November 28, 2012 5:28 AM GMT
HSBC Steps to Strengthen Compliance Will Be on the Agenda
At the end of January HSBC has snapped up a former US Deputy
Attorney General to strengthen its efforts to combat financial crime and
bolster risk management after the group was rocked by a record fine related to
money laundering for Mexican drug cartels last year.
Europe's largest bank announced James Brien Comey Jr. will
join its newly-formed Financial System Vulnerabilities Committee as a
non-executive director and independent board member for a three year term that
begins in March, HSBC said a statement emailed to IBTimes UK.
Douglas Flint said:
His experience and expertise gained from both public and private sector roles at the highest level will add a further dimension to the governance capabilities of the Board
In July last year, HSBC's head of compliance David Bagley told the US Senate committee he will step down after investigators released a damning report detailing more than a decade of lax controls and linked Britain's biggest bank to money-laundering, terrorist funding, tax evasion and financial ties to Iran that violate US sanctions.
Establish a committee of its board with a mandate to oversee anti-money
laundering matters, sanctions, terrorist financing and proliferation financing;
To review the relevant group policies and procedures to ensure all parts
of the HSBC Group are subject to standards equivalent to those required under
To appoint a group money laundering reporting officer with
responsibility for ensuring systems and controls are in place across the group
and to make sure the bank is legally compliant; and
To employ an independent monitor to oversee its compliance with UK
anti-money laundering, sanctions, terrorist financing and proliferation
financing requirements and to provide independent reporting to the HSBC board
committee and regulators.
as I have thought about the structural transformation of the bank's compliance function, I recommended to the Group that now is the appropriate time for me and for the bank for someone new to serve as the head of Group Compliance. I have agreed to work with the bank's senior management towards an orderly transition of this important role
Yes, we support the ring fencing of retail and investment banks and we support that there should be problems, it would be good to have a review after 3-5 years.
It certainly is a tougher place to do business when you get it wrong, as we have found. Tough but fair regulation is an advantage. The US has a tough system and a penetrating system of punishing failure We should aspire to install a tougher but fair system here.
One of the clear lessons that we've had is that the standards we believed were being applied, were not being applied as it should have been. The issues were not escalated as they should have been and we've accepted the fact that there was a great deal of information that was not taken into account in the risk assessment and there was a greater deal of knowledge that we should have known about which would have led to a better handling. There were things that we were not aware of and we should have been.
On a number of occasions and since I have become Chairman, the board takes the collective responsibility [for PPI and other consumer issues]. Some of those who did take responsibility are no longer with the bank.
That is the key point to why I have made the organisational change
I think that we were aware of when we acquired the bank in Mexico in 2002 that it was a broken bank and that we had to build it up again. The weakness that we admitted to is that we didn't install sufficient systems and processes quick enough. It wasn't penetrating enough and it is a deficiency we recognise.
Every half year, we see if people and senior people if they adhere to our values and the scorecard which is 60% financial and 40% non-financial. We have got rid of people [who have not hit these targets]. There is a behaviourial standard that has to be adhered to at HSBC.
The head of risk is now our fifth highest paid person in the company, from previously being in the top fifty . This demonstrates how we view the importance of risk assessment
Capital market activity is not a bad thing, as it creates raising money and funding from small and big firms. You can do this efficiently and ethically. It is perfectly possible to have an ethical culture in the face of trading.
Yes, we have effectively put together filters to monitor our culture and structure. We have sold a number of businesses to cut down on risk, such as sub prime credit cards in Argentina which does not have a common platform for us to manage
The board has spent a considerable amount of time about governance challenges and how do we govern these subsidiaries that have had failures that surprised and shocked us. Stuart said the move to change business lines, rather than geography is important. All of the boards of all top 20-30 countries, have boards and a bespoke relationship with the relevant regulators. We have around 150 non-executive directors across the group because of this.
There are two lines of sight. Board today are very conscious over all the issues because of accountability and responsibility.
Any amount of high frequency trading would result in market risk. By definition the banking industry is a big buyer within the technology industry. But the board gets comfortable with the work of the IT area because of the specialists.
First of all, automation of credit approvals, come through scorecards. It happens at two levels. The construction of the scorecard can be sensitised to the points you make but there is an appeals process that has the human factor. However you cannot have a relationship manager for every single person or business out there.
You have to understand the structure of this firm. A subsidiary is a bank and has its own capital requirements and therefore have to have its own compliance officer, whether you are in Malaysia or somewhere else.
... because of the mis-selling issues that we don't want to repeat, we have removed sales incentives. I believe that we have an continue to push the values through the top down in employees.
No! We have given values training for 100,000 people over a two-day course, conducted by a programme from Harvard Business School
If you had a circumstance and didn't get a deferral, then you cannot claw it back or change that structure or get your money back.
On the compensation structure, a calendar year is actually a very arbitrary way to evaluate performance. You want a long period of deferral in order to put their bonus at risk and when the value of a position is properly assessed. The structure of deferral is actually important to manage risk.
We have always been at the lowest end of payout ratios. Our code staff get paid about 50% of what RBS or Barclays gets paid. We pay the minimum we can get and retain talent. Shareholders voted 86% in favour of this structure. We do not inflate pay.
In the private sector and what is not unique to banking is that shareholders buy us because of long term growth and dividend stream. it is not the case that an arbitrary period of one year is going to be indicative of the long term growth. This is not the same as teachers and doctors.
PRA's Andrew Bailey is very focused on the big issues and there is a still lower level information gathering that is still needing to be done. However EBA rules still captures six times more information than the FSA. There is still an enormous amount of data capture [needed] and when we enter the regime, I hope there is more of an interactive relationship with the regulators
in some places like Singapore, the regulators are paid around the same amount of money of the people they are regulating
For instance, if HSBC did not lose a single cent on the Hong Kong property market, does that mean it is risk free? Not at all, for instance there was a slump in prices year before. Also take the UK. For years, property was a risk-free asset for years and prices rose consistently fast, above inflation for years, but then of course it dropped
Sometimes when people take out a financial product over a long period of time, because the outcome is not exactly what they hoped for, they sometimes think that there must be something wrong with that product. Sometimes that is the case, but not all the time.
I actually like the reverse Volcker rule. Define what is not proprietary trading and therefore everything else is.
I think the French and German definitions / reports are better