11 Nov 2019
The Bank of England has warned HSBC Holdings Plc for two years in a row that it hasn’t done enough to tackle concerns about how the bank handles risks including financial crime and staff conduct.
Samir Assaf, HSBC’s top investment banker, told executives on a conference call this week that the central bank’s Prudential Regulation Authority informed the firm that it was making insufficient progress on non-financial risks, according to people familiar with the discussion who requested anonymity.
Assaf said the PRA’s warning was recently reiterated this year, following a previous letter in 2018, and he considers it an emergency requiring attention, according to the people. His division, global banking and markets, will hold a summit of top executives this month to discuss the problems, they said. Communications between individual banks and the BOE are rarely made public and it’s not known whether the regulator has recommended any specific remedies to HSBC.
HSBC and the Bank of England declined to comment. HSBC shares dropped as much as 0.4% in London trading after the news was reported.
The Asia-focused lender is examining all aspects of its business after ousting its chief executive officer earlier this year and reviewing its approach to expansion amid U.S.-China trade tensions and slowing economies. However, conduct issues have bedeviled HSBC for the better part of this decade: in 2012, the bank paid $1.9 billion to settle a U.S. investigation into breaches of economic sanctions and helping Mexican drug cartels launder money.
HSBC signed a deferred prosecution agreement in that case, which saw U.S. prosecutors say insufficient controls had made the bank the “preferred financial institution for drug cartels and money launderers.”
Non-financial risks are unrelated to credit quality and include problems such as financial crime, staff misconduct, compliance breaches and issues related to a bank’s culture.
John Flint, who was ousted as CEO in August, had been attempting to improve the bank’s culture with a program he called the “healthiest human system.” Flint’s initiative has faded from prominence as interim CEO Noel Quinn has turned to aggressive cost cuts and reshaping the business.
By Stefania Spezzati and Harry Wilson, Bloomberg, 7 November 2019
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