or other relief arising from the prior offering and administration of such enhancement services products by HSBC Finance;
however, management no longer expects the resulting financial impact to be material.
Fédération Internationale de Football Association (‘FIFA’) related investigations
HSBC has received inquiries from the DoJ regarding its banking relationships with certain individuals and entities that are or
may be associated with FIFA. The DoJ is investigating whether multiple financial institutions, including HSBC, permitted the
processing of suspicious or otherwise improper transactions, or failed to observe applicable AML laws and regulations. HSBC is
cooperating with the DoJ’s investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including
the timing or any possible impact on HSBC, which could be significant.
Hiring practices investigation
The US Securities and Exchange Commission (the ‘SEC’) is investigating multiple financial institutions, including HSBC, in
relation to hiring practices of candidates referred by or related to government officials or employees of state-owned
enterprises in Asia-Pacific. HSBC has received various requests for information and is cooperating with the SEC’s investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including
the timing or any possible impact on HSBC, which could be significant.
41 Related party transactions
Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans
for HSBC employees, Key Management Personnel, close family members of Key Management Personnel and entities which are
controlled or jointly controlled by Key Management Personnel or their close family members.