News Column

Regulation and fears of hefty fines make banks too risk adverse, warns HSBC boss: Chairman says employers struggling with changes Staff working weekends to bring in ringfence reforms

August 5, 2014

Jill Treanor

The chairman of HSBC warned yesterday that fear of hefty fines was forcing banks to become risk averse as they grappled with unprecedented regulatory reforms in the wake of the financial crisis.

As Britain's biggest bank revealed it was putting aside $367m (pounds 218m) to cover compensation for mistakes in loan statements to UK customers, Douglas Flint said there was an "observable and growing danger of disproportionate risk aversion".

He warned of "growing fatigue" in some of the bank's operations, where staff were having to work at weekends to implement systems changes. One concern was that "there are only 52 weekends in a year".

He made his remarks as the bank, which makes two-thirds of its profits in Asia, reported a 12% fall in first-half profits to $12.3bn and published 10 pages of 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. Some of these fines could be "significant", the bank added.

Flint outlined a list of regulatory changes that the bank was facing, including implementing a ringfence between its retail banking and "casino" investment arms - demanded by UK regulators from 2019. He would not comment on the letter he has written to the chancellor, George Osborne, calling for a delay to the 2019 deadline, which the bank said involved 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. "The demands now being placed on the human capital of the firm and on our operational and systems capabilities are unprecedented."

The bank employs 256,000 people around the world, down from the 300,000 employed three years ago when Stuart Gulliver took over as chief executive.

Two years ago the bank was fined pounds 1.2bn by the US 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 in north London, and it has previously closed accounts for diplomatic staff.

Flint said the increased focus on conduct and financial crisis was the right response to problems in the past. "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."

He called for clarity from watchdogs over their expectations. "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 ecosystem of networks and relationships that support global trade and investment," he said.

The bank took a $194m hit to cover compensation for customers mis-sold payment protection insurance, the industry's biggest scandal with costs topping pounds 24bn. It also listed the $119m costs incurred from an investigation into potential tax avoidance by US clients. The new $367m charge for failing to comply with the Consumer Credit Act makes HSBC the latest bank to fall foul of this regulation following a warning from the Office of Fair Trading last year about incorrect documents sent to customers who, in HSBC's case, were not told annually that they could make partial repayments of loans.

Andrew Tyrie, the Conservative chair of the Treasury select committee, who chaired the parliamentary commission on banking standards that called for the "electrification" of the ringfence to break up banks if they failed to comply, said: "We must ensure the momentum behind the crucial reforms both on ringfencing and on electrification is not lost.

"It is equally important that in implementing them the regulators exercise judgment to minimise the regulatory burden."


Douglas Flint, chairman of HSBC, said staff were struggling to implement new safeguards Photograph: Simon Dawson/Getty

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Guardian (UK)

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters