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HSBC amends pay of senior bosses after failing to tackle potential financial crime City watchdog investigating HSBC over potential financial crime, bank reveals
(35 minutes later)
HSBC has amended the pay packages of its top executives after Britain’s biggest bank failed to meet demands by US regulators that it toughen up its defences against financial crime. HSBC has revealed it is being investigated by the City regulator over potential breaches of money laundering rules.
As the bank reported a 62% slump in profits, it also revealed it was being investigated in the UK for fresh potential money laundering offences along with a list of other run-ins with regulators around the world. The bank’s shares, which have risen 55% since the June 2016 EU referendum, fell almost 6% to 669p in early trading after the results were published. Britain’s biggest bank said the Financial Conduct Authority’s enforcement action – which could lead to fines or public censures if wrongdoing is uncovered – was triggered by evidence uncovered last year.
HSBC is still fighting the consequences of a five-year-old money laundering scandal. When it was fined £1.2bn by US authorities in 2012 for poor anti-money laundering controls and flouting US sanctions, a monitor was posted to HSBC’s offices through a so-called deferred prosecution agreement (DPA). The bank admitted on Tuesday that the monitor had raised issues with the speed at which HSBC was making changes. The investigation has been launched on the back of work by an anti-crime monitor installed at the bank five years ago. American lawyer Michael Cherkasy was appointed after US authorities imposed a £1.2bn fine on HSBC in 2012 for poor anti-money laundering controls and flouting US sanctions.
Stuart Gulliver, chief executive of HSBC, said: “Our monitor has raised certain concerns but we have continued to progress and our commitment remains unwavering. By the end of this year, we are on track to have our anti-money laundering and sanctions policy framework in place and to have introduced major compliance IT systems across the group”. Stuart Gulliver, HSBC’s chief executive, said the bank was unearthing more regulatory problems due to higher-quality internal policing, adding that the business has “been able to identify more bad actors in out 37m customer base”.
As the bank reported a 62% slump in annual profits on Tuesday morning, it said that Cherkasky’s criticism that the bank had been too slow in tackling potential financial crime had been taken into account when handing out bonuses to its top executives.
The bank’s shares, which have risen 55% since theEU referendum, fell 6.5% to 665p after the results were published, as analysts expressed disappointment about HSBC’s payouts to shareholders and slow revenue growth.
However, the consequences of the US money laundering scandal, which saw Cherkasy installed as part of a deferred prosecution agreement (DPA) with the US department of justice, continue to loom over the bank.
Gulliver said: “Our monitor has raised certain concerns but we have continued to progress and our commitment remains unwavering. By the end of this year, we are on track to have our anti-money laundering and sanctions policy framework in place and to have introduced major compliance IT systems across the group”.
The bank, which employs 240,000 people around the world and operates in 70 countries, flagged up the UK investigation in its annual report, admitting it was “the subject of an investigation by the FCA into its compliance with UK money laundering regulations and financial crime systems and controls requirements”.
Gulliver, who said the bank was working “tirelessly” to improve its compliance programmes, described it as a section 166 report. This means a review would be carried out by an independent firm for the FCA.
Part of Gulliver’s pay is measured against compliance with financial crime and this year his performance on that measure received a 65% rating from the remuneration committee, compared with 75% a year earlier. Other executives also received lower ratings on this measure.Part of Gulliver’s pay is measured against compliance with financial crime and this year his performance on that measure received a 65% rating from the remuneration committee, compared with 75% a year earlier. Other executives also received lower ratings on this measure.
Sam Laidlaw, the non-executive director who chairs the remuneration committee which sets company pay, said the committee had reduced its assessment for bonus payouts related to its compliance standards. “This was based on feedback received from the monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering anti-money laundering (AML) and sanctions-related issues,” said Laidlaw. Sam Laidlaw, the non-executive director who chairs the remuneration committee, said this followed “feedback received from the monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering anti-money laundering (AML) and sanctions-related issues”.
Even so, Gulliver’s overall bonus rose because of other performance measures and the bank said his overall pay is on track to rise to £7.7m – despite the compliance problems – from £7.3m a year ago because of a change in the bank’s overall pay structure. . HSBC revealed the monitor had expressed concerns a year ago and on Tuesday it again highlighted concerns about the pace of progress and “instances of potential finance crime that the DoJ[department of justice] and HSBC are reviewing further and ongoing systems and control deficiencies that in his view raised questions as to whether HSBC is adhering to all its obligations under the US DPA”.
The monitor, Michael Cherkasky, had expressed concerns a year ago and this year highlighted concerns again about the pace of progress and “instances of potential finance crime that the [department of justice] and HSBC are reviewing further and on-going systems and control deficiencies that in his view raised questions as to whether HSBC is adhering to all its obligations under the US DPA”. Even so, Gulliver’s overall bonus rose because of other performance measures and while the bank said his overall pay is on track to rise from £7.3m to £7.7m – despite the compliance problems – because of a change in the bank’s overall pay structure. .
The remuneration report published alongside the results also showed that the bank reduced pay of “certain individuals” by $12.1m to “reflect their involvement in certain notable events and individual transgressions”. It paid 245 staff more than £1m compared with 226 staff a year earlier.The remuneration report published alongside the results also showed that the bank reduced pay of “certain individuals” by $12.1m to “reflect their involvement in certain notable events and individual transgressions”. It paid 245 staff more than £1m compared with 226 staff a year earlier.
The bank, which employs around 240,000 around the world, said it is “the subject of an investigation by the [Financial Conduct Authority] into its compliance with UK money laundering regulations and financial crime systems and controls requirements”. The bank has been trying to pull back from riskier operations, including its Swiss private bank and the 62% fall in profits – down to $7.1bn – was in part caused by a $3.2bn writedown of the deal to buy Safra private bank in 1999. In 2015 the Guardian and other publications revealed the Swiss arm of HSBC helped clients dodge tax and the the annual report contained a list of authorities investigating this and other tax-related matters.
The 62% fall in profits – down to $7.1bn – was caused by a $3.2bn writedown of its private banking operations, $3.1bn incurred by Gulliver’s overhaul of the bank and a number of other items including the sale of its Brazilian operations. Without these writedowns, profits were broadly flat at $19.3bn. Without the one-off hits and other writedowns, profits were broadly flat at $19.3bn and Gulliver intends to bolster returns to shareholder by buying back $1bn of shares, on top of $2.5bn announced in August. The dividend is held at 51 cents a share, as previously planned.
Gulliver is planning to help bolster returns to shareholder by buying back $1bn of shares, on top of $2.5bn announced in August. The bank disappointed investors looking for news about the replacement for the chairman, Douglas Flint, who said an announcement would be made “in due course”. Gulliver indicated Flint could stay on until next year if a replacement was not found until later in 2017.
The bank is overhauling its board and seeking a new chairman to replace Douglas Flint, who said an announcement would be made “in due course”. Flint said the bank would need to relocate some staff from London to Paris “progressively over the next two years” as a result of the Brexit vote.
Flint said on Tuesday morning that the bank would need to relocate staff from London to Paris “progressively over the next two years” as a result of the Brexit vote.
Flint cited the election of Donald Trump in the US, saying the year 2016 will be long remembered for its significant and largely unexpected economic and political events.
Flint also said the bank had upgraded its growth forecasts but warned: “We highlight the threat of populism impacting policy choices in upcoming European elections, possible protectionist measures from the new US administration impacting global trade, uncertainties facing the UK and the EU as they enter Brexit negotiations, and the impact of a stronger dollar on emerging economies with high debt levels”.
Gulliver said: “If globalisation continues to retreat, as seems likely, we are in a strong position to capitalise on the regional opportunities that this will present, particularly in Asia and Europe”.
Gulliver is in the process of executing a plan to axe 25,000 jobs around the world – including up to 8,000 in the UK – as he streamlines the business and pulls out of riskier operations.