News Column

HSBC chairman warns against ringfencing the banks

August 5, 2014

Jill Treanor,

The chairman of HSBC has warned that the fear of hefty fines was forcing banks to become risk averse amid unprecedented regulatory reforms following the financial crisis.

As Britain's biggest bank revealed it was putting aside 218m to cover compensation for mistakes concerning loan statements to its UK customers, Douglas Flint said there was an "observable and growing danger of disproportionate risk aversion".

He made his remarks as the ban, which makes two-thirds of its profits in Asia, reported a 12% fall in first-half profits to $12.3bnon a year ago and published warnings about the litigation and regulatory fines it could face on an array of matters ranging from the collapse of the Madoff empire to the fixing of prices in currencies and gold and silver.

Flint outlined a list of regulatory changes that the bank was facing, including the implementation of a ringfence between its retail and "casino" investment arms demanded by UK regulators from 2019 at the same time as a competition review into current accounts and small business customers. He would not comment on the letter he has written to Chancellor George Osborne calling for a delay to the 2019 deadline for ringfencing, which the bank said involves "substantial" costs amounting to hundreds of millions of pounds a year.

"I do not think we have ever had to ask so much of so many," said Flint of the bank which employs 256,000 people around the world. "We face growing fatigue within critical functions as well as increased market competition for trained staff from other financial institutions facing similar resource challenges. This is adding to cost pressures both from increased salaries as market rates increase, and from investment in training and systems support to improve productivity.

"The demands now being placed on the human capital of the firm and on our operational and systems capabilities are unprecedented."

Flint added that staff were having to work weekends to make changes to its systems. "One of the most obvious statements [about fatigue] is that there are only 52 weekends in a year."

The bank was fined 1.2bn by the US authorities in 2012 for breaching US sanctions and allowing Mexican drug lords to launder money through the financial system. Last week it faced criticism for closing the accounts of three Muslim organisations, including the Finsbury Park mosque, which in the late 1990s and early 2000s became synonymous with the radical cleric Abu Hamza.

"Greater focus on conduct and financial crime risks at all levels of the firm globally is clearly the right response to past shortcomings. There is, however, an observable and growing danger of disproportionate risk aversion creeping into decision-making in our businesses as individuals, facing uncertainty as to what may be criticised with hindsight and perceiving a zero-tolerance of error, seek to protect themselves and the firm from future censure," Flint said.

He called for clarity from public policy and watchdogs over their expectations about behaviour and the rules, which for instance are leading staff to only sell the simplest products to consumers.

"Unwarranted risk aversion threatens to restrict access to the formal financial system to many who could benefit from it and risks unwinding parts of the eco-system of networks and relationships that support global trade and investment," he said.

Lower UK customer redress programme charges of 126m compared with 244m in the first half of 2013 but 115m of this related to a fresh charge to compensate customers missold payment protection insurance. The industry's bill for paying compensation to customers sold this insurance alongside loans now tops 24bn - the biggest misselling scandal in UK history.

The new 218m charge for failing to comply with the Consumer Credit Act makes HSBC the latest bank to fall foul of its regulation. Barclays, for instance, has warned it could face costs of 100m to repay interest to consumers whose statements did not comply with the act, while Northern Rock has paid out 270m. In November 2013, the Office of Fair Trading wrote to 50 banks and building societies about incorrect documents sent to customers who, in HSBC's case, were not told annually that they could make partial repayments of loans.

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Source: Guardian Web

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