tuesday, 21 february of 2017

HSBC amends pay of senior bosses after failing to tackle potential financial crime

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.

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.

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.

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”.

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.

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. .

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”.

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 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.

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 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 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.

(Published by The Guardian - February 21, 2017)

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