As filed with the Securities and Exchange Commission on February 21, 2017.20, 2018.
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
Or
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20162017
Or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Or
¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ____________
For the transition period from N/A to N/A
Commission file number: 001-14930
HSBC Holdings plc
(Exact name of Registrant as specified in its charter)
N/A United Kingdom
(Translation of Registrant’s name into English) (Jurisdiction of incorporation or organisation)
8 Canada Square
London E14 5HQ
United Kingdom
(Address of principal executive offices)
Gavin A Francis
8 Canada Square
London E14 5HQ
United Kingdom
Tel +44 (0) 20 7991 8888
Fax +44 (0) 20 7992 4880
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class Name of each exchange on which registered
Ordinary Shares, nominal value US$0.50 each. London Stock Exchange
  Hong Kong Stock Exchange
  Euronext Paris
  Bermuda Stock Exchange
  New York Stock Exchange*
American Depository Shares, each representing 5
Ordinary Shares of nominal value US$0.50 each.
 New York Stock Exchange
6.20% Non-Cumulative Dollar Preference Shares, Series A New York Stock Exchange*



American Depositary Shares evidenced by American Depositary receipts, each representing one-fortieth of a Share of 6.20% Non-Cumulative Dollar Preference Shares, Series A New York Stock Exchange
5.10% Senior Unsecured Notes Due 2021 New York Stock Exchange
4.00% Senior Unsecured Notes Due 2022 New York Stock Exchange
4.875% Senior Unsecured Notes Due 2022 New York Stock Exchange
7.625% Subordinated Notes due 2032 New York Stock Exchange
7.35% Subordinated Notes due 2032 New York Stock Exchange
6.5% Subordinated Notes 2036 New York Stock Exchange
6.5% Subordinated Notes 2037 New York Stock Exchange

6.8% Subordinated Notes Due 2038 New York Stock Exchange
6.100% Senior Unsecured Notes due 2042 New York Stock Exchange
8.125% Perpetual Subordinated Capital Securities Exchangeable at the Issuer’s Option into Non-Cumulative Dollar Preference Shares New York Stock Exchange
8.00% Perpetual Subordinated Capital Securities Exchangeable at the Issuer’s Option into Non-
Cumulative Dollar Preference Shares, Series 2
 New York Stock Exchange
4.250% Subordinated Notes due 2024 New York Stock Exchange
5.250% Subordinated Notes due 2044 New York Stock Exchange
4.250% Subordinated Notes due 2025 New York Stock Exchange
3.400% Senior Unsecured Notes due 2021 New York Stock Exchange
4.300% Senior Unsecured Notes due 2026 New York Stock Exchange
Floating Rate Senior Unsecured Notes due 2021 New York Stock Exchange
2.950% Senior Unsecured Notes due 2021 New York Stock Exchange
3.600% Senior Unsecured Notes due 2023 New York Stock Exchange
3.900% Senior Unsecured Notes due 2026 New York Stock Exchange
Floating Rate Senior Unsecured Notes due 2021 New York Stock Exchange
2.650% Senior Unsecured Notes due 2022 New York Stock Exchange
Floating Rate Senior Unsecured Notes due 2022 New York Stock Exchange
4.375% Subordinated Notes due 2026 New York Stock Exchange
3.262% Fixed Rate/Floating Rate Senior Unsecured Notes due 2023New York Stock Exchange
3.033% Fixed Rate/Floating Rate Senior Unsecured Notes due 2023New York Stock Exchange
4.041% Fixed Rate/Floating Rate Senior Unsecured Notes due 2028New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:     None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Securities Exchange Act of 1934:     None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Ordinary Shares, nominal value US$0.50 each 20,191,586,21420,321,372,907
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
þYes¨ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
¨ Yes þ No.No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þYes¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨þYes¨ No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer¨
 
Non-accelerated filer¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP¨
 
International Financial Reporting Standards as issued by the
International Accounting Standards Board þ
 
Other¨
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.
¨ Item 17 ¨ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes þNo
*Not for trading, but only in connection with the registration of American Depositary Shares.
  
  



Connecting customers to opportunities
Our purpose isHSBC aims to be where the growth is, enabling businessesbusiness to thrive and economies to prosper, and ultimately helping people to fulfil their hopes and realise their ambitions.

Our cover image

Guangzhou is one of China’s largest and most dynamic cities. It is the capital of Guangdong Province and lies at the heart of China’s Pearl River Delta (PRD), one of the country’s fastest growing economic regions. The PRD in recent years has transformed from being the exporting factory floor of the world into a global leader in digital commerce and innovation. HSBC has had a presence in China for more than 150 years. China is an important part of the Group’s strategy and we have branches across the PRD. In December 2017 HSBC Qianhai Securities Limited, the first joint venture securities company in mainland China to be majority-owned by a foreign bank, opened for business in the PRD.

Inside front cover image
Dubai financial district.
Our photo competition winners
This report showcases five images taken by our employees around the world. The images were selected from more than 2,100 submissions to a Group-wide photography competition. Launched in June 2017, HSBC NOW Photo is an ongoing project that encourages employees to capture and share the diverse world around them with a camera.
None of the websites referred to in this Annual Report on Form 20-F for the year ended December 31, 2017 (the “Form 20-F”), including where a link is provided, nor any of the information contained on such websites is incorporated by reference in the Form 20-F.
Contents
As a reminder
Reporting currency
We use US dollars.
Adjusted measures
We supplement our IFRS figures with adjusted measures used by management internally. These measures are highlighted with the following symbol:
Further explanation may be found on page 30.

Unless stated otherwise, risk-weighted assets and capital are calculated and presented on a transitional CRD IV basis as implemented by the Prudential Regulation Authority.

Strategic Report
An overview of how we are structured, what we do and where, our strategic actions, the principal risks we face, and high-level performance information. The section is introduced by both the Group Chairman and the Group Chief Executive, and also explains the role of the Board.
This Strategic Report was approved by the Board on 2120 February 2017. Douglas Flint, 2018.
Mark E Tucker
Group Chairman

2Highlights
2Forward-looking statements and Certain defined terms
2Highlights
4Group Chairman’s Statement
7Group Chief Executive’s Review
10Our strategy
12Strategic actions
14Financial overview
18Global businesses
20Regions
22How we do business
25Tax
26Risk overview
28Remuneration

1a    Forward-looking statements and Certain defined terms
4Group Chairman’s Statement
7Group Chief Executive’s Review
10Our strategy
12Strategic actions
14Financial overview
18Global businesses
22How we do business
28Risk overview
30Remuneration
Financial Review
Detailed reporting of our financial performance, at Group level as well as within our matrix structure. It also includes our full risk report and reporting on how we manage capital.
30Financial summary
59Global businesses and geographical regions
81Regulation and supervision
87Disclosures pursuant to section 13(r) of the Securities Exchange Act
89
32Financial summary
64Global businesses and geographical regions
83     Other information
86    Regulation and supervision
93    Disclosures pursuant to section 13(r) of the Securities Exchange Act
95     Risk
162Capital
Risk
165Capital

Corporate Governance
Details of our Board of Directors and senior management, and our approach to corporate governance and remuneration.
170Corporate Governance Report
171Biographies of Directors and senior management
176Board of Directors
178Board committees
183Internal control
184Going concern
184Share capital and other disclosures
188Employees
191Directors’ Remuneration Report

166Corporate Governance Report
167Biographies of Directors and senior management
171Board of Directors
172Board committees
178Internal control
179Going concern
179Share capital and other disclosures
183Employees
186Directors’ Remuneration Report
Financial Statements
Our financial statements and related notes and reports.
213Report of the Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of HSBC Holdings plc only 31 December 16
214Report of Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of HSBC Holdings plc only 31 December 14
215Financial Statements
226Notes on the Financial Statements

210Report of the Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of HSBC Holdings plc

211Financial Statements


222Notes on the Financial Statements
Other Information
Important information for our shareholders, including contact information. Like any industry and company, we have our set of abbreviations and terminology. Accordingly, we provide an explanation of the abbreviations used. A glossary of key terms is available online at www.hsbc.com/investor-relations.
307Shareholder information
315Glossary of accounting terms and US equivalents
3162016 HSBC 20F reconciliations table
318Abbreviations

None


298Shareholder information
306Glossary of the websites referred to in this Annual Report on Form 20-F for the year ended December 31,accounting terms and US equivalents
307    2016 (the ‘Form 20-F’), including where a link is provided, nor any of the information contained on such websites, is incorporated by reference in the Form 20-F.HSBC 20F reconciliations table
309Abbreviations

Our photo competition winnersvalues
In 2016,Our values define who we ranare as an organisation and make us distinctive.
Dependable
We are dependable, standing firm for what is right and delivering on commitments.
Open
We are open to different ideas and cultures, and value diverse perspectives.
Connected
We are connected to our customers, communities, regulators and each other, caring about individuals and their progress.
As a Group-wide photo competition which attracted over 6,200 submissions from 1,100 employees. The joint overall winning photosreminder
Reporting currency
We use US dollars.
Adjusted measures
We supplement our IFRS figures with adjusted measures used by management internally. These measures are featured in this report. The imagehighlighted with the following symbol:<>
ÑFurther explanation may be found on the inside front cover shows a rice farmer at harvest time in north-east Vietnam, and the photo on the inside back cover was taken at sunrise at Situ (Lake) Patenggang, West Java, Indonesia.
Cover image
The Hong Kong-Zhuhai-Macau Bridge is one of the most ambitious infrastructure projects in the Pearl River Delta. It will link three key cities, cutting transport costs and travelling times, and boosting economic development. HSBC has extended a HK$700m receivables finance facility to one of the companies building the bridge. Receivables finance is an area where HSBC has particular expertise, and this facility is the largest it has provided for infrastructure in the region.page 32.

HSBC Holdings plc1




Cautionary statement regarding forward-looking statements
The Annual Report and Accounts 2016 Form 20-F contains certain forward-looking statements with respect to HSBC’s financial condition, results of operations and business.
Statements that are not historical facts, including statements about HSBC’s beliefs and expectations, are forward-looking statements. Words such as ‘expects’, ‘targets’, ‘anticipates’, ‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and ‘reasonably possible’, variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statements.
Written and/or oral forward-looking statements may also be made in the periodic reports to the US Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC’s Directors, officers or employees to third parties, including financial analysts.
Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement. These include, but are not limited to:
Changes in general economic conditions in the markets in which we operate, such as continuing or deepening recessions and fluctuations in employment beyond those factored into consensus forecasts; changes in foreign exchange rates and interest rates; volatility in equity markets; lack of liquidity in wholesale funding markets; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks’ policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; and consumer perception as to the continuing availability of credit and price competition in the market segments we serve.
Changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities; initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; imposition of levies or taxes designed to change business mix and risk appetite; the practices, pricing or responsibilities of financial institutions serving their consumer markets; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; changes in bankruptcy legislation in the principal markets in which we operate and the consequences thereof; general changes in government policy that may significantly influence investor decisions; extraordinary government actions as a result of current market turmoil; other unfavourable political or diplomatic developments producing social instability or legal uncertainty which in turn may affect demand for our products and services; the costs, effects and outcomes of product regulatory reviews, actions or litigation, including any additional compliance requirements; and the effects of competition in the markets where we operate including increased competition from non-bank financial services companies, including securities firms.



Factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques). Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses; and our success in addressing operational, legal and regulatory, and litigation challenges, notably compliance with the US DPA;challenges; and other risks and uncertainties we identify in ‘top and emerging risks’ on pages 8995 to 92106.
Certain defined terms
Unless the context requires otherwise, ‘HSBC Holdings’ means HSBC Holdings plc and ‘HSBC’, the ‘Group’, ‘we’, ‘us’ and ‘our’ refer to HSBC Holdings together with its subsidiaries. Within this document the Hong Kong Special Administrative Region of the People’s Republic of China is referred to as ‘Hong Kong’. When used in the terms ‘shareholders’ equity’ and ‘total shareholders’ equity’, ‘shareholders’ means holders of HSBC Holdings ordinary shares and those preference shares and capital securities issued by HSBC Holdings classified as equity. The abbreviations ‘$m’, ‘$bn’ and ‘$tn’ represent millions, billions (thousands of millions) and trillions of US dollars, respectively.
2HSBC Holdings plc1a





Highlights
We are one of the mostOur international network, universal banking model and financial services organisations in the world.capital strength deliver long-term value for customers and shareholders.
Group
For year ended 31 Dec 20162017
chart-2d639ed10bd65bc6bca.jpg
(2016: $7.1bn)
$17.2bn
chart-621dbaef41a1e49997d.jpg
(2016: $18.9bn)
$21.0bn
chart-46560352f125d930532.jpg
(2016: $48.0bn)
$51.4bn

a1arastrateg_chart-04577.jpg


Reported revenue
(2015: $59.8bn)
$48.0bn

a1arastrateg_chart-06130.jpg
Reported profit before tax
(2015: $18.9bn)
$7.1bn
At 31 Dec 20162017
a1arastrateg_chart-08872.jpg
(2016: $857bn)
$871bn
chart-19c190b4c169f21fca8.jpg
(2016: 13.6%)
14.5%
chart-26001e8288c57538736.jpg
(2016: $2,375bn)
$2,522bn
Strategy execution
–Delivered growth from our international network with a 6% increase in transaction banking product revenue and a 13% rise in revenue synergies between global businesses compared with 2016.
–Achieved annualised run-rate savings of $6.1bn since our Investor Update in 2015, while continuing to invest in growth, and regulatory programmes and compliance; 2017 exit run-rate in line with 2014 cost base.
–Exceeded our risk-weighted assets (‘RWAs’) reduction target; extracting a total of $338bn of RWAs from the business since the start of 2015.
–Pivot to Asia generating returns and driving over 75% of Group reported and adjusted profit in 2017.
–Delivered a return on equity of 5.9% in 2017, up from 0.8% in 2016.  We will continue to invest for growth and manage our capital efficiently to achieve our medium-term ROE target of >10%.
About HSBC
Around
38 million
customers bank with us.
We employ
229,000



a1arastrateg_chart-07545.jpgpeople around the world*.
Adjusted profit before taxWe have
(2015: $19.5bn)200,000
$19.3bnshareholders in 131 countries and territories.

Today, HSBC has around
a1arastrateg_chart-08872.jpg3,900
Risk-weighted assetsoffices in 67 countries and territories worldwide.
(2015: $1,103bn)*Full-time equivalent staff
$857bn
a1arastrateg_chart-10230.jpg
2HSBC Holdings plc
Common equity tier 1 ratio
(2015: 11.9%)
13.6%



a1arastrateg_chart-11386.jpg
Total assets
(2015: $2,410bn)
$2,375bn

Our global businesses
Our operating model consists of four global businesses and a Corporate Centre, and five geographical regions, supported by HSBC Operations Services and Technology, and 11 global functions.
During the year, we changed our reportable segments from regions to global businesses. We also moved certain business portfoliosfunctions, including: risk, finance, financial crime risk, legal, marketing and functions into the newly created Corporate Centre. For further details, see page 19.
Performance highlights for 2016
Strategy execution
Following our sale of operations in Brazil, we completed a $2.5bn share buy-back.
We further reduced our risk-weighted assets (‘RWAs’) as a result of our sale of operations in Brazil and other management actions.
Investment in costs to achieve of $4.0bn to date has generated annual run rate savings of $3.7bn.
We now expect to deliver annualised cost savings of around $6bn by the end of 2017, around $1bn above the top end of our original target, while continuing to invest in regulatory programmes and compliance. We will invest an equivalent total of around $6bn over the same timeframe.
We increased market share in a number of key markets and international product areas, including trade finance in Hong Kong and Singapore.
Financial performancehuman resources.
Reported profit before tax of $7.1bn was $11.8bn lower than in 2015, and was adversely impacted by significant items of $12.2bn. These included a $3.2bn write-off of goodwill in our Global Private Banking (‘GPB’) business in Europe, costs to achieve of $3.1bn, adverse fair value movements of $1.8bn arising from changes in credit spreads on our own debt designated at fair value, and the impact of our sale of operations in Brazil.
Reported revenue of $48.0bn was down $11.8bn. Loan impairment charges and other credit risk provisions (‘LICs’) fell by $0.3bn and reported operating expenses rose by $40m.
Adjusted profit before tax of $19.3bn, down $0.2bn, reflected lower revenue and higher LICs, partly offset by a reduction in operating expenses. In 2016, we achieved positive adjusted jaws of 1.2%.
Adjusted revenue fell by $1.3bn or 2% despite improved performance in Commercial Banking (‘CMB’) and Global Banking and Markets (‘GB&M’). Retail Banking and Wealth Management ('RBWM') and GPB were impacted by challenging market conditions.
Adjusted operating expenses fell by $1.2bn or 4%, reflecting our cost-saving initiatives and focus on cost management. We continued to invest in regulatory programmes and compliance.
Capital
Our capital position further strengthened during the year, with a common equity tier 1 (‘CET1’) ratio at 31 December 2016 of 13.6%, up from 11.9% at 31 December 2015, mainly due to RWA reduction initiatives and the change in the regulatory treatment of our holding in Bank of Communications Co., Limited (‘BoCom’).







0.8%
Return on equity
1.2%
Adjusted jaws (see page 17)
$0.51

Dividends per ordinary share in respect of 2016
Our global businesses
Retail Banking and Wealth Management (‘RBWM’)Commercial Banking (‘CMB’)Global Banking and Markets (‘GB&M’)Global Private Banking (‘GPB’)
We help millions of people across the world to manage their finances, buy their homes, and save and invest for the future. Our Insurance and Asset Management businesses support all our global businesses in meeting their customers’ needs.
We support approximately two1.7 million business customers in 5453 countries and territories with banking products and services to help them operate and grow. Our customers range from small enterprises focused primarily on their domestic markets, through to large companies operating globally.

We provide financial services and products to companies, governments and institutions. Our comprehensive range of products and solutions, across capital financing, advisory and transaction banking services, can be combined and customised to meet clients’ specific objectives.
We help high net worth individuals and their families to grow, manage and preserve their wealth.

Adjusted profit before tax<>
(2016: $5.2bn)(2016: $5.9bn)(2016: $5.5bn)(2016: $0.3bn)
$5.3bn6.5bn$6.1bn6.8bn$5.6bn5.8bn$0.3bn
Risk-weighted
Adjusted risk-weighted assets<>
(31 Dec 2016: $114.7bn)(31 Dec 2016: $286.9bn)(31 Dec 2016: $307.7bn)(31 Dec 2016: $15.7bn)
$115.1bn121.5bn$275.9bn301.0bn$300.4bn299.3bn$15.3bn16.0bn
Geographical regions
a1arastrateg_chart-39034.jpg<>Our global businesses are presented on an adjusted basis, which is consistent with the way in which we assess the performance of our global businesses. 


Delivery against Group financial targets

a1arastrateg_chart-40550.jpg

a1arastrateg_chart-41863.jpg

1
Return on equity
5.9%
Europe
Adjusted jaws<>
+1%
Dividends per ordinary share in respect of 2017
$0.51
2Asia
3Middle East and North Africa
4North America
5Latin America

* RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.

ÑFor further details, see page 17.

HSBC Holdings plc3




Group Chairman’s Statement
The Group has improved its productivity, embraced technological changeWith an international network covering 90% of global trade flows and continuesa leading presence in the world’s fastest growing region, we are in a prime position to reinforce its standards of business conduct. It has a strong capital position and is gaining market share in important areas.help our customers capitalise on broad-based global growth.
2016 will be long remembered for its significant and largely unexpected economic and political events. These foreshadowed changes toOur 2017 results demonstrate both the established geopolitical and economic relationships that have defined interactions within developed economies and between themstrength and the restpotential of the world. The uncertainties created by such changes temporarily influenced investment activity and contributed to volatile financial market conditions. Against this background, HSBC’s performanceGroup. A large increase in 2016 was broadly satisfactory. Encouragingly, operating performance in the second half of the year was much stronger than expected and compared with the prior year, as businesses and financial markets responded more optimistically than predicted to these events.
‘Greater focus on the trade and investment corridors where HSBC has strong market positioning generated solid market share gains and broader product penetration’

The Group’s reported profit before tax amounted to $7.1bn, some 62% lower thanreflected both a healthy business and the prior year. This decline principally reflected the impactnon-recurrence of significant items mostfrom 2016. All of which had no impact on capital, even though they were materialour global businesses grew adjusted profits and our three main global businesses generated improved adjusted revenue.



Strong revenue growth more than covered the cost of business investment, and increased lending laid a foundation for future performance. Asia again contributed a substantial proportion of the Group’s profits, particularly in accounting terms. On theCommercial Banking and Retail Banking and Wealth Management. Together, this delivered an adjusted basis used to measure management and business performance,Group profit before tax was $19.3bn, broadly in line with the $19.5bn achieved in the prior year. of $21bn, up 11% on 2016.
This outcome was largely driven by improved cost performance as prior year initiatives gained traction and substantially offset lower revenues, while loan impairment charges were marginally higher. Earnings per share of $0.07 compared with $0.65 in 2015.
The Group’s core capital position improved materially. A changehas enabled us to the regulatory treatment of our associate in mainland China, continued run-off of legacy assets, planned reduction in certain segments of our trading books and inadequately remunerated assets, together with capital released from business disposals, notably our operations in Brazil, drove this improvement. This created the capacity to return $2.5bn of capital by way of a share buy-back, which was completed in December. We met our objective of maintaining the annual dividend in respect of the year at $0.51, as indicated at the interim stage. This was delivered through the declaration today of aapprove an unchanged fourth interim dividend of $0.21. Reflecting onThis brings the strengthtotal dividend for 2017 to $0.51, representing a total shareholder return of 24% for 2017.
Board changes
As I start my first full year as Group Chairman, I am very grateful to my predecessor, Douglas Flint, and to Stuart Gulliver for ensuring a smooth handover. They steered HSBC through challenging waters during and after the global financial crisis, and renewed HSBC’s reputation as one of the Group’s capital position,world’s strongest and safest international banks. They have passed on a strong legacy.
My first responsibility as Group Chairman was to appoint a successor to Stuart who would be capable of building on his achievements while further enhancing the qualities that make HSBC unique. With an exceptional record of managing a diverse range of international businesses and a deep understanding of HSBC’s heritage and culture, John Flint was clearly the outstanding candidate. The Board and I look forward to working closely with John and his management team.
2017 also saw other Board changes as we said goodbye to Rachel Lomax, Sam Laidlaw and Paul Walsh. All three provided valuable service and wise counsel to the Board and I thank them warmly for their advice and support. I am especially grateful to Rachel for her excellent work as the Senior Independent Director and to Sam for his thoughtful leadership of the Nomination Committee.
4HSBC Holdings plc

The year ahead
The Board is focused on sustaining resilience by enhancing reputation and performance. We will further develop our strategy to deliver value to all of our stakeholders within a governance framework that provides stability, prudence and effective oversight.
We expect the world’s major economies to show reasonable growth in 2018, helped by relatively low unemployment, recovering consumer confidence and improving trade. Fears of a hard landing in China have receded, and markets across Asia look set for a strong year. The anticipated conclusion of large regional trade agreements in 2018, mostly involving Asian nations, also approvedprovides cause for optimism. With an international network covering 90% of global trade flows and a further share buy-backleading presence in the world’s fastest growing region, we are in a prime position to help our customers capitalise on this broad-based global growth.
While we are optimistic about the prospects for the global economy, rising international tensions, the threat of upprotectionism and a lack of inclusive growth all have the potential to $1bn, whichdisrupt economic activity. We continue to model and anticipate a wide range of scenarios as part of our day-to-day risk management, to cover unlikely but not impossible events. As a well-diversified business underpinned by historically stable revenue generation and significant capital strength, HSBC is expectedwell equipped to commence shortly.manage the risks and uncertainty inherent in today’s world.
Strategic actions
HSBC Holdings plc5

Transparency and disclosure
Last year, we published a range of environmental, social and governance (‘ESG’) metrics to enable investors and customers to assess our non-financial performance. The data we disclose will continue to evolve as we learn more about what our stakeholders find useful and improve our ability to collect the necessary information. We will publish our next ESG Update on our website in April 2018.
We are now bearing fruitalso making our first disclosure under the terms of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. This can be found on page 27. As one of the world’s largest international banks, we take seriously our responsibility to help develop a voluntary, consistent and comparable system of climate-related financial disclosure. We intend to continue to expand and improve the quality and specificity of these disclosures, and to encourage all those who work with us to do the same.
In reviewing performanceSupporting our people
It is important not just to achieve good results, but to do so in 2016,a way that treats all of our stakeholders – employees, customers, regulators and shareholders – in a fair and transparent way. We are committed to holding ourselves to account in meeting that aim, and to being accountable to our stakeholders for our actions.
As part of this commitment, the Board noted with approvaland I are determined to ensure that HSBC remains a place where all our people have the traction now evidenced from management actionsopportunity to reshapefulfil their potential in a nurturing environment that encourages the right behaviour. Our stakeholders expect honesty and integrity and we will continue to promote a culture in which people do the right thing.
My special thanks are due on behalf of the Board to each of the 229,000 people who work for HSBC around the world. In my short time as Group and address the challenges brought aboutChairman I have been enormously impressed by the continuing low interest rate environment.effort, energies and ability of our people in each country I have visited. These results are a testament to their hard work and dedication.
Greater focus on the trade and investment corridors where HSBC has strong market positioning generated solid market share gains and broader product penetration, particularly in servicing outbound China investment flows. This is recognised in the leading industry awards highlighted in Stuart Gulliver’s review.Mark E Tucker
Group Chairman
20 February 2018

46HSBC Holdings plc




Group Chief Executive’s Review
Significant investment in technology and process redesign is now not only delivering greater cost efficiency but also is poised to markedly enhance our ability to detect and prevent financial crime. In addition, 2017 will see the progressive launch of applications that will materially improve our customers’ digital experience, enhance their online security and bring greater personalisation of product offerings.
While there is still a long way to go, it was encouraging to see the significant improvement in performance across all business units in Mexico following the substantial repositioning of the Group’s operations there. This contributed to the Group’s success in replacing substantially all of the revenues given up through continuing run-off of legacy portfolios, risk mitigation in areas exposed to higher threat of financial crime and reduction in trading books.
Furthermore, HSBC is safer today from the threat of financial crime because of the investments we have been making in our Global Standards programme. The Board remains fully committed to our work in this area in 2017 and beyond.
Regulatory matters
It was extremely disappointing that the regulatory community was unable to achieve its targeted completion of the Basel III framework in January 2017 on the consensual basis expected. It is now almost 10 years since the commencement of the global financial crisis and it is time to draw a line under further regulatory changes, particularly since there is no doubt that our industry is more strongly capitalised, better governedsimpler, stronger and more risk awaresecure than it was a decade ago. Finalisationin 2011, and better able to connect customers to opportunities in the world’s fastest growing regions.
2017 was an important year for HSBC. We completed the transformation programme that we started in 2015, maximising the benefits of our network and increasing our competitive advantages. By the end of the structureyear we had exceeded our risk-weighted asset and calibrationcost-saving targets, rebuilt our Mexico business, delivered revenue growth from our international network in excess of global economic growth, and accelerated investment in our operations in Asia. We also opened new businesses and launched products that considerably strengthen the service that we offer our international clients.
These achievements, and the work that preceded them, were a critical factor in delivering a strong financial performance in 2017. The strength of our three main global businesses generated significant increases in both reported and adjusted Group profit before tax (‘PBT’), while reported PBT also benefited from the non-recurrence of a number of large significant items from 2016. Adjusted PBT and adjusted revenue were up in four out of five regions. We grew adjusted revenue faster than adjusted costs, and continued to increase our market share in strategic product areas.
Business performance
Retail Banking and Wealth Management had an excellent 2017, with strong adjusted revenue increases across a number of business lines. In Retail Banking, interest rate rises helped to grow revenue as our robust balance sheet and capital strength continued to attract deposits, particularly in Hong Kong. We continued to grow lending in our target markets, especially Hong Kong, the UK and Mexico. Wealth Management benefited from improving customer investment appetite, strong product sales across all categories and the impact of market movements on our life insurance manufacturing businesses.
Commercial Banking adjusted revenue grew well on the back of an outstanding performance in Global Liquidity and Cash Management. Higher lending volumes helped Credit and Lending overcome the impact of narrower spreads. Global Trade and Receivables Finance revenue stabilised after a difficult 2016 and we increased our share of major markets, including trade finance in Hong Kong and receivables finance in the UK. HSBC was voted market leader for trade finance in Euromoney’s annual trade finance survey in January 2018.
Global Banking and Markets grew adjusted revenue, driven particularly by strong growth in Global Liquidity and Cash Management, and Securities Services. Growth in the first three quarters of the capital framework is crucialyear in Markets and Banking enabled both to give banks certaintywithstand the effects of subdued market activity in the fourth quarter.
Global Private Banking adjusted revenue reflected the impact of historical repositioning, but was stable over prospective capital allocationsthe course of 2017. The business grew adjusted revenue by 10% in support of lendingits target markets.
Our strong revenue generation meant that the Group achieved positive adjusted jaws in 2017. We accelerated investment to grow the business, particularly in Retail Banking and market activities. This is particularly important at this time when public policy is focusing on encouraging greater support for longer-dated assets, including infrastructure, and seekingWealth Management, which contributed to build out the capital markets of Europe and emerging markets. It is hugely important that regulators and policy makers now move as quickly as possible to finalise the capital frameworkan increase in adjusted costs. Performance-related compensation also grew in line with their stated commitment to deliver that framework without a significant, broad-based increase in capital requirements. Equally important is the avoidance of fragmentation in the global regulatory architecture as the new US administration reconsiders its participation in international regulatory forums. The best outcome would be early global agreement on unresolved issues, followed by an extended period of regulatory stability to allow familiarity and experience to be gained from what has been put in place.
We made further progress in 2016 on completing the resolution planning required of us as a global systemically important bank (‘G-SIB’). This involved removing or mitigating residual constraints on the clarity of the Group’s core college of regulators’ approach to winding down the Group, should this ever be necessary. While clearly we do not envisage such circumstances as other than extremely remote, completion of a comprehensive resolution framework is a necessary pillar supporting HSBC’s ability to continue to operate as one of the world’s G-SIBs. Indeed, our strategy is built around maintaining the scale and the reach of our international network, which in 2016 again demonstrated its resilience and competitive advantages.
Tangible benefits accrue to our shareholders from the detailed work done with our regulators to demonstrate the strength of our capital position and the effectiveness of our resolution planning. Beyond supporting the maintenance of our dividend, in 2016 management’s efforts created the capacity to return capital to shareholders by way of a share buy-back and demonstrated justification for a reduction in the additional capital buffer applied to HSBC as a G-SIB.
UK referendum on EU membership
Not a great deal has changed since we reported at the interim stage, given that the UK has still to trigger its formal exit notice and so no negotiations have taken place. We welcomed, however, the additional clarity given to the Government’s position in the recent speech by the Prime Minister. The scale of the challenge of negotiating across the entire economic landscape, as well as addressing the legislative and other public policy adjustments that will be required, has become clearer. We believe there is now, as a consequence, a widely shared recognition that an implementation phase between the current position and the one that is ultimately negotiated will be necessary; we strongly endorse this view.
Since the referendum we have focused on advising clients on the implications of leaving the EU for their businesses. We have also been responding to UK Government outreach seeking guidance on which elements of the current EU-based legal and regulatory arrangements it should focus on to preserve the essential role that financial markets based in the UK play in supporting European trade and investment activity.
For our own part, we have broadly all the licences and infrastructure needed to continue to support our clients once the UK leaves the EU. This largely derives from our position in France where we are the sixth largest bank with a full range of capabilities. Current contingency planning suggests we may need to relocate some 1,000 roles from London to Paris progressively over the next two years, depending on how negotiations develop.

profit before tax.
5HSBC Holdings plc7




Board changes
We welcomed Jackson TaiAdjusted loan impairment charges were significantly lower than 2016, mainly due to the Board on 12 September last year. Jack brings a rare combination of hands-on banking expertise, top level governance experience and a deep knowledge of Asia and China. These attributes were accumulated in a 25-year career at J.P. Morgan & Co., bothimproved conditions in the USoil and gas industry in Asia, and subsequently in senior roles at DBS,North America.
Our strong common equity tier one ratio of 14.5% included the leading Singapore-based regional banking group, where Jack latterly led its regional expansion as Vice Chairman and CEO. Jack was appointed a membereffect of the Financial System Vulnerabilities Committee and the Group Risk Committee.
At the forthcoming AGM we shall bid farewell to our two longest-serving independent directors, namely, our Senior Independent Director, Rachel Lomax, and Sam Laidlaw. Rachel during her tenure has served on the Audit, Risk and Nomination Committees, and took responsibility as the first Chair of the Conduct & Values Committee to establish its terms of reference and its agenda. Sam served on, and latterly chaired, both the Remuneration and Nomination Committees. Together, Rachel and Sam have also been leading the process to manage my own succession. Their combined knowledge of regulatory and public policy, business leadership, corporate governance and consumer issues has been invaluable to the Board. On behalf of all shareholders, I want to thank them for their dedication and commitment.
Chairman succession
In the Circular inviting shareholders to the 2016 AGM, I indicated that the process to find my own successor had been initiated with the intention of having this concluded during 2017. This process remains on track and an announcement will be made in due course.
Outlook
We have recently upgraded our forecasts for global economic growth reflecting the likelihood of a shiftrecent changes in US fiscal policy and a broader based cyclical recovery. As in recent years, incremental growth is expected to be driventax legislation, which reduced our capital position by emerging economies in which HSBC is well represented. Risks to this central scenario, however, remain high. In particular, 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, and9 basis points. It also included the impact of our most recent $2bn share buy-back. In 2017, we returned a stronger dollar on emerging economies with high debt levels.
Countering these factors are signstotal of a cyclical upturn. Global purchasing manager indices are at their$3bn to shareholders through share buy-backs and paid more in dividends than any other European or American bank. We achieved this while maintaining one of the strongest for some time, the US economy looks robust and growth in China has held up well, defying the concerns reflectedcapital ratios in the market retrenchment seenindustry.
Strategic actions
The strength of our business is due in large part to the strategic actions that we first announced in June 2015. This programme concluded at the end of 2017 with eight out of ten actions completed on time and on target (see page 12).
HSBC is much more capital efficient and capable of producing stronger returns for investors as a consequence of these actions. Our cost-reduction programmes have enabled us to absorb the cost of growing the business and protecting HSBC from financial crime, while improving the efficiency and security of our processes.
Our previously underperforming Mexico business is increasingly profitable and well positioned for further growth. Whilst our US business remains a work in progress, it is a valuable source of business for other regions and continues to make important progress. We also completed the run-off of our legacy US consumer and mortgage lending portfolio, bringing an end to a difficult chapter in HSBC’s recent history.
Our international network is now much better able to connect customers to opportunities and delivering revenue growth above that of the global economy. 53% of client revenue now comes from international clients, up from 50% in 2015. Global Liquidity and Cash Management in particular is now a major component of the bank’s success, and Global Trade and Receivables Finance has extended its leadership of the global trade finance market.
The Group’s business mix is more oriented towards Asia, improving our ability to channel the economic and social changes taking place within the world’s fastest growing region. Asia contributes a larger proportion of the Group’s profits than in 2015, reflecting regional investment in growing our loan book, building our insurance and asset management businesses, and connecting customers to opportunities within the region.
We continued to expand our presence in mainland China with the launch of new retail banking products and increased lending in the Pearl River Delta. In December we launched HSBC Qianhai Securities, the first quarter of 2016. Additionally, commodity prices have risen, reflecting optimism regarding growthsecurities joint venture in infrastructure investment as well as agreement reachedmainland China to cut oil supply. These factors also imply reflation across the major economies and rising interest rates, which would benefit HSBC’s conservative balance sheet structure.
‘We enter 2017 with the restructuring of the Group essentially completed, and with a strong capital position and a conservative balance sheet’be

However, it is fair


majority-owned by an international bank. This allows us to reflect thatoffer our clients increased access to China’s rapidly expanding capital markets and provides an unprecedented opportunity to establish and grow a securities business in mainland China with strong international standards. This underlines our status as the upgrades to economic growth we are now forecasting are largely the partial reversalleading international bank in mainland China.
We won a number of downgrades made last year when uncertainty was elevated as a result of the unexpected political events. Forecast global growth remains slightly lower than its long-term trend with risks largelysignificant new business mandates related to the downside.
China-led Belt and Road Initiative in 2017, and opened new China desks in Poland, Luxembourg, Thailand and Macau to capture further opportunities. We enter 2017now have a total of 24 China desks aimed at supporting Chinese businesses with global outbound ambitions, 20 of which are along the restructuring of the Group essentially completed,‘Belt and with a strong capital positionRoad’ routes. In November we were named ‘Best Bank for Belt and a conservative balance sheet. We are gaining market share in areas of importance to HSBC as others scale back and our offerings become more competitive. Much of the heavy investment in reshaping the Group to improve productivity, embrace technological change and reinforce global standards of business conduct has been made.
As ever, we owe a huge amount to our 235,000 colleagues who have delivered this changeRoad’ at the same time as working tirelessly to meet customers' expectations of them. On behalf of the Board, I want to thank them all for their dedication and commitment.


FinanceAsia Achievement Awards 2017.
68HSBC Holdings plc

Fighting financial crime
For the past five years, we have been weaving Global Standards into the fabric of HSBC. The investment that we have made in our financial crime risk management capabilities has considerably strengthened our ability to protect the integrity of the financial system. We have assembled a highly expert team which is helping to shape the debate about our industry’s role in the fight against financial crime. We have made great strides in building a compliance function fit for the many evolving challenges we face, and built partnerships to combat financial crime with regulatory and law enforcement authorities around the world. 
The expiration in December of the five-year deferred prosecution agreement that we entered into with the US Department of Justice in 2012 (‘AML DPA’) was an important milestone for HSBC. Nevertheless, exiting the AML DPA was a product rather than the focus of the essential work that we have done to transform our compliance capabilities and protect the financial system. This work will continue as we seek to ensure that the changes we have made are effective and sustainable. Combating financial crime is a never-ending exercise and will be a constant focus for the Group’s management.
Thank you
As I prepare to pass on the stewardship of HSBC to my successor, I am proud of our achievements of the last seven and a half years. After the most extensive transformation programme in HSBC’s 153 year history, HSBC is simpler, stronger and more secure than it was in 2011, and better able to connect customers to opportunities in the world’s fastest growing regions. We have also delivered excellent value to shareholders through a higher share price, $64.7bn in declared dividends and $5.5bn in share buy-backs, representing a total shareholder return of 70.3% from 2011 to the end of 2017.
I am pleased to be handing over to such a capable successor as John Flint, whose intimate knowledge of HSBC and its culture will be a considerable asset to the bank and its clients. I am grateful to my colleagues on the Group Management Board for their support since 2011, and to Douglas Flint and Mark Tucker for their backing.
Finally, my sincere thanks go to all of my HSBC colleagues around the world, past and present, whose hard work and commitment are the foundation of the bank’s success. It has been my privilege to work with them for the last 38 years.





Stuart Gulliver
Group Chief Executive’s ReviewExecutive
The strength of our network gives us an unrivalled ability to help clients navigate complexity and uncover new opportunities.
We made good progress in 2016. The implementation of our strategic actions is well advanced and our global universal business model performed well in challenging conditions. Our reported profit before tax reflected a number of large significant items, including a write-off of all the remaining goodwill in Global Private Banking in Europe, an accounting loss on the sale of our Brazil business, and investments to achieve our cost-saving target. Our adjusted profits were broadly unchanged year-on-year following solid performances by our global businesses. These enabled us to capture market share in strategic product areas and build a platform for future growth. We delivered positive adjusted jaws in 2016.
Performance
Global Banking and Markets recovered from a sector-wide slow start to generate higher adjusted revenue than for 2015. Our Markets businesses performed well in challenging conditions, particularly in Fixed Income products. Our transaction banking businesses also grew revenue, especially Global Liquidity and Cash Management. We made market share gains in Fixed Income in Europe, and achieved our best ever league table rankings in global debt capital markets and cross-border mergers and acquisitions. HSBC was recognised as the ‘World’s Best Investment Bank’ and ‘World’s Best Bank for Corporates’ at the Euromoney Awards for Excellence 2016.
Commercial Banking performed well, particularly in the UK and Hong Kong, growing adjusted revenue in spite of a slow-down in global trade. Gains in Global Liquidity and Cash Management, and Credit and Lending, exceeded the reduction in trade finance revenue. Global Trade and Receivables Finance continued to capture market share in major markets including Hong Kong and Singapore, maintaining our position as the world’s number one trade finance bank.
Retail Banking and Wealth Management performance was mixed. Overall adjusted revenue was down, due largely to the impact of reduced client activity in Hong Kong on our Wealth Management businesses. At the same time, strong mortgage balance growth in the UK, Hong Kong and mainland China, and higher current account and savings balances in the UK and Hong Kong, helped increase revenue in Retail Banking. These increased balances should support revenue growth in 2017 and beyond. 
We have considered it appropriate to write off the remaining goodwill in the European private banking business. This goodwill relates principally to the original purchase of Safra Republic Holdings in 1999. The restructuring of Global Private Banking is now largely complete, and although Global Private Banking is now much smaller than it was three years ago, it is deliberately positioned for sustainable growth with a focus on serving the personal wealth management needs of the leadership and owners of the Group’s corporate clients.
Our cost-reduction programmes continue to bring down our adjusted operating expenses. The traction that these programmes have gained in the last 18 months has enabled us to increase the amount of costs that we are able to remove from the business. We now expect to deliver annualised cost savings of around $6bn by the end of 2017, and will invest an equivalent total of around $6bn over the same time-frame in order to achieve this.

20 February 2018
7HSBC Holdings plc9




These savings should more than compensate for additional investment in regulatory programmes and compliance.
We continue to make strong progress in implementing our strategic actions to improve returns and gain maximum value from our international network. We are on course to complete the majority of these actions by the end of 2017 (see page 12), in line with our targets. Our targeted reduction of risk-weighted assets is 97% complete, and the success of our cost saving programmes means that we now expect to exceed our cost reduction target.
The turnaround of our Mexico business continues to accelerate. Improved lending and deposit balances, interest rate rises and better collaboration between businesses helped generate significantly higher profits compared with 2015. We also made significant market share gains, particularly in consumer lending.
We have continued to enhance our business in Asia-Pacific, launching our first exclusively HSBC-branded credit card in mainland China, growing assets under management and insurance new business premiums, and increasing loans in the Pearl River Delta. We also extended our leadership of the offshore renminbi bond market and achieved our best ranking for China outbound mergers and acquisitions since 2003.
We are better protected from financial crime because of the investment we have made in our Global Standards programme. 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. Beyond 2017, we will continue to work to fine tune those systems and to ensure that our improvements are fully integrated into our day-to-day risk management practices.
Our strong common equity tier 1 ratio of 13.6% reinforces our ability to support the dividend, invest in the business and manage the continuing uncertain regulatory environment.
Delivering value for shareholders
In December, we completed the $2.5bn equity buy-back that we commenced at the half-year. We are also now in a position to retire more of the capital that previously supported the Brazil business. Having received the appropriate regulatory clearances, we will therefore execute a further share buy-back of up to $1bn in the first half of 2017. This will bring the total value of shares repurchased since last August to $3.5bn.
We will continue to contemplate further share buy-backs as circumstances permit, and we remain confident of sustaining the annual dividend at the current level for the foreseeable future through the long-term earnings capacity of the business.
A business fit for the future
While our strategic actions are improving our network, we are also anticipating and adapting to the social, economic and technological trends that are changing our operating environment and our customers' needs and expectations.
The adoption of rapidly evolving digital technologies by our customers is arguably the most transformative force for the financial services industry. Through our global network, we are able to identify and respond to digital trends across 70 countries and territories, applying the technologies that provide the greatest benefit to our customers. We are investing $2.1bn in digital transformation in Retail Banking and Wealth Management, Commercial Banking, and Global Banking and Markets between 2015 and the end of 2020, and we have already launched innovative ways to make banking faster, easier and safer. HSBC is now the biggest financial services user of biometrics globally, and we continue to roll out voice recognition and fingerprint technology across our network. In 2016, we enhanced our internet and mobile banking platforms in several of our key markets, including the UK and Hong Kong, and launched innovation labs around the world dedicated to the application of artificial intelligence, data management and improvements in cybersecurity. These labs, together with our fintech partnerships, will help us use technology to deliver better banking for our customers.
If digital technology is mankind’s greatest opportunity, preventing climate change is its greatest challenge. The Paris Agreement of December 2015 reflected a new consensus on the need to strengthen the global response to climate change. Major injections of capital are now required to finance new technologies, infrastructure and the transition of traditional

8




industries from high to low carbon, and to cover the costs of climate adaptation. As the principal intermediaries between entrepreneurs, businesses and investors, banks have a responsibility to help direct this flow of capital. We are already working with our clients and with investors to help them allocate capital and direct finance towards lower-carbon, carbon-resilient activities, and in 2016 we established a Sustainable Financing Unit to coordinate this work across business lines. Headquartered in London, but with resources in New York and Hong Kong, this new unit will support colleagues tasked with creating and delivering innovative climate products, and help them uncover new sources of sustainable finance.
“The changes we have made since 2011 have equipped HSBC to improve returns and gain maximum value from our international network"

We are also seeking to influence client practices and to build the data, the tools and the transparency necessary to embed understanding of climate risk into the way that markets function. In 2016, HSBC Global Research expanded its coverage of environment, social and corporate governance factors to give our clients the information they need to inform their investment decisions. This builds on the work of the world-leading HSBC Climate Change Centre for Excellence, which in 2017 celebrates 10 years of delivering market-leading information on climate policy to clients across the globe. Work is also underway to expand the Group’s disclosure of non-financial data to meet the needs of shareholders and other stakeholders.
We are investing to adapt to the changing face of trade. As the world’s largest trade finance bank with more than 150 years’ experience at both ends of the world’s busiest trade routes, we are perfectly placed to help modernise and digitise long-standing trade finance methods, many of which would still be recognisable to HSBC’s founders. We are already working with a broad coalition of partners around the world to make the promise of blockchain technology a reality with regards to trade finance. HSBC has already helped develop a blockchain prototype for a letter of credit that confirms the possibility of sharing information between all parties on a private distributed ledger. In early 2017, we signed a memorandum of understanding with six other banks to make domestic and cross-border commerce easier for European SMEs using blockchain technology. We are also seeking to create ways of financing the growing services trade, which we estimate will account for a quarter of global trade by 2030. At a time when international politics threaten to increase rather than decrease the cost of trade, we will continue to invest both time and resources to find ways of making trade finance cheaper, faster, simpler and more secure for our customers.
Looking forward
We anticipate new challenges in 2017 from geopolitical developments, heightened trade barriers and regulatory uncertainty. However, the changes we have made since 2011 have equipped HSBC to manage the complexity of today’s global business environment. HSBC is a strong and resilient business with a global universal business model geared to find growth opportunities in a low-growth world. 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. Most importantly, the strength of our network gives us an unrivalled ability to help our clients navigate that same complexity and overcome their own challenges, whether exploring new markets or making the transition to a low-carbon economy.

9





Our strategy
We have developed a long-term strategy that reflects our purpose and enables us to capture value from our international network.
Two-partTwo-pronged long-term strategy
Develop our international network
To serve enterprises across geographies and facilitate international trade and capital flows, and servethereby helping our clients with potential to help them grow from small enterprises into large multinationals.their business.
Invest in wealth and retail businesses with local scale
To make the most of global social mobility, wealth creation and long-term demographic changes in our priorityselect retail banking and wealth management markets.
Value of the network and our strategy
Access to global growth opportunities
Our unparalleled network covers countries accounting for more thanapproximately 90% of global GDP, trade and capital flows. We have a leading presence in large and fast-growing economies.



Our priority markets cover both sides of 11network covers all of the world’s 1530 largest trade corridors for goods and services forecast for 2030, and represent at least one side of the other four corridors. Six of the 152030. These top 30 corridors are within Asia and five connect countries between two geographical regions.expected to have a compound annual growth rate well in excess of GDP growth expectations from 2016 to 2030.
Lower risk profile and volatility from our geographically diversified universal banking model
Our 10-year profit before tax volatility of 0.9x compares favourably with our peers.
TransactionWe operate a balanced universal banking product revenue of $14.7bn on an adjusted basis leads the industry. More than 45% of our client revenue comes frommodel across both wholesale and retail businesses and individuals with an international presence.
Business synergies of $10.5bn, equivalentwe are geographically diversified. This has resulted in a lower risk profile and lower earnings volatility compared to 22% of reported revenue, reflect products and services provided across our global businesses.peers. Our business model has remained resilient through business cycles, and it helps ensure stable funding and liquidity.
Strong capital and funding base
CET1 ratio of 13.6%,14.5% supported by increased shareholders’ equity to meet new regulatory requirements since the end of 2010.
Four interconnected, global businesses share balance sheets and liquidity in addition to strong commercial links.
Stable shareholder returns
Industry leading dividend – approximately $55bn$65bn declared from 2011 to 2016,2017 – as well as circa $2.5bn$5.5bn of share repurchases.

10HSBC Holdings plc




Long-term trends
Our strategy positions us to capitalise on several long-term trends.

Increasing connectivity and global flows of trade, finance and data are key drivers of GDP growth.

a1arastrateg_chart-29768.jpg
a1arastrateg_chart-29768.jpgSource: Global Insight’s Comparative World Overview.
Source: McKinsey Global Institute, Digital globalization: The new era of global flows (2016)

Economic weight is shifting to Asian and Middle EasternEmerging market economies which are expected to grow GDP threefoldbe twice the size of developed economies by 2050.
Shipping volumes, measured by weight of goods unloaded
a1arastrateg_chart-31248.jpga1arastrateg_chart-32498.jpg


a1arastrateg_chart-31248.jpga1arastrateg_chart-32498.jpg
Source: United Nations Conference on Trade and Development


Development.

The middle class is expected to grow by over two billion people from one-third2017 to two-thirds2030, driven by growth in Asia’s middle class.
a1arastrateg_chart-33679.jpg
Source: Global Economy and Development at Brookings, The Unprecedented Expansion of the world’s population by 2030, while the number of people over age 60 is expected to more than double by 2050.Middle Class (2017).

a1arastrateg_chart-33679.jpg
Source: OECD Development Centre, Emerging Middle ClassClimate change is accelerating and global temperatures are trending significantly higher. Investment in Developing Countries (2010)renewable energy capacity will be needed to limit the global temperature increase to 2°C.

Client examples
ATN International ('ATNI'): US, telecommunications and renewable energy

International portfolio of businesses in US and elsewhere. ATNI sought out HSBC’s international capabilities while pursuing renewable energy investments in India. In 2016, we helped ATNI with custodian services and provided finance structuring advice for its Singaporean and Indian subsidiaries. We provide ATNI with trade, cash management, foreign exchange and other services.

Mubea: Germany, automotive
Automotive parts manufacturer operating across 20 countries in Europe, Asia and the Americas. HSBC expanded its relationship with Mubea to also serve its subsidiaries in the US and Mexico, and provide centralised international cash and liquidity management.
Tangle Teezer: UK, consumer goods
UK-based hairbrush manufacturer with its first product launch in 2008, and a range of products now sold in more than 70 markets. Since 2009, HSBC has helped Tangle Teezer expand internationally through our knowledge and capabilities around the world. In 2016, we assisted it in developing its presence in the US, China and Hong Kong.
Grupo Aeroportuario ('GACM'): Mexico, infrastructure
Responsible for the construction, administration and operation of Mexico City's new international airport. In 2016, we advised and coordinated financing for GACM including a $1bn 30-year green bond issuance, the largest green bond in Latin America, and the first emerging market green bond to receive a Green Bond Assessment grade from Moody's.

chart-7b24dcca4c56b12fc1c.jpg
11Required by 2050 as per IEA 66% 2°C scenario
Current (2016)


Source: OECD, Investing in Climate, Investing in Growth (2017).

*The scenario assumes a 66% probability of keeping the mean global surface temperature rise throughout the 21st century to below 2°C above pre-industrialised levels.

Client examples
Trina Solar (‘Trina’): China, renewable energy
Exporter of solar panels globally. Trina’s aim is to bring China’s green energy solutions to countries along the Belt and Road Initiative route, and has thus stepped up its overseas investment, particularly in the ASEAN region. HSBC created a digital platform for Trina that gave its headquarters a transparent view of its ASEAN-region subsidiaries’ cash positions and set up a cash pool in Singapore to seamlessly connect Trina’s HSBC accounts globally.
Reckitt Benckiser (‘RB’): UK, consumer goods
Global consumer health and hygiene company. HSBC acted as financial adviser and lead financier to Reckitt Benckiser on its $18bn acquisition of Mead Johnson Nutrition Company, a leader in infant and children’s nutrition. This acquisition marked one of the largest UK into US transactions and considerably strengthened RB’s presence in developing markets, particularly China.
Zhejiang Geely: China, automotive
Leading automobile manufacturer. HSBC served as sole financial adviser for Zhejiang Geely on two interlinked China outbound investments, one in Malaysian carmaker Proton Holdings and the second in Lotus Advance Technologies, a subsidiary of Proton based in the UK. These transactions were enabled by collaboration between HSBC teams in mainland China, Hong Kong, Singapore, Malaysia and London.
Morgan McKinley: Ireland, professional services
Global recruitment agency with operations in Ireland, UK, EMEA and APAC. In 2017, Morgan McKinley expanded HSBC’s global mandate to include cross-border Global Trade and Receivables Finance (‘GTRF’) facilities and Global Liquidity and Cash Management (‘GLCM’) services in Canada and Japan. HSBC’s ‘one-team’ approach, not separated by product, was cited by the client as being a key driver in the decision to switch to HSBC.
HSBC Holdings plc11
Strategic actions
We are well on our way towards achievingmet eight out of ten targets from the strategic actions outlined in our Investor Update in June 2015 Investor Update.2015.
Capturing value from our international network
In June 2015, we outlined a series of strategic actions to make the most of our competitive advantages and respond to a changing environment.
These actions are focused on improving efficiency in how we useusing our resources more efficiently and on investing for growth in line with our strategy.growth. Each action hashad targets defined to the end of 2017. AdditionalThe table opposite contains a summary of our progress with additional details are provided below.
Resizing and simplifying our business
We have madepassed several significant progressmilestones in resizing and simplifying our business. In 2016,business in 2017. Our management actions reduced RWAsdelivered a gross reduction of risk-weighted assets (‘RWAs’) by $338bn, exceeding our RWA reduction target from management initiatives by $60bn on an FX-adjusted basis.
Among our NAFTA region Investor Update targets, we did not reach our US profit before tax (‘PBT’) target of $2bn. However, we have taken steps forward in, GB&Mfor example, our US Retail Banking and legacy credit by $46bnWealth Management (‘RBWM’) business, where we increased PBT, revenues and wedeposits, and migrated over one million customers to our impending new core banking platform. We also completed asset sales totalling $10.1bn fromthe wind-down of our US consumer and mortgage lending (‘CML’) run-off portfolio.
As part of In Mexico, our initiative to optimiseadjusted PBT reached $440m, surpassing our network, we completed the sale of HSBC Bank BrazilInvestor Update target on 1 July 2016.a local currency basis. We will continue to serve the international and cross-border needs of our large corporate clients in Brazil through HSBC Brasil S.A. – Banco de Investimento.
In the NAFTA region, wealso grew adjusted revenue in Mexico by 18% compared with 2015, supported by market share gains in RBWM across key lending products and a doubling of personal loans issued. In the US, we grew adjusted revenue in GB&M and RBWM compared with 2015 and continued to support our clients internationally. Revenues from international subsidiaries of our US clients increased by 11% compared with 2015.2016, supported by increased loan balances from market share gains.



We have made good progressremain on course to complete the set-up of our UK ring-fenced bank (‘RFB’) ahead of the 1 January 2019 statutory deadline. In 2017, we received a restricted bank licence for the RFB and are working through an agreed mobilisation plan with the Prudential Regulatory Authority and Financial Conduct Authority to receive an unrestricted licence in 2018.
We successfully concluded our cost-saving programme and are on track to exceedrealised $6.1bn of annual run-rate savings, over $1bn more than our Investor Update target. The programme enabled 2017 exit rate target set for the end of 2017. We expect to achieve total cost savings of $6.0bn through one-off investments (‘run-rate adjusted costs to achieve’) of $6.0bn.be kept flat compared with the 2014 cost base. The additional savings will fundoffset increased costs related tofrom areas such as regulatory programmes and compliance. In 2016, operating expenses fell by 4% on an adjusted basis compared with 2015, facilitated by increased efficiency in our processes.compliance, and investments to help facilitate further business growth. For example, in RBWM, we expanded the use of biometrics globally with over 1.5 million customers using voice recognition, and with fingerprint technology launched a new customer-facingin nine of our markets. For our corporate customers, we improved our key digital portalchannels with significant improvements to standardiseHSBCnet and accelerateHSBC Connect. Our costs-to-achieve transformation concluded with approximately $7bn spent since the onboarding process in 26 markets covering more than 70%start of CMB corporate clients, and we decreased the number of manual payments by 80%.programme.
Redeploying capital to grow our business
At the heartOur international network remains core to our strategy, and we achieved our Investor Update target of our business is our international network. We are focusing efforts to grow our businesses by looking at customers’ needs across products, geographies and supply chains.revenue growth above GDP. In 2016,2017, we grew our revenue from transaction banking products was up 2% despite difficult macroeconomic conditions.by 6%, including double-digit percentage growth in GLCM and HSBC Security Services (‘HSS’). We grew GTRF market share in key markets, in particular Hong Kong and receivables finance in the UK. Cross-border revenues from our priority corridors grew 10%, with double-digit percentage growth in four of our Global Liquidity and Cash Management (GLCM) business. In 2016, wefive largest priority corridors including our China-US corridor. We were named ‘Best Bank for Corporates’‘Top Global Trade Finance Bank’ by our clients in the Euromoney and ‘Best Supply-ChainTrade Finance Bank Global’ by the Trade Finance Awards.Survey 2018.
We continuedelivered on our 2015 Investor Update commitment to invest for growthprioritise and accelerate investments in Asia. In December,2017, we launchedgrew our own HSBC-brandedloan portfolio in the region by $53bn to $426bn. Our asset management and insurance businesses in Asia realised 17% and 8% growth in AUM and annualised new business premiums, respectively. In mainland China, we reached over 400,000 cards in circulation since launching credit cards at the end of 2016, and we grew our customer loans in the Pearl River Delta region by 23%. We launched HSBC Qianhai Securities, the first securities joint venture in mainland China withto be majority-owned by an international bank.
Revenue tied to renminbi (‘RMB’) internationalisation in 2017 of $1.2bn did not meet our Investor Update target of $2.0bn to $2.5bn. This was largely due to a full range of digital features. We increased the number of new RBWM clientsdecrease in China’s Pearl River Delta by 51% compared with 2015, and grew our mortgage loan books by more than 51%. We grew revenues from international subsidiaries of our ASEAN-region commercial banking clients, and in Singapore our innovation lab is developing cloud-based treasury services for businesses and exploring blockchain technologyoverall market volumes. However, we continue to support documentary trade transactions.
We remainbe recognised as the leading bank for international renminbi (‘RMB’)RMB products and services. We wereranked first in Bloomberg’s offshore RMB bond underwriting league table in 2017 with 28% market share and first for the first bank to facilitate overseas institutional investment into the China interbank bond market since access was expandedsixth year in early 2016. We were also the first to be appointed custodian banka row in the two newly activeAsiamoney Offshore RMB qualified foreign institutional investorPoll 2017. We had the largest share, at 53%, of approved quota of RMB Qualified Foreign Institutional Investor (‘RQFII’) markets of the US and Thailand this year.
Finally, we continue to strengthen our efforts to protect customers and the wider financial system from financial crime. In 2016, this included further upgrades to our systems, as well as additional training for our employees. Further detail can be found under the Financial Crime Risk section of www.hsbc.com/financial-crime-risk.custodian business.
Selected awards and recognition 2016

Euromoney Trade Finance Survey 2018
Top Global Trade Finance Bank
Euromoney Awards for Excellence 20162017
World’s Best Bank
World’s Best Investment Bank in the Emerging Markets
Asia’s Best Bank
North America’s Best Bank for CorporatesTransaction Services
Best Investment Bank

Euromoney Cash Management Survey 20162017
Best Global Cash Manager (Non-Financial Institutions)
#1 Global For All Transactions (Financial Institutions)

Trade Finance Awards 2016for Corporates
Best Supply-ChainGlobal Cash Manager for Financial Institutions for all Transactions
Asiamoney New Silk Road Finance Bank Global

Asiamoney Offshore RMB Poll 2016Awards 2017
Best Overall Offshore RMB Products / ServicesInternational Bank for Belt and Road Initiative
12HSBC Holdings plc





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HSBC Holdings plc13



Financial overview
Reported results
Reported results
2016
$m
2015
$m
2014
$m
2017
$m

2016
$m

2015
$m

Net interest income29,813
32,531
34,705
28,176
29,813
32,531
Net fee income12,777
14,705
15,957
12,811
12,777
14,705
Net trading income9,452
8,723
6,760
7,719
9,452
8,723
Other income(4,076)3,841
3,826
2,739
(4,076)3,841
Net operating income before loan impairment charges and other credit risk provisions (‘revenue’)47,966
59,800
61,248
51,445
47,966
59,800
Loan impairment charges and other credit risk provisions (‘LICs’) (3,400)(3,721)(3,851)
Loan impairment charges and other credit risk provisions(1,769)(3,400)(3,721)
Net operating income44,566
56,079
57,397
49,676
44,566
56,079
Total operating expenses(39,808)(39,768)(41,249)(34,884)(39,808)(39,768)
Operating profit4,758
16,311
16,148
14,792
4,758
16,311
Share of profit in associates and joint ventures2,354
2,556
2,532
2,375
2,354
2,556
Profit before tax7,112
18,867
18,680
17,167
7,112
18,867
This table shows our reported results for the last three years, ended 31 December 2017, 2016 2015 and 2014.2015.
All commentary in this financial overview compares the 2017 results with 2016, unless otherwise stated.
Reported profit before tax
Reported profit before tax of $7.1bn$17.2bn was $11.8bn$10.1bn or 62% lower than in 2015. This was primarily due to141% higher, mainly reflecting a net adverse movements relating tofavourable movement of significant items and the unfavourable effects of foreign currency translation,$8.5bn, which areis described in more detail on page 30.32. Excluding significant items and an adverse effect of foreign currency translation of $0.5bn, profit before tax fellincreased by $0.2bn.$2.1bn or 11%.
Reported revenue
Reported revenue of $48.0bn$51.4bn was $11.8bn$3.5bn or 20% lower than in 2015, in part due to7% higher, partly reflecting a net unfavourablefavourable movement in significant items of $7.6bn,$2.0bn, which included:
adverse
–
in 2016, unfavourable fair value movements of $1.8bn arising from changes in credit spreads on our own debt designated at fair value reflecting changes in our own credit spread of $1.8bn, which are now reported in other comprehensive income, following our partial early adoption of IFRS 9 ‘Financial Instruments’ on 1 January 2017; and
–
favourable fair value movements in 2017 of $0.1bn on non-qualifying hedges, compared with adverse movements of $0.7bn in 2016.
Net favourable movements were partly offset by:
–
in 2016, a $0.7bn gain on the disposal of our membership interests in Visa Europe and Visa Inc. This compared with a $0.3bn gain on the disposal of our shares in Visa Inc. during 2017;
–
adverse debit value adjustments on derivative contracts in 2017 of $0.4bn, compared with minimal movements in 2016; and
–
in 2017, a $0.1bn provision related to customer redress programmes in the UK, and a $0.1bn charge arising from the opportunity to increase our investment in new businesses.
Significant items also included a loss of $1.0bn$1.7bn recognised in 2015;
a $3.6bn reduction in revenue resulting from our2016 on the sale of operations in Brazil to Banco Bradesco S.A., which includes a $1.7bn accountingwas completed on 1 July 2016. This loss recognised onwas substantially offset by the sale;reported revenue earned by the Brazil business during 2016 of $1.5bn.
Excluding significant items, and
the non-recurrence of a $1.4bn gain on the sale of part of our shareholding in Industrial Bank Co. Limited ('Industrial Bank') in 2015; partly offset by
a $0.6bn gain on the disposal of our membership interest in Visa Europe in the second quarter of 2016 and a $0.1bn gain on disposal of our membership interest in Visa US in the fourth quarter of 2016.
In addition, foreign currency translation differences between the periods had an adverse effect of $3.0bn.
These factors contributed to a fall in reported revenue in all our global businesses and Corporate Centre. Excluding significant items and the adverse effects of foreign currency translation differences between the periods,of $0.7bn, revenue fellincreased by $1.3bn$2.2bn or 2%5%, reflecting growth in Retail Banking and Wealth Management (‘RBWM’), Commercial Banking (‘CMB’) and Global Banking and Markets (‘GB&M’).
Reported LICs
Reported loan impairment charges and other credit risk provisions (‘LICs’) of $1.8bn were $1.6bn lower, in part reflecting the effect of significant items, which comprised the LICs incurred by our operations in Brazil in 2016 of $3.4bn were $0.3bn lower than in 2015 as reductions in RBWM$0.7bn.
Excluding significant items and CMB more than offset an increase in GB&M. The reduction included favourable effectsthe adverse effect of foreign currency translation differences between the periods of $0.2bn,$0.1bn, LICs decreased by $0.8bn or 32%. The reduction in LICs was primarily in CMB, RBWM and the impact of LICs incurred in the disposed Brazil operations of $0.7bn compared with $0.9bn in 2015.Corporate Centre.
Reported operating expenses
Reported operating expenses of $39.8bn$34.9bn were $40m$4.9bn or 0.1% higher than in 2015.12% lower. This includes favourable effects of currency translation differences of $2.1bn between the periods, and an increaseincluded a net decrease in significant items of $3.3bn,$5.6bn, including:
a $3.2bn write-off of goodwill in our GPB business in Europe; and
costs to achieve of $3.1bn compared with $0.9bn in 2015; partly offset by
a reduction of $1.0bn in settlements and provisions in connection with legal matters.
In addition, the reported results include the operating expenses incurred in our Brazil business of $1.1bn compared with $2.5bn in 2015.
–
a $3.2bn write-off of goodwill in our GPB business in Europe in 2016;
–
a net release of $0.4bn in settlements and provisions in connection with legal matters, compared with charges in 2016 of $0.7bn;
–
operating expenses of $1.1bn in 1H16 incurred by the operations in Brazil that we sold; and
–
costs to achieve of $3.0bn, compared with $3.1bn in 2016.
Excluding significant items and the adverse effectsa favourable effect of foreign currency translation differences between the periods,of $0.3bn, operating expenses fellincreased by $1.2bn. Reductions$1.1bn. This increase mainly reflected increased investment in allgrowth programmes, primarily in RBWM, where investments were partly funded by the proceeds from our global businesses reflected the effectsdisposal of our cost-saving initiatives.Visa shares, and higher performance-related pay.
14HSBC Holdings plc



Reported income from associates and joint ventures
Reported income from associates and joint ventures of $2.4bn decreasedincreased by $0.2bn.$21m.
Dividends
On 2120 February 2017,2018, the Board announced a fourth interim dividend of $0.21 per ordinary share.

14




Adjusted performance
Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements on page 226. 222.
We also present adjusted performance measures to align internal and external reporting, identify and quantify items management believes to be significant, and provide insight into how management assesses period-on-period performance. Adjusted performance measures are highlighted with the following symbol:<>
To derive adjusted performance, we adjust for:
–the year-on-year effects of foreign currency translation differences; and
–the effect of significant items that distort year-on-year comparisons and are excluded in order to improve understanding of the underlying trends in the business.
the year-on-year effects of foreign currency translation differences; and
the effect of significant items that distort year-on-year comparisons and are excluded in order to understand better the underlying trends in the business.
ÑFor reconciliations of our reported results to an adjusted basis, including lists of significant items, see page 62.66.

Adjusted results<>
This table shows our adjusted results for 20162017 and 2015.2016. These are discussed in more detail on the following pages.
Adjusted results
2016
$m
2015
$m
Net operating income before loan impairment charges and other credit risk provisions (revenue)50,153
51,419
Loan impairment charges and other credit risk provisions (‘LICs’)(2,652)(2,604)
Adjusted results<>
2017
$m

2016
$m

(%)
Net operating income before loan impairment charges and other credit risk provisions (adjusted revenue)51,524
49,290
5 %
Loan impairment charges and other credit risk provisions(1,769)(2,594)32 %
Total operating expenses(30,556)(31,730)(31,140)(30,084)(4)%
Operating profit16,945
17,085
18,615
16,612
12 %
Share of profit in associates and joint ventures2,355
2,443
2,375
2,322
2 %
Profit before tax19,300
19,528
20,990
18,934
11 %

a1arastrateg_chart-30196.jpg
Adjusted profit before tax<>
On an adjusted basis, profit before tax of $19.3bn$21.0bn was $0.2bn$2.1bn or 1.2% lower than11% higher. This was driven by higher revenue (up $2.2bn), with growth in 2015. This primarily reflected lower revenue, higher LICsour three main global businesses, and a significant reduction in our share of profits from associates. This was partly offset by a decrease in operating expenses.
Movement in adjusted profit before tax compared with 2015
 2016Change ($m)%
Revenue50,153
See below for graph(2)
LICs(2,652) (2)
Operating expenses(30,556) 4
Share of profits in associates and joint ventures2,355
 (4)
Profit before tax19,300
 (1)
a1arastrateg_chart-30196.jpg


15




Adjusted revenue
Adjusted revenue of $50.2bn was $1.3bn or 2% lower. The reduction reflected the following:
In RBWM, lower revenueLICs (down $0.3bn) was mainly a result of a fall in income in our Wealth Management business. The reduction resulted from lower investment distribution income compared with a strong performance in 2015,$0.8bn), notably in the first half of the year, and adverse market impacts in Insurance Manufacturing. By contrast, revenue grew in savings and deposits, as we grew balances in Hong Kong, the UK and Mexico, and from wider spreads in Hong Kong and Latin America.
In GPB, lower revenue (down $0.2bn) reflected reduced brokerage and trading activity due to the continued repositioning of the business, together with adverse market sentiment and unfavourable market conditions.
In Corporate Centre, revenue fell (down $1.2bn), partly due to the US CML portfolio (down $0.5bn) as a result of continued run-off and portfolio sales. Revenue also fell in Central Treasury as a result of higher adverse fair value movements2016 included charges relating to the economic hedging of our long-term debt ($0.2bn) and higher interest expense on our debt ($0.2bn).
These were partly offset:
In GB&M, revenue increased (up $0.4bn) despite adverse movements in credit and funding valuation adjustments of $0.3bn. In Rates and Credit, higher revenue reflected growth in market share in Europe. We also increased revenue in Global Liquidity and Cash Management ('GLCM') from balance growth and wider spreads. By contrast lower trading volumes in Europe and Asia resulted in a reduction in Equities revenue.
In CMB, revenue rose (up $0.1bn), notably in GLCM reflecting balance growth and wider spreads in Hong Kong. Revenue also increased in Credit and Lending as a result of loan growth in the UK.
For further details on the performance of our global businesses, see page 18.

Movement in adjusted revenue compared with 2015
 
2016
$m
2015
$m
Variance
$m
%
RBWM18,925
19,242
(317)(2)%
CMB12,887
12,753
134
1 %
GB&M14,919
14,566
353
2 %
GPB1,757
1,965
(208)(11)%
Corporate Centre1,665
2,893
(1,228)(42)%
Total50,153
51,419
(1,266)(2)%

Adjusted LICs
Adjusted LICs of $2.7bn were $48m higher than in 2015, reflecting increases in GB&M resulting from a small number of individually assessed LICs withinexposures to the oil and gas, and metals and mining sectors, notably in the first half of 2016 in the US. LICs also increased in RBWM, particularly in Mexico.sectors. These increases were largely offset by a reduction in LICs in CMB.
Adjusted operating expenses
Adjusted operating expenses of $30.6bn were $1.2bn or 4% lower than in 2015. This primarily reflected cost savings of $2.2bn realised in 2016, with run-rate savings of around $3.7bn since the commencement of our cost-saving programme. The fall in operating expenses also included a reduction of $0.5bn in the UK bank levy. These reductionsmovements were partly offset by the impact of inflation and our continuedhigher operating expenses (up $1.1bn), in part due to investment in regulatory programmes and compliance.
Run-the-bank costsgrowth initiatives. In 2017, we achieved positive adjusted jaws of $26.9bn were $0.3bn lower, and change-the-bank costs of $2.7bn were $0.4bn lower, both compared with 2015. Within these, our total expenditure on regulatory programmes and compliance, comprising both run-the-bank and change-the-bank elements, was $3.0bn, up $0.4bn or 14% compared with 2015. This reflected the ongoing implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities, and to meet our external commitments.
In the fourth quarter of 2016, our adjusted operating expenses increased compared with the third quarter reflecting a small number of specific items. This included the write-off of software.
The number of employees expressed in full-time equivalent staff (‘FTEs’) at 31 December 2016 was 235,175, a decrease of 20,028 from 31 December 2015. This included a 19,145 reduction following our disposal of operations in Brazil. Excluding Brazil, the decrease in FTEs was 883, as a reduction of 17,855 FTEs realised across global businesses and global functions was partly offset by investment in our Global Standards Programme of 5,694 FTEs, costs to achieve FTEs of 8,073 and investment for growth.
For further details on the categorisation of run-the-bank and change-the-bank costs, see page 38.



Adjusted income from associates and joint ventures
Adjusted income from associates and joint ventures of $2.4bn fell by $0.1bn compared with 2015.

a1arastrateg_chart-31764.jpg1.0%.
KeyHSBC Holdings plc15

Adjusted revenue<>
Adjusted revenue of $51.5bn was $2.2bn or 5% higher, as growth in our three main global businesses was partly offset by reductions in GPB and Corporate Centre.
–
In RBWM, revenue increased by $1.7bn or 9%, driven by growth in Retail Banking from current accounts, savings and deposits, reflecting balance growth and wider spreads primarily in Hong Kong, and also in the US and Mexico, partly offset by lower personal lending revenue. Revenue also increased in Wealth Management, mainly in insurance manufacturing driven by favourable market impacts compared with adverse market impacts in 2016, notably in Asia. In addition, investment distribution income increased, reflecting increased investor confidence in Hong Kong.
–
In CMB, revenue increased by $0.6bn or 5%, driven by growth in Global Liquidity and Cash Management (‘GLCM’), notably in Asia. This primarily reflected wider spreads and increased average deposit balances. Revenue in Credit and Lending (‘C&L’)



increased as we grew lending balances in key markets, while revenue in Global Trade and Receivables Finance (‘GTRF’) fell marginally, due to managed client exits in MENA despite balance sheet growth in Asia and the UK.
–
In GB&M, revenue increased by $0.4bn or 3%, mainly in GLCM and Securities Services. In Global Markets, revenue was marginally higher as growth in Equities, reflecting increased market share in Prime Financing, was partly offset by lower revenue in Fixed Income, Currencies and Commodities that reflected lower market volatility, as well as a net adverse movement on credit and funding valuations adjustments.
These increases were partly offset:
–
In GPB, revenue was $45m or 3% lower, reflecting the impact of our customer repositioning actions. This was partly offset by increased revenue in the markets that we have targeted for growth, notably Hong Kong, due to higher investment revenue reflecting increased client activity and growth in deposit revenue as we benefited from wider spreads.
–
In Corporate Centre, revenue decreased by $0.4bn, with reductions in the US run-off portfolio (down $0.7bn), following the disposal of the remaining portfolio during 2017, and in Central Treasury (down $0.1bn). These decreases were partly offset in other income (up $0.4bn), which included revaluation gains on investment properties.
Movement in adjusted revenue compared with 2016<>
 
2017
$m

2016
$m

Variance
$m

%
Retail Banking and Wealth Management20,287
18,542
1,745
9 %
Commercial Banking13,223
12,619
604
5 %
Global Banking and Markets15,091
14,715
376
3 %
Global Private Banking1,703
1,748
(45)(3)%
Corporate Centre1,220
1,666
(446)(27)%
Total51,524
49,290
2,234
5 %
Adjusted LICs<>
Adjusted LICs of $1.8bn were $0.8bn lower, reflecting reductions in:
–
CMB ($0.5bn lower), notably in the UK and North America, primarily as 2016 included charges against exposures in the oil and gas sector. In addition, there were reductions in France, Spain and Singapore as we incurred individually assessed LICs against a small number of corporate exposures in 2016.
–
RBWM ($0.2bn lower), primarily in Turkey and the US, reflecting improved credit quality, partly offset by increases in Mexico, notably from growth in unsecured lending which resulted in an associated increase in delinquency rates.
–
LICs in GB&M of $0.5bn were broadly unchanged from the prior year. LICs in the current year related to two large corporate exposures in Europe. This compared with a small number of individually assessed LICs, notably on exposures in the oil and gas, and mining sectors in the US in 2016.
Adjusted operating expenses<>
Adjusted operating expenses of $31.1bn were $1.1bn or 4% higher. This reflected investments in business growth programmes ($0.6bn), primarily in RBWM where investments were partly funded by the proceeds from the disposal of our shares in Visa, as well as an increase in performance-related pay (up $0.4bn). Compared with 2016, our UK bank levy charge was broadly unchanged, at $916m. The impact of our cost-saving initiatives broadly offset inflation and continued investment in our regulatory programmes and compliance.
Our total investment in regulatory programmes and compliance was $3.0bn, up $0.2bn or 7%. This notably reflected the continued implementation of our Global Standards programme to enhance financial crime risk controls and capabilities.
The number of employees expressed in full-time equivalent staff at 31 December 2017 was 228,687, a decrease of 6,488 from 31 December 2016. This reflected reductions resulting from our transformation programmes and the completion of these programmes, partly offset by increases from our investments in Global Standards and in our business growth programmes.
Adjusted income from associates and joint ventures<>
Adjusted income from associates and joint ventures of $2.4bn increased by $0.1bn.
 
Bank Levy
UK bank levy Adjusted operating expenses (excluding bank levy)

a1arastrateg_chart-31764.jpgchart-069b91c7706ce08406a.jpg
a1arastrateg_chart-33219.jpg2016: $30.1bn     



2017: $31.1bn
16HSBC Holdings plc




Balance sheet and capital

Balance sheet strength
Total reported assets were $2.4tn, 1% lower$2.5tn, 6% higher than at 31 December 2015 2016 on a reported basis, and 5%1% higher on a constant currency basis. We have maintained the strength of our balance sheet, as we continued our targeted asset growth, was partly offset by reductionsnotably in our legacy portfolios and the completion of our sale of operations in Brazil to Banco Bradesco S.A. We also issued more than $30bn of senior debt during the year from HSBC Holdings plc (‘HSBC Holdings’) to build up the Group’s total loss absorbing capacity in line with anticipated regulatory requirements.Asia.
Distributable reserves
The distributable reserves of HSBC Holdings at 31 December 20162017 were $38bn, compared with $42bn and at 31 December 2015 were $47bn.2016. The reductiondecrease was driven by distributions to shareholders of $8.3bn, which were higher than profits generated of $5.5bn, as well as fair value losses net of tax due to movements in our share buy-back ($2.5bn) and the effectsown credit risk of dividends paid ($11bn), which more than offset profits of $7bn.$0.8bn.
Capital strength
We manage our capital in an effort to ensure we exceed current regulatory requirements and are well placed to meet those expected in the future. We monitor our position using capital ratios. These measure capital relative to a regulatory assessment of risks taken. We quantify how these risks relate to our businesses using RWAs.
ÑDetails of these risks are included on page 165.162.
Our CET1 ratio at 31 December 20162017 was 13.6%14.5%, up from 11.9%13.6% at 31 December 2015.2016.

Implementation of IFRS 9
IFRS 9 ‘Financial Instruments’ was adopted on 1 January 2018. The adoption of IFRS 9 will reduce the Group’s net assets at 1 January 2018 by $1.0bn. We do not expect this to have a significant impact on our regulatory capital position.
ÑFurther explanation of the expected impact of the implementation of IFRS 9 is provided in Note 1 on the Financial Statements on page 222.
Delivery against Group financial targets
a1arastrateg_chart-35331.jpga1arastrateg_chart-35331.jpg
Return on equity
Our medium-term target is to achieve a return on equity (‘RoE’) of more than 10%. In 2016,2017, we achieved an RoE of 0.8%5.9% compared with 7.2%0.8% in 2015.2016. In 2016, significant items, which included a write-off of goodwill in GPB in Europe, costs to achieve and adverse fair value movements arising from changes in credit spread on our own debt designated at fair value, had a significant effect on our reported RoE. Together with the UK bank levy, significant items reduced the return achieved by 6.9 percentage points.
Adjusted jaws<>
Adjusted revenue up
5%Adjusted jaws
1%
Adjusted costs up
4%
Jaws measures the difference between the rates of change for revenue and costs. Positive jaws occurs when the figure for the annual percentage change in revenue is higher than, or less negative than, the corresponding rate for costs.
We calculate adjusted jaws using adjusted revenue and costs. Our target is to maintain positive adjusted jaws.
In 2016,2017, adjusted revenue fellincreased by 2.5%, whereas5% and our adjusted operating expenses reducedincreased by 3.7%4%. Adjusted jaws was therefore positive 1.2%1%.
Dividends


Adjusted revenue down
2.5%Adjusted jaws
+ 1.2%
Adjusted costs down
3.7%




Dividends
a1arastrateg_chart-38122.jpg

a1arastrateg_chart-38122.jpg
In the current uncertain environment, we plan to sustain the annual dividend in respect of the year at its current level for the foreseeable future. Growing our dividend in the future will depend on the overall profitability of the Group, delivering further release of less efficiently deployed capital and meeting regulatory capital requirements in a timely manner. Actions to address these points were core elements of our Investor Update in June 2015.

HSBC Holdings plc17





Global businesses
We manage our products and services globally through our global businesses.
CommentaryThe ‘Management view of adjusted revenue’ tables provide a breakdown of revenue by major products, and reflect the basis on which each business is on an adjusted basis, which is the GAAP measure for our global businesses assessed and managed.
ÑThe comparative period has been restated to reflect changes to reportable segments, as described on page 59.64.
Commentary is on an adjusted basis, which is consistent with how we assess the performance of our global businesses.<>
Retail Banking and Wealth Management (‘RBWM’)
RBWM serves close to 3637 million customers worldwide through four main business areas:businesses: Retail Banking, Wealth Management, Asset Management and Insurance.
RBWM provides services to individuals under the Our HSBC Premier and Advance propositions are aimed at mass affluent and emerging affluent customers who value international connectivity and benefit from our global reach and scale. For customers who havewith simpler everyday banking needs, RBWM offers a full range of banking products and services reflecting local requirements.
Higher Retail Banking revenue, but challenging market conditions in Wealth ManagementKey events
–
Significant investment in digital transformation across our six core markets, reshaping the branch network and sales force, and improving customer engagement, including the launch of a payment app in Hong Kong (PayMe) and voice biometrics in the UK.
–
Continued to attract customer deposits (up 5%), providing the potential to benefit from future interest rate rises; lending balances increased by 7%.
–
Strong growth in sales of investment products, notably equities (up 45%) and mutual funds (up 22%), and growth in insurance annualised new business premiums (up 7%), primarily in Asia.
Financial performance
Adjusted profit before tax of $5.3bn$6.5bn was $0.4bn$1.2bn or 6% lower compared with 2015. This was driven by lower24% higher, reflecting strong revenue in ourgrowth from deposits and Wealth Management, business, together withas well as lower LICs, partly offset by higher LICs. By contrast, lower operating expenses reflected our continued focus on cost management.expenses. We achieved positive adjusted jaws of 4.0%.
Adjusted revenue of $18.9bn$20.3bn was $0.3bn$1.7bn or 2% lower, as growth9% higher, reflecting:
Higher revenue in Retail Banking (up $0.8bn or 6%):
–
Growth in revenue from current accounts, savings and deposits (up $1.1bn) due to wider spreads and higher balances primarily in Hong Kong, and also in the US and Mexico.
This was more thanpartly offset by a fall in Wealth Management. The reductionby:
–
Lower personal lending revenue (down $0.3bn), reflecting mortgage spread compression, primarily in Hong Kong, mainland China and the US. This was partly offset by lending growth of $22.2bn, notably driven by mortgages in the UK and Hong Kong, where we grew our market share.
Higher revenue in Wealth Management (down $0.5bn) was driven by decreased investment distribution revenue as a result(up $0.9bn or 18%):
–
Growth in life insurance manufacturing revenue (up $0.5bn) including favourable movements in market impacts of $0.3bn in 2017 compared with adverse movements of $0.4bn in 2016, due to interest rate and equity market movements, notably in Asia and France, and to a lesser extent higher insurance sales in Asia.
–
Higher investment distribution revenue (up $0.4bn), primarily from higher sales of mutual funds and retail securities in Hong Kong, reflecting increased investor confidence.
Adjusted LICs of $1.0bn were $0.2bn or 14% lower, mutual fundreflecting reductions in Turkey of $85m and retail securities turnover due to weaker market sentiment. This compared with a strong performance in the first halfUS of 2015. In addition, insurance manufacturing revenue fell, reflecting adverse market impacts ($345m), although this$44m, as credit quality improved. This was partly offset by the value of new business. However, in Retail Banking revenue rose $0.2bn or 1%, as revenue increased in current accounts and savings (up $0.4bn) from growth in balances, notably in Hong Kong and the UK. We also benefited from wider deposit spreads in Hong Kong and Mexico. By contrast, revenue in personal lending fell (down $0.2bn) despite growth in balances of $9bn or 3%, notably in Hong Kong, the UK and Mexico, driven by spread compression (mainly in the UK).
LICs increased by $0.1bn, notably in Mexico reflectingwhere higher LICs ($24m) reflected targeted growth in unsecured lending balances.
Operating expensesand associated higher delinquency rates. In the UK LICs of $132m were 1% lowermarginally higher, but remained at very low levels (10bps of the portfolio) as inflationhigher LICs relating to mortgages and investmentsunsecured lending were more thanpartly offset by transformationa release from the sale of a loan portfolio.
Adjusted operating expenses of $12.8bn were $0.7bn or 5% higher, mainly due to investment in growth initiatives, notably in retail business banking, in our international proposition as we introduced new products and services, and in mainland China. Transformational and other cost-saving initiatives.

Key events:
Our retail banking revenue rose by 1%, with increases in current account andcost savings partly offset by falls in credit cardinflation and mortgage revenue, reflecting spread compression, mainly in the UK.
In the UK, growth in mortgage balances was facilitated by our expansion into the mortgage intermediary market, with 12 brokers added in 2016, which accounted for 7% of our new mortgage originations during 2016.higher performance-related pay.



a1arastrateg_chart-30947.jpg
     2017 vs 2016
Management view of adjusted revenue<>
Footnotes
2017
$m

2016
$m

2015
$m

$m
%
Net operating income3     
Retail Banking 13,495
12,695
12,508
800
6 %
– current accounts, savings and deposits 6,344
5,213
4,814
1,131
22 %
– personal lending 7,151
7,482
7,694
(331)(4)%
   mortgages 2,337
2,546
2,648
(209)(8)%
   credit cards 2,899
3,034
3,218
(135)(4)%
   other personal lending41,915
1,902
1,828
13
1 %
Wealth Management 6,224
5,292
5,748
932
18 %
– investment distribution53,276
2,904
3,230
372
13 %
– life insurance manufacturing 1,893
1,401
1,544
492
35 %
– asset management 1,055
987
974
68
7 %
Other6568
555
582
13
2 %
Year ended 31 Dec 20,287
18,542
18,838
1,745
9 %
Adjusted RoRWA (%)75.5
4.6
4.8
  
ÑFor footnotes, see page 85.
chart-1198f906b57c11b7d5da04.jpg
Change in adjusted profit before tax
-6%+24%
18HSBC Holdings plc

Commercial Banking ('CMB'(‘CMB’)
CMB serves approximately two1.7 million customers in 5453 countries and territories. Our customers range from small enterprises focused primarily on their domestic markets through to corporates operating globally.
It supports our We support customers with tailored financial products and services to allow them to operate efficiently and to grow.
Services provided include working capital, term loans, payment services and international trade facilitation, among other services, as well as expertise in mergers and acquisitions, and access to financial markets.

Key events
–
Corporate customer value from our international subsidiary banking proposition grew 19%* compared with 2016, continuing to demonstrate the value of our global network.
–
In GLCM we launched a number of mobile solutions, including the government sponsored Unified Payments Interface in India, and Omni-Channel mobile collections in China. We also rolled out Voice and Touch ID in 37 markets and launched the next generation of HSBCnet.
–
HSBC was named the world’s Best Trade Finance Bank and Most Innovative Bank by Global Trade Review magazine. We also announced a strategic partnership with Tradeshift, the world’s largest business commerce platform, which will enable companies of all sizes to manage their global supply chains and working capital requirements from one simple online platform, from any device.


Revenue growth in a challenging marketFinancial performance
Adjusted profit before tax of $6.1bn$6.8bn was 12%$0.9bn or 15% higher, than in 2015 primarily because ofreflecting higher revenue and lower LICs, and revenue growth despite challenges in global trade.
Adjusted revenue rose by $0.1bn or 1%. This included growth of $0.2bn in GLCM driven by increased balances and wider spreads in Hong Kong. Revenue in Credit and Lending also increased (up $0.1bn), reflecting continued loan growth in the UK.LICs. This was partly offset by loweran increase in operating expenses. We achieved positive adjusted jaws of 1.3%.
Adjusted revenue of $13.2bn was $0.6bn or 5% higher, as strong growth in GLCM and increased revenue in Global TradeC&L were partly offset by a reduction in GTRF revenue.
–
In GLCM, revenue increased by $536m or 13%, notably in Hong Kong and mainland China, reflecting wider spreads. Average balances grew 5%, reflecting customer deposit retention and new customer acquisitions. In the UK, average balance sheet growth of 10% was more than offset by narrower spreads due to the impact of the base rate reduction in 2016.
–
In C&L, revenue increased by $52m or 1%. In the UK, revenue increased as lending growth more than offset narrower spreads. By contrast, revenue in Asia was lower, as balance growth in Hong Kong was more than offset by the effects of spread compression in Hong Kong and mainland China, in part reflecting competitive pressures. Revenue in the US was lower, as we reposition the portfolio towards higher returns.
–
In GTRF, revenue was $21m or 1% lower, representing a stabilisation in performance following a challenging 2016. Notably, revenue increased in both Asia and the UK, reflecting balance sheet growth. However, this was more than offset by a reduction in revenue in the Middle East and North Africa (‘MENA’), reflecting the effect of managed customer exits in the UAE.



Adjusted LICs of $0.5bn were $0.5bn or 49% lower, notably in North America and Receivables Finance ('GTRF').
LICs reduced by $0.4bn as 2016 included lower levels of individually assessed LICs, as well as a net release of collective allowancesthe UK, primarily relatingrelated to charges made in the fourth quarter of 2015, notablyexposures in the oil and gas sector.
Operating expenses reduced compared with 2015 as the effect of inflation was more thansector, and were also lower in France and Spain. In Asia, lower LICs in Singapore and mainland China were largely offset by ongoing cost discipline and the impact of our transformation initiatives. This helped us achieve positive jaws of 2.1%.
Management initiatives drove a further reduction in RWAs of $23bn in 2016, leading to a cumulative reduction of $46bn since our Investor Update in 2015, $18bn above our target.
Key events:
Despite the fall in global trade, we gained market share in key markets, including trade financehigher LICs in Hong Kong, across various sectors.
Adjusted operating expenses were $0.2bn or 3% higher. This reflected our continued investment in Global Standards and Singapore,digital capabilities, as well as inflation. This was partly offset by a reduction from our cost-saving initiatives.
Adjusted RWAs increased by 5% to $301bn reflecting growth in lending, mainly in Asia and Receivables FinanceEurope, in the UK.part funded through management initiatives which reduced RWAs by $14bn.
HSBC was named ‘2016 Best Trade Bank in the World’ by Trade and Forfaiting Review, and won the ‘Best Global Cash Manager for Non-Financial Institutions’ at the Euromoney Awards 2016.

     2017 vs 2016
Management view of adjusted revenue<>
Footnotes
2017
$m

2016
$m

2015
$m

$m
%
Net operating income3     
Global Trade and Receivables Finance 1,817
1,838
2,039
(21)(1)%
Credit and Lending 5,061
5,009
4,934
52
1 %
Global Liquidity and Cash Management 4,783
4,247
4,077
536
13 %
Markets products, Insurance and Investments and Other81,562
1,525
1,457
37
2 %
Year ended 31 Dec 13,223
12,619
12,507
604
5 %
Adjusted RoRWA (%)72.3
2.1
1.9
  
a1arastrateg_chart-32621.jpgÑFor footnotes, see page 85.
chart-40e8ad3dea2ade7637ea04.jpg
Change in adjusted profit before tax
12%+15%

*Analysis relates to corporate client income which includes total income from GB&M synergy products, including Foreign Exchange and Debt Capital Markets. This measure differs from reported revenue in that it excludes Business Banking and Other and internal cost of funds.
18HSBC Holdings plc19




Global Banking and Markets (‘GB&M’)
GB&M serves approximately 4,100 clients in more than 50 countries and territories. It supports major government, corporate and institutional clients worldwide. Our product specialists continue to deliver a comprehensive range of transaction banking, financing, advisory, capital markets and risk management services.
Markets revenue up despite challenging market conditionsKey events
–The first foreign bank with a majority-owned securities joint venture in China, Qianhai Securities Limited, which will allow us to provide GB&M and CMB clients with a broad spectrum of investment banking and markets services in China.
–Issued the world’s first corporate sustainable development bond.
Financial performance
Adjusted profit before tax of $5.6bn$5.8bn was $63m$0.3bn or 5% higher, than in 2015, asreflecting a strong revenue increased and operating expenses decreased, reflecting transformational cost savings,performance, partly offset by an increase in LICs.higher operating expenses, while achieving positive adjusted jaws of 1.3%.
Adjusted revenue of $14.9bn rose $353m$15.1bn was $0.4bn or 2%, despite3% higher, with growth in all of our businesses. The increase included a net adverse movement of $0.2bn on credit and funding valuation adjustments. Excluding these movements, adjusted revenue increased by $0.6bn or 4%. The increase in Credit and Funding valuation adjustmentsrevenue primarily reflected the following:
–
Revenue growth in all of our transaction banking products, notably GLCM (up $0.3bn) and Securities Services (up $0.2bn). These increases reflected continued momentum as we won and retained client mandates, and benefited from higher interest rates, particularly in Asia and the US.
–
Global Markets revenue was resilient (up $33m), despite lower volatility in 2017, compared with more robust trading conditions in 2016. In Equities revenue increased by $0.3bn, as we continued to capture market share from Prime Financing products. This was largely offset by Fixed Income, Currencies and Commodities, where revenue decreased by $0.2bn, reflecting subdued trading conditions.
–
Global Banking revenue was marginally higher than 2016 (up $16m), reflecting growth in lending balances and continued momentum in investment banking products, which broadly offset the effects of tightening spreads on lending in Asia.
Adjusted LICs of $0.5bn were broadly unchanged from the prior year. LICs in 2017 related to two large corporate exposures in Europe, compared with favourable movements in 2015 (net effect, down $297m), primarily relating to movements on our own credit spreads on structured liabilities. Excluding these, revenue rose $650m or 5%, mainly in Rates and Credit, as we gained market share in Europe. In GLCM, revenue increased as we grew average balances and benefited from wider spreads. By contrast, revenue fell in Equities, reflecting lower trading volumes in Europe and Asia.
LICs increased (up $0.4bn), predominantly driven by2016, which included a small number of individually assessed LICs, notably on exposures withinin the oil and gas, and metals and mining sectors notably in the first half of 2016 in the US.
Operating expenses fell by $93m, reflecting reduced performance-related pay, disciplined cost management, efficiency improvements including technology delivery rationalisation, and FTE reductions. These reductions more than offset the investments we made in the business.
Key events:
Through 2016, we continued to focus on delivery of our RWA reductions, and achieved a reduction of $8bn, which included $39bn through management initiatives, partly offset by business growth.
‘World’s Best Investment Bank’ – Euromoney Awards for Excellence 2016


Adjusted operating expenses increased by $0.1bn or 1%, reflecting higher performance-related pay, pension and severance costs. Our continued cost management and efficiency improvements, and saves from technology investments, broadly offset the effects of inflation.
a1arastrateg_chart-33805.jpgWe have exceeded the RWA reduction target set in our Investor Update in June 2015, with a cumulative reduction in RWAs from management initiatives of $128bn. This includes a further RWA reduction of $32bn in 2017. Our adjusted RoRWA improved to 1.9% from 1.7% in 2016.
     2017 vs 2016
Management view of adjusted revenue<>
Footnotes
2017
$m

2016
$m

2015
$m

$m
%
Net operating income3     
Global Markets 6,689
6,656
6,010
33
— %
Foreign Exchange 2,568
2,764
2,658
(196)(7)%
Rates 1,970
2,120
1,404
(150)(7)%
Credit 900
781
606
119
15 %
– FICC 5,438
5,665
4,668
(227)(4)%
– Equities 1,251
991
1,342
260
26 %
Global Banking 3,807
3,791
3,757
16
— %
Global Liquidity and Cash Management 2,197
1,885
1,744
312
17 %
Securities Services 1,746
1,561
1,600
185
12 %
Global Trade and Receivables Finance 700
689
682
11
2 %
Principal Investments 318
226
226
92
41 %
Credit and funding valuation adjustments9(262)(51)186
(211)(414)%
Other10(104)(42)73
(62)(148)%
Year ended 31 Dec 15,091
14,715
14,278
376
3 %
Adjusted RoRWA (%)71.9
1.7
1.5
  
ÑFor footnotes, see page 85.
chart-92a2faa86bbb031eafba04.jpg
Change in adjusted profit before tax
1%+5%
20HSBC Holdings plc

Global Private Banking (‘GPB’)
GPB serves high net worth individuals and families, including those with international banking needs, through 13 booking centres covering our priority markets.needs.
Our products and services include Investment Management, incorporating advisory, discretionary and brokerage services; Private Wealth Solutions, comprising trusts and estate planning, designed to protect wealth and preserve it for future generations; andWe provide a full range of private banking services.services, including Investment Management, which includes advisory and brokerage services, and Private Wealth Solutions, which comprises trusts and estate planning, to protect and preserve wealth for future generations.
Lower revenue reflecting repositioning and adverse market conditionsKey events
–
Net new money inflows of $15bn in key markets targeted for growth, especially in Hong Kong.
–
Significant progress made with repositioning, with outflows of over $15bn in 2017.
–Positive momentum with significant growth in discretionary and advisory mandates in 2017.
Financial performance
Adjusted profit before tax of $0.3bn fell by $0.1bn$296m was $24m or 9% higher as revenue decreased,a reduction in operating expenses was partly offset by a reduction in costs.lower revenue. We achieved positive adjusted jaws of 3.2%.
Adjusted revenue of $1.8bn fell by $0.2bn$1.7bn was $45m or 11%, as brokerage and trading activity in both Europe and Asia decreased. This reflected3% lower, reflecting the continued impact of client repositioning,repositioning. Revenue from the markets that we have targeted for growth increased by 10%. This was mainly in additionHong Kong, due to adverse market sentimentgrowth in investment revenue reflecting increased client activity, and unfavourable market conditions throughouthigher deposit income from wider spreads.
Adjusted LICs of $16m in 2017 primarily related to a single client in the year.UK.
OperatingAdjusted operating expenses decreased by $0.1bn, primarilyof $1.4bn were $85m or 6% lower, mainly as a result of reduceda managed reduction in FTEs and the impact of our cost-saving initiatives.
Key events:
There was negative net new money of $17bn reflecting the repositioning of the business. However, we attracted positive net new money in key markets targeted for growth, notably in the UK, Channel Islands and Hong Kong.
We recognised a $3.2bn write-off relating to the goodwill of the business in Europe, which is not reflected in the adjusted performance. For additional information, refer to Note 20 on page 270.



     2017 vs 2016
Management view of adjusted revenue<>
Footnotes
2017
$m

2016
$m

2015
$m

$m
%
Net operating income3     
Investment revenue 693
733
902
(40)(5)%
Lending 387
411
411
(24)(6)%
Deposit 401
342
354
59
17 %
Other 222
262
299
(40)(15)%
Year ended 31 Dec 1,703
1,748
1,966
(45)(3)%
Adjusted RoRWA (%)71.8
1.6
2.1
  

ÑFor footnotes, see page 85.
a1arastrateg_chart-35092.jpgchart-83c59cb9f9b37add93da04.jpg
Change in adjusted profit before tax
-25%+9%
Corporate Centre
During 2016, we established the Corporate Centre, to better reflect the way we manage our businesses. Corporate Centre comprises Central Treasury, including Balance Sheet Management ('BSM'(‘BSM’), our legacy businesses, interests in our associates and joint ventures, central stewardship costs that support our businesses and the UK bank levy.
Lower revenue due to continued disposal of legacy portfolios and Central Treasury, partly offset by a reduction in costsFinancial performance
Adjusted profit before tax of $2.0bn$1.7bn was $0.5bn$0.4bn or 19%17% lower, drivenreflecting lower revenue and higher operating expenses, partly offset by a fall in LICs.
Adjusted revenue fell by $0.4bn or 27%, mainly due to a decrease of $0.7bn related to the US run-off portfolio with respect to the disposal of the remaining loan portfolio during 2017. In Central Treasury revenue also decreased (down $0.1bn), due to:
–
higher interest on our debt (up $0.3bn), mainly from higher costs of debt issued to meet regulatory requirements; and
–
a reduction in revenue in BSM (down $0.3bn) reflecting lower yield rates and increased utilisation of the Group’s surplus liquidity by the global businesses; partly offset by:
–
favourable fair value movements relating to the economic hedging of interest and exchange rate risk on our long-term debt with long-term derivatives of $0.1bn, compared with adverse movements of $0.3bn in 2016.
Other income increased by $0.4bn, which included revaluation gains on investment properties.
Net loan impairment releases of $182m compared with adjusted LICs of $22m in 2016. This reflected lower LICs in the US run-off portfolio, and lower income from associates,higher net releases related to our legacy credit portfolio.
Adjusted operating expenses of $2.1bn were $0.2bn or 8% higher due to investment in regulatory programmes and compliance, partly offset by lower operating expenses, notably a reduced charge relating to the UK bank levy.US run-off portfolio costs.
Revenue fell by $1.2bn, partly driven by reductions in our US CML portfolio ($0.5bn) as a result of lower average lending balances and portfolio sales. Revenue also fell in Central Treasury as a result of higher adverse fair value movements relating to the economic hedging of our long-term debt ($0.2bn) and higher interest expense ($0.2bn).
LICs were broadly unchanged as increased charges in the US CML portfolio were broadly offset by higher releases of credit risk provisions in the legacy credit portfolio.
Operating expenses were $0.8bn lower, partly reflecting the benefits of transformational savings in our technology, operations and other functions, and a lower UK bank levy charge (down $0.5bn).
IncomeAdjusted income from associates was $0.1bn lower, primarily in Saudi Arabia.
Key events:
Completed asset sales of $10bn from our US CML run-off portfolio. As at 31 December 2016, gross lending balances in this portfolio were $5.7bn.

a1arastrateg_chart-36622.jpg
Change in adjusted profit before tax
-19%
For further details on the financial performance of our global businesses, see pages 60 to 66.

rose by $55m or 2%.
19
     2017 vs 2016
Management view of adjusted revenue<>
Footnotes
2017
$m

2016
$m

2015
$m

$m
%
Net operating income3     
Central Treasury111,340
1,454
1,760
(114)(8)%
Legacy portfolios 8
724
1,233
(716)(99)%
– US run-off portfolio 40
692
1,165
(652)(94)%
– Legacy credit (32)32
68
(64)(200)%
Other12(128)(512)(160)384
(75)%
Year ended 31 Dec 1,220
1,666
2,833
(446)(27)%




Regions
We coordinate activities across global businesses and supporting functions through a regional structure.
Europe
We serve clients in Europe with a broad range of services, and facilitate international trade and investment. London is the strategic hub for GB&M.
Reported loss before tax included significant items of $8.4bn

Reported loss before tax was $6.8bn. This compared with a reported profit before tax of $688m in 2015, with the fall driven by a net adverse movement in significant items, including the write-off of goodwill relating to our GPB business, adverse fair value movements arising from changes in credit spreads on our own debt designated at fair value compared with favourable movements in 2015, and higher costs to achieve.
On an adjusted basis, profit before tax of $1.6bn fell by $0.5bn or 26%, as revenue decreased by $0.9bn (5%), partly offset by lower costs (down by $369m or 2%), which included a reduction of $0.5bn related to the UK bank levy, and a reduction in LICs of $37m (8%).
Reported revenue fell by $5.0bn, primarily as a result of adverse movements of $1.8bn arising from changes in credit spread on our own debt, compared with favourable movements of $0.8bn in 2015, and the adverse effects of currency translation differences ($1.6bn). Adjusted revenue fell by $945m or 5%, reflecting a reduction in RBWM of $465m (7%), notably in life insurance manufacturing in France as a result of adverse market updates, and in GPB reflecting the repositioning of the business. In Corporate Centre, lower adjusted revenue (down $0.8bn), partly reflected higher adverse fair value movements of $0.2bn relating to the economic hedging of our long-term debt, and higher interest expense of $0.2bn. These reductions were partly offset by growth in revenue in GB&M ($0.2bn), notably in Rates, GLCM and Global Banking, and in CMB ($0.2bn), in Credit and Lending.
Reported costs rose by $2.6bn, primarily reflecting a write-off of goodwill relating to our GPB business of $3.2bn and an increase of $1.5bn in costs to achieve, partly offset by the favourable effects of currency translation of $1.3bn. Adjusted costs fell by $0.4bn (2%). Excluding the reduction in the UK bank levy ($0.5bn), costs rose by 1% driven by higher charges from our global service and technology centres due to increased transformation activities relating to IT transformation and process improvement.
a1arastrateg_chart-30254.jpgÑFor footnotes, see page 85.
Key
HSBC Holdings plc21
2016
2015

Asia
HSBC’s history is founded on financing trade with Asia, and the continent remains central to our strategy. We aim to grow our business in China’s Pearl River Delta and the ASEAN region, and we continue to strengthen our leadership position in the internationalisation of China’s renminbi currency.
Lower revenue, notably in Wealth Management, offset by cost management initiatives
Reported profit before tax was $13.8bn, $2.0bn lower than for 2015, notably due to the non-recurrence of a gain of $1.4bn on the disposal of part of our shareholding in Industrial Bank.
On an adjusted basis, profit before tax was broadly unchanged, as a decrease in revenue was offset by a reduction in costs.
Reported revenue fell by $2.0bn, driven by the non-recurrence of the gain on Industrial Bank, as noted above, and the adverse effects of currency translation differences of $0.3bn. Adjusted revenue decreased by $253m (1%). Lower adjusted revenue in RBWM resulted from investment distribution income falling, reflecting weaker market sentiment compared with a strong performance in the first half of 2015. This was partly offset by wider deposit spreads and deposit balance growth. In GB&M, adjusted revenue also declined, mainly in Equities and Foreign Exchange, partly offset by increases in Rates. By contrast, revenue in Corporate Centre increased, notably as income from Balance Sheet Management, within Central Treasury, rose.
Reported costs decreased by $104m, as an increase in costs to achieve of $354m was partly offset by the favourable effects of currency translation differences of $177m. Adjusted costs decreased by $227m (2%), notably as a result of cost management initiatives, which more than offset the effects of inflation and our investment growing our business in China’s Pearl River Delta and the ASEAN region.



a1arastrateg_chart-31906.jpg
Key
2016
2015


20




Middle East and North Africa
HSBC is the longest-serving international bank in the region, with one of the largest networks there, offering a universal banking model and playing a vital role in facilitating international trade. Our priority markets in the region are Saudi Arabia, Egypt and the United Arab Emirates (‘UAE’).
Strong performance reflecting robust cost management and lower LICs
Reported profit before tax was $1.5bn, and was broadly unchanged from 2015.
On an adjusted basis, profit before tax increased by $178m (13%), primarily reflecting a reduction in costs of $142m, and a decrease in LICs of $135m, partly offset by lower share of profit in associates and joint ventures.
Reported revenue fell by $210m, primarily due to the adverse effects of currency translation differences ($182m). Adjusted revenue decreased marginally, mainly reflecting reductions in RBWM in Turkey as we restructured our business there, and in CMB in the UAE, mainly within GTRF, in part reflecting customer exits. This was partly offset by GB&M with growth in GLCM, which benefited from interest rate rises across the region, in Global Banking mainly driven by infrastructure and real estate fee income in the UAE and Egypt, and Securities Services due to higher balances and spreads.
Reported LICs fell by $154m with adjusted LICs decreasing by $135m, mainly in CMB in the UAE due to lower charges and the release of provisions taken in 2015, notably relating to exposures in the oil and gas sector.
Costs were $137m lower on a reported basis, and $142m (9%) lower on an adjusted basis, mainly in the UAE and Turkey due to cost-saving initiatives, which more than offset our continued investment in compliance.
Share of profit in associates and joint ventures fell by $70m (14%), mainly due to higher impairment charges in Saudi British Bank and lower revenue in HSBC Saudi Arabia reflecting lower asset management and investment banking revenues. This was partly offset by revenue growth in Saudi British Bank and well-managed costs in both associates.
a1arastrateg_chart-33507.jpg
Key
2016
2015

North America
The US is a key partner in global trade, and the US dollar remains the primary currency for global trade and payments. We support our North American customers within the NAFTA region and around the world, helping them grow their businesses.
Continued run-off of the US CML portfolio led to a fall in revenue, partly offset by cost reductions across all businesses
Reported profit before tax was $185m, and fell by $429m from 2015, partly reflecting the net adverse effects of significant items, notably higher costs to achieve of $298m.
Adjusted profit before tax fell by $208m (14%) from the continued reduction in our US CML run-off portfolio.
Reported revenue fell $592m, and included the adverse effects of significant items ($57m) and currency translation of $59m. Movements in significant items were primarily driven by minimal fair value movements arising from changes in credit spread on our own debt in 2016, compared with favourable movements of $219m in 2015, although these movements were partly offset by a gain of $116m recorded on our sale of Visa US shares in 2016 and lower losses on disposal in our CML run-off portfolio of $77m. Adjusted revenue was $475m lower, primarily from a decrease in income in the US CML run-off portfolio in Corporate Centre. By contrast, adjusted revenue in GB&M increased by 6%, notably as a result of increased income in Rates and Credit driven by higher client flows and collateralised financing activity.
LICs increased by $188m on a reported basis and $191m on an adjusted basis, primarily as a result of a small number of individually assessed charges in the mining sector in GB&M, as well as higher charges in the US CML run-off portfolio. In CMB, there were net collectively assessed releases in 2016, compared with charges in 2015, relating to exposures in the oil and gas sector.
Reported costs fell by $353m, although this included a rise of $298m in costs to achieve in significant items, partly offset by a reduction in fines, penalties and charges in relation to legal matters of $128m. Adjusted costs fell by $460m, reflecting lower staff costs across all businesses.



a1arastrateg_chart-34724.jpg
Key
2016
2015

Latin America
We are focusing on growing our business in Mexico, where we are among the top five banks by assets and our branch network has a market share of more than 10%. On 1 July 2016, we completed our sale of operations in Brazil, but we will continue to provide access to the region for large multinational companies.
Continued progress in strategic initiatives with a strong business performance
Reported loss before tax was $1.6bn. This compared with a profit of $310m in 2015, with the loss driven by a number of significant items, primarily the accounting loss on our sale of Brazil operations which totalled $1.7bn.
On an adjusted basis, profit before tax rose by $0.4bn due to higher revenue, partly offset by higher LICs and costs.
Reported revenue fell by $3.9bn, partly driven by the accounting loss on our sale of Brazil operations ($1.7bn). The reported results also include the revenue earned in our Brazil business of $1.5bn in 2016, compared with $3.3bn in 2015, and the adverse effects of currency translation differences of $0.9bn. However, adjusted revenue was $0.7bn (29%) higher than for 2015. We increased revenue in RBWM in Mexico with lending growth and an increase in market share across core retail portfolios, and in Argentina, reflecting wider spreads and growth in deposits, together with higher income from insurance. Revenue also increased in GB&M, partly due to increased client activity, and in CMB from lending and deposit balance growth.
Reported LICs fell by $266m, primarily driven by a reduction in Brazil ($184m) and favourable effects of currency translation ($120m). By contrast, adjusted LICs rose by $38m due to higher LICs in RBWM in Mexico of $124m reflecting growth in unsecured lending and a rise in delinquency rates, partly offset by lower LICs in CMB and GB&M.
Reported costs fell by $1.7bn, and included $1.1bn of costs relating to Brazil in 2016, compared with $2.5bn in 2015. These also included the favourable effects of currency translation differences ($0.6bn). Excluding these factors, adjusted costs increased by $0.3bn (or 16%), although this was below the average rate of inflation in the region as we continued to control our costs.
a1arastrateg_chart-36036.jpg
Key
2016
2015

21





How we do business
Supporting sustainable growth
We conduct our business intent on supporting the sustained success of our customers, people and communities.
Building lasting business relationshipsCustomers
We serve more than 37 millionaim to be the world’s leading international bank and strive for excellence.
Our customers aroundare at the world, ranging from individualsheart of everything we do and we are working to make life simpler, faster and better for them.
Understanding our customers
In this section we focus on our global business with the largest companies.amount of customers. We are committed to conductingalso measure and report on customer data for Retail Banking and Wealth Management (‘RBWM’) and Commercial Banking in another eight markets within our business in a way that delivers fair value to customersEnvironmental, Social and supports them in realising their ambitions.Governance (‘ESG’) Update.
Conduct and ensuring fair outcomesTaking responsibility for the service we provide
Operating with high standards of conduct is central to our long-term success and ability to serve customers. In 2016, we continued to embed good conduct practice across all our businesses, with a range of initiatives to further improve the servicecustomers, and experience we offer to customers.
For example, in the UK we have introduced a simplified overdraft charging structureclear policies, frameworks and governance in place to support our delivery of that commitment. These cover the way we behave, design products and services, train and incentivise employees, and interact with real time notifications to prompt customers whenever they are at risk of incurring unarranged overdraft charges. In the UAE, we automated pricing for foreign exchange to provide clients with consistent and competitive rates for cross-currency payments. We also enhanced our investment advice processes and introduced tools and guidelines to make all our customer communication clear and easy to understand.
These and related initiatives are guided by our Conduct Framework, which focuses on delivering fair customer outcomes and improved market integrity through our behaviours. Theeach other. Our Conduct Framework guides activities to strengthen our business and increases our understanding and awareness of how the decisions we make affect customers and other stakeholders.
Additional detail Details on theour Conduct Framework isare available online at www.hsbc.com/conduct. Forwww.hsbc.com and for further detailsinformation on regulatory compliance risk and on conduct-related costs included in significant items,conduct, see pages 11484 and 78, respectively.117.
a1arastrateg_chart-04154.jpgSenior leaders have ultimate responsibility for customer service standards and monitor these through key metrics aligned to performance objectives. These include:
–How customers feel about recommending us; and
–The speed and quality of complaint handling.
The targets for each of these metrics are carefully set and managed to instil the right behaviours among our employees.
ÑFor more information about what we have done, see our ESG reporting available on www.hsbc.com/our-approach/measuring-our-impact.
Our largest global business
RBWMSupports approximately 37 million customers worldwide
Our largest markets
United KingdomMore than $401bn in customer accounts
Hong KongMore than $477bn in customer accounts

Customer recommendation*
RBWM
chart-dc2b06eb1e744b3680b.jpgchart-b16dcc48f50566a405e.jpg
*Percentage of customers providing an 8 or above score out of 10. In Hong Kong the survey methodology changed in 2017, with surveys migrated from telephone to online. This may affect the comparison with prior year figures.
Complaints resolution
Time taken to resolve complaints (excluding PPI complaints)
chart-36634bafe6ab776977d.jpgchart-2575011da454164111f.jpg
Same day or next working dayBetween 2-5 daysLonger than 5 days
*2017 figures do not include First Direct UK complaint volumes, which were not available at time of publication. They are not expected to materially impact results.



22HSBC Holdings plc


What customers are telling us


Our values
Our values define whoIn 2017, our CMB and RBWM customers told us there were three main issues that we are as an organisation and make us distinctive.
Open
We are openneeded to different ideas and cultures, and value diverse perspectives.
Connected
We are connectedfocus on to our customers, communities, regulators and each other, caring about individuals andimprove their progress.
Dependable
We are dependable, standing firm for what is right and delivering on commitments.
Increasing quality of service
We rely on customer feedback to help determine where we can make improvements. In RBWM, we conducted more than 1.6 million customer surveys in 2016 across multiple points of customer interaction, including live online chat. We also improved the speed and quality of complaint resolution, with more than two-thirds of retail customer complaints resolved on first contact, an improvement of 9% compared with 2015.
Customer feedback helps us to identify and address root causes of complaints. For example, we increased capacity in our call centres in response to concerns about long waiting times in the UK. We also addressed the most common complaints related to fees and charges through increased staff training and customer communication. As a result, complaints of this type reduced significantly in a numberexperience of our markets, including a 35% reduction in Hong Kongproducts and a 27% reduction in France.
Innovation and technology
Our customers increasingly use digital channels to interact, including mobile banking. We are investing in innovation and technology to serve customers better and enhance security around financial transactions and customer data. In 2016, we introduced voice biometric identification technology for retail customers globally. HSBC is one of the first large-scale global users of this technology.
In the UK, we also launched a mobile application for commercial banking customers that allows them to digitally verify their identity. Since its launch, nearly 80% of the customers able to use this digital channel have chosen to do so. We have also adjusted our branch network to reflect changing customer needs and concluded our retail branch review in the UK, with a further reduction of 117 branches in 2016.
In Hong Kong, we launched a research and development lab in partnership with the government to promote technology development for the financial sector. Areas of focus include biometrics, data analytics, cybersecurity and internet finance. Separately, we are developing a mobile application to help retail customers manage all of their finances more effectively through a single interface.
Sustainable finance
We recognise that reducing global carbon dioxide emissions is a critical challenge for society. We seek to be a leader in managing climate change risk while developing opportunities with our customers. We continue to facilitate investment in areas such as infrastructure and renewable energy that help lower carbon dioxide emissions.
In 2016, for example, we helped issue the largest-ever renewable energy bond in Canada to support a solar power farm. In the UK, we provided financing and asset management expertise to support deployment of energy smart meters throughout the country. In December, we established a team dedicated to sustainable finance within the business in order to engage clients more effectively in assessing and responding to potential impacts from climate change.

services:
23What our customers are telling usOur response
Accessibility
Customers in all of our channels have provided feedback on length of queues in branches, call waiting and handling time in our contact centres, the length of appointments with our relationship managers, and the complexity of logging on to our online and mobile banking.
–
Increased capacity in our contact centres.
–
Introduced new multi-channel appointment booking tools.
–
Added biometrics to make it easier for customers to authenticate themselves using their unique voice and digital fingerprint.
Complexity
Customers told us our processes and procedures are too complicated which affects the quality and length of time required to service our customers day-to-day.
–
Delivered training to 53,500 employees globally to use plain language in communicating with our customers.
–
For our commercial customers we have simplified options on their online platform, HSBCnet.
Fees and charges
Our industry can be complex, and our customers can find it difficult to understand when and why they will be charged for our services.
–
Introduced instantaneous text message notifications in Hong Kong to provide application status and account servicing updates. This has helped many customers to better manage their accounts and to avoid incurring charges.

A digital transformation

Our customers are becoming increasingly digitally oriented in their everyday lives. This means their expectations of us are changing.

Customers are now using branches less often. In the future, we will have fewer – but better – branches and our front-line employees will be using a greater range of technology to support all our customers’ needs.

255,000
HSBC Holdings plc23
workday hours volunteeredOur employees
$137mOur employees are key to our success. We are focused on creating a diverse and inclusive environment where people can speak up, build their skills and develop their careers. We want our employees to feel that they can contribute to our purpose and fulfil their potential with our support.
charitable givingGiving employees a voice
Since 2012, we have been hosting HSBC Exchange to give employees a voice. Exchanges are meetings with no agendas, where managers and leaders simply listen and employees do the talking. It’s an innovative approach that provides a forum for people to share their views on any issue and talk about what matters most to them.
Our monthly employee survey – Snapshot – tests the views of a representative sample of colleagues on topics such as our strategy, regulation, culture and customer experience. Results are presented to the Group Management Board and relevant executive committees of the global functions and businesses, regions and countries.
Whilst 77% of employees feel able to speak up when they see behaviour which they think is wrong and 72% believe that HSBC is genuine in 2016its commitment to encourage colleagues to speak up, a smaller proportion of employees – 61% – say that where they work people can state their opinions without fear of negative consequence.

The insight from Snapshot surveys, Exchanges and other employee engagement initiatives, informs policy, process and strategy across the Group and helps leadership make decisions that take employees into account.
Empowering peopleCreating a diverse and inclusive environment
Valuing diversity
BuildingWe believe that a more diverse and inclusive workforce is critical to developingrunning a sustainable and successful business. Our approach aims to increase and leverage diversity of thought to drive greater innovation, better manage risks, enhance collaboration and improve workforce agility, enhance our risk management capability, drive innovation and grow markets.agility.
Our diversitycommitment
We are committed to enabling a thriving environment where people are valued, respected and inclusion ambitionssupported. We create business value by drawing on the richness of ideas, backgrounds, styles and perspectives of our employees.
Gender balance at senior leadership
We focus on attracting, developingimproving gender balance in senior leadership across the Group. Our objective was for the female share of our senior leadership** to be more than 26.3% by the end of 2017, and retaining talent that reflectswe achieved 26.8%. This is a 1.4 percentage point increase on our customers2016 year-end position and is an improvement to the communities where we do business, and deploying that talent effectively to anticipate and address expectations. trend year on year.
Employee networks
Our seven global employee networks support this strategyplay a key role in building community, highlighting opportunities and achieving our diversity and inclusion ambitions. The networks focus on gender, age, ethnicity, LGBT+, faith, working parents and carers, and ability. WeAdditionally we have continued our focus on improving gender balance within senior leadership.common interest groups sharing experiences and engaging with others both internally and externally.

Supporting our employees
We believe that if someone is worth talking to, they are worth listening to. Exchange meetings are our way of doing that: meetings with no agendas and where managers are participants rather than leaders. These meetings bring people together to listen to each other, and allow people to express themselves without interruption or rebuttal. Our employee surveys indicate that Exchange participants respond positively by 11% more than others when asked if there is honest, two-way communication.

Similarly, our At Our Best programme reinforces the habits required for a strong culture, including asking for feedback, being mindful of one’s own emotions and deploying tools for making better decisions. In 2016, nearly 100,000 employees attended an At Our Best training course, and a further 18,000 managers attended similar training centred on managing teams. The programme is supported through a behaviour recognition scheme and the launch of Our Charter, a framework for good decision-making.
To further strengthen our culture and promote positive behaviours, we have developed culture change plans that are regularly discussed in global and local management forums. The plans emphasise enabling a speak-up culture, principles-based judgement and other behaviours that are key to supporting the Group’s strategic objectives, such as managing financial crime risk. In 2016, our employees completed more than eight million courses in person or through online learning in order to build skills and reinforce behaviours more broadly.
We have a wellbeing programme that provides benefits and services to support employees’ wellness. For example, we offer free, confidential counselling to address personal issues at home or work. We also allow employees who have been at HSBC for five years or more to apply to take a sabbatical. Above all, we aim to provide a working environment where colleagues can talk openly about wellbeing issues, including anxiety and stress. Such measures are particularly valuable amid the demands of multiple change programmes and financial crime remediation initiatives.
Whistleblowing
We operate a global whistleblowing platform, HSBC Confidential, which allows staff to report matters of concern confidentially. During 2016, employees have raised more than 1,100 cases. Common themes among the cases raised included concerns regarding staff behaviour and recruitment practices, allegations of fraud perpetrated by staff, and weaknesses in incentive arrangements and information security.





a1arastrateg_chart-31535.jpg
Exchange meeting insights
(% of employees who believe Exchange allows them to talk freely about issues important to them)
84%chart-3542335a22cc7ef8dc3.jpg
Employee retention
81.7%85.7%
a1arastrateg_chart-33093.jpg(2016: 81.7%)
chart-77a44dcc122aaeb9846.jpg
MaleFemale
chart-9e26b043d6eadfa0fd1.jpg
*Combined Executive Committee and direct reports was reported as at 30 June 2017 to the UK’s Hampton Alexander Review and includes the Executive Directors, Group Managing Directors and their direct reports (excluding administrative staff).
**Senior leadership refers to employees performing roles classified as 0, 1, 2 or 3 in our Global Career Band Structure.
Whistleblowing
We work hard to create an environment in which people feel able to speak up, but understand that employees may not always feel comfortable raising concerns through their regular escalation channels. There will also be some circumstances which require more discretion. We operate a global whistleblowing standard, HSBC Confidential, which allows individuals to report matters of concern confidentially. We also maintain an external email address for concerns about accounting and internal financial controls or auditing matters (accountingdisclosures@hsbc.com). The Group has a strict policy prohibiting retaliation against those who raise concerns. All allegations of retaliation reported are escalated to senior management.
24HSBC Holdings plc




HSBC Confidential is overseen by our Conduct & Values Committee and Group Audit Committee. Investigations are carried out thoroughly and independently, drawing on the expertise of a variety of teams, including Regulatory Compliance, Human Resources, Legal, Financial Crime Risk, Information Security and Internal Audit.
Ensuring sustainable outcomes1,585
Our Global Sustainability function worksCases were raised during 2017 (2016: 1,102 cases). All cases are subject to investigation. In 30% of the closed cases in 2017 (2016: 34%), allegations were substantiated in whole or in part and appropriate remedial action taken.
Common themes:
–Allegations of internal fraud by staff.
–Issues with staff behaviour and personal conduct.
–Weaknesses in adherence to information security protocols.
Other
HSBC’s purpose is to connect people with opportunities. With this purpose comes the responsibility to protect our global businesses, global functionscustomers, our communities and the integrity of the financial system.
Non-financial risks
We use a range of tools to monitor and manage our regionsnon-financial risks including our risk appetite, risk map, top and emerging risks and stress testing processes. In 2017, HSBC completed a multi-year Operational Risk Transformation Programme, the purpose of which was to make it easier to manage environmental and social issues that affect the Group and on which we can have an impact. Key issues are reviewed below and further details are available online at www.hsbc.com/sustainability. Sustainability performance data for 2016 will be availableoperational risk consistently in spring 2017.
Climate change
We have committed to supporting the global shift to a low-carbon economy. Our award-winning Global Research team published 60 reports on sustainability topics in 2016. TheseHSBC. This included the implicationsimplementation of a new operational risk management framework (‘ORMF’) and system of record. The new ORMF provides an end-to-end view of non-financial risks, enhancing focus on associated controls and the Paris Agreement on climate change.
In light of the Paris Agreement,capital we reviewed our mininghold. It provides a platform to drive forward-looking risk awareness and metals policy, and included restrictions on lending to new thermal coal mines, in addition to our existing policies on coal-fired power plants and deforestation. We also added more specific guidance on human rights impacts that could ariseassist management focus. Further details may be found in the mining sector.
For more information about our sustainability risk policies seeRisk section on page 95 and page 117.
We completedFinancial crime compliance
HSBC operates in many countries around the world. As part of financial crime risk management, we have built a number of GB&M and CMB client transactions that help lower carbon dioxide emissions in areas including infrastructure and renewable energy. In 2016, HSBC was the third-ranked bookrunner for green, social and sustainability bonds that exceeded $250m excluding self-led transactions by Dealogic. We also published a report on our own green bond, issued in 2015.
We scored the highest grade instrong financial crime compliance system with a global index run by CDP,footprint, and have a not-for-profit organisation that rates companiesdedicated Financial Crime Risk team. We have invested heavily in training and governmentscommunication for all employees. Our risk appetite has been set formally. Further details may be found in the Risk section on how they are tacklingpage 95.
Anti-bribery and corruption
As part of financial crime risk management, we have a global anti-bribery and corruption policy. The policy gives practical effect to global initiatives such as the climate change challenge.Organisation of Economic Co-operation and Development (‘OECD’) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and Principle 10 of the United Nations Global Compact. We also published an HSBC Statement on Climate Change, providing a summarycontinue to invest in technology and training; in 2017 98% of our approach and initiatives.
We are reducing the amount of energy we consume, and increasing the proportion from renewable sources. By the end of 2016, more than 17% of our electricityworkforce was from wind or solar farms, compared with 9% in 2015. We signed additional agreements in 2016 to increase the percentage of the electricity we use from new wind and solar sources. In total, we have agreements in place to meet 23% of our global electricity needs from these sources by 2018.
We report our carbon dioxide emissions on page 78.
Sustainable investment
Our Global Research team has expanded its environmental, social and governance research offering, hiring analysts to specifically cover social and governance drivers, and to cover the fast-growing green bond market.
Our Global Asset Management business publishedtrained via a new climate change policy to encourage the transition to a low-carbon economy and increase the climate resilience of clients' investments.
Human rights
We have issued our first statement as required by the UK's Modern Slavery Act, which can be found at www.hsbc.com.
We updated our supplier code of conduct to take account of revised legislation on modern slavery and human rights. More than 240 of our largest suppliers have already accepted this code.
Community investment
In 2016, we contributed $137m to charitable programmes, and our employees volunteered 255,000 hours in community activities during the working day.
Our flagship environmental partnership, the HSBC Water Programme, exceeded its five-year targets at the end of 2016. Building on this success, we are extending the programme for a further three years.
In 2016, we renewed our commitments to our two flagship global education programmes, the HSBC Youth Opportunities Programme and Junior Achievement More than Money, for another three years. These programmes help young people access education and realise their potential.



mandatory e-learning course ‘My Financial Crime Risk Responsibilities’.
Tax
a1arastrateg_chart-34542.jpgTotal: $6.8bn
Taxes paid by HSBC relate to HSBC's own tax liabilities including tax on profits earned, employer taxes, bank levy and other duties/levies such as stamp duty.chart-66234184f030b519f50.jpg
Our approach to tax
We apply the spiritletter and the letterspirit of the law in all territories where we operate. We have adopted the UK tax authority’s Code of Practice on Taxation for the Taxation of Banks.Banks. As a consequence, we pay our fair share of tax in the countries in which we operate. We continue to strengthen our processes to help ensure our banking services are not associated with any arrangements known or suspected to facilitate tax evasion. HSBC continues to apply global initiatives to improve tax transparency such as:
the US Foreign Account Tax Compliance Act (‘FATCA’);
the OECD Standard for Automatic Exchange of Financial Account Information (also known as the Common Reporting Standard);
the Capital Requirements Directive IV (‘CRD IV’) Country by Country Reporting; and
the OECD Base Erosion and Profit Shifting (‘BEPS’) initiative.
–The US Foreign Account Tax Compliance Act (‘FATCA’);
–The OECD Standard for Automatic Exchange of Financial Account Information (also known as the Common Reporting Standard);
–The Capital Requirements Directive IV (‘CRD IV’) Country by Country Reporting; and
–The OECD Base Erosion and Profit Shifting (‘BEPS’) initiative.
We do not expect BEPS or similar initiatives adopted by national governments to adversely impact HSBC’s results. Further financial
Human rights
Our statement on modern slavery can be found on www.hsbc.com/our-approach/measuring-our-impact. Our supplier code of



conduct takes into account legislation on modern slavery and taxhuman rights; over 4,000 of our largest suppliers have signed the code.
Supporting sustainable growth
In 2017 we launched our strategy to support sustainable growth, which focuses on three main areas: sustainable finance; sustainable networks and entrepreneurship; and future skills. Full details are available in our ESG Supplement released in November 2017. This year we contributed $136m to charitable programmes and our employees volunteered 272,000 hours to community activities during the working day. We continue our flagship environmental partnership, the HSBC Water Programme.

ÑFor more information for the countries in whichabout what we operate will be published in 2017 in a CRD IV Country by Country report athave done, see our ESG reporting available on www.hsbc.com/tax.

our-approach/measuring-our-impact.
HSBC Holdings plc25


Sustainable finance
Each and every one of us has a stake in developing a sustainable economic system. It is the combined responsibility of all players in society to respond to climate change, rapid technological evolution and continuing globalisation to secure a prosperous future.
Since its foundation in 1865, HSBC has adapted to and helped serve the needs of a changing world. It has financed economic growth, fostered international trade and overcome events such as economic crises. We recognise that governments, corporations, the financial system and civil society are all stakeholders in mitigating the effects of climate change and meeting sustainability challenges.
Now more than ever, there is a need to develop the skills, business innovation and low-carbon solutions needed to secure long-term prosperity for all. For HSBC, these are the key elements of sustainable growth that HSBC can influence.
Our network covers many of the world’s largest and fastest growing trade corridors and economic zones. As such, we are uniquely positioned to provide the connections needed to foster sustainable growth across borders and geographies.
We have a proud record of supporting the communities and environments in which we operate and our global sustainability strategy builds on this legacy.
HSBC’s sustainable finance commitments
In our November Environmental, Social, Governance (‘ESG’) Update, we published our five sustainable finance commitments. In this section we summarise key aspects of each commitment we aim to fulfil.
ÑFor our full commitments see our ESG Supplement released in November 2017.
Provide $100bn of sustainable financing and investment by 2025
We provide $100bn of financing and investments, including facilitation, to develop clean energy, lower-carbon technologies, and projects that contribute to the delivery of the Paris Agreement and the UN Sustainable Development Goals.
$10.5bn
Volume of green, social, sustainability bonds facilitated by HSBC in 2017*
HSBC Asset Management launched three low-carbon funds in 2017.
*Source: Dealogic HSBC portion of notional value.
Source 100% of our electricity from renewable sources by 2030, with an interim target of 90% by 2025
We source 100% renewable electricity via direct investment or purchases via power purchase agreements that directly help the financing of new renewable electricity assets.
27%
of signed renewable power purchase agreements (2016: 23%).
Reduce our exposure to thermal coal and actively manage the transition path for other high-carbon sectors
To reduce our exposure, we expect to discontinue the financing of:
–new thermal coal mines or new customers dependent on thermal coal mining; and
–new coal-fired power plants in developed countries.
In addition we expect to:
–routinely reinforce lending criteria in developing countries, taking into account the state of climate transition and access to alternative sources of energy in individual countries; and
–actively engage with clients in high-carbon sectors to support and influence their transition strategies, review their approach to reduce greenhouse gas emissions and assess their exposure to potentially stranded assets.
Adopt the recommendations of the Task Force on Climate-related Financial Disclosures (‘TCFD’) to improve transparency
The Financial Stability Board (‘FSB’) established the Task Force on Climate-related Financial Disclosures in 2015 to develop recommendations for more effective and efficient climate-related disclosures. This year, HSBC is reporting qualitatively on the



governance, strategy and risk management components of the recommendations published in 2017. See our first TCFD disclosure on page 27.
Lead and shape the debate around sustainable finance and investment
We aim to do this in two ways:
–Establish a Centre of Sustainable Finance to provide thought leadership about climate change and the role of the financial services sector.
–Drive the sustainable finance agenda by promoting the development of sector activities (such as industry-wide definitions, standards, tools and metrics) to improve market analysis of sustainability issues and impacts.
20
Number of Sustainability-focused industry forums of which HSBC is a member.
ÑFor more information about what we have done, see our ESG reporting available on www.hsbc.com/our-approach/measuring-our-impact.
26HSBC Holdings plc

Task Force on Climate-related Financial Disclosures (‘TCFD’)

Initial response to the Financial Stability Board
Reducing global carbon dioxide emissions is a critical challenge for everyone. We recognise its importance and seek to be a leader in managing climate change risk while developing opportunities with – and for – our customers. We welcome the new disclosure recommendations from the FSB taskforce, which assist the understanding of climate-related risks, and we were a signatory to the June 2017 TCFD report. This represents our first disclosure under the framework. We recognise this will evolve and expand over time.
Governance
Sustainability is a key concern of the HSBC Group Management Board, with five presentations taking place during 2017.
HSBC’s 2016 Statement on Climate Change may be found on our website at www.hsbc.com/our-approach/measuring-our-impact. The site gives information on our approach to low/high carbon transition, managing our direct impact and partnerships.
Our Climate Business Council (‘CBC’), established in 2010, is an internal strategic committee whose role is to coordinate across the bank, identifying and developing products and services to meet customers’ sustainable finance needs. There is also a group-wide ESG steering group, chaired by the Group Finance Director, leading our approach to ESG issues, including external disclosure and materiality considerations.
Strategy
HSBC’s strategy is to connect customers to opportunities across a diversified range of products and services. This, along with our geographical presence in developing markets, gives us a unique opportunity to engage with our customers and support their transition strategies. HSBC has committed to directing $100bn of financing and investment to the low-carbon economy by 2025.
In order to facilitate the transition to the low-carbon economy for us and our clients, during 2017 we created a ‘Global Head of Sustainable Finance’ and an ‘HSBC Centre of Sustainable Finance’. Additionally, via training, we have expanded our in-house sustainability expertise to approximately 1,300 employees across the Group. We are committed to strengthening our role as a thought leader in the financial services industry.
During 2017, HSBC’s Global Research Climate Change Centre was ranked number one by Extel and HSBC was the second-ranked bookrunner by Dealogic for green, social and sustainability bonds. We will work with our customers in all our businesses to develop sustainable products and support innovation.
Risk Management
Climate risk, both physical and transition, is an increasing risk. During 2017 the Executive Risk Management Committee approved a framework for measuring transition risks across our loan portfolio. We have identified the higher transition risk sectors as oil and gas, metals and mining, power and utilities, automobiles, building and construction, and chemicals. We actively engage with clients in these sectors to support their transition strategies. We monitor and report our exposure internally, and will do so externally in 2018. Over time we expect a reduction in the carbon intensity of our portfolio.
Our Sustainability risk policies cover all our lending to sensitive sectors and we apply the Equator Principles to project finance. Details are available at www.hsbc.com/our-approach/measuring-our-impact. We also manage the physical risks to our global network relating to climate change by undertaking regular operational stress testing and contingency planning.
Next steps
The HSBC Centre of Sustainable Finance, Risk Management and Finance will work with external experts to develop climate-related scenario analysis and related disclosures.
HSBC Holdings plc27

Risk overview
We actively manage risk to protect and enable the business.
Managing risk
HSBC has maintained a conservative and consistent approach to risk throughout its history, helping to ensure we protect customers’ funds, lend responsibly and support economies. By carefully aligning our risk appetite to our strategy, we aim to deliver sustainable long-term shareholder returns.



All employees are responsible for the management of risk, with the ultimate accountability residing with the Board. We have a strong risk culture, which is embedded through clear and consistent communication and appropriate training for all employees. A comprehensive risk management framework is applied throughout the Group, with effective governance and corresponding risk management tools. This framework is underpinned by our risk culture and reinforced by the HSBC Values and our Global Standards programme.Values.
Our Global Risk function oversees the framework and is led by the Group Chief Risk Officer, an executive Director. It is independent from the global businesses, including our sales and trading functions, to provide challenge, appropriate oversight and balance in risk/reward decisions.
HSBC’s risk appetite defines itsour desired forward-looking risk profile, and informs the strategic and financial planning process.
It is articulated in our Risk Appetite Statement,risk appetite statement, which is approved by the Board. Key elements include:
risks that we accept as part of doing business, such as credit risk and market risk;
risks that we incur as part of doing business, such as operational risk, which are actively managed to remain below an acceptable tolerance; and
–risks that we accept as part of doing business, such as credit risk and market risk;
–risks that we incur as part of doing business, such as operational risk, which are actively managed to remain below an acceptable tolerance; and
–risks for which we have zero tolerance, such as knowingly engaging in activities where foreseeable reputational risk has not been considered.
Internal stress tests are an important element in our risk management and capital management frameworks. They include potential adverse macroeconomic, geopolitical and operational risk events, and other potential events that are specific to HSBC. The selection of scenarios reflects our top and emerging risks identification process and our risk appetite. Stress testing analysis helps management understand the nature and extent of vulnerabilities to which the bank is exposed.
We operate a comprehensive stress testing programme to help ensure the strength and resilience of HSBC, taking part in regulators'regulators’ as well as our own internal stress tests. In 2016, we participated in2017, the annual stress testresults for HSBC as published by the Bank of England (‘BoE’) showed that our lead regulator,capital ratios, after taking account of CRD IV restrictions and againstrategic management actions, exceeded its requirements comfortably.the BoE’s requirements. This outcome reflected our strong capital position, conservative risk appetite and our diversified geographical and business mix. It also reflected our ongoing strategic actions, including the sale of our operations in Brazil, ongoing RWA reductions in GB&Mreduction initiatives and continued sales from our US CML run-off portfolio. Our internal stress test scenarios include potential macroeconomic, geopolitical and operational risk events, and events that are applicable to HSBC. The results help management understand material risks and consider potential mitigants.
Key risk appetite metrics
ComponentMeasureRisk appetite20162017
ReturnsReturn on average ordinary shareholders’ equity≥10.0%0.85.9
%
CapitalCommon equity tier 1 ratio – CRD IV end point basis≥11.0%11.5%13.6%
LiquidityHSBC consolidated balance sheet advances-to-deposits ratio≤90%67.714.5%
Loan impairment chargesLoan impairment charges as % of advances: RBWM≤0.50%0.37%0.37
%
Loan impairment charges as % of advances: wholesale (CMB, GB&M and GPB)≤0.45%0.27%0.27
%
ÑOur risk management framework and risks associated with our banking and insurance manufacturing operations are described on pages 101106 and 115118, respectively.
Top and emerging risks
Our top and emerging risks framework helps enable us to identify current and forward-looking risks so that we may take action to either prevent them materialising or limit their effect.
Top risks are those that may have a material impact on the financial results, reputation or business model of the Group in the year ahead. Emerging risks are those that have large unknown components and may form beyond a one-year horizon. If these risks were to occur,occurred, they could have a material effect on HSBC.
During 2016,2017, we made twothree changes to our top and emerging risks to reflect our assessment of their potential effect on HSBC. Firstly, ‘IT systems infrastructureThe thematic issue ‘Regulatory focus on conduct of business and resilience’financial crime’ was removed and ‘Financial crime risk environment’ was added as a newto further emphasise the heightened focus on, and robust oversight, monitoring and active risk due tomanagement of, financial crime risks. In addition, we removed the need to ensure core banking systems remain robust as digital and mobile banking services continue to evolve. Secondly, 'Dispute risk' was removed as the key drivers of this thematic issue have already materialised‘US DPA and are therefore reported through other reporting channels. Related Agreements and Consent Orders’ following the expiration in December 2017 of the AML DPA relating to past anti-money laundering and sanctions deficiencies.
In addition, three thematic risksissues were renamed to better reflect the challenges facing HSBC.the Group. We use the new namesname in the table that follows.opposite, which summarises our top and emerging risks.
ÑOur current top and emerging risks are summarised on the next page and discussed in more detail on page 89.95.
ÑOur approach to identifying and monitoring top and emerging risks is described on page 103.

107.
2628HSBC Holdings plc




 RiskTrendMitigants
 Externally driven
 
Economic outlook and capital flows


^


We are actively monitoringmonitor our wholesale credit and trading portfolios, including undertaking stress tests, to identify areas ofsectors and clients that may come under stress followingdue to economic conditions in the eurozone, mainland China and in the UK electorate’s voteas negotiations to leaveexit from the European Union. We have also undertaken stress tests on our businesses and portfolios to assess potential impacts under a range of possible exit scenarios.EU continue.
 Geopolitical risk^
We continually assess the impact of geopolitical events on our businesses and exposures, and take steps to mitigate them, where required, to help ensure we remain within our risk appetite. We have increasedalso strengthened physical security at our premises where the risk of terrorism is heightened and have enhanced our major incident response capabilities.heightened.

lTurning of theThe credit cycle>A number
We continue to undertake detailed reviews of our portfolios and are proactively assessing customers and sectors remainlikely to come under enhanced monitoring with risk appetite and new lending significantly curtailed, including our oil and gas and commodities lending portfolios.stress as a result of geopolitical or macroeconomic events, reducing limits where appropriate.

 Cyber threat and unauthorised access to systems^
We have brought all cybersecurity initiatives together under one programme in order
continue to strengthen our cyber control framework and implement initiatives to improve our resilience and defence capabilities. We have revised our cybersecurity risk appetite to reflect our evolving defence approach.capabilities, including threat detection and analysis, access control, payment systems controls, data protection and backup and recovery.


•

l		Regulatory, technological and technologicalsustainability developments including conduct, with adverse impact on business model and profitability
>


We are actively engagedproactively engage with regulators and policy makerswherever possible to help ensure that new regulatory requirements are considered fullyeffectively implemented, and can be implementedwork with them in an effective manner.relation to their investigations into historical activities. We have established a specialist digital solutions teamalso engage with non-governmental organisations to leadhelp ensure our response to new technologies.policies address environmental concerns.

 Regulatory focus on conduct of business and financialFinancial crime risk environment>
We created a new function,continue to develop and enhance the Financial Crime Risk which brings together all areas offunction and augment our risk management capabilities to further improve our financial crime risk management at HSBCdetection and continuedcompliance capabilities. We will continue to take steps to enhance our management of conduct in areas includingdefences against financial crime across our operations globally to help ensure our Global Standards are sustainable over the treatment of potentially vulnerable customers, market surveillance, employee training and performance management.
US deferred prosecution agreement and related agreements and consent orders>We are continuing to take concerted action to remediate anti-money laundering and sanctions compliance deficiencies and to implement Global Standards.long term.

 Internally driven
 IT systems infrastructure and resilience^>
We have invested in specialist teamscontinue to monitor and are upgradingimprove service resilience across our systems capabilitytechnology infrastructure, enhancing our problem diagnosis/resolution and change execution capabilities, reducing service disruption to enhance data and digital capabilities and help ensure strong delivery quality and resilience toour customers.


•

Impact of organisational change and regulatory demands on employees>
We have increased ourcontinue to focus on resource planningresourcing and employee retentiondevelopment to meet regulatory changes as well as to maintain and well-being, and are developing initiatives to equip line managers with skills to both manage change and support their employees.enhance our leadership succession strength.


 Execution risk>
The Group Change Committee monitoredoversees the progress of the highhighest priority programmes, acrossunderpinning the Group that support theimplementation of our strategic actions reviewing progressto help ensure that we achieve a consistent on deliverablestime, on budget and addressing resource prioritisation issues as they arose.on quality delivery across these critical initiatives.


lThird-party risk managementRisks arising from the receipt of services from third parties>To help enable a consistent risk assessment
We have strengthened essential governance processes and relevant policies relating to how we identify, assess, mitigate and manage risks across the range of the third-party services that the Group utilises, we are implementing a framework to provide a holistic view of third-party risks, which assesses third parties against key criteria, combined with associatedwhich we do business. This includes control monitoring testing and assurance throughout the third-party lifecycle.


•

Enhanced model risk management expectations^
>

We have implemented a new global policy onstrengthened our model risk management framework by establishing an independent second line of defence Model Risk Management sub-function, and updated the model governance frameworkwe continue to enhance our existing policy and standards in order to address keyevolving regulatory, external and internal and regulatory requirements. Additional resources have also been recruited to support the independent model review function.


 Data management>
^

We continuedcontinue to enhanceimprove our data governance, quality and architecture to help enable consistentinsights, consistency of data aggregation, reporting and management.decisions through ongoing enhancement of our data governance, data quality and architecture framework.


^Risk heightened during 2017
>Risk remained at the same level as 2016
^ Risk heightened during 2016
> Risk remained at the same level as 2015
• Thematic risk renamed during 2016

2017
27HSBC Holdings plc29




Remuneration
Our remuneration policy supports the achievement of our strategic objectives by balancing reward for short- and long-term sustainable performance.
Remuneration principles
The remuneration strategy for our employees is based on a series of key principles.
What we do
–Focus on total compensation with a strong link between pay and performance
–Judge not only what is achieved, but also how it is achieved, in line with the HSBC Values

Judge not only what is achieved, but also how it is achieved, in line with the HSBC Values

Operate a thorough performance management and HSBC Values assessment process
Recognise and reward our employees for outstanding positive behaviour
Design our policy to align compensation with long-term stakeholder interests
–Operate a thorough performance management and HSBC Values assessment process
–Recognise and reward our employees for outstanding positive behaviour
–Design our policy to align compensation with long-term stakeholder interests
–Apply consequence management to strengthen the alignment between risk and reward

What we don’t do
Reward inappropriate or excessive risk taking or short-term performance at the expense of long-term company sustainability
Use only a formulaic approach to determine bonuses for our executives
Award discretionary bonuses to employees rated unacceptable against the HSBC Values and behaviours
Allow our employees to hedge against their unvested or retained awards
Offer employment contracts with a notice period of more than 12 months
Have pre-arranged individual severance agreements
–Reward inappropriate or excessive risk taking or short-term performance at the expense of long-term company sustainability
–Use only a formulaic approach to determine bonuses for our executives
–Award discretionary bonuses to employees rated unacceptable against the HSBC Values and behaviours
–Allow our employees to hedge against their unvested or retained awards
–Offer employment contracts with a notice period of more than 12 months
–Have pre-arranged individual severance agreements

Embedding our values in our remuneration framework
Instilling the right behaviours, and driving and encouraging actions that are aligned to organisational values and expectations, are essential. We therefore have a number of programmes to reinforce our values.
PayOutcomes
Positive adjustments- Individuals who exhibit exceptional conduct and behaviours which go beyond the normal course of an employee’s responsibilities, and set an outstanding example of our Values-aligned behaviours and conduct expectations, are awarded positive variable pay adjustments during the year.
Global consequence management policy- This provides a set of guidelines designed to align the handling of employee conduct breaches, and support line managers in delivering greater consistency of outcomes and messages.
- Ensures clear messaging to employees on the impact of any inappropriate conduct as part of reward communications, with consistency in approach and actions taken depending on the severity of the misconduct.communications.
Global recognition programme
- OurIntroduced from July 2015 as the Group’s global peer-to-peer recognition programme, is now available in more than 50 countries.designed to incentivise compliance by allowing colleagues to recognise and reward positive behaviours.
- In 2016, approximately 600,000 recognitions were made with a total valueIncludes communication of $8.1m.

positive stories on our intranet (HSBC Now).

Performance management
- Employees set objectives, which connect business, team and individual goals, and are guided by expected behaviours aligned to our core values.
- All employees receive a behaviour rating based on their adherence to HSBC Values to ensure performance is judged not only on what is achieved, but also on how it is achieved.
- Employees and managers are encouraged to hold frequent conversations throughout the year, exploring alternative ways to stay connected outside the regular performance management cycle using a mix of informal and formal check-ins on a range of topics, including performance, development and wellbeing.well-being.


2830HSBC Holdings plc




How we set our variable pay pool
When deciding on the variable pay pool, the Remuneration Committee considers a number of factors, which are set out in the following table:
Performance and risk appetite statement
– Our variable pay pool takes into account our performance in the context of our risk appetite.

Countercyclical funding methodology
– To dampen effects of economic cycles, the variable pay pool’s size has a floor and a ceiling, and we also limit the payout ratio as performance increases to prevent the risk of inappropriate behaviour.

Distribution of profits
– Our funding methodology ensures that the distribution of post-tax profit between capital, shareholders and variable pay is appropriate, and that the majority of post-tax profit is allocated to capital and shareholders.


Commerciality and affordability
– We face challenges arising from being headquartered in the UK, which has more stringent reward practices. We take into account these challenges in determining the size of the variable pay pool to ensure we can continue to attract and retain talent in key markets.

Our variable pay pool for 2016
Our variable pay pool is $3,035m, a decrease$3,303m, an increase of 12.3%8.8% compared with 2015.2016.
a1arastrateg_chart-29685.jpgchart-8c31c87bf95c5f40e79.jpg



Variable pay for our executive Directors
Variable pay for our executive Directors is driven by scorecard achievement. Targets in the scorecard are set according to our key performance indicators to ensure linkages between our strategy and remuneration policies and outcome.
ÑSee the Directors’ Remuneration Report on page 191 for further details.

Remuneration for our executive Directors
Our remuneration policy for executive Directors was approved atin our 2016 Annual General Meeting (‘AGM’) and implementedis intended to apply for three performance years until the first timeAGM in 2016.2019. Full details of our remuneration policy can be found online in our Directors'Directors’ Remuneration Policy Supplement 2016.2017.
The table below shows the amount our executive Directors earned in 2016.2017.
ÑFor details of Directors’ pay and performance for 2016,2017, see the Directors’ Remuneration Report on page 191.186.
(Audited)
(Audited – in £000)Base salary
Fixed pay allowance
Pension
Annual incentive
GPSP/LTI 1
Sub-total
Taxable benefitsNon-taxable benefits
Notional returns
Total
Douglas Flint20161,500
—
450
—
—
1,950
100
86
—
2,136
 20151,500
—
750
—
—
2,250
151
95
—
2,496
Stuart Gulliver20161,250
1,700
375
1,695
—
5,020
557
71
27
5,675
 20151,250
1,700
625
1,072
1,969
6,616
662
53
9
7,340
Iain Mackay2016700
950
210
987
—
2,847
52
37
17
2,953
 2015700
950
350
1,068
1,101
4,169
54
28
5
4,256
Marc Moses2016700
950
210
1,005
—
2,865
15
38
18
2,936
 2015700
950
350
827
1,101
3,928
6
29
5
3,968
(in £000)Base salary
Fixed pay allowance
Cash in lieu of pension
Annual incentive
LTI1

Sub-total
Taxable benefits
Non-taxable benefits
Notional returns
Total
Douglas Flint2
20171,125
—
338
—
—
1,463
83
64
—
1,610
20161,500
—
450
—
—
1,950
100
86
—
2,136
Stuart Gulliver3
20171,250
1,700
375
2,127
—
5,452
500
71
63
6,086
20161,250
1,700
375
1,695
—
5,020
557
71
27
5,675
Iain Mackay2017700
950
210
1,334
—
3,194
64
37
42
3,337
2016700
950
210
987
—
2,847
52
37
17
2,953
Marc Moses2017700
950
210
1,358
—
3,218
16
38
42
3,314
2016700
950
210
1,005
—
2,865
15
38
18
2,936
1 Executive Directors received Group Performance Share Plan ('GPSP') awards for 2015. For 2016, executive Directors will receive a long-term incentive ('LTI') award, with a performance period ending in 2019, which will be included in the single figure table for the financial year ending on 31 December 2019. If target performance is achieved for this award, LTI payout would be 50% of grant value. In this case, the 2016 total single figure for year-on-year comparison would be (in £000) £7,670 for Stuart Gulliver, £4,069 for Iain Mackay and £4,052 for Marc Moses.
1.The first LTI award was made in February 2017, with a performance period ending in 2019. Vesting of the first LTI award will be included in the single figure table for the financial year ending on 31 December 2019.
2.
Douglas Flint stepped down from the Board on 30 September 2017 and his remuneration reflects time served as an executive Director. Details on retirement arrangements are provided on page 196.
3.
To meet regulatory deferral requirements for 2017, 60% of the annual incentive award of Stuart Gulliver has been deferred in shares and will vest in five equal instalments between the third and seventh anniversary of the grant date.
29HSBC Holdings plc31


 

Report of the Directors | Financial summary

Financial summary
 Page
Use of non-GAAP financial measures30
32
Critical accounting estimates and judgements30
32
Consolidated income statement31
33
Group performance by income and expense item32
34
Net interest income32
34
Net fee income34
36
Net trading income34
36
Net income/(expense) from financial instruments designated at fair value35
37
Gains less losses from financial investments36
38
Net insurance premium income36
38
Other operating income36
39
Net insurance claims and benefits paid and movement
in liabilities to policyholders
37
39
Loan impairment charges and other credit risk provisions38
40
Operating expenses38
41
Share of profit in associates and joint ventures40
42
Tax expense40
43
20152016 compared with 2014201541
43
Consolidated balance sheet44
47
Movement in 2016201745
48
Average balance sheet46
50
Average balance sheet and net interest income46
50
Analysis of changes in net interest income and net interest expense52
56
Short-term borrowings54
59
Contractual obligations54
60
Loan maturity and interest sensitivity analysis55
60
Deposits56
61
Certificates of deposit and other time deposits58
62
The management commentary included in the Strategic Report, the Report of the Directors: ‘Financial Review’, together with the ‘Employees’ and ‘Corporate sustainability’ sections of ‘Corporate Governance’ and the ‘Directors’ Remuneration Report’ is presented in compliance with the IFRSs Practice Statement ‘Management Commentary’ issued by the IASB.
Use of non-GAAP financial measures
Our reported results are prepared in accordance with IFRSs as detailed in the Financial Statements starting on page 215. In measuring211.
To measure our performance thewe also use non-GAAP financial measures, that we use includeincluding those derived from our reported results in order tothat eliminate factors that distort period-on-periodyear-on-year comparisons. TheseThe ‘adjusted performance’ measure used throughout this report is described below, and where others are consideredused they are described. All non-GAAP financial measures.
Non-GAAP financial measures that we use throughout the Annual Report and Accounts 2016 are described below. Non-GAAP financial measures are described and reconciled to the closest reported financial measure when used.measure.
The global business segmental results on pages 6064 to 7682 are presented on an adjusted basis in accordance with IFRS 8 ‘Operating Segments’ as detailed in ‘Basis of preparation’ on page 59.64.
Adjusted performance
Adjusted performance is computed by adjusting reported results for the year-on-year effects of foreign currency translation differences and significant items, which both distort year-on-year comparisons.
We use ‘significantForeign currency translation differences are described below. ‘Significant items’ refers collectively to describe collectively the group of individual adjustments excluded from reported results when arriving at adjusted performance. These items which are detailed below, are ones that management and investors would ordinarily identify and consider separately when assessing performance to understand better the underlying trends in the business.
These items include the operating results for our Brazil operations sold to Banco Bradesco S.A. on 1 July 2016, as well as the loss recognised on disposal.
We consider adjusted performance provides useful information for investors by aligning internal and external reporting, identifying and quantifying items management believes to be significant and providing insight into how management assesses year-on-year performance.
Foreign currency translation differences
Foreign currency translation differences reflect the movements of the US dollar against most major currencies during 2016.2017. We exclude our reporting currency translation differences when derivingthem to derive constant currency data, because using these data allowsallowing us to assess balance sheet and income statement performance on a like-for-like basis toand better understand better the underlying trends in the business.
Foreign currency translation differences
Foreign currency translation differences for 20162017 are computed by retranslating into US dollars for non-US dollar branches, subsidiaries, joint ventures and associates:
•
the income statements for 20152016 and 20142015 at the average rates of exchange for 2016;2017; and
•
the balance sheets at 31 December 20152016 and 31 December 20142015 at the prevailing rates of exchange on 31 December 2016.2017.
No adjustment has been made to the exchange rates used to translate foreign currency denominated assets and liabilities into the functional currencies of any HSBC branches, subsidiaries, joint ventures or associates. When reference is made to foreign currency translation differences in tables or commentaries, comparative data reported in the functional currencies of HSBC’s operations have been translated at the appropriate exchange rates applied in the current period on the basis described above.
Changes to presentation from 1 January 2017
Own credit spread
‘Own credit spread’ includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. On 1 January 2017, HSBC adopted the requirements of IFRS 9 ‘Financial Instruments’ relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities’ credit risk is presented in other comprehensive income. These requirements were adopted in the separate financial statements of HSBC Holdings plc on 1 January 2016. Refer to ‘Compliance with International Financial Reporting Standards’ on page 222 for further detail.
Adjusted performance – foreign currency translation of significant items
The foreign currency translation differences related to significant items are presented as a separate component of significant items. This is considered a more meaningful presentation as it allows better comparison of year-on-year movements in performance.
Significant items
The tables on pages 7067 to 7669 and pages 78 to 80 detail the effects of significant items on each of our global business segments and geographical regions in 2017, 2016 2015and 2014.2015.
Critical accounting estimates
and judgements
The results of HSBC reflect the choice of accounting policies, assumptions and estimates that underlie the preparation of HSBC’s consolidated financial statements. The significant accounting policies, including the policies which include critical accounting estimates and judgements, are described in Note 1.2 on the Financial Statements. The accounting policies listed below are highlighted as they involve a high degree of uncertainty and have a material impact on the financial statements:
Impairment of loans and advances: For collective impairment allowances, estimation methods include the use of historical information supplemented by significant management judgement about whether current economic and credit conditions are such that actual incurred losses are likely to be greater or less than experienced in the past. For individually assessed loans, judgements are made about the financial condition of individual borrowers, which can involve a wide range of factors relating to their business and the value of any

32HSBC Holdings plc

security. The exercise of judgement requires the use of assumptions that are highly subjective and sensitive, in particular to changes in economic and credit conditions across a large number of geographical areas. See Note 1.2(d) on page 230226.
Deferred tax assets: The most significant judgements relate to those made in respect of expected future profitability. See Note 1.2(h) on page 234230.
Valuation of financial instruments: In determining the fair value of financial instruments a variety of valuation


30
HSBC Holdings plc Annual Report and Accounts 2016

techniques are used, some of which feature significant unobservable inputs and are subject to substantial uncertainty. See Note 1.2(c) on page 229225.
Impairment of interests in associates: Impairment testing involves significant judgement in determining the value in use, and in particular estimating the present values of cash flows expected to arise from continuing to hold the investment,
based on a number of management assumptions. See Note 1.2(a) on page 228.
224.
Goodwill impairment: A high degree of uncertainty is involved in estimating the future cash flows of the cash generating units (‘CGUs’) and the rates used to discount these cash flows. See Note 1.2(a) on page 228224.
Provisions: A high degree of judgement may be required due to the high degree of uncertainty associated with determining whether a present obligation exists, and estimating the probability and amount of any outflows that may arise. See Note 1.2(i) on page 234230.
Given the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of the items above, it is possible that the outcomes in the next financial year could differ from the expectations on which management’s estimates are based, resulting in the recognition and measurement of materially different amounts from those estimated by management in these Financial Statements.

Consolidated income statement
Summary consolidated income statement
2016
2015
2014
2013
2012
2017
2016
2015
2014
2013
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Net interest income29,813
32,531
34,705
35,539
37,672
28,176
29,813
32,531
34,705
35,539
Net fee income12,777
14,705
15,957
16,434
16,430
12,811
12,777
14,705
15,957
16,434
Net trading income9,452
8,723
6,760
8,690
7,091
7,719
9,452
8,723
6,760
8,690
Net income/(expense) from financial instruments designated at fair value(2,666)1,532
2,473
768
(2,226)3,698
(2,666)1,532
2,473
768
Gains less losses from financial investments1,385
2,068
1,335
2,012
1,189
1,150
1,385
2,068
1,335
2,012
Dividend income95
123
311
322
221
106
95
123
311
322
Net insurance premium income9,951
10,355
11,921
11,940
13,044
9,779
9,951
10,355
11,921
11,940
Gains on disposal of US branch network, US cards business and Ping An Insurance (Group) Company of China, Ltd—
—
—
—
7,024
Other operating income/(expense)(971)1,055
1,131
2,632
2,100
337
(971)1,055
1,131
2,632
Total operating income59,836
71,092
74,593
78,337
82,545
63,776
59,836
71,092
74,593
78,337
Net insurance claims and benefits paid and movement in liabilities to policyholders(11,870)(11,292)(13,345)(13,692)(14,215)(12,331)(11,870)(11,292)(13,345)(13,692)
Net operating income before loan impairment charges and other
credit risk provisions		47,966
59,800
61,248
64,645
68,330
51,445
47,966
59,800
61,248
64,645
Loan impairment charges and other credit risk provisions(3,400)(3,721)(3,851)(5,849)(8,311)(1,769)(3,400)(3,721)(3,851)(5,849)
Net operating income44,566
56,079
57,397
58,796
60,019
49,676
44,566
56,079
57,397
58,796
Total operating expenses(39,808)(39,768)(41,249)(38,556)(42,927)(34,884)(39,808)(39,768)(41,249)(38,556)
Operating profit4,758
16,311
16,148
20,240
17,092
14,792
4,758
16,311
16,148
20,240
Share of profit in associates and joint ventures2,354
2,556
2,532
2,325
3,557
2,375
2,354
2,556
2,532
2,325
Profit before tax7,112
18,867
18,680
22,565
20,649
17,167
7,112
18,867
18,680
22,565
Tax expense(3,666)(3,771)(3,975)(4,765)(5,315)(5,288)(3,666)(3,771)(3,975)(4,765)
Profit for the year3,446
15,096
14,705
17,800
15,334
11,879
3,446
15,096
14,705
17,800
Attributable to:     
– ordinary shareholders of the parent company
1,299
12,572
13,115
15,631
13,454
9,683
1,299
12,572
13,115
15,631
– preference shareholders of the parent company90
90
90
90
90
90
90
90
90
90
– other equity holders
1,090
860
483
483
483
1,025
1,090
860
483
483
– non-controlling interests
967
1,574
1,017
1,596
1,307
1,081
967
1,574
1,017
1,596
Profit for the year3,446
15,096
14,705
17,800
15,334
11,879
3,446
15,096
14,705
17,800
Five-year financial information
 2016
2015
2014
2013
2012
 2017
2016
2015
2014
2013
Footnotes$
$
$
$
$
Footnotes$
$
$
$
$
Basic earnings per share 0.07
0.65
0.69
0.84
0.74
 0.48
0.07
0.65
0.69
0.84
Diluted earnings per share 0.07
0.64
0.69
0.84
0.74
 0.48
0.07
0.64
0.69
0.84
Dividends per ordinary share10.51
0.50
0.49
0.48
0.41
130.51
0.51
0.50
0.49
0.48

 %
%
%
%
%
 %
%
%
%
%
Dividend payout ratio2728.6
76.5
71.0
57.1
55.4
14106.3
728.6
76.5
71.0
57.1
Post-tax return on average total assets 0.1
0.6
0.5
0.7
0.6
 0.5
0.1
0.6
0.5
0.7
Return on risk-weighted assets30.71.6
1.5
2.0
1.8
Return on average risk-weighted assets152.0
0.7
1.6
1.5
2.0
Return on average ordinary shareholders’ equity 0.8
7.2
7.3
9.2
8.4
 5.9
0.8
7.2
7.3
9.2
Average foreign exchange translation rates to $: 

 

$1: £ 0.741
0.654
0.607
0.639
0.631
 0.777
0.741
0.654
0.607
0.639
$1: € 0.904
0.902
0.754
0.753
0.778
 0.887
0.904
0.902
0.754
0.753
For footnotes, see page 79.85.
Unless stated otherwise, all tables in the Annual Report and Accounts 20162017 are presented on a reported basis.
For a summary of our financial performance in 2016,2017, see page 14.
For further financial performance data for each global business and geographical region, see pages 6064 to 6675 and 7076 to 76,82, respectively.

HSBC Holdings plc Annual Report and Accounts 2016
3133

Report of the Directors | Financial summary

Group performance by income and expense item
Net interest income
 2016
2015
2014
 2017
20162015
Footnotes$m
$m
$m
Footnotes$m
$m
$m
Interest income 42,414
47,189
50,955
 40,995
42,414
47,189
Interest expense (12,601)(14,658)(16,250) (12,819)(12,601)(14,658)
Net interest income429,813
32,531
34,705
 28,176
29,813
32,531
Average interest-earning assets 1,723,702
1,726,949
1,786,536
 1,726,120
1,723,702
1,726,949
 %
%
%
 %
%
%
Gross interest yield52.46
2.73
2.85
162.37
2.46
2.73
Less: cost of funds (0.87)(1.00)(1.05) (0.88)(0.87)(1.00)
Net interest spread61.59
1.73
1.80
171.49
1.59
1.73
Net interest margin71.73
1.88
1.94
181.63
1.73
1.88
For footnotes, see page 79.85.
In July 2016, we completed the sale of operations in Brazil. During 2016, we earned net interest income of $0.9bn in Brazil from
average interest earning assets of $25.8bn. In 2016, our net interest margin excluding Brazil was 1.70%.
Summary of interest income by type of asset
  201720162015
  
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
 Footnotes$m
$m
%$m
$m
%$m
$m
%
Short-term funds and loans and advances to banks 236,126
2,030
0.86203,799
1,510
0.74221,924
2,277
1.03
Loans and advances to customers 902,214
28,751
3.19865,356
29,272
3.38909,707
33,104
3.64
Reverse repurchase agreements – non-trading 173,760
2,191
1.26168,207
1,227
0.73162,308
1,301
0.80
Financial investments 389,807
7,440
1.91430,775
7,248
1.68396,113
7,508
1.90
Other interest-earning assets 24,213
583
2.4155,565
3,157
5.6836,897
2,999
8.13
Total interest-earning assets 1,726,120
40,995
2.371,723,702
42,414
2.461,726,949
47,189
2.73
Trading assets and financial assets designated at fair value19, 20186,673
4,245
2.27179,780
3,897
2.17195,285
4,626
2.37
Impairment allowances (7,841)


(9,127)


(10,606)


Non-interest-earning assets 616,688



653,115



682,143



Year ended 31 Dec 2,521,640
45,240
1.792,547,470
46,311
1.822,593,771
51,815
2.00
For footnotes, see page 85.
Summary of interest expense by type of liability and equity
  201720162015
  
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
 Footnotes$m
$m
%$m
$m
%$m
$m
%
Deposits by banks2147,337
451
0.9549,782
342
0.6955,863
378
0.68
Financial liabilities designated at fair value – own debt issued2260,566
1,261
2.0862,042
942
1.5258,489
717
1.23
Customer accounts231,094,920
5,405
0.491,074,661
5,492
0.511,075,901
7,401
0.69
Repurchase agreements – non-trading 136,561
1,665
1.22118,789
626
0.53117,947
355
0.30
Debt securities in issue 108,677
3,130
2.88114,343
2,807
2.45129,039
3,521
2.73
Other interest-bearing liabilities 7,009
907
12.9422,387
2,392
10.6828,396
2,286
8.05
Total interest-bearing liabilities 1,455,070
12,819
0.881,442,004
12,601
0.871,465,635
14,658
1.00
Trading liabilities and financial liabilities designated at fair value (excluding own debt issued) 153,776
2,325
1.51138,486
1,986
1.43151,294
2,071
1.37
Non-interest bearing current accounts 197,104


184,016


190,914


Total equity and other non-interest bearing liabilities 715,690


782,964


785,928


Year ended 31 Dec 2,521,640
15,144
0.602,547,470
14,587
0.572,593,771
16,729
0.64
For footnotes, see page 85.

34HSBC Holdings plc

Significant items and currency translation
 2017
2016
 $m
$m
Significant items(108)1,110
– customer redress programmes(108)2
– trading results from disposed-of operations in Brazil—
949
– currency translation on significant items

159
Currency translation 524
Year ended 31 Dec(108)1,634
Net interest income of $28.2bn decreased by $1.6bn or 5% compared with 2016, including the effects of significant items and foreign currency translation totalling $1.7bn. Excluding the effects of significant items and foreign currency translation, our net interest income remained broadly unchanged from 2016.
Net interest margin of 1.63% was 10 basis points (‘bps’) lower than in 2016, including the effects of the significant items and foreign currency translation, which decreased net interest margin by 7bps in total. Excluding these factors, net interest margin decreased by 3bps, mainly reflecting the run-off of our US CML portfolio, pressures on asset yields, notably in Europe and Asia, and higher cost of Group debt. These were partly offset by higher yields on surplus liquidity due to US dollar and Hong Kong dollar rate rises.
Interest income
Interest income decreased by $1.4bn compared with 2016, including the adverse effects of the significant items and foreign currency translation totalling $3.7bn. Excluding these, interest income increased by $2.3bn mainly driven by higher income on surplus liquidity and reverse repurchase agreements.
Interest income on short-term funds and financial investments increased by $0.7bn compared with 2016, which included adverse effects of the disposal of our operations in Brazil and currency translation of $0.2bn. Excluding these, interest income on short-term funds and financial investments increased by $0.9bn, primarily in Asia and North America, reflecting the central bank rate rises. This was partly offset by a reduction in Europe, notably due to the base rate cut in the UK in 2016.
Interest income on reverse repurchase agreements – non-trading was $1.0bn higher, driven by increased income in all regions, notably in Asia and North America, reflecting higher balances and increased market rates. This movement is in line with an increase in interest expense on repurchase agreements.
Interest income on loans and advances to customers was marginally higher, excluding the adverse effects of the UK customer redress programme, our sale of operations in Brazil and foreign currency translation totalling $0.7bn, reflecting increases in:
Asia, mainly due to growth in term lending and mortgage balances, although term lending yields decreased as a result of competitive pressures; and
Latin America, notably in Mexico reflecting higher yields on mortgages and term lending driven by central bank rate rises, and growth in mortgage balances.
These increases were partly offset by lower income in:
North America, primarily as a result of the continuing run-off of the higher-yielding CML portfolio in the US; and
Europe, as the effects of decreased lending yields more than offset balance growth in mortgages, term lending and overdrafts, resulting from lower central bank rates, negative interest rates in continental Europe, and market competition.
Interest expense
Reported interest expense increased by $0.2bn, including the effects of the disposal of our operations in Brazil in 2016 and foreign currency translation totalling $2.0bn. Excluding these impacts, interest expense was $2.2bn higher, primarily due to increases in interest expense on repurchase agreements and Group debt.
Interest expense on repurchase agreements increased by $1.0bn, in line with the increase in interest income on reverse repurchase agreements, notably in North America reflecting increased balances and higher market rates, and in Europe reflecting increased balances.
Interest expense on debt securities in issue and own debt at fair value was $0.6bn higher. The increase reflected a rise in the cost of funds, although average balances fell as an increase in debt issued by HSBC Holdings to meet regulatory requirements was more than offset by redemptions of senior debt across the Group. The increase in the cost of debt reflected both longer maturities and the structural subordination of our new issuances.
Interest expense on customer accounts was $0.1bn higher, excluding the effects of our sale of operations in Brazil and foreign currency translation, reflecting average balance growth in most of our geographical regions. The net increase also reflects changes in interest rates in key markets, including:
rate rises in North America and Mexico; partly offset by,
the 2016 reduction in the UK base rate and negative interest rates in continental Europe on current and savings and deposit accounts; and
central bank rate reductions in Asia, notably in India and Australia, and a change in portfolio mix.

HSBC Holdings plc35

Report of the Directors | Financial summary

Net fee income
 2017
2016
2015
 $m
$m
$m
Account services2,244
2,417
2,745
Funds under management2,188
2,076
2,570
Cards1,994
1,970
2,281
Credit facilities1,718
1,795
1,919
Broking income1,191
1,060
1,441
Unit trusts1,010
863
1,007
Underwriting829
705
762
Remittances759
766
772
Imports/exports736
820
971
Global custody692
662
721
Insurance agency commission410
419
519
Other2,082
2,116
2,308
Fee income15,853
15,669
18,016
Less: fee expense(3,042)(2,892)(3,311)
Year ended 31 Dec12,811
12,777
14,705
Significant items and currency translation
 2017
2016
 $m
$m
Significant items—
271
– trading results from disposed-of operations in Brazil—
233
– currency translation on significant items

38
Currency translation

111
Year ended 31 Dec—
382
Net fee income of $12.8bn was broadly unchanged compared with 2016 and included the disposal of our operations in Brazil which reduced net fee income by $0.2bn, notably fee income from account services and cards. It also included the adverse effects of currency translation of $0.1bn.
Excluding the effects of our sale of operations in Brazil and currency translation, net fee income increased by $0.4bn, mainly due to higher fee income from broking and unit trusts in RBWM and higher fee income from corporate finance (disclosed within ‘Other’) and underwriting in GB&M.
Fee income from Broking and Unit trusts increased by $0.3bn, largely due to a strong performance in Hong Kong as renewed investor confidence resulted in higher sales of mutual funds and retail securities compared to a weaker performance in 2016.
Fee income from corporate finance and underwriting increased by $0.2bn, reflecting continued momentum across our investment banking products, primarily in the UK, the US and Hong Kong.
Fee income from funds under management rose by $0.1bn, notably in Hong Kong, reflecting higher turnover due to a more favourable equity market environment.
These increases were partly offset by lower fee income from credit facilities, primarily due to lower commercial lending activity in the US in CMB.
In addition, fee expense increased by $0.2bn, in part from cards due to increased customer activity in Hong Kong.
Net trading income
  2017
2016
2015
 Footnote$m
$m
$m
Trading activities 5,990
8,702
7,285
Net interest income on trading activities 1,621
1,386
1,775
Gain/(loss) on termination of hedges 3
1
(11)
Other trading income – hedge ineffectiveness 





– on cash flow hedges (5)(5)15
– on fair value hedges 4
23
(11)
Fair value movement on non-qualifying hedges24106
(655)(330)
Year ended 31 Dec 7,719
9,452
8,723
For footnotes, see page 85.
Significant items and currency translation
  2017
2016
 Footnote$m
$m
Significant items (245)(475)
– debit valuation adjustment on derivative contracts (373)26
– fair value movement on non-qualifying hedges24128
(687)
– trading results from disposed-of operations in Brazil —
179
– currency translation on significant items 

7
Currency translation 

219
Year ended 31 Dec (245)(256)
For footnotes, see page 85.

36HSBC Holdings plc

Net trading income of $7.7bn was $1.7bn lower than in 2016. The net favourable effects of $0.2bn of significant items was largely offset by the adverse effect of currency translation of $0.2bn summarised in the prior table.
The decrease of $1.7bn, excluding the fair value movement on non-qualifying hedges, debit valuation adjustment on derivative contracts, the disposal of our operations in Brazil and currency translation, was primarily driven by:
adverse movements on assets held as economic hedges of foreign currency debt designated at fair value of $0.3bn in 2017 compared with favourable movements of $1.6bn in 2016. These
movements were offset by favourable movements in foreign currency debt designated at fair value in ‘Net income/(expense) from financial instruments designated at fair value’; and
decreases in GB&M ($0.2bn), notably in Foreign Exchange and Rates, reflecting subdued trading activity in the fourth quarter, partly offset by Credit and Equities, where we gained market share in Prime Financing. We also recorded adverse movements of $262m in credit and funding valuation adjustments compared with adverse movements of $51m in the prior year, primarily relating to movements in our own credit spread on structured liabilities.
Net income/(expense) from financial instruments designated at fair value


2017
2016
2015

Footnote$m
$m
$m
Net income/(expense) arising from:






Financial assets held to meet liabilities under insurance and investment contracts
3,211
1,480
531
Liabilities to customers under investment contracts
(375)(218)34
HSBC’s long-term debt issued and related derivatives
672
(3,975)863
– change in own credit spread on long-term debt (significant item)25—
(1,792)1,002
– other changes in fair value
672
(2,183)(139)
Other instruments designated at fair value and related derivatives
190
47
104
Year ended 31 Dec
3,698
(2,666)1,532
For footnotes, see page 85.
The majority of our financial liabilities designated at fair value are fixed-rate, long-term debt issuances, and are managed in conjunction with interest rate swaps as part of our interest rate management strategy.
These liabilities are discussed further on page 266.
In accordance with IFRS 9 ‘Financial Instruments’, fair value movements attributable to changes in our own credit spread on our own debt designated at fair value are now reported in other comprehensive income; by contrast, 2016 included adverse movements of $1.8bn in the fair value of our long-term debt reflecting changes in credit spread.
Significant items and currency translation
  2017
2016
 Footnote$m
$m
Significant items —
(1,477)
– own credit spread25—
(1,792)
– trading results from disposed-of operations in Brazil —
304
– currency translation on significant items  11
Currency translation 

(186)
Year ended 31 Dec —
(1,663)
For footnotes, see page 85.
Net income from financial instruments designated at fair value was $3.7bn in 2017, compared with a net expense of $2.7bn in 2016. This included a net favourable movement in significant items and currency translation of $1.7bn, primarily due to the effects of adverse fair value movements attributable to changes in our own credit spread on our own debt designated at fair value of $1.8bn in 2016, now reported in other comprehensive income, as mentioned above.
The remaining movement reflected an increase in ‘Other changes in fair value’ on our long-term debt and related derivatives, which included:
favourable movements of $0.3bn compared with adverse movements of $1.6bn in 2016 on foreign currency debt designated at fair value and issued as part of our overall funding strategy (offset in ‘Net trading income’ by assets held as economic hedges); and
favourable movements of $0.1bn compared with adverse movements of $0.3bn in 2016 relating to the economic hedging of interest and exchange rate risk on our long-term debt, reported in Corporate Centre.
In addition, net income from financial assets and liabilities from insurance and investment contracts increased by $1.6bn, primarily due to improved equity market performance in Asia and Europe in 2017.
Net income arising from financial assets held to meet liabilities under insurance and investment contracts results in a corresponding movement in liabilities to customers, reflecting the extent to which they participate in the investment performance of the associated asset portfolio. These offsetting movements are recorded in ‘Net income/(expense) arising from liabilities to customers under investment contracts’ and ‘Net insurance claims and benefits paid and movement in liabilities to policyholders’.

HSBC Holdings plc37

Report of the Directors | Financial summary

Gains less losses from financial investments

2017
2016
2015

$m
$m
$m
Net gains from disposal1,248
1,421
2,179
– debt securities403
357
345
– equity securities838
1,058
1,829
– other financial investments7
6
5
Impairment of available-for-sale equity securities(98)(36)(111)
Year ended 31 Dec1,150
1,385
2,068
Significant items and currency translation

2017
2016

$m
$m
Significant items434
648
– gain on disposal of our membership interest in Visa – Europe—
584
– gain on disposal of our membership interest in Visa – US308
116
– gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank126
—
– trading results from disposed-of operations in Brazil—
1
– currency translation on significant items

(53)
Currency translation

70
Year ended 31 Dec434
718
Gains less losses from financial investments of $1.2bn decreased by $0.2bn compared with 2016. This was largely due to a decrease in gains on the disposal of equity securities $0.2bn, notably the non-recurrence of the gain on disposal of our membership interest in Visa Europe of $0.6bn in 2016. This was partly offset by higher gains on disposal resulting from the sale of our shares in Visa Inc. of $0.3bn, compared with $0.1bn in 2016. We also recorded gains on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank (‘Techcombank’) of $0.1bn in 2017.
In addition, the decrease in gains less losses from financial investments included higher impairments of AFS equity securities in GB&M.
These decreases were partly offset by gains on disposal of debt securities, which included higher gains on disposal of AFS assets in BSM in Corporate Centre, notably in the UK and Hong Kong.
Net insurance premium income
 2017
2016
2015
 $m
$m
$m
Gross insurance premium income10,802
10,588
11,012
Reinsurance premiums(1,023)(637)(657)
Year ended 31 Dec9,779
9,951
10,355
Significant items and currency translation
 2017
2016
 $m
$m
Significant items—
420
– trading results from disposed-of operations in Brazil—
362
– currency translation on significant items 58
Currency translation (33)
Year ended 31 Dec—
387
Net insurance premium income was $0.2bn lower than in 2016, and included reductions due to the disposal of our operations in Brazil ($0.4bn) and minimal currency translation movements.
Excluding these, net insurance premium income increased by $0.2bn due to the following:
growth in Hong Kong driven by increased gross premium income, partly offset by the effect of a new reinsurance agreement;
an increase in France, driven by higher volumes of unit-linked products.
This was partly offset by:
lower sales through third-party channels in Singapore.

38HSBC Holdings plc

Other operating income
 2017
2016
2015
 $m
$m
$m
Rent received171
157
171
Gains/(losses) recognised on assets held for sale214
(1,949)(244)
Gains on investment properties48
4
61
Gain on disposal of property, plant and equipment, intangible assets and non-financial investments46
35
53
Change in present value of in-force long-term insurance business24
902
799
Other(166)(120)215
Year ended 31 Dec337
(971)1,055
Change in present value of in-force long-term insurance business
 2017
2016
2015
 $m
$m
$m
Value of new business919
900
809
Expected return(599)(532)(552)
Assumption changes and experience variances(280)513
504
Other adjustments(16)21
38
Year ended 31 Dec24
902
799
Significant items and currency translation
 2017
2016
 $m
$m
Significant items(160)(1,928)
– portfolio disposals(158)(163)
– gain/(loss) and trading results from disposed-of operations in Brazil19
(1,763)
– investment in new businesses(99)—
– other acquisitions, disposals and dilutions78
—
– currency translation on significant items

(2)
Currency translation

(14)
Year ended 31 Dec(160)(1,942)
Other operating income was $0.3bn in 2017, compared with a net expense of $1.0bn in 2016. This was primarily due to net losses recognised on assets held for sale in 2016, most notably a loss of $1.8bn from the disposal of our operations in Brazil. This compared with gains of $0.2bn on assets held for sale in 2017, which included a gain on the sale of our holding in VocaLink in the UK, and a gain on the sale of our operations in Lebanon.
This increase was partly offset by lower favourable movements of $0.9bn in the present value of in-force (‘PVIF’) long-term insurance business, of which $0.8bn related to ‘Assumption changes and experience variances’ (for further details, please see Note 20 on the Financial Statements). This reflected:
adverse movements in Hong Kong of $0.4bn, reflecting the future sharing of investment returns with policyholders; and
adverse movements in Hong Kong and Singapore of $0.4bn, reflecting adjustments offsetting the impact of regulatory-driven changes in the valuation of liabilities (the corresponding movement is recorded in ‘Net insurance claims and benefits paid and movement in liabilities to policyholders’).
These adverse movements were partly offset by favourable movements in France, due to market-driven changes in interest rate assumptions.
Net insurance claims and benefits paid and movement in liabilities to policyholders
 2017
2016
2015
 $m
$m
$m
Gross13,208
12,508
11,872
Less reinsurers’ share(877)(638)(580)
Year ended 31 Dec12,331
11,870
11,292
Significant items and currency translation
 2017
2016
 $m
$m
Significant items—
627
– trading results from disposed-of operations in Brazil—
538
– currency translation on significant items

89
Currency translation

(89)
Year ended 31 Dec—
538

HSBC Holdings plc39

Report of the Directors | Financial summary

Net insurance claims and benefits paid and movement in liabilities to policyholders were $0.5bn higher compared with 2016, and included reductions due to the disposal of our operations in Brazil ($0.5bn).
This increase was primarily due to improved returns on financial assets supporting contracts where the policyholder shares the investment risk, reflecting improved equity market performance in Hong Kong and France compared with 2016.
In addition, movements in liabilities to policyholders were higher due to increased premium income.
These increases were partly offset by the impact of regulatory-driven changes in the valuation of liabilities in Hong Kong and Singapore (the corresponding movement is recorded in ‘Assumption changes and experience variances’ in PVIF).
The gains or losses recognised on the financial assets designated at fair value that are held to support these insurance contract liabilities are reported in ‘Net income/(expense) from financial instruments designated at fair value’ on page 37.
Loan impairment charges and other credit risk provisions
 2017
2016
2015
 $m
$m
$m
New allowances net of allowance releases2,636
3,977
4,400
Recoveries of amounts previously written off(644)(627)(808)
Loan impairment charges1,992
3,350
3,592
– individually assessed allowances1,114
1,831
1,505
– collectively assessed allowances878
1,519
2,087
Releases of impairment on available-for-sale debt securities(190)(63)(17)
Other credit risk provisions(33)113
146
Year ended 31 Dec1,769
3,400
3,721
Impairment charges on loans and advances to customers as a percentage of average gross loans and advances to customers0.22%
0.39%
0.39%
Significant items and currency translation
 2017
2016
 $m
$m
Significant items—
867
– trading results from disposed-of operations in Brazil—
748
– currency translation on significant items

119
Currency translation

(61)
Year ended 31 Dec—
806
Loan impairment charges and other credit risk provisions (‘LICs’) of $1.8bn were $1.6bn or 48% lower compared with 2016. This reduction included the favourable effects of the disposal of our operations in Brazil ($0.9bn) in July 2016, which was partly offset by the impact of adverse foreign currency translation. Excluding these factors, LICs decreased by $0.8bn or 32%, driven by lower LICs in our CMB and RBWM businesses.
Individually assessed LICs of $1.1bn were $0.7bn or 39% lower compared with 2016. This included a reduction of $0.2bn following our sale of operations in Brazil.
The remaining variance arose:
In CMB (down $0.5bn), notably in North America primarily against exposures in the oil and gas sector, as well as reductions in France, Spain and Singapore, as 2016 included a small number of specific charges in relation to corporate exposures. This was partly offset by higher individually assessed LICs in Hong Kong relating to a small number of customers across various sectors.
In GB&M, individually assessed LICs were broadly unchanged, with LICs in 2017 primarily related to two large corporate exposures in Europe, partly offset by a net release of allowances in the US. In 2016, individually assessed LICs included charges in the US against exposures in the oil and gas sector, as well as a single mining-related corporate client.
Collectively assessed LICs of $0.9bn were $0.6bn or 42% lower compared with 2016. This included a reduction of $0.6bn following the sale of operations in Brazil and the adverse effects of foreign currency translation of $48m.
The remaining variance arose:
In Corporate Centre (down $0.1bn), driven by the run-off of the CML portfolio in the US.
In RBWM (down $0.1bn), notably in Turkey reflecting improved credit quality and lower lending balances, and in the US and Hong Kong from improvements in credit quality. These decreases were partly offset by increased collective allowances in Mexico, reflecting growth in unsecured lending balances and an increase in delinquencies. In addition, we increased collective allowances in the UK against our mortgages and cards exposures, in part offset by a release following the sale of a portfolio of loans. LICs in the UK remain at low levels, representing approximately 10bps of the overall portfolio.
This was partly offset:
In GB&M (up $0.1bn), notably in the UK, as 2016 included net releases of collective allowances.
In CMB (up $38m), notably in Hong Kong in part due to asset growth and an increase in historical loss rates, partly offset by lower charges in the UK relating to reduced exposures in the oil and gas sector.
In 2017, we recorded higher net releases of impairment allowances against available-for-sale debt securities ($0.2bn). These were primarily related to asset-backed securities in our legacy credit portfolio in Corporate Centre and reflected an improvement in collateral values.
A net release of other credit risk provisions of $33m in 2017 largely related to oil and gas sector exposures in the US and the construction sector in Canada. This compared with a net charge in the prior year in these markets, also related to the oil and gas sector.

40HSBC Holdings plc

Operating expenses
In addition to detailing operating expense items by category, as set out in the table below, we also categorise operating expenses as follows:
•
‘Run-the-bank’ costs comprise business-as-usual running costs that keep operations functioning at the required quality and standard year on year, maintain IT infrastructure and support revenue growth. Run-the-bank costs are split between front office and back office, reflecting the way the Group is organised into four global businesses (‘front office’) supported by global functions (‘back office’).
•
‘Change-the-bank’ costs comprise expenses relating to the implementation of mandatory regulatory changes and other investment costs incurred relating to projects to change business-as-usual activity to enhance future operating capabilities.
•
‘Costs to achieve’ comprise those specific costs relating to the achievement of the strategic actions set out in the Investor Update in June 2015. They comprise costs incurred between 1 July 2015 and 31 December 2017, and do not include ongoing initiatives such as Global Standards. Any costs arising within this category have been incurred as part of a significant transformation programme. Costs to achieve are included within significant items and incorporate restructuring costs that were identified as a separate significant item prior to 1 July 2015.
Operating expenses
 2017
2016
2015
 $m
$m
$m
By expense category   
Employee compensation and benefits17,315
18,089
19,900
Premises and equipment (excluding depreciation and impairment)3,530
3,758
3,830
General and administrative expenses12,177
12,715
13,832
Administrative expenses33,022
34,562
37,562
Depreciation and impairment of property, plant and equipment1,166
1,229
1,269
Amortisation and impairment of intangible assets696
777
937
Goodwill impairment—
3,240
—
Year ended 31 Dec34,884
39,808
39,768
 2017
2016
 $m
$m
By expense group  
Run-the-bank – front office14,254
13,240
Run-the-bank – back office12,974
13,003
Change-the-bank2,996
2,919
Bank levy916
922
Significant items3,744
9,393
Currency translation

331
Year ended 31 Dec34,884
39,808
Staff numbers (full-time equivalents)
 2017
2016
2015
Global businesses   
Retail Banking and Wealth Management129,402
124,810
145,868
Commercial Banking44,871
44,712
48,651
Global Banking and Markets45,725
46,659
47,894
Global Private Banking7,250
8,054
8,513
Corporate Centre1,439
10,940
4,277
At 31 Dec228,687
235,175
255,203
Reported operating expenses of $34.9bn were $4.9bn lower than in 2016. This reflected a reduction in significant items of $5.6bn which included:
a $3.2bn write-off of the goodwill in our GPB business in Europe in 2016 (please see Note 20 on the Financial Statements for further details);
a net release of $0.4bn in settlements and provisions in connection with legal matters, compared with charges in 2016 of $0.7bn;
the operating expenses incurred by our Brazil business of $1.1bn in 2016; and
costs to achieve of $3.0bn, compared with $3.1bn in 2016.
The reduction in reported operating expenses also included the favourable effects of currency translation of $0.3bn.

HSBC Holdings plc41

Report of the Directors | Financial summary

Significant items and currency translation
 2017
2016
 $m
$m
Significant items3,744
9,393
– costs associated with portfolio disposals53
28
– costs associated with the UK’s exit from the EU28
—
– costs to achieve3,002
3,118
– costs to establish UK ring-fenced bank392
223
– customer redress programmes655
559
– gain on partial settlement of pension obligation
(188)—
– impairment of GPB – Europe goodwill—
3,240
– regulatory provisions in GPB164
344
– settlements and provisions in connection with legal matters(362)681
– trading results from disposed-of operations in Brazil—
1,059
– currency translation on significant items 141
Currency translation

331
Year ended 31 Dec3,744
9,724
Excluding the significant items and currency translation tabulated above, operating expenses of $31.1bn were $1.1bn higher than in 2016. This increase reflected investments in business growth programmes (up $0.6bn), primarily in RBWM, where investments were partly funded by the proceeds from our disposal of Visa Inc. shares, as well as higher performance-related pay (up $0.4bn). The impact of our cost-saving initiatives more than offset inflation and continued investment in regulatory programmes and compliance.
Our total investment in regulatory programmes and compliance was $3.0bn, up $0.2bn or 7% compared with 2016. This reflected the continued implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities.
In 2017, we realised $2.1bn of cost savings, and achieved annualised run-rate savings of $6.1bn since our Investor Update in June 2015. We have completed our ‘costs to achieve’ transformation programme, incurring a total cost of $7.0bn since 2015, and continue to realise the benefits of our cost-saving initiatives:
In global businesses, savings of $0.6bn reflected the impact of our branch optimisation programme enabled by our digital initiatives as well as transformation of online and mobile banking for corporates.
In Operations and Technology, savings of $1.1bn reflected migrations to lower cost locations, automation, the simplification of our IT structure and the implementation of target operating models.
In our back office functions, savings of $0.4bn were realised as a result of the re-engineering and simplification of processes and the implementation of global operating models.
The number of employees expressed in FTEs at 31 December 2017 was 228,687, a decrease of 6,488 since 31 December 2016. This included a 18,601 reduction realised across global businesses and global functions from our transformation programme, partly offset by investment in Global Standards of 3,016 FTEs and an increase of 9,097 FTEs, in part attributable to investment for growth.
Share of profit in associates and joint ventures

201720162015

$m$m$m
Share of profit in associates2,3492,3262,518
– Bank of Communications Co., Limited1,8631,8922,011
– The Saudi British Bank422415462
– other641945
Share of profit in joint ventures262838
Year ended 31 Dec2,3752,3542,556
Our share of profit in associates and joint ventures was $2.4bn, an increase of $21m or 1% compared with 2016 and including the adverse effects of currency translation of $33m.
Excluding the effects of currency translation, our share of profit in associates and joint ventures increased by $53m, compared with 2016. This mainly comprised gains from the sale of investments held by Business Growth Fund, a joint venture with other UK banks to support small- and medium-sized enterprises (‘SMEs’) in the UK.
Our share of profit in our largest associate, BoCom, was $1.9bn. This was broadly unchanged from 2016 after excluding the effects of currency translation. At 31 December 2017, we performed an impairment review of our investment in BoCom and concluded that it was not impaired, based on our value in use calculation (see Note 17 on the Financial Statements for further details).
In future periods, the value in use may increase or decrease depending on the effect of changes to model inputs. It is expected that the carrying amount will increase in 2018 due to retained profits earned by BoCom. At the point where the carrying amount exceeds the value in use, HSBC will determine whether an impairment exists. If so, we would continue to recognise its share of BoCom’s profit or loss, but the carrying amount would be reduced to equal the value in use, with a corresponding reduction in income, unless the market value has increased to a level above the carrying amount.

42HSBC Holdings plc

Tax expense
 2017
2016
2015
 $m
$m
$m
Profit before tax17,167
7,112
18,867
Tax expense(5,288)(3,666)(3,771)
Profit after tax for the year ended 31 Dec11,879
3,446
15,096
Effective tax rate30.80%
51.55%
19.99%
The effective tax rate for 2017 of 30.8% includes a charge of $1.3bn due to the remeasurement of US deferred tax balances to reflect the reduction in the US federal tax rate from 35% to 21% from 2018. This charge increased the 2017 effective tax rate by 7.5%. The effective tax rate in 2017 was lower than the 51.6% in
2016 as 2016 included the unfavourable impact of a non-deductible goodwill write-down and loss on disposal of operations in Brazil. Further detail is provided in Note 7 on the Financial Statements.
2016 compared with 2015
Net interest income
In 2016, we earned reported net interest income of $0.9bn in Brazil (2015: $2.1bn) from average interest earning assets in Brazil of
$25.8bn $25.8bn (2015: $40.0bn). Our net interest margin excluding Brazil was 1.70% (2015: 1.79%).


Summary of interest income by type of asset
  201620152014
  
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
 Footnotes$m
$m
%$m
$m
%$m
$m
%
Short-term funds and loans and advances to banks 203,799
1,510
0.74221,924
2,277
1.03237,148
3,068
1.29
Loans and advances to customers 865,356
29,272
3.38909,707
33,104
3.64931,311
37,429
4.02
Reverse repurchase agreements –
non-trading		 168,207
1,227
0.73162,308
1,301
0.80198,273
1,800
0.91
Financial investments 430,775
7,248
1.68396,113
7,508
1.90399,816
8,323
2.08
Other interest-earning assets 55,565
3,157
5.6836,897
2,999
8.1319,988
335
1.68
Total interest-earning assets 1,723,702
42,414
2.461,726,949
47,189
2.731,786,536
50,955
2.85
Trading assets and financial assets designated at fair value8, 9179,780
3,897
2.17195,285
4,626
2.37238,958
5,596
2.34
Impairment allowances (9,127)


(10,606)


(14,015)


Non-interest-earning assets 653,115



682,143



668,564



Year ended 31 Dec 2,547,470
46,311
1.822,593,771
51,815
2.002,680,043
56,551
2.11
For footnotes, see page 79.
Summary of interest expense by type of liability and equity
  201620152014
  
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
 Footnotes$m
$m
%$m
$m
%$m
$m
%
Deposits by banks1049,782
342
0.6955,863
378
0.6861,217
481
0.79
Financial liabilities designated at fair value – own debt issued1162,042
942
1.5258,489
717
1.2366,374
837
1.26
Customer accounts121,074,661
5,492
0.511,075,901
7,401
0.691,088,493
9,131
0.84
Repurchase agreements – non-trading 118,789
626
0.53117,947
355
0.30190,705
652
0.34
Debt securities in issue 114,343
2,807
2.45129,039
3,521
2.73129,724
4,554
3.51
Other interest-bearing liabilities 22,387
2,392
10.6828,396
2,286
8.0510,120
595
5.88
Total interest-bearing liabilities 1,442,004
12,601
0.871,465,635
14,658
1.001,546,633
16,250
1.05
Trading liabilities and financial liabilities designated at fair value (excluding own debt issued) 138,486
1,986
1.43151,294
2,071
1.37178,518
2,856
1.60
Non-interest bearing current accounts 184,016


190,914


185,990


Total equity and other non-interest bearing liabilities 782,964


785,928


768,902


Year ended 31 Dec 2,547,470
14,587
0.572,593,771
16,729
0.642,680,043
19,106
0.71
For footnotes, see page 79.

32
HSBC Holdings plc Annual Report and Accounts 2016

Significant items and currency translation
 2016
2015
 $m
$m
Significant items951
2,104
– releases/(provisions) arising from the ongoing review of compliance with the UK Consumer Credit Act2
(10)
– acquisitions, disposals and dilutions949
2,114
Currency translation 1,808
Year ended 31 Dec951
3,912

NetReported net interest income of $29.8bn decreased by $2.7bn or 8% compared with 2015. This was partly the impact of the disposal of our operations in Brazil on 1 July 2016, which reduced net interest income by ($1.2bn),$1.2bn, and adverse effects of currency translation differences.differences between 2016 and 2015. These decreases were partly offset by growth in net interest income in Asia, notably in Hong Kong, and in Mexico, partly offset by a decrease in the UK and the US.
Net interest margin in 2016 of 1.73% was 15 basis points (‘bps’) lower than 2015. This reflected the effects of the disposal and currency translation noted above, which had an adverse effect of 8bps. The remainder of the decrease was primarily as a result of lower yields on customer lending, which had an adverse effect of 9bps on our net interest margin, partly reflecting the continuing run-off of our US CML portfolio. In addition, we recorded an increase in the cost of debt, partly offset by a lower cost of funds on customer accounts, notably in Hong Kong.
Interest income
InterestReported interest income decreased by $4.8bn compared with 2015, notably driven by our sale of Brazil operations ($3.1bn) and currency translation.translation differences between 2016 and 2015. Excluding these factors, total interest income increased marginally.
Interest income on loans and advances to customers decreased by $3.8bn, driven by a reduction of $1.9bn relating to our operations in Brazil, and the adverse effects of currency translation.translation differences between 2016 and 2015. Excluding these factors, interest income on customer lending was broadly unchanged. The effects of growth in balances in Europe and Mexico, together with central bank rate rises in Mexico and Argentina, were broadly offset by the run-off of our US CML portfolio and the effect of lower average balances in Asia.
Income growth in Mexico was driven by growth in average balances, reflecting gains in market share and higher yields, notably on term lending due to central bank rate increases. Income increased in Europe as the effect of growth in average balances, primarily an increase in term lending volumes, more than offset the effect of lower yields on both term lending and mortgages, reflecting competitive pricing in the market and lower interest rates in the eurozone. By contrast, interest income decreased in Asia, as a result of lower average balances in term lending, despite increased mortgage balances, notably in Hong Kong. Yields in Asia also decreased marginally as a result of
central bank rate cuts in China during 2015, although these were partly offset by rate rises in Hong Kong.
Interest income on short-term funds and financial investments decreased by $1.0bn in 2016, including a decrease of $0.7bn relating to Brazil. Excluding the effect of currency translation differences between 2016 and 2015 and Brazil, interest income on short-term funds and financial investments increased by $0.2bn. The movement predominantlymainly reflected increases in available-for-sale debt securities in Asia, reflecting growth in our surplus liquidity. In North America income increased, driven by higher balances primarily due to net purchase of US Treasury securities, and a higher yield, following the US rate rise at the end of 2015.
Interest income on reverse repurchase agreements – non-trading was $0.1bn lower, including a decrease relating to Brazil ($0.4bn). Excluding currency translation differences between 2016 and 2015 and Brazil, income increased primarily in North America, reflecting higher balances and improvedincreased market rates.
Interest expense
Reported interest expense decreased by $2.1bn, driven by the reductions relating to Brazil ($1.8bn) and currency translation.translation differences between 2016 and 2015. Excluding these factors, interest expense rose by $0.4bn, as increases in the cost of debt and repurchase agreements were partly offset by decreases in interest expense on customer accounts.
Interest expense on customer accounts decreased by $1.9bn, including amounts relating to Brazil ($0.8bn) and currency translation.translation differences between 2016 and 2015. Excluding these factors, interest expense on customer accounts decreased by $0.5bn, driven by Asia and Europe, partly offset by Mexico, Argentina and North America. In Asia, the effect of an increase in balances was more than offset by a lower cost of funds, partly due to a change in portfolio mix towards lower-cost accounts in Hong Kong, which more than offset the effect of central bank rate rises. In addition to these factors, the central bank rate cuts in a number of markets, including mainland China, Australia and India, further lowered our cost of funds. In Europe, interest expense decreased as a result of a reduction in the cost of funds, partly due to a negative rate environment,interest rates in continental Europe, although the average balances increased, notably in the UK. These decreases were partly offset by higher interest expense on customer accounts in the US, Mexico and Argentina, reflecting promotional deposit offerings and the central bank rate rises.
Interest expense on debt securities in issue and own debt designated at fair value decreased by $0.5bn, including the impact of Brazil ($0.8bn). Excluding currency translation differences between 2016 and 2015 and the effect of Brazil, interest expense increased by $0.4bn. This was driven by an increase in the cost of funds and an increase in average balances, as redemptions across the Group were more than offset by issuances of senior debt from HSBC Holdings plc (‘HSBC Holdings’). The increase in the cost of debt designated at fair value was as a result of longer maturities and the structural subordination of our new issuances from HSBC Holdings.
Interest expense increased on repurchase agreements by $0.3bn, notably in North America, reflecting higher balances and market rates.


HSBC Holdings plc Annual Report and Accounts 2016
33

Report of the Directors | Financial summary

Net fee income
 2016
2015
2014
 $m
$m
$m
Account services2,417
2,745
3,407
Funds under management2,076
2,570
2,658
Cards1,970
2,281
2,460
Credit facilities1,795
1,919
1,890
Broking income1,060
1,441
1,371
Unit trusts863
1,007
1,005
Imports/exports820
971
1,115
Remittances766
772
833
Underwriting705
762
872
Global custody662
721
726
Insurance agency commission419
519
516
Other2,116
2,308
2,692
Fee income15,669
18,016
19,545
Less: fee expense(2,892)(3,311)(3,588)
Year ended 31 Dec12,777
14,705
15,957
Significant items and currency translation
 2016
2015
 $m
$m
Significant items



– acquisitions, disposals and dilutions233
533
Currency translation

574
Year ended 31 Dec233
1,107
Net fee income
Reported net fee income fell by $1.9bn compared with 2015, partly as a result of the adverse effects of currency translation differences between 2016 and 2015 of $0.6bn, primarily in the UK, Argentina and Mexico, which notably affected account

HSBC Holdings plc43

Report of the Directors | Financial summary

services, cards and fee expense. The saledisposal of our operations in Brazil to Banco Bradesco S.A. reduced net fee income by a further $0.3bn. In addition, the decrease was driven by RBWM in Hong Kong, reflecting risk-averse retail investor sentiment in Asia.
Fee income from broking and unit trusts decreased by $525m, largely due to a strong performance in Hong Kong in the first half of 2015. The decrease was mainly in RBWM in Hong Kong, from lower securities broking income resulting from a reduction in stock market turnover.
In addition, fee income from cards decreased by $311m, primarily reflecting lower interchange fees in the UK, following regulatory change in late 2015.
Fee income from funds under management decreased by $0.5bn, partly driven by a reclassification between fee income from funds under management and fee expense in Germany ($0.2bn). In addition, fee income from funds under management decreased in RBWM’s Global Asset Management business, driven by a change in the product mix towards lower margin fixed income products, as well as in GPB in Switzerland.
The reduction in fee income from funds under management was partly offset by a fall in fee expense of $419m, primarily reflecting lower brokerage fees, and the reclassification noted above.



Net trading income
  2016
2015
2014
 Footnote$m
$m
$m
Trading activities 8,702
7,285
5,419
Net interest income on trading activities 1,386
1,775
1,907
Gain/(loss) on termination of hedges 1
(11)1
Other trading income – hedge ineffectiveness 





– on cash flow hedges (5)15
34
– on fair value hedges 23
(11)19
Fair value movement on non-qualifying hedges13(655)(330)(620)
Year ended 31 Dec 9,452
8,723
6,760
For footnote, see page 79.

34
HSBC Holdings plc Annual Report and Accounts 2016

Significant items and currency translation
  2016
2015
 Footnote$m
$m
Significant items   
Included within trading activities 26
230
– favourable debit valuation adjustment on derivative contracts 26
230
Included in other net trading income (508)(42)
– fair value movement on non-qualifying hedges13(687)(327)
– acquisitions, disposals and dilutions 179
285
Total significant items (482)188
Currency translation 

596
Year ended 31 Dec (482)784
For footnote, see page 79.
NetReported net trading income of $9.5bn was $0.7bn higher than in 2015, despite the net adverse effects of $1.3bn of significant items and currency translation summarised in the table above.differences between 2016 and 2015. The increase, (excluding the movements tabulated above)excluding significant items and currency translation, was driven by:
favourable movements on assets held as economic hedges of foreign currency debt designated at fair value of $1.7bn in 2016 compared to minimal movements in 2015. These movements were offset by adverse movements in foreign
currency debt designated at fair value in ‘Net income/(expense) from financial instruments designated at fair value’; and
increases in GB&M ($0.2bn), notably in Rates and in Credit, as we gained market share in Europe, partly offset by a decrease in Equities, reflecting lower trading volumes in Europe and Asia. In addition, we recorded adverse movements of $70m in credit and funding valuation adjustments compared with favourable movements of $227m in the prior year,2015, primarily relating to movements in our own credit spread on structured liabilities.


Net income/(expense) from financial instruments designated at fair value
 2016
2015
2014
 $m
$m
$m
Net income/(expense) arising from:   
Financial assets held to meet liabilities under insurance and investment contracts1,480
531
2,300
Liabilities to customers under investment contracts(218)34
(435)
HSBC’s long-term debt issued and related derivatives(3,975)863
508
– change in own credit spread on long-term debt (significant item)(1,792)1,002
417
– other changes in fair value(2,183)(139)91
Other instruments designated at fair value and related derivatives47
104
100
Year ended 31 Dec(2,666)1,532
2,473
The majority of our financial liabilities designated at fair value are fixed-rate, long-term debt issuances, and are managed in conjunction with interest rate swaps as part of our interest rate management strategy.
These liabilities are discussed further on page 274.

Significant items and currency translation
 2016
2015
 $m
$m
Significant items(1,488)1,426
– own credit spread(1,792)1,002
– acquisitions, disposals and dilutions304
424
Currency translation

24
Year ended 31 Dec(1,488)1,450
We recorded a reported net expense from financial instruments designated at fair value of $2.7bn in 2016, compared with net income of $1.5bn in 2015. In 2016, there were unfavourable movements of $1.8bn in the fair value of our own long-term debt reflecting changes in credit spread, compared with favourable movements of $1.0bn in 2015.
The decrease was also as a result of ‘Other changes in fair value’ on our long-term debt and related derivatives, which reflected:
higher adverse movements of $1.7bn in 2016 compared with minimal movements in 2015 on foreign currency debt designated at fair value and issued as part of our overall funding strategy (offset by assets held as economic hedges in ‘Net trading income’); and
higher adverse movements of $0.2bn relating to the economic hedging of interest and exchange rate risk on our long-term debt.
By contrast, net income from financial assets held to meet liabilities under insurance and investment contracts of $1.5bn was $0.9bn higher than in 2015. This was primarily driven by
improved equity market performance in Asia and Europe in 2016, partly offset by the disposal of our operations in Brazil in July 2016.
Net income arising from financial assets held to meet liabilities under insurance and investment contracts results in a corresponding movement in liabilities to customers, reflecting the extent to which they participate in the investment performance of the associated asset portfolio. These offsetting movements are recorded in ‘Net income/(expense) arising from liabilities to customers under investment contracts’ and ‘Net


HSBC Holdings plc Annual Report and Accounts 2016
35

Report of the Directors | Financial summary

insurance claims and benefits paid and movement in liabilities to policyholders’.
In 2016, the majority of the variance arose in unit-linked contracts where the policyholder bears the investment risk, and was therefore offset by movements in liabilities to customers.


Gains less losses from financial investments
 2016
2015
2014
 $m
$m
$m
Net gains from disposal1,421
2,179
1,708
– debt securities357
345
665
– equity securities1,058
1,829
1,037
– other financial investments6
5
6
Impairment of available-for-sale equity securities(36)(111)(373)
Year ended 31 Dec1,385
2,068
1,335
Significant items and currency translation
 2016
2015
 $m
$m
Significant items701
1,385
– gain on disposal of our membership interest in Visa – Europe584
—
– gain on disposal of our membership interest in Visa – US116
—
– gain on the partial sale of shareholding in Industrial Bank—
1,372
– acquisitions, disposals and dilutions1
13
Currency translation 34
Year ended 31 Dec701
1,419
In 2016, reported gains less losses from financial investments decreased by $0.7bn compared with 2015. This was largely due to the movement in significant items and currency translation tabulated above,differences between 2016 and 2015 of $0.7bn, notably the non-recurrence of the gain on the partial sale of
our shareholding in Industrial Bank of $1.4bn in 2015, partly offset by gains on disposal of our membership interests in Visa Europe of $0.6bn and our shares in Visa USInc. of $0.1bn in 2016.


Net insurance premium income
 2016
2015
2014
 $m
$m
$m
Gross insurance premium income10,588
11,012
12,370
Reinsurance premiums(637)(657)(449)
Year ended 31 Dec9,951
10,355
11,921
Significant items and currency translation
 2016
2015
 $m
$m
Significant items



– acquisitions, disposals and dilutions362
764
Currency translation

169
Year ended 31 Dec362
933
NetReported net insurance premium income was $0.4bn lower than in 2015, and included reductions due to the disposal of our operations in Brazil ($0.4bn) and currency translation movementsdifferences between 2016 and 2015 of $0.2bn. Net insurance premium income increased in Hong Kong, partly offset by reductions in France in response to low interest rates
and market volatility, and in the UK, following the disposal of our pension business in 2015.



Other operating income
 2016
2015
2014
 $m
$m
$m
Rent received157
171
162
Gains/(losses) recognised on assets held for sale(1,949)(244)220
Gains on investment properties4
61
120
Gain on disposal of property, plant and equipment, intangible assets and non-financial investments35
53
32
Losses arising from dilution of interest in Industrial Bank and other associates and joint ventures—
—
(32)
Change in present value of in-force long-term insurance business902
799
261
Other(120)215
368
Year ended 31 Dec(971)1,055
1,131


36
HSBC Holdings plc Annual Report and Accounts 2016

Change in present value of in-force long-term insurance business
 2016
2015
2014
 $m
$m
$m
Value of new business900
809
870
Expected return(532)(552)(545)
Assumption changes and experience variances513
504
(116)
Other adjustments21
38
52
Year ended 31 Dec902
799
261
Significant items and currency translation
 2016
2015
 $m
$m
Significant items  
Included within gains/(losses) recognised on assets held for sale:(163)(214)
– portfolio disposals(163)(214)
Included within the remaining line items:(1,763)157
– acquisitions, disposals and dilutions(1,763)157
Total significant items(1,926)(57)
Currency translation

71
Year ended 31 Dec(1,926)14
OtherReported other operating income decreased bywas $2.0bn fromlower than in 2015. This was as a result of a net adverse movement in significant items and currency translation differences between 2016 and 2015 of $1.9bn, notably the loss on the saledisposal of our operations in Brazil of $1.7bn and the effects of the other significant items recorded in the table above.$1.7bn. In addition, we recorded lower revaluation gains on investment properties.
These decreases were partly offset by higher favourable movements of $0.1bn in present value of in-force (‘PVIF’) long-term insurance business, which was primarily driven by an
increase in the value of new business written in Hong Kong,partly offset by a reduction in France and the impact of the disposal of our operations in Brazil.
In 2016, we recognised $513m of income in ‘Assumption changes and experience variances’, which was broadly unchanged from the $504m recognised in 2015. For further details, please see Note 20.

20 of the Financial Statements in the 2016 Form 20-F.

Net insurance claims and benefits paid and movement in liabilities to policyholders
  2016
2015
2014
 Footnote$m
$m
$m
Net insurance claims and benefits paid and movement in liabilities to policyholders: 





– gross 12,508
11,872
13,723
– less reinsurers’ share (638)(580)(378)
Year ended 31 Dec1411,870
11,292
13,345
For footnote, see page 79.
Significant items and currency translation
 2016
2015
 $m
$m
Significant items  
– acquisitions, disposals and dilutions538
962
Currency translation

246
Year ended 31 Dec538
1,208
NetReported net insurance claims and benefits paid and movement in liabilities to policyholders were $0.6bn higher compared with 2015, and included reductions due to the disposal of our operations in Brazil ($0.4bn) and currency translation movementsdifferences between 2016 and 2015 of $0.2bn.
This increase was primarily due to improved returns on financial assets supporting unit-linked contracts, where the policyholder bears the investment risk, reflecting improved equity market performance in Hong Kong compared towith 2015. In addition, movements in liabilities to policyholders were higher due to
increased premium income, and interest rate-driven changes to liability valuations in Hong Kong.
These increases were partly offset by decreasedlower premiums and reducingfalling investment returns in France.
The gains or losses recognised on the financial assets designated at fair value that are held to support these insurance contract liabilities are reported in ‘Net income/(expense) from financial instruments designated at fair value’ on page 235.


44
HSBC Holdings plc Annual Report and Accounts 201637

Report of the Directors | Financial summary

instruments designated at fair value’ on page 235 of the 2016 Form 20-F.
Loan impairment charges and other credit risk provisions
 2016
2015
2014
 $m
$m
$m
New allowances net of allowance releases3,977
4,400
5,010
Recoveries of amounts previously written off(627)(808)(955)
Loan impairment charges:3,350
3,592
4,055
– individually assessed allowances1,831
1,505
1,780
– collectively assessed allowances1,519
2,087
2,275
Releases of impairment on available-for-sale debt securities(63)(17)(319)
Other credit risk provisions113
146
115
Year ended 31 Dec3,400
3,721
3,851
Impairment charges on loans and advances to customers as a percentage of
average gross loans and advances to customers		0.39%0.39%0.43%
Significant items and currency translation
 2016
2015
 $m
$m
Significant items748
933
– acquisitions, disposals and dilutions748
933
Currency translation

184
Year ended 31 Dec748
1,117
LoanReported loan impairment charges and other credit risk provisions (‘LICs’) of $3.4bn were $0.3bn lower than in 2015. This was partly as a result of favourable currency translation differences between 2016 and 2015 of $0.2bn, notably in Mexico and the UK. In addition,The disposal of our sale of operations in Brazil resulted inreduced charges by a $0.2bn reduction.further $0.2bn.
Collectively assessed LICs of $1.5bn were down $568m compared withlower than in 2015. This reduction included the net favourable effect of $230m as a result of the disposal of our sale of operations in Brazil and favourable currency translation differences between 2016 and 2015 of $95m. The remaining variance reflected the following:
In CMB (down $226m), a net release of collectively assessed LICs compared with a net charge in 2015. The net release of allowances in 2016 was primarilymainly on exposures related to the oil and gas sector, notably in the US and Canada, the UAE and Asia. This reflected a more positive outlook for this sector. By contrast, in 2015 we increased our collective allowances on exposures related to the oil and gas sector. The reduction in collectively assessed LICs was partly offset by an increase in the UK, primarily reflectingmainly from new allowances against exposures in the oil and gas sector.
In GB&M, a net release of collectively assessed LICs, notably in the UK and US, compared with a net charge in 2015.
This was partly offset:
In RBWM, where collectively assessed LICs rose by $75m. The increase was mainly in Mexico reflecting our strategic focus on growing unsecured lending, as well as an increase in delinquency rates. By contrast, collectively assessed LICs decreased in a small number of markets in the Middle East and North Africa and Asia.
In Corporate Centre, LICs increased in our US CML run-off portfolio by $67m.
Individually assessed LICs of $1.8bn increased by $326m compared with 2015. Higher charges in GB&M were partly offset by a reduction in CMB and favourable currency translation differences between 2016 and 2015 of $79m. This primarily reflected the following:
In GB&M (up $0.6bn), thean increase was primarily in the US, related to a significant specific charge against a mining-related corporate exposure, as well as charges relating to exposures in the oil and gas sector. Additionally, in Hong Kong, an increase in individually assessed LICs in 2016 was largely related to a single corporate exposure. This compared with a net release of LICs in 2015.
This was partly offset:
In CMB, where lower individually assessed LICs (down $261m), included favourable currency translation differences between 2016 and 2015 of $70m and a net favourable effect of $45m attributable to the disposal of our sale of operations in Brazil. The decrease also reflected lower individually assessed LICs in Indonesia, where charges in 2015 related to a small number of exposures across multiplea number of sectors. Lower charges in both the UK and the UAE also contributed to the reduction. These decreases were partly offset by higher LICs in Hong Kong, related toarising in various sectors including manufacturing, and in Canada due to a rise in the number of exposures in the oil and gas sector migrating to default. Notably, the increase in individually assessed LICs in Canada was more than offset by the movement in collective allowances related to the oil and gas sector, discussed above.
In 2016, we recorded higher net releases of impairment allowances against available for saleavailable-for-sale debt securities. These were primarily related to asset-backed securities (‘ABSs’) in our Legacy Credit business in Corporate Centre.


Operating expenses
In addition to detailing operating expense items by category, as set out in the table below, we also categorise adjusted expenses as follows:
•
‘Run-the-bank’ costs comprise business-as-usual running costs that keep operations functioning at the required quality and standard year on year, maintain IT infrastructure and support revenue growth. Run-the-bank costs are split between front office and back office, reflecting the way the Group is organised into four global businesses (‘front office’) supported by global functions (‘back office’).
•
‘Change-the-bank’ costs comprise expenses relating to the implementation of mandatory regulatory changes and other investment costs incurred relating to projects to change business-as‑usual activity to enhance future operating capabilities.
•
‘Costs to achieve’ comprise those specific costs relating to the achievement of the strategic actions set out in the Investor Update in June 2015. They comprise costs incurred between 1 July 2015 and 31 December 2017, and do not include ongoing initiatives such as Global Standards. Any costs arising within this category have been incurred as part of a significant transformation programme. Costs to achieve are included within significant items and incorporate restructuring costs that were identified as a separate significant item prior to 1 July 2015.
•
The UK bank levy is reported as a separate category.

38
HSBC Holdings plc Annual Report and Accounts 2016

Operating expenses
 2016
2015
2014
 $m
$m
$m
By expense category   
Employee compensation and benefits18,089
19,900
20,366
Premises and equipment (excluding depreciation and impairment)3,758
3,830
4,204
General and administrative expenses12,715
13,832
14,361
Administrative expenses34,562
37,562
38,931
Depreciation and impairment of property, plant and equipment1,229
1,269
1,382
Amortisation and impairment of intangible assets777
937
936
Goodwill impairment3,240
—
—
Year ended 31 Dec39,808
39,768
41,249
 2016
2015
 $m
$m
By expense group  
Run-the-bank – front office13,612
13,711
Run-the-bank – back office13,275
13,437
Change-the-bank2,746
3,161
Bank levy922
1,421
Significant items9,253
5,947
Currency translation

2,091
Year ended 31 Dec39,808
39,768
Staff numbers (full-time equivalents)
 2016
2015
2014
Global businesses   
Retail Banking and Wealth Management124,810
145,868
151,802
Commercial Banking44,712
48,651
48,650
Global Banking and Markets46,659
47,894
46,605
Global Private Banking8,054
8,513
8,775
Corporate Centre10,940
4,277
1,771
At 31 Dec235,175
255,203
257,603
Reported operating expenses of $39.8bn were $40m higher than in 2015. This reflected an increase in significant items of $3.3bn which included:
athe $3.2bn write-off of the goodwill in our GPB business in Europe (please see Note 20 on the Financial Statements of the 202016 Form 20-F for further details);
costs to achieve of $3.1bn, compared with $0.9bn in 2015; partly offset by
the operating expenses incurred in our Brazil business of $1.1bn in 2016, compared with $2.5bn in 2015; and
a reduction of $1.0bn in settlements and provisions in connection with legal matters.
matters.
The increase in significant items was partly offset by the favourable effects of currency translation differences between 2016 and 2015 of $2.1bn.


Significant items and currency translation
 2016
2015
 $m
$m
Significant items9,252
5,947
– costs associated with portfolio disposals28
—
– costs to achieve3,118
908
– cost to establish UK ring-fenced bank223
89
– impairment of GPB – Europe goodwill3,240
—
– regulatory provisions in GPB344
172
– restructuring and other related costs—
117
– settlements and provisions in connection with legal matters681
1,649
– UK customer redress programmes559
541
– acquisitions, disposals and dilutions1,059
2,471
Currency translation—
2,091
Year ended 31 Dec9,252
8,038
Excluding the significant items and currency translation, tabulated above, operating expenses of $30.6bn were $1.2bn lower than in 2015. This primarilymainly reflected cost savings of $2.2bn achieved in 2016 and a reduction in the UK bank levy of $0.5bn. This was partly offset by the impact of inflation and continued investment in regulatory programmes and compliance.
Run-the-bank costs of $26.9bn were $0.3bn lower than in 2015 and change-the-bank costs of $2.7bn were $0.4bn lower than in 2015.
Our total investment in regulatory programmes and compliance, comprising both run‑the-bankrun-the-bank and change-the-bank elements, was $3.0bn, up $0.4bn or 14% from 2015. This reflected the ongoing implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities, and to meet our external commitments.


HSBC Holdings plc Annual Report and Accounts 2016
39

Report of the Directors | Financial summary

We have maintained our transformational efforts and continue to realise the benefit of our cost-saving programme.programme:
WithinIn RBWM, savings of $0.4bn reflected the impact of our branch optimisation programme enabled by our digital initiatives.
WithinIn Operations and Technology, savings of $1.2bn reflected migrations to lower cost locations, the simplification of our IT structure and the implementation of target operating models.
WithinIn our back office functions, savings of $0.4bn were realised as a result of the re-engineering and simplification of processes and the implementation of global operating models.
Taking the 2016 savings into account, our run raterun-rate savings are now $3.7bn since the start of our initiatives.
The number of employees expressed in FTEs at 31 December 2016 was 235,175, a decrease of 20,028 since 31 December 2015. This included a 19,145 reduction following ourthe disposal of our operations in Brazil. Excluding Brazil,this, the decrease in FTE was 883 as a reduction of 17,855 FTEs realised across global businesses and global functions was partlylargely offset by investment in our Global Standards Programme of 5,694 FTEs, costs to achieve FTEs of 8,073 and investment for growth.


Share of profit in associates and joint ventures
 2016
2015
2014
 $m
$m
$m
Share of profit in associates2,326
2,518
2,493
– Bank of Communications Co., Limited1,892
2,011
1,974
– The Saudi British Bank415
462
455
– other19
45
64
Share of profit in joint ventures28
38
39
Year ended 31 Dec2,354
2,556
2,532
HSBC Holdings plc45

Report of the Directors | Financial summary

Share of profit in associates and joint ventures
Our reported share of profit in associates and joint ventures was $2.4bn, a decrease of $0.2bn or 8%, which included the adverse effects of currency translation differences between 2016 and 2015 of $0.1bn, notably affecting our share of profit in BoCom.
Excluding the impact of currency translation, our share of profit in associates and joint ventures fell by $0.1bn or 4%, relating to higher impairment charges in the Saudi British Bank and lower revenue in HSBC Saudi Arabia, reflecting lower asset management and investment banking revenue. This was partly offset by revenue growth in Saudi British Bank and well-managed costs in both associates.
Our share of profit in BoCom for the year was $1.9bn. At 31 December 2016, we performed an impairment review
of our investment in BoCom and concluded that it was not impaired, based on our value in use calculation (see Note 20 on the Financial Statements of the 2016 Form 20-Ffor further details).
In future periods, the value in use may increase or decrease depending on the effect of changes to model inputs. It is
expected that the carrying amount will increase in 2017 due to retained profits earned by BoCom. At the point where the carrying amount exceeds the value in use, HSBC would continue to recognise its share of BoCom’s profit or loss, but the carrying amount would be reduced to equal the value in use, with a corresponding reduction in income, unless the market value has increased to a level above the carrying amount.

Tax expense
 2016
2015
2014
 $m
$m
$m
Profit before tax7,112
18,867
18,680
Tax expense(3,666)(3,771)(3,975)
Profit after tax for the year ended 31 Dec3,446
15,096
14,705
Effective tax rate51.55%19.99%21.28%
The effective tax rate for 2016 of 51.6% was higher than the 20.0% in 2015, reflecting events that occurred in 2016 that reduced the reported profit before tax but not taxable profits. These included the non-deductible goodwill impairment and the non-deductible loss on our disposal of operations in Brazil. The
2016 tax charge includes tax losses not recognised, prior year adjustments and the impact of the 8% bank corporation tax surcharge applicable in the UK from 1 January 2016. Further detail is provided in Note 7 of the Financial Statements.



40
HSBC Holdings plc Annual Report and Accounts 2016

Report of the Directors | Financial summary

2015 compared with 2014
Net interest income
Reported net interest income of $32.5bn decreased by $2.2bn or 6% compared with 2014.
This was primarily driven by the adverse effects of currency translation differences between 2015 and 2014 ($2.9bn), partly offset by a lower provision of $10m, compared to $632m in 2014, arising from the ongoing review of compliance with the Consumer Credit Act (‘CCA’) in the UK. Excluding these factors, net interest income was broadly unchanged compared with 2014 as increases in Asia and Latin America were offset by a reduction in North America.
On a reported basis, net interest spread and margin both fell, driven by the factors noted above. Excluding these factors, net interest spread and margin were marginally lower due to reduced yields on customer lending in Europe and North America. However, during the year, we changed the mix of our overall portfolio towards higher yielding customer lending balances. This was through a managed reduction in the average balances of lower yielding short-term funds, reverse repos and financial investments, notably in Europe, reflecting our continued focus on the efficient use of our balance sheet.
Interest income by type of asset and interest expense by type of liability, and the associated average balances as set out in the summary tables above, were affected by the reclassification in June 2015, of our operations in Brazil to ‘Assets held for sale’ in ‘Other interest-earning assets’ and liabilities of disposal groups held for sale in ‘Other interest-bearing liabilities’, respectively.
Interest income
Reported interest income decreased by $3.8bn compared with 2014. This was driven by currency translation differences between 2015 and 2014, notably in Latin America and Europe, although this was partly offset in Europe as 2014 included higher provisions arising from the ongoing review of compliance with the CCA.
Excluding these factors, interest income was broadly unchanged compared with 2014.
Interest income on loans and advances to customers fell by $4.3bn. Excluding the effects of currency translation between 2015 and 2014 and the reclassification of amounts relating to Brazil, interest income on loans and advances to customers was broadly unchanged as lower interest income in Europe and North America was offset by increases in Asia and Latin America.
In Europe, the reduction in interest income was driven by lower yields on mortgages in the UK in line with competitive pricing, and the effect of downward movements in market interest rates in the eurozone. Interest income also fell in North America as the CML portfolio continued to decrease from run-off and sales. In addition, new lending to customers in RBWM and CMB was at reduced yields in the current low interest rate environment, although the effect of this was partly offset by an increase in average term lending balances.
By contrast, in Asia, the rise in interest income was driven by growth in average term lending balances, primarily in Hong Kong and mainland China. This was partly offset by compressed yields on customer lending, notably in mainland China and Australia due to central bank rate reductions, although yields in Hong Kong marginally increased. In Latin America, the increase was primarily in Argentina, driven by growth in average balances.
Interest income on short-term funds and financial investments in Balance Sheet Management marginally decreased. This was driven by lower interest income in Europe, due to a managed reduction in average balances, and in Asia, reflecting movement in central bank interest rates in mainland China and India. These factors were partly offset in North America by a change in product mix towards higher yielding mortgage-backed securities in order to maximise the effectiveness of the portfolio.
Interest income from other interest-earning assets rose due to the reclassification of our operations in Brazil to ‘Assets held for sale’ in June 2015. In Brazil, excluding the impact of currency translation, interest income rose due to growth in average term lending balances and financial investments, together with higher yields reflecting successive increases in central bank interest rates in 2014 and 2015.
Interest expense
Reported interest expense decreased by $1.6bn compared with 2014 driven by currency translation, primarily in Latin America and Europe.
Excluding this, interest expense fell driven by a lower cost of customer accounts, debt issued and repos.
Interest expense on customer accounts fell by $1.7bn. Excluding the effects of currency translation between 2015 and 2014 and the reclassification of amounts relating to Brazil, interest expense on customer accounts fell marginally despite growth in average balances on a constant currency basis. This reflected central bank rate reductions in a number of markets, notably Mexico, mainland China, Australia and India. Europe was affected by downward movements in market rates in the eurozone. This was partly offset by rising costs in North America, in line with promotional deposit offerings.
Interest expense on debt issued also fell, primarily in Europe as new debt was issued at lower prevailing rates and average outstanding balances fell as a result of net redemptions. Interest expense also fell on repos, notably in Europe, reflecting the managed reduction in average balances.
Interest expense on other interest-bearing liabilities increased due to the reclassification of our operations in Brazil. In Brazil, excluding currency translation, interest expense rose, primarily on debt securities in issue and also on customer accounts driven by successive increases in central bank rates. Other interest expense also increased in North America, as 2014 benefited from the release of accrued interest associated with uncertain tax positions.
Net fee income
Reported net fee income fell by $1.3bn compared with 2014, primarily reflecting the adverse effects of currency translation differences between 2015 and 2014 of $1.2bn, notably in Europe and Latin America. Excluding currency translation differences, net fee income decreased by $38m. This reflected a reduction in Europe, primarily within RBWM and GB&M, largely offset by increases in Asia in RBWM and North America in GB&M.
Account services fee income fell by $662m, in part due to adverse currency translation differences between 2015 and 2014 of $314m. Excluding currency translation, account services fees decreased mainly in the UK in RBWM where lower overdraft fees reflected repricing and fewer overdrawn balances following the introduction in November 2014 of a text-alert service for customers. Account services fees also fell in Switzerland due to the continuing repositioning of our GPB business.
Import and export fees also fell (by $144m), mainly in Asia reflecting a reduction in trade activity. In addition, our underwriting fee income fell by $110m, mainly in Hong Kong in GB&M, where there was reduced activity in equity capital markets, although this was partly offset by higher debt issuances in the US.
Fees from funds under management decreased by $88m, mainly due to adverse currency translation differences between 2015 and 2014. This was partly offset by growth in our Global Asset Management business, notably in France and the US due to volume growth from fixed income products. In addition, fee income from funds under management increased in Germany from growth in Securities Services in GB&M, and in Hong Kong from increased funds under management in GPB.


HSBC Holdings plc Annual Report and Accounts 2016
41

Report of the Directors | Financial summary

By contrast, our fee income from broking and unit trusts grew (up by $72m), mainly in Hong Kong, driven by higher sales of equities and mutual funds in RBWM. This was from increased stock-market turnover, in part facilitated by the Shanghai-Hong Kong Stock Connect platform and greater investor appetite following improvements in Asian equity markets in the first half of the year, however there was weaker investor sentiment in the second half of the year.
Our credit facilities fee income also grew (by $29m) despite adverse currency translation differences between 2015 and 2014 of $161m. Higher credit facilities in North America and, to a lesser extent, in Asia, reflected continued growth in average lending balances, although balances were broadly unchanged in Asia in the second half of the year.
Fee expense decreased by $277m as a rise in brokerage fees, notably in Germany was more than offset by adverse currency translation differences between 2015 and 2014.
Net trading income
Reported net trading income of $8.7bn was $2.0bn higher than in 2014, predominantly in Europe. The movement in net trading income in part reflected the favourable effect of significant items ($0.8bn) and the adverse effect of currency translation differences between 2015 and 2014 of $0.5bn. Excluding these factors, net trading income increased by $1.7bn, mainly in GB&M, notably Equities, Foreign Exchange and Credit. This was primarily in the UK following an increase in volatility and client activity.
Net trading income from trading activities also rose due to a number of other valuation movements. In 2014, we revised our estimation methodology for valuing uncollateralised derivative portfolios by introducing the funding fair value adjustment (‘FFVA’) which resulted in a charge of $263m. In addition, the Equities and Rates businesses benefited from favourable movements on own credit spreads compared with minimal movements in 2014.
These movements contributed to an increase in net trading income from trading activities in Rates, although client activity remained subdued.
Net income/(expense) from financial instruments designated at fair value
The majority of the financial liabilities designated at fair value are fixed-rate long-term debt issuances and are managed in conjunction with interest rate swaps as part of our interest rate management strategy.
Reported net income from financial instruments designated at fair value was $1.5bn in 2015, compared with $2.5bn in 2014. In 2015, there were favourable movements in the fair value of our own long-term debt of $1.0bn due to changes in credit spread, compared with favourable movements of $417m in 2014.
The increase in these favourable movements was more than offset by a $1.8bn reduction in net income from financial assets held to meet liabilities under insurance and investment contracts. This was primarily driven by weaker equity markets in Hong Kong and the UK, notably in the second half of the year. The fair value movement in 2015 included gains in Brazil and France, partly offset by losses in Hong Kong. These gains and losses are broadly offset by ‘Net insurance claims and benefits paid and movements in liabilities to policyholders’ and ‘Liabilities to customers under investment contracts’.
Other changes in fair value reflected a higher adverse movement relating to the economic hedging of interest and exchange rate risk on our long term debt.
Gains less losses from financial investments
Reported gains less losses from financial investments increased by $733m compared with 2014. This was driven by a net increase significant items of $1.2bn, notably the gain on the partial sale of our shareholding in Industrial Bank Co. Ltd (‘Industrial Bank’) of $1.4bn in 2015 which was partly offset by a gain on the sale of our shareholding in Bank of Shanghai in 2014. The net favourable impact of significant items was partly offset by lower gains on disposals of available-for-sale debt securities, notably in the UK and US and lower gains on equity securities in Principal Investments in the UK.
In addition, we recorded minor losses on disposals from our legacy credit portfolio compared with gains in 2014. The disposal of these assets reflects our continued efforts to manage down low-returning assets to maximise returns.
Net insurance premium income
Reported net insurance premium income was $1.6bn lower, largely from the adverse effects of currency translation differences between 2015 and 2014 of $930m. Excluding the effect of currency translation, net insurance premium income fell by $636m or 6%, driven by Asia, primarily in Hong Kong where it declined because of lower unit-linked contract premiums and new reinsurance agreements.
In Europe, premium income fell mainly in the UK, reflecting a decision to exit the commercial pensions market in 2014.
Other operating income
Reported other operating income decreased by $76m from 2014. This reduction reflected losses of $214m in 2015 related to the sale of several tranches of real estate secured accounts in the US. By contrast, we recognised gains of $168m on similar sales in 2014.
Excluding these items and currency translation differences between 2015 and 2014, other operating income increased by $219m. This was primarily from higher favourable movements in present value of in-force (‘PVIF’) long-term insurance business, partly offset by lower disposal and revaluation gains on investment properties, mainly in Asia.
The higher favourable movement in the PVIF balance was driven by changes in interest rates and investment return assumptions, notably in France and Hong Kong.
Net insurance claims and benefits paid and movement in liabilities to policyholders
Reported net insurance claims and benefits paid and movement in liabilities to policyholders were $2.1bn lower than in 2014, in part reflecting the effect of currency translation differences between 2015 and 2014 of $1.1bn.
Excluding the effects of currency translation, net insurance claims and benefits paid and movements in liabilities to policyholders were $0.9bn lower.
This was primarily driven by a decrease in returns on financial assets supporting liabilities to policyholders, where the policyholder shares in the investment risk. This decrease in returns reflected a weaker equity market performance in Hong Kong in the second half of the year.
The gains or losses recognised on the financial assets designated at fair value that are held to support these insurance contract liabilities are reported in ‘Net income from financial instruments designated at fair value’.
In addition, movements in liabilities to policyholders were lower due to a decrease in premiums written in Asia, as explained in ‘Net earned insurance premiums’.
Loan impairment charges and other credit risk provisions
Reported loan impairment charges and other credit risk provisions (‘LICs’) of $3.7bn were $0.1bn lower than in 2014, primarily due to favourable currency translation differences between 2015 and 2014 of $683m. Excluding the effects of currency translation, LICs were $0.6bn higher than in 2014.
In the fourth quarter of 2015, our LICs increased compared with the third quarter following a rise in individually assessed LICs in a small number of countries. This was reflective of specific circumstances associated with those countries with no common underlying theme. In addition, we increased our collectively assessed LICs on exposures related to the oil and gas industry by $0.2bn, notably in North America, Middle East and North Africa, and Asia.
The following paragraphs set out in more detail the factors that contributed to movements in our collectively and individually assessed LICs compared with 2014.
Collectively assessed LICs decreased by $188m, reflecting favourable currency translation differences of $409m between


42
HSBC Holdings plc Annual Report and Accounts 2016

Report of the Directors | Financial summary

2015 and 2014, notably in Latin America. Excluding currency translation differences, collectively assessed LICs increased by $221m, mainly in Middle East and North Africa, North America and Asia, partly offset in Europe. It arose from the following:
in Middle East and North Africa (up by $167m), this was mainly in the UAE in RBWM, where we increased the impairment allowances on our mortgage book following a review of the quality and value of collateral. In addition, LICs grew in our CMB business, notably relating to the oil and gas and foodstuffs industries;
in North America (up by $132m) and Asia (up by $108m), this reflected an increase in allowances against exposures related to the oil and gas sector. In our US CML portfolio, LICs were higher than in 2014 reflecting lower favourable market value adjustments of underlying properties as improvements in the housing market conditions were less pronounced in 2015. This was partly offset by a fall in LICs from lower levels of newly impaired loans and reduced lending balances from continued run-off and sales. Additionally, collectively assessed LICs rose in Indonesia following credit deterioration; and
in Europe, collectively assessed LICs were $192m lower, most notably in our GB&M business in the UK, as 2014 included additional impairment charges from revisions to certain estimates used in our corporate collective loan impairment calculation.
Individually assessed LICs were $275m lower compared with 2014, driven by favourable foreign currency translation differences of $273m. Excluding these differences, individually assessed LICs were broadly unchanged from 2014. This reflected decreases in Latin America, Europe and Asia which were offset by increases in Middle East and North Africa and in North America. This included the following:
in Latin America (down by $95m), Europe (down by $44m) and Asia (down by $44m), we saw reductions in individually assessed LICs in our GB&M business as 2014 included significant impairment charges related to corporate clients in our respective regions. In Asia, the reduction was partly offset by an increase in LICs against a small number of CMB customers in Indonesia; and
in Middle East and North Africa (up by $134m) and North America (up by $47m), individually assessed LICs increased in our CMB business. In the former, this primarily related to higher LICs on food wholesalers, while in North America LICs rose in the oil and gas sector.
In 2015, there were lower net releases of credit risk provisions than in 2014, down by $0.3bn, mainly on available-for-sale asset-backed securities (‘ABSs’) in our UK Corporate Centre.
Operating expenses
Reported operating expenses for 2015 of $39.8bn were $1.5bn or 4% lower than in 2014. The reduction in reported expenses was driven by the favourable effects of currency translation between 2015 and 2014 of $3.3bn. Significant items increased by $0.2bn, with a reduction in fines, penalties, redress and associated provisions of $0.7bn, more than offset by transformation costs (costs-to-achieve) of $0.9bn.
Costs-to-achieve, which relate to specific programmes aimed at achieving the cost reduction and productivity outcomes outlined in the Investor Update, comprise:
severance costs of $0.4bn across a number of areas including CMB ($147m), RBWM ($49m), GB&M ($45m) and our Global Risk function ($44m);
staff costs for the transformation programme in progress of $0.1bn in the second half of 2015; and
other costs of $0.4bn, including software write-offs, US portfolio run-off costs and consultancy costs.
Excluding currency translation and significant items, operating expenses of $36.2bn were $1.6bn or 5% higher than in 2014, reflecting increases in both run-the-bank and change-the-bank costs. Run-the-bank costs totalled $31.3bn for 2015, an increase of $0.8bn or 2% on 2014. This was primarily driven by targeted investment in Latin America, Asia and Europe. We
recruited new staff to support growth in targeted areas as follows:
in GB&M we invested in Global Liquidity and Cash Management (‘GLCM’) mainly in Europe;
in CMB, we invested in GLCM revenue-generating full-time equivalent staff (‘FTEs’) in North America and Asia; and
in RBWM, we invested in additional FTEs in Asia in our branch network to support revenue growth.
Our total expenditure on regulatory programmes and compliance in 2015, including both run-the-bank and change-the-bank elements, was $2.9bn, up by $0.7bn or 33% from 2014.
Run-the-bank costs associated with regulatory programmes and compliance increased by $0.2bn reflecting the continued implementation of our Global Standards programme to enhance our financial crime risk controls and capabilities, and to meet our external commitments.
Change-the-bank costs totalled $3.5bn in 2015, an increase of $0.5bn or 16% on 2014, primarily driven by regulatory programmes and compliance costs. This reflected investment in strategic IT infrastructure including systems enhancements for customer due diligence, transaction monitoring and sanctions screening as part of the Global Standards programme. There was also further investment in stress testing and other programmes to meet legal and regulatory requirements.
The bank levy totalled $1.4bn, up by $0.4bn or 34% from 2014. Excluding the bank levy, operating expenses in the second half of 2015 were broadly in line with the first half of the year. Investment in regulatory programmes and compliance and inflationary pressures were offset by cost-saving initiatives mainly driven by reduced staff costs. This reflected a reduction in FTEs of 4,585 from 30 June 2015 to 31 December 2015. In addition we reduced travel and entertainment costs through a strong focus on cost management.
The number of employees, expressed in FTEs, at 31 December 2015 was 255,203, a decrease of 4,585 from 30 June 2015 reflecting the initial impact of cost-saving initiatives. Compared with 31 December 2014, FTEs decreased by 2,400. This was driven by reductions in global businesses and global functions, offset by an increase in compliance of 2,419 FTEs.
The average number of FTEs adjusted for business disposals increased by 1.2% compared with 2014 due to additional FTE requirements for regulatory programmes and compliance, and investment in growth areas.
Share of profit in associates and joint ventures
Our reported share of profit in associates and joint ventures was $2.6bn, an increase of $24m or 1%, driven by higher contributions from Bank of Communications Co., Limited (‘BoCom’) and The Saudi British Bank.
Our share of profit from BoCom rose as a result of balance sheet growth, partly offset by higher operating expenses. Profits from The Saudi British Bank also rose, by $7m, reflecting strong balance sheet growth.
Tax expense
The effective tax rate for 2016 of 51.6% was higher than the 20.0% in 2015, reflecting events that occurred in 2016 that reduced the reported profit before tax but not taxable profits. These included the non-deductible goodwill impairment and the non-deductible loss on our disposal of operations in Brazil. The 2016 tax charge includes tax losses not recognised, prior year adjustments and the introductionimpact of the 8% bank corporation tax surcharge on banking profitsapplicable in the UK from 1 January 2016. Further detail is provided in Note 7 on the Financial Statements of the Financial Statements.2016 Form 20-F.



46
HSBC Holdings plc Annual Report and Accounts 2016

Consolidated balance sheet
Five-year summary consolidated balance sheet
  2017
2016
2015
2014
2013
 Footnote$m
$m
$m
$m
$m
Assets      
Cash and balances at central banks 180,624
128,009
98,934
129,957
166,599
Trading assets 287,995
235,125
224,837
304,193
303,192
Financial assets designated at fair value 29,464
24,756
23,852
29,037
38,430
Derivatives 219,818
290,872
288,476
345,008
282,265
Loans and advances to banks 90,393
88,126
90,401
112,149
120,046
Loans and advances to customers26962,964
861,504
924,454
974,660
992,089
Reverse repurchase agreements – non-trading 201,553
160,974
146,255
161,713
179,690
Financial investments 389,076
436,797
428,955
415,467
425,925
Other assets 159,884
148,823
183,492
161,955
163,082
Total assets at 31 Dec 2,521,771
2,374,986
2,409,656
2,634,139
2,671,318
Liabilities and equity      
Liabilities      
Deposits by banks 69,922
59,939
54,371
77,426
86,507
Customer accounts 1,364,462
1,272,386
1,289,586
1,350,642
1,361,297
Repurchase agreements – non-trading 130,002
88,958
80,400
107,432
164,220
Trading liabilities 184,361
153,691
141,614
190,572
207,025
Financial liabilities designated at fair value 94,429
86,832
66,408
76,153
89,084
Derivatives 216,821
279,819
281,071
340,669
274,284
Debt securities in issue 64,546
65,915
88,949
95,947
104,080
Liabilities under insurance contracts 85,667
75,273
69,938
73,861
74,181
Other liabilities 113,690
109,595
139,801
121,459
120,181
Total liabilities at 31 Dec 2,323,900
2,192,408
2,212,138
2,434,161
2,480,859
Equity      
Total shareholders’ equity 190,250
175,386
188,460
190,447
181,871
Non-controlling interests 7,621
7,192
9,058
9,531
8,588
Total equity at 31 Dec 197,871
182,578
197,518
199,978
190,459
Total liabilities and equity at 31 Dec 2,521,771
2,374,986
2,409,656
2,634,139
2,671,318
For footnotes, see page 85.
A more detailed consolidated balance sheet is contained in the Financial Statements on page 214.
Five-year selected financial information


2017
2016
2015
2014
2013

Footnotes$m
$m
$m
$m
$m
Called up share capital
10,160
10,096
9,842
9,609
9,415
Capital resources27, 28182,383
172,358
189,833
190,730
194,009
Undated subordinated loan capital
1,969
1,967
2,368
2,773
2,777
Preferred securities and dated subordinated loan capital2942,147
42,600
42,844
47,208
48,114
Risk-weighted assets27871,337
857,181
1,102,995
1,219,765
1,092,653
Financial statistics










Loans and advances to customers as a percentage of customer accounts
70.6
67.7
71.7
72.2
72.9
Average total shareholders’ equity to average total assets
7.33
7.37
7.31
7.01
6.55
Net asset value per ordinary share at year-end ($)308.35
7.91
8.73
9.28
9.27
Number of $0.50 ordinary shares in issue (millions)
20,321
20,192
19,685
19,218
18,830
Closing foreign exchange translation rates to $:










$1: £
0.740
0.811
0.675
0.642
0.605
$1: €
0.834
0.949
0.919
0.823
0.726
For footnotes, see page 85.

43
HSBC Holdings plc47

Report of the Directors | Financial summary

Consolidated balance sheet
Five-year summary consolidated balance sheet
  2016
2015
2014
2013
2012
 Footnote$m
$m
$m
$m
$m
Assets      
Cash and balances at central banks 128,009
98,934
129,957
166,599
141,532
Trading assets 235,125
224,837
304,193
303,192
408,811
Financial assets designated at fair value 24,756
23,852
29,037
38,430
33,582
Derivatives 290,872
288,476
345,008
282,265
357,450
Loans and advances to banks 88,126
90,401
112,149
120,046
117,085
Loans and advances to customers15861,504
924,454
974,660
992,089
962,972
Reverse repurchase agreements – non-trading 160,974
146,255
161,713
179,690
70,112
Financial investments 436,797
428,955
415,467
425,925
421,101
Assets held for sale 4,389
43,900
7,647
4,050
19,269
Other assets 144,434
139,592
154,308
159,032
160,624
Total assets at 31 Dec 2,374,986
2,409,656
2,634,139
2,671,318
2,692,538
Liabilities and equity      
Liabilities      
Deposits by banks 59,939
54,371
77,426
86,507
95,480
Customer accounts 1,272,386
1,289,586
1,350,642
1,361,297
1,311,396
Repurchase agreements – non-trading 88,958
80,400
107,432
164,220
40,567
Trading liabilities 153,691
141,614
190,572
207,025
304,563
Financial liabilities designated at fair value 86,832
66,408
76,153
89,084
87,720
Derivatives 279,819
281,071
340,669
274,284
358,886
Debt securities in issue 65,915
88,949
95,947
104,080
119,461
Liabilities of disposal groups held for sale 2,790
36,840
6,934
2,804
5,018
Liabilities under insurance contracts 75,273
69,938
73,861
74,181
68,195
Other liabilities 106,805
102,961
114,525
117,377
118,123
Total liabilities at 31 Dec 2,192,408
2,212,138
2,434,161
2,480,859
2,509,409
Equity      
Total shareholders’ equity 175,386
188,460
190,447
181,871
175,242
Non-controlling interests 7,192
9,058
9,531
8,588
7,887
Total equity at 31 Dec 182,578
197,518
199,978
190,459
183,129
Total liabilities and equity at 31 Dec 2,374,986
2,409,656
2,634,139
2,671,318
2,692,538
For footnote, see page 79.
Five-year selected financial information


2016
2015
2014
2013
2012

Footnotes$m
$m
$m
$m
$m
Called up share capital
10,096
9,842
9,609
9,415
9,238
Capital resources16, 17172,358
189,833
190,730
194,009
180,806
Undated subordinated loan capital
1,967
2,368
2,773
2,777
2,778
Preferred securities and dated subordinated loan capital1842,600
42,844
47,208
48,114
48,260
Risk-weighted assets16857,181
1,102,995
1,219,765
1,092,653
1,123,943
Financial statistics










Loans and advances to customers as a percentage of customer accounts
67.7
71.7
72.2
72.9
73.4
Average total shareholders’ equity to average total assets
7.37
7.31
7.01
6.55
6.16
Net asset value per ordinary share at year-end ($)197.91
8.73
9.28
9.27
9.09
Number of $0.50 ordinary shares in issue (millions)
20,192
19,685
19,218
18,830
18,476
Closing foreign exchange translation rates to $:










$1: £
0.811
0.675
0.642
0.605
0.619
$1: €
0.949
0.919
0.823
0.726
0.758
For footnotes, see page 79.
A more detailed consolidated balance sheet is contained in the Financial Statements on page 218.

44
HSBC Holdings plc Annual Report and Accounts 2016

Combined view of customer lending and customer deposits
  2016
2015
 Footnote$m
$m
Combined customer lending   
Loans and advances to customers 861,504
924,454
Loans and advances to customers reported in ‘Assets held for sale’ 3,623
19,021
– Brazil20—
17,001
– other 3,623
2,020
At 31 Dec 865,127
943,475
Combined customer deposits   
Customer accounts 1,272,386
1,289,586
Customer accounts reported in ‘Liabilities of disposal groups held for sale’ 2,713
16,682
– Brazil20—
15,094
– other 2,713
1,588
At 31 Dec 1,275,099
1,306,268
For footnote, see page 79.
Movement in 20162017
Total reported assets of $2.4tn$2.5tn were 1% lower6% higher than at 31 December 20152016 on a reported basis, and 5%1% higher on a constant currency basis.
We have maintainedincreased the strength of our balance sheet as targeted assetby targeting growth was partly offsetin lending, notably in Asia, where we increased balances by reductions14% on a constant currency basis, reflecting continued momentum from our initiatives to grow corporate lending in our legacy portfolios and the completionregion. During 2017 we also completed the run-off of our sale of operations in Brazil to Banco Bradesco S.A. We also issued more than $30bn of senior debt during the year from HSBC Holdings to build up the Group’s total loss-absorbing capacity in line with anticipated regulatory requirements.US CML portfolio.
Our ratio of customer advances to customer accounts was 71%, up from 68%. at 31 December 2016, reflecting our focus on lending growth. Loans and advances to customers fellincreased on a reported basis by $63bn$101bn or 12%, and customer accounts fell on a reported basis by $17bn. These changes included:
adverse currency translation movements of $62bn on loans and advances to customers and $81bn on customer accounts;
a $9bn reduction in corporate overdraft and current account balances relating to a small number of clients in our Global Liquidity and Cash Management business in the UK that settled their overdraft and deposit balances on a net basis; and
an $11bn transfer to ‘Assets held for sale’ of US first lien mortgage balances in Corporate Centre.
Excluding these movements, customer lending increased by $19bn, as a result of strong fourth-quarter growth in Asia and increases in Europe throughout the year.$92bn or 7%.
Assets
Cash and balances at central banks increased by $29bn or 29%, primarily from$53bn. This included higher euro denominatedeuro-denominated balances in continental Europe, and higher sterling balances in the US.UK, as we deployed our commercial surplus to maximise returns. This increase was partly offset by a reduction in the US as we redeployed our surplus to maximise returns, notably to reverse repurchase agreements – non-trading.
Trading assets increased by $10bn, mainly$53bn, notably equity securities, in Hong Kongthe UK, reflecting higher client activity in our Equities business, and the US. This included higher balancesfrom increased debt securities in settlement accounts and an increase in debt and equity securities.Asia.
Reverse repurchase agreements – non-trading increased by $15bn, primarily$41bn, notably in Europe and the US, driven by customer demand in our Markets business. In the US, balances also increased as we managedredeployed our commercial surplus liquidity to maximise returns.
Assets held for sale reducedDerivative assets decreased by $40bn,$71bn, primarily reflecting revaluation movements, as a result of which $42bn relatedchanges in yield curves and exchange rates, notably in the UK, Hong Kong and France. These movements were broadly offset by a reduction in derivative liabilities.
Financial investments decreased by $48bn. In the UK this was due to our disposalredeployment of operationsavailable-for-sale investments into cash to manage our liquidity, as well as for risk management purposes, whereas in Brazil.Hong Kong this primarily reflected a managed reduction in our commercial surplus.
Loans and advances to customers decreasedincreased by $63bn on a reported basis,$101bn compared with 31 December 2016, notably in Asia and Europe. This included:
favourable currency translation of $45bn, primarily in Europe (down $48bn) and North America (down $17bn),affecting Europe; partly offset by Asia (up $9bn). This included:
adverse currency translation movements of $62bn;
a $9bn reduction in corporate overdraft balances in Europe, with a corresponding fall in corporate customer accounts; and
an $11bnthe $5bn transfer to ‘Assets held for sale’, and subsequent disposal, of the US first lien mortgage balancesbalance in Corporate Centre, reflecting our strategic focus on reducing our legacy portfolios. (We sold most of these loans during 2016).
Centre.
Excluding these factors, customer lending balances increased by $19bn$62bn or 2%7%. This growth was primarily in Asia, which contributed $53bn of this increase.
In Asia, lending grew in GB&M (up $24bn) and CMB (up $16bn), particularly in Hong Kong, from increased term lending reflecting our continued focus on loan growth in the region and higher customer demand. Trade lending in Hong Kong contributed $3bn of the increase in CMB, reflecting increased market share, but it was broadly unchanged in GB&M. We also increased balances in RBWM in Asia by $11bn, primarily in mortgages in Hong Kong, where we grew our market share.
In addition, we grew lending in Europe by $10bn, notably in UK mortgages (up $8bn), reflecting our focus on broker originated mortgages. We also grew balances in CMB by $9bn, driven by higher term lending, which more than offset an $8bn fall in GB&M, notably due to a reclassification of short-term balances to reverse repurchase agreements. Balances also decreased in our Global Banking business, as a small number of customers paid down large balances, as well as a reduction in short-term lending.

Liabilities
Customer accounts increased by $92bn on a reported basis, including a favourable foreign currency translation movement of $56bn.
Excluding the effect of currency translation, customer accounts increased by $36bn, notably in RBWM which grew by $28bn. The increase was driven by Hong Kong (up $18bn), reflecting higher customer inflows from surplus liquidity in the region, and the UK (up $6bn), primarily in current accounts. We grew balances in Asia by $13bn, notablyGB&M in Hong Kong in both GB&MFrance ($8bn)5bn) and CMBGermany ($4bn) in term lending, although trade lending remained broadly unchanged. We also grew RBWM balances ($4bn)2bn), particularly in mortgages in Hong Kong. We recorded particularly strong growth in the fourth quarter ($20bn) in the region.from higher foreign currency corporate deposits, as we priced competitively to facilitate higher stable funding. In addition we grew CMB balances (up $8bn), notably in the UK, as we won new client mandates and increased balances with existing customers.
These increases were partly offset by a reduction in Europe by $15bn as a result of higher term lending in CMB and mortgages in RBWM, both mainlyGB&M in the UK. By contrast, US GB&MUK, reflecting a large deposit from 2016 being withdrawn in 2017, as well as an increase in customers who settled their asset and liability balances net, resulting in lower lending and customer accounts. Deposit balances also fell in GPB (down $6bn), partly reflecting ourthe customer repositioning during 2017, as well as active managementredeployment of overall clientclients’ deposits to maximise their returns.
Liabilities
Customer accounts at 31 December 2016 were $17bn lower than at 31 December 2015 and included:
adverse currency translation movements of $81bn; and
a $9bn reduction in corporate current account balances, in line with a fall in corporate overdraft positions.
Excluding these factors, customer accounts grewRepurchase agreements – non-trading increased by $73bn,$41bn primarily in RBWM and in GLCM in Hong Kongthe UK and the UK, with the latterUS, mainly driven by targeted customer mandate acquisition.an increased use of repurchase agreements for funding in our Markets business.
Trading liabilities increased by $12bn, mainly$31bn, notably in the US,UK and France, the latter reflecting an increase in settlement accounts and net short positions from increased trading activity at the end of 2016, comparedpositions.
Derivative liabilities decreased by $63bn, which is in line with the same perioddecrease in 2015.
Financial liabilities designated at fair value increased by $20bn, reflecting new issuances of senior debt by HSBC Holdings.
Debt securities in issue fell by $23bn, mainly in HSBC Bank plc., following reductions in commercial paper issuances. These have been replaced by intra-group funding from HSBC Holdings from total loss-absorbing capacity resources. Inderivative assets because the US, balances also fell, reflecting a lower funding requirement as we continued to run off legacy portfolios.
Liabilities of disposal groups held for sale decreased by $34bn, reflecting the completion of our sale of operations in Brazil.underlying risk is broadly matched.
Equity
Total shareholders’ equity fellincreased by $13.1bn$14.9bn or 7%8%. TheThis was driven by the effects of profits generated in the year were more than offset by dividends paid and an increaseperiod, a reduction in accumulated foreign exchange losses reflecting the significant appreciation of the euro and sterling against the US dollar against the British poundduring 2017, and the euro. The net increase in treasury shares, principally reflecting ourissue of convertible capital securities. These increases more than offset the effects of dividends paid to shareholders and the $3.0bn share buy-back initiative, also reduced shareholders’ equity by $2.5bn.completed during 2017.
Risk-weighted assets
Risk-weighted assets (‘RWAs’) were $857.2bn$871.3bn at 31 December 2016, a decrease2017, an increase of $245.8bn$14.1bn compared with 31 December 2015.2016. After foreign currency translation differences, RWAs reduced by $207.7bn$13.6bn in 2016.2017. This reflected targeted RWA-reductionRWA reduction initiatives of $143.2bn$70.8bn and the changeimprovement in asset quality of regulatory treatment$4.6bn, less increases due to growth in asset size of our investment in BoCom reducing RWAs by $120.9bn. This was partly offset by book size increases$48.4bn, methodology and policy changes of $38.7bn.$8.2bn and model updates of $6.2bn.
The RWA initiatives included:
$21.3bn from the accelerated sell-down of our consumer mortgage portfolio in the US and our legacy credit book; and
$40.0bn from process improvements, exposure reductions, process improvementstrade actions and refined calculations, which reduced RWAscalculations.
Asset size movements principally represent:
$40.4bn lending growth, mainly in GB&M and CMB in Asia and Europe; and
new transactions and movements in market parameters increasing counterparty credit risk and market risk by $69.8bn, 55% of which were in GB&M;
the disposal of our activities in Brazil, which reduced RWAs by $41.8bn; and$9.0bn.


48
HSBC Holdings plc Annual Report and Accounts 201645

Customer accounts by country
 2017
2016
 $m
$m
Europe505,182
446,615
– UK401,733
361,278
– France45,833
35,996
– Germany17,355
13,925
– Switzerland7,936
9,474
– other32,325
25,942
Asia657,395
631,723
– Hong Kong477,104
461,626
– mainland China45,991
46,576
– Singapore41,144
39,062
– Australia20,212
18,030
– Malaysia14,027
12,904
– Taiwan13,459
11,731
– India13,228
11,289
– Indonesia4,211
5,092
– other28,019
25,413
Middle East and North Africa (excluding Saudi Arabia)34,658
34,766
– United Arab Emirates16,602
16,532
– Turkey3,772
4,122
– Egypt3,912
3,790
– other10,372
10,322
North America143,432
138,790
– US89,887
88,751
– Canada45,510
42,096
– other8,035
7,943
Latin America23,795
20,492
– Mexico17,809
14,423
– other5,986
6,069
At 31 Dec1,364,462
1,272,386

HSBC Holdings plc49

Report of the Directors | Financial summary

an accelerated sell-down of our consumer mortgage portfolio in the US and our Legacy Credit book, together contributing $31.6bn to the reduction
The book size increase of $38.7bn primarily came from higher term lending to corporate customers in CMB and higher general lending to customers in GB&M, both mainly in Europe and Asia.

Customer accounts by country
 2016
2015
 $m
$m
Europe446,615
491,520
– UK361,278
404,084
– France35,996
35,635
– Germany13,925
13,873
– Switzerland9,474
10,448
– other25,942
27,480
Asia631,723
598,620
– Hong Kong461,626
421,538
– Mainland China46,576
46,177
– Singapore39,062
41,307
– Australia18,030
17,703
– Malaysia12,904
14,114
– Taiwan11,731
11,812
– India11,289
11,795
– Indonesia5,092
5,366
– other25,413
28,808
Middle East and North Africa (excluding Saudi Arabia)34,766
42,824
– United Arab Emirates16,532
18,281
– Turkey4,122
6,356
– Egypt3,790
6,602
– other10,322
11,585
North America138,790
135,152
– US88,751
86,322
– Canada42,096
39,727
– other7,943
9,103
Latin America20,492
21,470
– Mexico14,423
15,798
– other6,069
5,672
At 31 Dec1,272,386
1,289,586

Average balance sheet
Average balance sheet and net interest income
Average balances and related interest are shown for the domestic operations of our principal commercial banks by geographical region. ‘Other operations’ comprise the operations of our principal commercial banking and consumer finance entities outside their domestic markets and all other banking operations, including investment banking balances and transactions.
Average balances are based on daily averages for the principal areas of our banking activities with monthly or less frequent averages used elsewhere. Balances and transactions with fellow subsidiaries are reported gross in the principal commercial
 

banking and consumer finance entities, and the elimination entries are included within ‘Other operations’.
Net interest margin numbers are calculated by dividing net interest income as reported in the income statement by the average interest-earning assets from which interest income is reported within the ‘Net interest income’ line of the income statement. Total interest-earning assets include loans where the carrying amount has been adjusted as a result of impairment allowances. In accordance with IFRSs, we recognise interest income on assets after the carrying amount has been adjusted as a result of impairment. Fee income that forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment to the effective interest rate and recorded in ‘Interest income’.

Assets
  201720162015
  
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield

 $m
$m
%
$m
$m
%
$m
$m
%
Summary


















Interest-earning assets measured at amortised cost (itemised below)
1,726,120
40,995
2.37
1,723,702
42,414
2.46
1,726,949
47,189
2.73
Trading assets and financial assets designated at fair value
186,673
4,245
2.27
179,780
3,897
2.17
195,285
4,626
2.37
Impairment allowances
(7,841)



(9,127)



(10,606)



Non-interest-earning assets
616,688




653,115




682,143




Total assets and interest income
2,521,640
45,240
1.79
2,547,470
46,311
1.82
2,593,771
51,815
2.00
Average yield on all interest-earning assets




2.37




2.43




2.70
Short-term funds and loans and advances to banks


















EuropeHSBC Bank
83,855
256
0.31
68,015
276
0.41
79,101
827
1.05

HSBC Private Banking Holdings (Suisse)
11,815
1
0.01
10,597
—
—
11,498
4
0.03

HSBC France
13,260
41
0.31
5,705
27
0.47
5,242
40
0.76
AsiaHang Seng Bank
10,865
201
1.85
10,533
133
1.26
14,379
210
1.46

The Hongkong and Shanghai
Banking Corporation
53,502
604
1.13
50,741
490
0.97
55,951
536
0.96

HSBC Bank Malaysia
1,906
55
2.89
3,680
99
2.69
3,994
121
3.03
MENAHSBC Bank Middle East
2,556
39
1.53
3,658
30
0.82
5,038
30
0.60
North AmericaHSBC Bank USA
40,476
461
1.14
34,858
214
0.61
35,271
134
0.38

HSBC Bank Canada
366
3
0.82
745
2
0.27
767
2
0.26
Latin AmericaHSBC Mexico
2,164
150
6.93
2,217
92
4.15
2,463
76
3.09

Brazilian operations
–
–
–
—
—
—
1,717
193
11.24

HSBC Bank Argentina
1,083
1
0.09
818
8
0.98
1,050
4
0.38
Other operations

14,278
218
1.53
12,232
139
1.14
5,453
100
1.83


236,126
2,030
0.86
203,799
1,510
0.74
221,924
2,277
1.03

4650
HSBC Holdings plc Annual Report and Accounts 2016

Assets (continued)
  201720162015
  
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield

 $m
$m
%
$m
$m
%
$m
$m
%
Loans and advances to customers 

















EuropeHSBC Bank 280,689
8,046
2.87
277,995
9,203
3.31
291,311
9,916
3.40

HSBC Private Banking Holdings (Suisse) 8,921
152
1.70
10,528
143
1.36
12,006
136
1.13

HSBC France 51,480
920
1.79
42,676
1,026
2.40
41,257
1,252
3.03
AsiaHang Seng Bank 94,943
2,695
2.84
87,073
2,540
2.92
86,149
2,579
2.99

The Hongkong and Shanghai
Banking Corporation		 289,819
8,506
2.93
253,802
7,630
3.01
261,705
8,082
3.09

HSBC Bank Malaysia 11,523
536
4.65
11,636
546
4.69
12,517
589
4.71
MENAHSBC Bank Middle East 20,498
861
4.20
23,595
883
3.74
27,240
1,041
3.82
North AmericaHSBC Bank USA 67,317
2,210
3.28
73,002
2,187
3.00
74,013
1,981
2.68

HSBC Finance 1,939
173
8.92
13,169
1,089
8.27
21,529
1,705
7.92

HSBC Bank Canada 36,557
1,205
3.30
35,894
1,070
2.98
33,280
1,086
3.26
Latin AmericaHSBC Mexico 14,923
1,766
11.83
14,050
1,427
10.16
14,304
1,319
9.22

Brazilian operations –
–
–
—
—
—
10,388
1,915
18.43

HSBC Bank Argentina 3,284
706
21.50
2,642
715
27.06
3,381
880
26.03
Other operations
 20,321
975
4.80
19,294
813
4.21
20,627
623
3.02

 902,214
28,751
3.19
865,356
29,272
3.38
909,707
33,104
3.64
Reverse repurchase agreements – non-trading 

















EuropeHSBC Bank 40,082
502
1.25
47,663
305
0.64
53,036
354
0.67

HSBC France 16,907
1
0.01
10,338
1
0.01
12,986
7
0.05
AsiaThe Hongkong and Shanghai
Banking Corporation		 41,829
596
1.42
33,257
298
0.90
26,714
273
1.02

HSBC Bank Malaysia 531
16
3.01
1,141
35
3.07
1,001
32
3.20
MENAHSBC Bank Middle East 1,101
14
1.27
650
9
1.38
272
2
0.74
North AmericaHSBC Bank USA 5,442
124
2.28
11,632
131
1.13
4,589
23
0.50

HSBC Bank Canada 5,225
44
0.84
5,985
30
0.50
5,814
40
0.69
Latin AmericaHSBC Mexico 882
61
6.92
754
33
4.38
877
27
3.08

Brazilian operations –
–
–
—
—
—
3,248
421
12.96

HSBC Bank Argentina 70
15
21.43
59
13
22.03
42
7
16.67
Other operations
 61,691
818
1.33
56,728
372
0.66
53,729
115
0.21

 173,760
2,191
1.26
168,207
1,227
0.73
162,308
1,301
0.80
Financial investments 

















EuropeHSBC Bank 53,754
715
1.33
71,215
965
1.36
73,043
753
1.03

HSBC Private Banking Holdings (Suisse) 4,826
60
1.24
5,905
57
0.97
7,479
75
1.00

HSBC France 10,657
(9)(0.08)14,753
10
0.07
13,608
17
0.12
AsiaHang Seng Bank 50,129
776
1.55
49,469
686
1.39
39,891
647
1.62

The Hongkong and Shanghai
Banking Corporation		 136,232
2,235
1.64
154,087
2,079
1.35
128,922
1,909
1.48

HSBC Bank Malaysia 2,899
96
3.31
1,766
61
3.45
2,864
104
3.63
MENAHSBC Bank Middle East 6,406
83
1.30
6,654
68
1.02
8,186
70
0.86
North AmericaHSBC Bank USA 47,018
945
2.01
52,479
952
1.81
49,268
893
1.81

HSBC Bank Canada 17,304
214
1.24
17,769
209
1.18
17,486
199
1.14
Latin AmericaHSBC Mexico 5,537
296
5.35
4,709
234
4.97
6,301
286
4.54

Brazilian operations –
–
–
—
—
—
3,520
515
14.63

HSBC Bank Argentina 378
67
17.72
627
142
22.65
650
149
22.92
Other operations
 54,667
1,962
3.59
51,342
1,785
3.48
44,895
1,891
4.21

 389,807
7,440
1.91
430,775
7,248
1.68
396,113
7,508
1.90

HSBC Holdings plc51

Report of the Directors | Financial summary

Assets  
Assets (continued)Assets (continued)
 201620152014  201720162015
 
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
 Footnote
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield


 $m
$m
%
$m
$m
%
$m
$m
%

 $m
$m
%
$m
$m
%
$m
$m
%
Summary


















Interest-earning assets measured at amortised cost (itemised below)
1,723,702
42,414
2.46
1,726,949
47,189
2.73
1,786,536
50,955
2.85
Trading assets and financial assets designated at fair value
179,780
3,897
2.17
195,285
4,626
2.37
238,958
5,596
2.34
Impairment allowances
(9,127)



(10,606)



(14,015)



Non-interest-earning assets
653,115




682,143




668,564




Total assets and interest income
2,547,470
46,311
1.82
2,593,771
51,815
2.00
2,680,043
56,551
2.11
Average yield on all interest-earning assets




2.43




2.70




2.79
Short-term funds and loans and advances to banks


















Other interest-earning assetsOther interest-earning assets 
















EuropeHSBC Bank
68,015
276
0.41
79,101
827
1.05
96,638
997
1.03
HSBC Bank152,575
188
0.36
65,884
105
0.16
61,355
100
0.16

HSBC Private Banking
Holdings (Suisse)
10,597
—
—
11,498
4
0.03
9,704
10
0.10

HSBC France
5,705
27
0.47
5,242
40
0.76
7,055
66
0.94
AsiaHang Seng Bank
10,533
133
1.26
14,379
210
1.46
15,374
279
1.81

The Hongkong and Shanghai Banking Corporation
50,741
490
0.97
55,951
536
0.96
57,141
822
1.44

HSBC Bank Malaysia
3,680
99
2.69
3,994
121
3.03
5,060
158
3.12
MENAHSBC Bank Middle East
3,658
30
0.82
5,038
30
0.60
4,678
29
0.62
North AmericaHSBC Bank USA
34,858
214
0.61
35,271
134
0.38
28,148
105
0.37

HSBC Bank Canada
745
2
0.27
767
2
0.26
606
4
0.66
Latin AmericaHSBC Mexico
2,217
92
4.15
2,463
76
3.09
2,675
86
3.21

Brazilian operations
—
—
—
1,717
193
11.24
5,416
498
9.19

HSBC Bank Argentina
818
8
0.98
1,050
4
0.38
1,083
12
1.11
Other operations

12,232
139
1.14
5,453
100
1.83
3,570
2
0.06


203,799
1,510
0.74
221,924
2,277
1.03
237,148
3,068
1.29
Loans and advances to customers   
EuropeHSBC Bank 277,995
9,203
3.31
291,311
9,916
3.40
302,817
10,423
3.44
HSBC Private Banking
Holdings (Suisse)		 10,528
143
1.36
12,006
136
1.13
13,026
159
1.22
HSBC France 42,676
1,026
2.40
41,257
1,252
3.03
43,736
1,626
3.72
HSBC Private Banking Holdings (Suisse) 1,579
24
1.52
1,874
24
1.28
2,200
24
1.09
HSBC Finance —
—
—
—
—
—
—
—
—
HSBC France12,546
344
13.51
2,106
245
11.60
2,818
145
5.14
AsiaHang Seng Bank 87,073
2,540
2.92
86,149
2,579
2.99
79,586
2,410
3.03
Hang Seng Bank 1,009
17
1.68
1,828
15
0.82
3,551
14
0.39
The Hongkong and Shanghai Banking Corporation 253,802
7,630
3.01
261,705
8,082
3.09
263,732
8,517
3.23
The Hongkong and Shanghai
Banking Corporation		1106,511
1,066
1.00
92,650
617
0.67
82,422
451
0.55
HSBC Bank Malaysia 11,636
546
4.69
12,517
589
4.71
13,548
672
4.96
HSBC Bank Malaysia 223
1
0.45
242
—
—
92
—
—
MENAHSBC Bank Middle East 23,595
883
3.74
27,240
1,041
3.82
26,618
1,133
4.26
HSBC Bank Middle East 4,044
66
1.63
1,942
80
4.12
1,263
37
2.93
North AmericaHSBC Bank USA 73,002
2,187
3.00
74,013
1,981
2.68
63,770
1,791
2.81
HSBC Bank USA 5,221
83
1.59
7,930
130
1.64
4,012
132
3.29
HSBC Finance 13,169
1,089
8.27
21,529
1,705
7.92
26,446
2,171
8.21
HSBC Finance 5,641
84
1.49
2,975
6
0.20
5,538
7
0.13
HSBC Bank Canada 35,894
1,070
2.98
33,280
1,086
3.26
37,472
1,371
3.66
HSBC Bank Canada 1,060
10
0.94
352
6
1.70
249
5
2.01
Latin AmericaHSBC Mexico 14,050
1,427
10.16
14,304
1,319
9.22
15,770
1,542
9.78
HSBC Mexico 843
8
0.95
587
1
0.17
517
1
0.19
Brazilian operations —
—
—
10,388
1,915
18.43
27,275
4,579
16.79
Brazilian operations –
–
–
25,783
2,705
10.49
20,972
2,744
13.08
HSBC Bank Argentina 2,642
715
27.06
3,381
880
26.03
3,078
798
25.93
HSBC Bank Argentina 58
1
1.72
76
—
—
69
—
—
Other operations 19,294
813
4.21
20,627
623
3.02
14,437
237
1.64
Other operations1(157,097)(1,309)

(148,664)(777)
(148,161)(661)
 865,356
29,272
3.38
909,707
33,104
3.64
931,311
37,429
4.02

 24,213
583
2.41
55,565
3,157
5.68
36,897
2,999
8.13
Reverse repurchase agreements –
non-trading		   
Total interest-earning assetsTotal interest-earning assets 






EuropeHSBC Bank 47,663
305
0.64
53,036
354
0.67
66,360
450
0.68
HSBC Bank 510,955
9,707
1.90
530,772
10,833
2.04
557,846
11,950
2.14
HSBC France 10,338
1
0.01
12,986
7
0.05
29,703
62
0.21
HSBC Private Banking Holdings (Suisse) 27,141
237
0.87
28,904
224
0.77
33,183
239
0.72

HSBC France 94,850
1,297
1.37
75,578
1,109
1.47
75,911
1,377
1.81
AsiaThe Hongkong and Shanghai Banking Corporation 33,257
298
0.90
26,714
273
1.02
23,562
333
1.41
Hang Seng Bank 156,946
3,689
2.35
148,903
3,374
2.27
143,970
3,450
2.40

The Hongkong and Shanghai
Banking Corporation		 627,893
13,007
2.07
584,537
11,112
1.90
555,714
11,251
2.02
HSBC Bank Malaysia 1,141
35
3.07
1,001
32
3.20
991
31
3.13
HSBC Bank Malaysia 17,082
704
4.12
18,465
741
4.01
20,468
846
4.13
MENAHSBC Bank Middle East 650
9
1.38
272
2
0.74
18
2
11.11
HSBC Bank Middle East 34,605
1,063
3.07
36,499
1,070
2.93
41,999
1,180
2.81
North AmericaHSBC Bank USA 11,632
131
1.13
4,589
23
0.50
1,196
10
0.84
HSBC Bank USA 165,474
3,823
2.31
179,901
3,614
2.01
167,153
3,163
1.89
HSBC Finance –
–
–
—
—
—
—
—
—
HSBC Finance 7,580
257
3.39
16,144
1,095
6.78
27,067
1,712
6.33
HSBC Bank Canada 5,985
30
0.50
5,814
40
0.69
7,169
84
1.17
HSBC Bank Canada 60,512
1,476
2.44
60,745
1,317
2.17
57,596
1,332
2.31
Latin AmericaHSBC Mexico 754
33
4.38
877
27
3.08
90
3
3.33
HSBC Mexico 24,349
2,281
9.37
22,317
1,787
8.01
24,462
1,709
6.99
Brazilian operations —
—
—
3,248
421
12.96
7,241
753
10.40
Brazilian operations –
–
–
25,783
2,705
10.49
39,845
5,788
14.53
HSBC Bank Argentina 59
13
22.03
42
7
16.67
88
10
11.36
HSBC Bank Argentina 4,873
790
16.21
4,222
878
20.80
5,192
1,040
20.03
Other operations 56,728
372
0.66
53,729
115
0.21
61,855
62
0.10
Other operations (6,140)2,664


(9,068)2,555

(23,457)2,152

 168,207
1,227
0.73
162,308
1,301
0.80
198,273
1,800
0.91

 1,726,120
40,995
2.37
1,723,702
42,414
2.46
1,726,949
47,189
2.73
1Comparatives have been restated for changes in assumptions relating to interest income for other interest-earning assets.
Equity and liabilities
 201720162015
 
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost

$m
$m
%
$m
$m
%
$m
$m
%
Summary

















Interest-bearing liabilities measured at amortised cost (itemised below)1,455,070
12,819
0.88
1,442,004
12,601
0.87
1,465,635
14,658
1.00
Trading liabilities and financial liabilities designated at fair value (excluding own debt issued)153,776
2,325
1.51
138,486
1,986
1.43
151,294
2,071
1.37
Non-interest bearing current accounts197,104




184,016


190,914


Total equity and other non-interest bearing liabilities715,690




782,964


785,928


Total equity and liabilities2,521,640
15,144
0.60
2,547,470
14,587
0.57
2,593,771
16,729
0.64
Average cost on all interest-bearing liabilities



0.94


0.92


1.03

52HSBC Holdings plc

Equity and liabilities (continued)
  201720162015
  
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost

Footnotes$m
$m
%
$m
$m
%
$m
$m
%
Deposits by banks44a

















EuropeHSBC Bank
9,402
48
0.51
12,408
49
0.39
16,333
75
0.46

HSBC Private Banking Holdings (Suisse)
189
2
1.06
186
2
1.08
400
1
0.25

HSBC France
9,175
29
0.32
7,520
33
0.44
7,323
41
0.56
AsiaHang Seng Bank
589
8
1.36
587
11
1.87
1,098
19
1.73

The Hongkong and Shanghai
Banking Corporation
19,191
164
0.85
19,867
125
0.63
19,426
80
0.41

HSBC Bank Malaysia
272
5
1.84
360
4
1.11
974
26
2.67
MENAHSBC Bank Middle East
695
10
1.44
492
4
0.81
737
3
0.41
North AmericaHSBC Bank USA
3,627
41
1.13
5,316
30
0.56
5,503
17
0.31

HSBC Bank Canada
231
1
0.43
358
1
0.28
319
1
0.31
Latin AmericaHSBC Mexico
1,820
120
6.59
1,631
70
4.29
1,506
55
3.65

Brazilian operations
–
–
–
—
—
—
1,024
49
4.79

HSBC Bank Argentina
3
1
33.33
2
—
—
10
2
20.00
Other operations
2,143
22
1.03
1,055
13
1.23
1,210
9
0.74


47,337
451
0.95
49,782
342
0.69
55,863
378
0.68
Financial liabilities designated at fair value – own debt issued44b

















EuropeHSBC Holdings
30,506
944
3.09
26,900
609
2.26
18,816
263
1.40

HSBC Bank
12,598
220
1.75
15,548
225
1.45
20,758
316
1.52

HSBC France
8,769
17
0.19
8,821
15
0.17
8,472
31
0.37
North AmericaHSBC Bank USA
2,115
44
2.08
2,039
38
1.86
2,100
32
1.52

HSBC Finance
696
13
1.87
1,498
19
1.27
5,169
47
0.91
Other operations

5,882
23
0.39
7,236
36
0.50
3,174
28
0.88



60,566
1,261
2.08
62,042
942
1.52
58,489
717
1.23
Customer accounts44c
















EuropeHSBC Bank
342,776
1,186
0.35
352,318
1,613
0.46
364,503
2,051
0.56

HSBC Private Banking Holdings
(Suisse)
6,598
70
1.06
6,128
31
0.51
7,201
29
0.40

HSBC France
17,199
84
0.49
14,697
93
0.63
15,900
116
0.73
AsiaHang Seng Bank
115,705
300
0.26
111,457
339
0.30
106,783
464
0.43

The Hongkong and Shanghai
Banking Corporation
439,356
1,926
0.44
421,711
1,981
0.47
394,313
2,446
0.62

HSBC Bank Malaysia
10,572
205
1.94
11,055
228
2.06
11,865
264
2.23
MENAHSBC Bank Middle East
9,807
40
0.41
10,780
27
0.25
14,360
53
0.37
North AmericaHSBC Bank USA
66,711
375
0.56
64,546
205
0.32
61,314
147
0.24

HSBC Bank Canada
38,150
305
0.80
37,125
194
0.52
35,998
197
0.55
Latin AmericaHSBC Mexico
11,662
406
3.48
10,996
227
2.06
12,568
201
1.60

Brazilian operations
–
–
–
—
—
—
6,938
830
11.96

HSBC Bank Argentina
3,292
245
7.44
2,574
351
13.64
2,989
436
14.59
Other operations

33,092
263
0.79
31,274
203
0.65
41,169
167
0.41



1,094,920
5,405
0.49
1,074,661
5,492
0.51
1,075,901
7,401
0.69
Repurchase agreements – non-trading


















EuropeHSBC Bank
39,444
340
0.86
29,171
88
0.30
31,782
119
0.37

HSBC France
6,664
–
–
7,145
—
—
8,965
2
0.02
AsiaHang Seng Bank
837
23
2.75
410
9
2.20
203
4
1.97

The Hongkong and Shanghai
Banking Corporation
6,028
118
1.96
5,130
111
2.16
3,022
70
2.32

HSBC Bank Malaysia
18
–
–
23
1
4.35
43
1
2.33
MENAHSBC Bank Middle East
32
1
3.13
—
—
—
—
—
—
North AmericaHSBC Bank USA
3,690
57
1.54
3,543
30
0.85
6,828
26
0.38

HSBC Bank Canada
3,702
30
0.81
2,933
14
0.48
2,534
17
0.67
Latin AmericaHSBC Mexico
3,845
259
6.74
2,085
94
4.51
2,127
62
2.91

Brazilian operations
–
–
–
—
—
—
334
6
1.80

HSBC Bank Argentina
15
3
20.00
7
2
28.57
5
—
—
Other operations

72,286
834
1.15
68,342
277
0.41
62,104
48
0.08



136,561
1,665
1.22
118,789
626
0.53
117,947
355
0.30


HSBC Holdings plc Annual Report and Accounts 2016
4753

Report of the Directors | Financial summary

Assets (continued) 
Equity and liabilities (continued)Equity and liabilities (continued)
 201620152014  201720162015
 
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
Average
balance

Interest
income

Yield
  
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
 $m
$m
%
$m
$m
%
$m
$m
%

Footnotes$m
$m
%
$m
$m
%
$m
$m
%
Financial investments 

















EuropeHSBC Bank 71,215
965
1.36
73,043
753
1.03
100,609
867
0.86

HSBC Private Banking Holdings (Suisse) 5,905
57
0.97
7,479
75
1.00
10,890
114
1.05

HSBC France 14,753
10
0.07
13,608
17
0.12
12,685
113
0.89
AsiaHang Seng Bank 49,469
686
1.39
39,891
647
1.62
33,246
655
1.97

The Hongkong and Shanghai Banking Corporation 154,087
2,079
1.35
128,922
1,909
1.48
118,096
2,109
1.79

HSBC Bank Malaysia 1,766
61
3.45
2,864
104
3.63
2,749
94
3.42
MENAHSBC Bank Middle East 6,654
68
1.02
8,186
70
0.86
10,515
104
0.99
North AmericaHSBC Bank USA 52,479
952
1.81
49,268
893
1.81
47,963
774
1.61

HSBC Bank Canada 17,769
209
1.18
17,486
199
1.14
17,970
246
1.37
Latin AmericaHSBC Mexico 4,709
234
4.97
6,301
286
4.54
9,914
409
4.13

Brazilian operations —
—
—
3,520
515
14.63
8,350
1,003
12.01

HSBC Bank Argentina 627
142
22.65
650
149
22.92
518
130
25.10
Other operations
 51,342
1,785
3.48
44,895
1,891
4.21
26,311
1,705
6.48

 430,775
7,248
1.68
396,113
7,508
1.90
399,816
8,323
2.08
Other interest-earning assets   
Debt securities in issueDebt securities in issue 

















EuropeHSBC Bank 65,884
84
0.13
61,355
100
0.16
85,604
25
0.03
HSBC Holdings 43,121
1,533
3.56
25,145
1,087
4.32
16,230
904
5.57
HSBC Private Banking
Holdings (Suisse)		 1,874
24
1.28
2,200
24
1.09
5,220
32
0.61
HSBC Bank 15,590
355
2.28
27,290
397
1.45
41,413
359
0.87
HSBC France 2,106
45
2.14
2,818
61
2.16
6,016
97
1.61
HSBC France 7,367
4
0.05
7,471
11
0.15
12,379
40
0.32
AsiaHang Seng Bank 1,828
15
0.82
3,551
14
0.39
2,504
14
0.56
Hang Seng Bank 78
3
3.85
208
6
2.88
428
7
1.64
The Hongkong and Shanghai Banking Corporation 92,650
615
0.66
82,422
451
0.55
86,361
583
0.68
The Hongkong and Shanghai
Banking Corporation		 3,588
75
2.09
4,245
88
2.07
5,520
123
2.23
HSBC Bank Malaysia 242
—
—
92
—
—
152
—
—
HSBC Bank Malaysia 259
11
4.25
363
15
4.13
385
17
4.42
MENAHSBC Bank Middle East 1,942
80
4.12
1,263
37
2.93
2,221
32
1.44
HSBC Bank Middle East 1,329
20
1.50
1,793
20
1.12
2,199
33
1.50
North AmericaHSBC Bank USA 7,930
130
1.64
4,012
132
3.29
6,936
123
1.77
HSBC Bank USA 27,017
678
2.51
35,571
690
1.94
31,089
542
1.74
HSBC Finance 2,975
6
0.20
5,538
7
0.13
6,081
5
0.08
HSBC Finance 2,512
168
6.69
4,577
266
5.81
8,961
407
4.54
HSBC Bank Canada 352
6
1.70
249
5
2.01
292
5
1.71
HSBC Bank Canada 7,466
163
2.18
8,026
192
2.39
8,718
211
2.42
Latin AmericaHSBC Mexico 587
1
0.17
517
1
0.19
324
—
—
HSBC Mexico 1,198
77
6.43
928
60
6.47
2,005
90
4.49
Brazilian operations 25,783
2,705
10.49
20,972
2,744
13.08
1,215
136
11.19
Brazilian operations –
–
–
—
—
—
4,795
782
16.31
HSBC Bank Argentina 76
—
—
69
—
—
61
—
—
HSBC Bank Argentina 55
15
27.27
—
—
—
—
—
—
Other operationsOther operations (148,664)(554) (148,161)(577) (182,999)(717) 
 (903)28
–
(1,274)(25)

(5,083)6


 55,565
3,157
5.68
36,897
2,999
8.13
19,988
335
1.68

 108,677
3,130
2.88
114,343
2,807
2.45
129,039
3,521
2.73
Total interest-earning assets   
Other interest-bearing liabilitiesOther interest-bearing liabilities 

















EuropeHSBC Bank 530,772
10,833
2.04
557,846
11,950
2.14
652,028
12,762
1.96
HSBC Bank 72,281
942
1.30
79,358
732
0.92
77,583
471
0.61
HSBC Private Banking Holdings (Suisse) 28,904
224
0.77
33,183
239
0.72
38,840
315
0.81
HSBC Private Banking Holdings (Suisse) 7,358
122
1.66
6,885
100
1.45
8,347
94
1.13
HSBC France 75,578
1,109
1.47
75,911
1,377
1.81
99,195
1,964
1.98
HSBC France 12,081
453
3.75
8,371
276
3.30
10,481
112
1.07
AsiaHang Seng Bank 148,903
3,374
2.27
143,970
3,450
2.40
130,710
3,358
2.57
Hang Seng Bank 921
27
2.93
1,338
30
2.24
1,899
35
1.84
The Hongkong and Shanghai Banking Corporation 584,537
11,112
1.90
555,714
11,251
2.02
548,892
12,364
2.25
The Hongkong and Shanghai
Banking Corporation		 106,795
1,133
1.06
81,764
598
0.73
78,630
412
0.52
HSBC Bank Malaysia 18,465
741
4.01
20,468
846
4.13
22,500
955
4.24
HSBC Bank Malaysia 784
18
2.30
771
14
1.82
1,158
15
1.30
MENAHSBC Bank Middle East 36,499
1,070
2.93
41,999
1,180
2.81
44,050
1,300
2.95
HSBC Bank Middle East 2,414
73
3.02
2,994
82
2.74
2,429
46
1.89
North AmericaHSBC Bank USA 179,901
3,614
2.01
167,153
3,163
1.89
148,013
2,803
1.89
HSBC Bank USA 19,479
241
1.24
20,187
152
0.75
16,250
81
0.50
HSBC Finance 16,144
1,095
6.78
27,067
1,712
6.33
32,527
2,176
6.69
HSBC Finance 1,059
50
4.72
4,936
173
3.50
5,807
241
4.15
HSBC Bank Canada 60,745
1,317
2.17
57,596
1,332
2.31
63,509
1,710
2.69
HSBC Bank Canada 3,478
67
1.93
3,759
63
1.68
2,539
7
0.28
Latin AmericaHSBC Mexico 22,317
1,787
8.01
24,462
1,709
6.99
28,773
2,040
7.09
HSBC Mexico 61
25
40.98
782
22
2.81
837
16
1.91
Brazilian operations 25,783
2,705
10.49
39,845
5,788
14.53
49,497
6,969
14.08
Brazilian operations –
–
–
18,936
1,748
9.23
16,943
1,897
11.20
HSBC Bank Argentina 4,222
878
20.80
5,192
1,040
20.03
4,828
950
19.68
HSBC Bank Argentina 97
4
4.12
53
5
9.43
22
4
18.18
Other operationsOther operations (9,068)2,555
 (23,457)2,152
 (76,826)1,289
 
 (219,799)(2,248)

(207,747)(1,603)

(194,529)(1,145)

 1,723,702
42,414
2.46
1,726,949
47,189
2.73
1,786,536
50,955
2.85

 7,009
907
12.94
22,387
2,392
10.68
28,396
2,286
8.05
Total interest-bearing liabilitiesTotal interest-bearing liabilities 

















EuropeHSBC Holdings 73,627
2,477
3.36
52,045
1,696
3.26
35,046
1,167
3.33

HSBC Bank 492,091
3,091
0.63
516,093
3,104
0.60
552,372
3,391
0.61

HSBC Private Banking Holdings (Suisse) 14,145
194
1.37
13,199
133
1.01
15,948
124
0.78

HSBC France 61,255
587
0.96
54,025
428
0.79
63,520
342
0.54
AsiaHang Seng Bank 118,130
361
0.31
114,000
395
0.35
110,411
533
0.48

The Hongkong and Shanghai
Banking Corporation		 574,958
3,416
0.59
532,717
2,903
0.54
500,911
3,131
0.63

HSBC Bank Malaysia 11,905
239
2.01
12,572
262
2.08
14,425
323
2.24
MENAHSBC Bank Middle East 14,277
144
1.01
16,059
133
0.83
20,580
148
0.72
North AmericaHSBC Bank USA 122,639
1,436
1.17
131,202
1,145
0.87
123,084
845
0.69

HSBC Finance 4,267
231
5.41
11,011
458
4.16
19,937
695
3.49

HSBC Bank Canada 53,027
566
1.07
52,201
464
0.89
50,108
433
0.86
Latin AmericaHSBC Mexico 18,586
887
4.77
16,422
473
2.88
19,043
424
2.23

Brazilian operations –
–
–
18,936
1,748
9.23
30,034
3,564
11.87

HSBC Bank Argentina 3,462
268
7.74
2,636
358
13.58
3,026
442
14.61
Other operations
 (107,299)(1,078)

(101,114)(1,099)

(92,810)(904)



 1,455,070
12,819
0.88
1,442,004
12,601
0.87
1,465,635
14,658
1.00
Equity and liabilities          
  201620152014
  
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost

Footnotes$m
$m
%
$m
$m
%
$m
$m
%
Summary 

















Interest-bearing liabilities measured at amortised cost (itemised below) 1,442,004
12,601
0.87
1,465,635
14,658
1.00
1,546,633
16,250
1.05
Trading liabilities and financial liabilities designated at fair value (excluding own debt issued)
 138,486
1,986
1.43
151,294
2,071
1.37
178,518
2,856
1.60
Non-interest bearing current accounts 184,016




190,914


185,990


Total equity and other non-interest bearing liabilities 782,964




785,928


768,902


Total equity and liabilities 2,547,470
14,587
0.57
2,593,771
16,729
0.64
2,680,043
19,106
0.71
Average cost on all interest-bearing liabilities 



0.92


1.03


1.11

48
HSBC Holdings plc Annual Report and Accounts 2016

Report of the Directors | Financial summary

Equity and liabilities (continued)
  201620152014
  
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost

Footnotes$m
$m
%
$m
$m
%
$m
$m
%
Deposits by banks47

















EuropeHSBC Bank
12,408
49
0.39
16,333
75
0.46
20,508
139
0.68

HSBC Private Banking
Holdings (Suisse)
186
2
1.08
400
1
0.25
354
1
0.28

HSBC France
7,520
33
0.44
7,323
41
0.56
6,191
53
0.86
AsiaHang Seng Bank
587
11
1.87
1,098
19
1.73
960
9
0.94

The Hongkong and Shanghai
Banking Corporation
19,867
125
0.63
19,426
80
0.41
19,589
79
0.40

HSBC Bank Malaysia
360
4
1.11
974
26
2.67
1,095
26
2.37
MENAHSBC Bank Middle East
492
4
0.81
737
3
0.41
982
3
0.31
North AmericaHSBC Bank USA
5,316
30
0.56
5,503
17
0.31
6,436
12
0.19

HSBC Bank Canada
358
1
0.28
319
1
0.31
371
1
0.27
Latin AmericaHSBC Mexico
1,631
70
4.29
1,506
55
3.65
2,078
73
3.51

Brazilian operations
—
—
—
1,024
49
4.79
2,309
84
3.64

HSBC Bank Argentina
2
—
—
10
2
20.00
10
1
10.00
Other operations
1,055
13
1.23
1,210
9
0.74
334
—
—


49,782
342
0.69
55,863
378
0.68
61,217
481
0.79
Financial liabilities designated at fair value – own debt issued48

















EuropeHSBC Holdings
26,900
609
2.26
18,816
263
1.40
18,745
234
1.25

HSBC Bank
15,548
225
1.45
20,758
316
1.52
27,762
421
1.52

HSBC France
8,821
15
0.17
8,472
31
0.37
8,232
66
0.80
North AmericaHSBC Bank USA
2,039
38
1.86
2,100
32
1.52
2,032
33
1.62

HSBC Finance
1,498
19
1.27
5,169
47
0.91
7,195
58
0.81
Other operations

7,236
36
0.50
3,174
28
0.88
2,408
25
1.04



62,042
942
1.52
58,489
717
1.23
66,374
837
1.26
Customer accounts49
















EuropeHSBC Bank
352,318
1,613
0.46
364,503
2,051
0.56
372,151
2,268
0.61

HSBC Private Banking Holdings
(Suisse)
6,128
31
0.51
7,201
29
0.40
8,165
31
0.38

HSBC France
14,697
93
0.63
15,900
116
0.73
20,988
189
0.90
AsiaHang Seng Bank
111,457
339
0.30
106,783
464
0.43
98,794
472
0.48

The Hongkong and Shanghai
Banking Corporation
421,711
1,981
0.47
394,313
2,446
0.62
377,748
2,743
0.73

HSBC Bank Malaysia
11,055
228
2.06
11,865
264
2.23
13,457
291
2.16
MENAHSBC Bank Middle East
10,780
27
0.25
14,360
53
0.37
16,533
75
0.45
North AmericaHSBC Bank USA
64,546
205
0.32
61,314
147
0.24
57,015
78
0.14

HSBC Bank Canada
37,125
194
0.52
35,998
197
0.55
40,682
319
0.78
Latin AmericaHSBC Mexico
10,996
227
2.06
12,568
201
1.60
15,050
300
1.99

Brazilian operations
—
—
—
6,938
830
11.96
18,542
1,828
9.86

HSBC Bank Argentina
2,574
351
13.64
2,989
436
14.59
2,758
373
13.52
Other operations

31,274
203
0.65
41,169
167
0.41
46,610
164
0.35



1,074,661
5,492
0.51
1,075,901
7,401
0.69
1,088,493
9,131
0.84
Repurchase agreements – non-trading


















EuropeHSBC Bank
29,171
88
0.30
31,782
119
0.37
72,481
213
0.29

HSBC Private Banking Holdings (Suisse)
—
—
—
—
—
—
74
—
—

HSBC France
7,145
—
—
8,965
2
0.02
29,539
59
0.20
AsiaHang Seng Bank
410
9
2.20
203
4
1.97
11
—
—

The Hongkong and Shanghai
Banking Corporation
5,130
111
2.16
3,022
70
2.32
1,760
56
3.18

HSBC Bank Malaysia
23
1
4.35
43
1
2.33
35
1
2.86
MENAHSBC Bank Middle East
—
—
—
—
—
—
2
—
—
North AmericaHSBC Bank USA
3,543
30
0.85
6,828
26
0.38
11,485
20
0.17

HSBC Bank Canada
2,933
14
0.48
2,534
17
0.67
2,167
25
1.15
Latin AmericaHSBC Mexico
2,085
94
4.51
2,127
62
2.91
4,748
152
3.20

Brazilian operations
—
—
—
334
6
1.80
910
96
10.55

HSBC Bank Argentina
7
2
28.57
5
—
—
3
—
—
Other operations

68,342
277
0.41
62,104
48
0.08
67,490
30
0.04



118,789
626
0.53
117,947
355
0.30
190,705
652
0.34
For footnotes, see page 85.


54
HSBC Holdings plc Annual Report and Accounts 201649

Report of the Directors | Financial summary

Equity and liabilities (continued)  
Net interest margin44d
  
 201620152014 2017
20162015
 
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
Average
balance

Interest
expense

Cost
 %
%
%

Footnotes$m
$m
%
$m
$m
%
$m
$m
%
Debt securities in issue 

















EuropeHSBC Holdings 25,145
1,087
4.32
16,230
904
5.57
16,781
945
5.63
HSBC Bank1.29
1.46
1.53

HSBC Bank 27,290
397
1.45
41,413
359
0.87
56,949
589
1.03
HSBC Private Banking Holdings (Suisse)0.16
0.31
0.35

HSBC France 7,471
11
0.15
12,379
40
0.32
10,846
52
0.48
HSBC France0.75
0.90
1.36
AsiaHang Seng Bank 208
6
2.88
428
7
1.64
1,155
8
0.69
Hang Seng Bank2.12
2.00
2.03

The Hongkong and Shanghai
Banking Corporation		 4,245
88
2.07
5,520
123
2.23
6,365
176
2.77
The Hongkong and Shanghai Banking Corporation1.53
1.40
1.46

HSBC Bank Malaysia 363
15
4.13
385
17
4.42
461
19
4.12
HSBC Bank Malaysia2.72
2.59
2.56
MENAHSBC Bank Middle East 1,793
20
1.12
2,199
33
1.50
2,262
45
1.99
HSBC Bank Middle East2.66
2.57
2.46
North AmericaHSBC Bank USA 35,571
690
1.94
31,089
542
1.74
15,935
414
2.60
HSBC Bank USA1.44
1.37
1.39

HSBC Finance 4,577
266
5.81
8,961
407
4.54
13,045
483
3.70
HSBC Finance0.34
3.95
3.76

HSBC Bank Canada 8,026
192
2.39
8,718
211
2.42
10,232
257
2.51
HSBC Bank Canada1.50
1.40
1.56
Latin AmericaHSBC Mexico 928
60
6.47
2,005
90
4.49
1,061
57
5.37
HSBC Mexico5.73
5.89
5.25

Brazilian operations —
—
—
4,795
782
16.31
12,707
1,565
12.32
Brazilian operations–
3.71
5.58

HSBC Bank Argentina —
—
—
—
—
—
1
—
—
HSBC Bank Argentina10.71
12.32
11.52
Other operations
 (1,274)(25)

(5,083)6


(18,076)(56)


 114,343
2,807
2.45
129,039
3,521
2.73
129,724
4,554
3.51
Other interest-bearing liabilities 

















EuropeHSBC Bank 79,358
732
0.92
77,583
471
0.61
103,819
646
0.62

HSBC Private Banking Holdings (Suisse) 6,885
100
1.45
8,347
94
1.13
7,903
23
0.29

HSBC France 8,371
276
3.30
10,481
112
1.07
12,838
34
0.26
AsiaHang Seng Bank 1,338
30
2.24
1,899
35
1.84
1,918
45
2.35

The Hongkong and Shanghai
Banking Corporation		 81,764
598
0.73
78,630
412
0.52
91,468
635
0.69

HSBC Bank Malaysia 771
14
1.82
1,158
15
1.30
1,342
14
1.04
MENAHSBC Bank Middle East 2,994
82
2.74
2,429
46
1.89
2,617
57
2.18
North AmericaHSBC Bank USA 20,187
152
0.75
16,250
81
0.50
17,632
11
0.06

HSBC Finance 4,936
173
3.50
5,807
241
4.15
5,817
258
4.44

HSBC Bank Canada 3,759
63
1.68
2,539
7
0.28
599
4
0.67
Latin AmericaHSBC Mexico 782
22
2.81
837
16
1.91
1,031
13
1.26

Brazilian operations 18,936
1,748
9.23
16,943
1,897
11.20
3,927
357
9.09

HSBC Bank Argentina 53
5
9.43
22
4
18.18
40
7
17.50
Other operations
 (207,747)(1,603)

(194,529)(1,145)

(240,831)(1,509)


 22,387
2,392
10.68
28,396
2,286
8.05
10,120
595
5.88
Total interest-bearing liabilities 

















EuropeHSBC Holdings 52,045
1,696
3.26
35,046
1,167
3.33
35,526
1,179
3.32

HSBC Bank 516,093
3,104
0.60
552,372
3,391
0.61
653,670
4,276
0.65

HSBC Private Banking Holdings (Suisse) 13,199
133
1.01
15,948
124
0.78
16,496
55
0.33

HSBC France 54,025
428
0.79
63,520
342
0.54
88,634
453
0.51
AsiaHang Seng Bank 114,000
395
0.35
110,411
533
0.48
102,927
535
0.52

The Hongkong and Shanghai
Banking Corporation		 532,717
2,903
0.54
500,911
3,131
0.63
496,930
3,689
0.74

HSBC Bank Malaysia 12,572
262
2.08
14,425
323
2.24
16,390
351
2.14
MENAHSBC Bank Middle East 16,059
133
0.83
20,580
148
0.72
22,994
190
0.83
North AmericaHSBC Bank USA 131,202
1,145
0.87
123,084
845
0.69
110,535
568
0.51

HSBC Finance 11,011
458
4.16
19,937
695
3.49
26,057
799
3.07

HSBC Bank Canada 52,201
464
0.89
50,108
433
0.86
54,051
606
1.12
Latin AmericaHSBC Mexico 16,422
473
2.88
19,043
424
2.23
23,968
595
2.48

Brazilian operations 18,936
1,748
9.23
30,034
3,564
11.87
38,395
3,930
10.24

HSBC Bank Argentina 2,636
358
13.58
3,026
442
14.61
2,812
381
13.55
Other operations
 (101,114)(1,099)

(92,810)(904)

(142,752)(1,357)


 1,442,004
12,601
0.87
1,465,635
14,658
1.00
1,546,633
16,250
1.05
TotalTotal1.63
1.73
1.88
Distribution of average total assets
  2017
2016
2015
  %
%
%
EuropeHSBC Bank34.7
36.9
37.0

HSBC Private Banking Holdings (Suisse)1.2
1.2
1.4

HSBC France7.4
6.9
7.4
AsiaHang Seng Bank7.2
6.7
6.5

The Hongkong and Shanghai Banking Corporation34.2
32.2
30.0

HSBC Bank Malaysia0.8
0.8
0.9
MENAHSBC Bank Middle East1.5
1.6
1.9
North AmericaHSBC Bank USA9.5
10.1
9.6

HSBC Finance0.4
0.8
1.2

HSBC Bank Canada2.9
2.9
2.8
Latin AmericaHSBC Mexico—
1.3
1.4

Brazilian operations—
1.2
2.0

HSBC Bank Argentina—
—
—
Other operations (including consolidation adjustments)0.2
(2.6)(2.1)
  100.0
100.0
100.0
For footnotes,footnote, see page 79.85.



50
HSBC Holdings plc Annual Report and Accounts 2016

Report of the Directors | Financial summary

      
 Net interest margin50
   
   2016
2015
2014
   %
%
%
 Total1.73
1.88
1.94
 EuropeHSBC Bank1.46
1.53
1.30
 
HSBC Private Banking Holdings (Suisse)0.31
0.35
0.67
 
HSBC France0.90
1.36
1.52
 AsiaHang Seng Bank2.00
2.03
2.16
 
The Hongkong and Shanghai Banking Corporation1.40
1.46
1.58
 
HSBC Bank Malaysia2.59
2.56
2.68
 MENAHSBC Bank Middle East2.57
2.46
2.52
 North AmericaHSBC Bank USA1.37
1.39
1.51
 
HSBC Finance3.95
3.76
4.23
 
HSBC Bank Canada1.40
1.56
1.74
 Latin AmericaHSBC Mexico5.89
5.25
5.02
 
Brazilian operations3.71
5.58
6.14
 
HSBC Bank Argentina12.32
11.52
11.79
Distribution of average total assets   
  2016
2015
2014
  %
%
%
EuropeHSBC Bank36.9
37.0
39.2

HSBC Private Banking Holdings (Suisse)1.2
1.4
1.5

HSBC France6.9
7.4
9.0
AsiaHang Seng Bank6.7
6.5
5.7

The Hongkong and Shanghai Banking Corporation32.2
30.0
26.3

HSBC Bank Malaysia0.8
0.9
0.9
MENAHSBC Bank Middle East1.6
1.9
1.9
North AmericaHSBC Bank USA10.1
9.6
8.5

HSBC Finance0.8
1.2
1.3

HSBC Bank Canada2.9
2.8
3.0
Latin AmericaHSBC Mexico1.3
1.4
1.5

Brazilian operations1.2
2.0
2.4

HSBC Bank Argentina—
—
—
Other operations (including consolidation adjustments)(2.6)(2.1)(1.2)


100.0
100.0
100.0
For footnote, see page 79.


HSBC Holdings plc Annual Report and Accounts 2016
5155

Report of the Directors | Financial summary

Analysis of changes in net interest income and net interest expense
The following tables allocate changes in net interest income and net interest expense between volume and rate for 20162017 compared
 
with 2016, and for 2016 compared with 2015, and for 2015 compared with 2014.2015. We isolate volume variances and allocate any change arising from both volume and rate to rate.

Interest incomeInterest income Interest income
  
Increase/(decrease)
in 2016 compared
with 2015
 
Increase/(decrease)
in 2015 compared
with 2014
   Increase/(decrease)
in 2017 compared
with 2016		 Increase/(decrease)
in 2016 compared
with 2015		 
 2016
Volume
Rate
2015
Volume
Rate
2014
 2017
Volume
Rate
2016Volume
Rate
2015


$m
$m
$m
$m
$m
$m
$m

$m
$m
$m
$m
$m
$m
$m
Short-term funds and loans and advances to banksShort-term funds and loans and advances to banks













Short-term funds and loans and advances to banks













EuropeHSBC Bank276
(116)(435)827
(181)11
997
HSBC Bank256
65
(85)276
(116)(435)827

HSBC Private Banking Holdings (Suisse)—
—
(4)4
2
(8)10
HSBC Private Banking Holdings (Suisse)1
–
1
—
—
(4)4

HSBC France27
4
(17)40
(17)(9)66
HSBC France41
36
(22)27
4
(17)40
AsiaHang Seng Bank133
(56)(21)210
(18)(51)279
Hang Seng Bank201
4
64
133
(56)(21)210

The Hongkong and Shanghai
Banking Corporation		490
(50)4
536
(17)(269)822
The Hongkong and Shanghai
Banking Corporation		604
27
87
490
(50)4
536

HSBC Bank Malaysia99
(10)(12)121
(33)(4)158
HSBC Bank Malaysia55
(48)4
99
(10)(12)121
MENAHSBC Bank Middle East30
(8)8
30
2
(1)29
HSBC Bank Middle East39
(9)18
30
(8)8
30
North AmericaHSBC Bank USA214
(2)82
134
26
3
105
HSBC Bank USA461
34
213
214
(2)82
134

HSBC Bank Canada2
(1)1
2
1
(3)4
HSBC Bank Canada3
(1)2
2
(1)1
2
Latin AmericaHSBC Mexico92
(8)24
76
(7)(3)86
HSBC Mexico150
(2)60
92
(8)24
76

Brazilian operations—
(193)—
193
(340)35
498
Brazilian operations–
–
–
—
(193)—
193

HSBC Bank Argentina8
(1)5
4
—
(8)12
HSBC Bank Argentina1
3
(10)8
(1)5
4
Other operations
139
124
(85)100
1
97
2

218
23
56
139
124
(85)100


1,510
(187)(580)2,277
(196)(595)3,068

2,030
239
281
1,510
(187)(580)2,277
Loans and advances to customersLoans and advances to customers













Loans and advances to customers













EuropeHSBC Bank9,203
(453)(260)9,916
(396)(111)10,423
HSBC Bank8,046
89
(1,246)9,203
(453)(260)9,916

HSBC Private Banking Holdings (Suisse)143
(17)24
136
(12)(11)159
HSBC Private Banking Holdings (Suisse)152
(22)31
143
(17)24
136

HSBC France1,026
43
(269)1,252
(92)(282)1,626
HSBC France920
211
(317)1,026
43
(269)1,252
AsiaHang Seng Bank2,540
28
(67)2,579
199
(30)2,410
Hang Seng Bank2,695
230
(75)2,540
28
(67)2,579

The Hongkong and Shanghai
Banking Corporation		7,630
(244)(208)8,082
(65)(370)8,517
The Hongkong and Shanghai
Banking Corporation		8,506
1,084
(208)7,630
(244)(208)8,082

HSBC Bank Malaysia546
(41)(2)589
(51)(32)672
HSBC Bank Malaysia536
(5)(5)546
(41)(2)589
MENAHSBC Bank Middle East883
(139)(19)1,041
26
(118)1,133
HSBC Bank Middle East861
(116)94
883
(139)(19)1,041
North AmericaHSBC Bank USA2,187
(27)233
1,981
288
(98)1,791
HSBC Bank USA2,210
(171)194
2,187
(27)233
1,981

HSBC Finance1,089
(662)46
1,705
(404)(62)2,171
HSBC Finance173
(929)13
1,089
(662)46
1,705

HSBC Bank Canada1,070
85
(101)1,086
(153)(132)1,371
HSBC Bank Canada1,205
20
115
1,070
85
(101)1,086
Latin AmericaHSBC Mexico1,427
(23)131
1,319
(143)(80)1,542
HSBC Mexico1,766
89
250
1,427
(23)131
1,319

Brazilian operations—
(1,915)—
1,915
(2,835)171
4,579
Brazilian operations–
–
–
—
(1,915)—
1,915

HSBC Bank Argentina715
(192)27
880
79
3
798
HSBC Bank Argentina706
174
(183)715
(192)27
880
Other operations
813
(40)230
623
102
284
237

975
43
119
813
(40)230
623


29,272
(1,614)(2,218)33,104
(868)(3,457)37,429

28,751
1,246
(1,767)29,272
(1,614)(2,218)33,104
Reverse repurchase agreements – non-tradingReverse repurchase agreements – non-trading













Reverse repurchase agreements – non-trading













EuropeHSBC Bank305
(36)(13)354
(91)(5)450
HSBC Bank502
(49)246
305
(36)(13)354

HSBC France1
(1)(5)7
(35)(20)62
HSBC France1
1
(1)1
(1)(5)7
AsiaThe Hongkong and Shanghai
Banking Corporation		298
67
(42)273
44
(104)333
The Hongkong and Shanghai
Banking Corporation		596
77
221
298
67
(42)273

HSBC Bank Malaysia35
4
(1)32
—
1
31
HSBC Bank Malaysia16
(19)—
35
4
(1)32
MENAHSBC Bank Middle East9
3
4
2
28
(28)2
HSBC Bank Middle East14
6
(1)9
3
4
2
North AmericaHSBC Bank USA131
35
73
23
29
(16)10
HSBC Bank USA124
(70)63
131
35
73
23

HSBC Bank Canada30
1
(11)40
(16)(28)84
HSBC Bank Canada44
(4)18
30
1
(11)40
Latin AmericaHSBC Mexico33
(4)10
27
26
(2)3
HSBC Mexico61
6
22
33
(4)10
27

Brazilian operations—
(421)—
421
(415)83
753
Brazilian operations—
—
—
—
(421)—
421

HSBC Bank Argentina13
3
3
7
(5)2
10
HSBC Bank Argentina15
2
—
13
3
3
7
Other operations
372
6
251
115
(8)61
62

818
33
413
372
6
251
115


1,227
47
(121)1,301
(327)(172)1,800

2,191
41
923
1,227
47
(121)1,301
Financial investments  
EuropeHSBC Bank965
(19)231
753
(237)123
867
HSBC Private Banking Holdings (Suisse)57
(16)(2)75
(36)(3)114
HSBC France10
1
(8)17
8
(104)113
AsiaHang Seng Bank686
155
(116)647
131
(139)655
The Hongkong and Shanghai
Banking Corporation		2,079
372
(202)1,909
194
(394)2,109
HSBC Bank Malaysia61
(40)(3)104
4
6
94
MENAHSBC Bank Middle East68
(13)11
70
(23)(11)104
North AmericaHSBC Bank USA952
58
1
893
21
98
774
HSBC Bank Canada209
3
7
199
(7)(40)246
Latin AmericaHSBC Mexico234
(72)20
286
(149)26
409
Brazilian operations—
(515)—
515
(580)92
1,003
HSBC Bank Argentina142
(5)(2)149
33
(14)130
Other operations 1,785
271
(377)1,891
1,204
(1,018)1,705
7,248
659
(919)7,508
(77)(738)8,323



5256
HSBC Holdings plc Annual Report and Accounts 2016

Interest income (continued)
   Increase/(decrease)
in 2017 compared
with 2016		 Increase/(decrease)
in 2016 compared
with 2015		 
  2017
Volume
Rate
2016Volume
Rate
2015


$m
$m
$m
$m
$m
$m
$m
Financial investments












EuropeHSBC Bank715
(237)(13)965
(19)231
753

HSBC Private Banking Holdings (Suisse)60
(10)13
57
(16)(2)75

HSBC France(9)(3)(16)10
1
(8)17
AsiaHang Seng Bank776
9
81
686
155
(116)647

The Hongkong and Shanghai
Banking Corporation		2,235
(241)397
2,079
372
(202)1,909

HSBC Bank Malaysia96
39
(4)61
(40)(3)104
MENAHSBC Bank Middle East83
(3)18
68
(13)11
70
North AmericaHSBC Bank USA945
(99)92
952
58
1
893

HSBC Bank Canada214
(5)10
209
3
7
199
Latin AmericaHSBC Mexico296
41
21
234
(72)20
286

Brazilian operations—
—
—
—
(515)—
515

HSBC Bank Argentina67
(56)(19)142
(5)(2)149
Other operations
1,962
115
62
1,785
271
(377)1,891

7,440
(689)881
7,248
659
(919)7,508
Interest expense
   Increase/(decrease)
in 2017 compared
with 2016		 Increase/(decrease)
in 2016 compared
with 2015		 
  2017
Volume
Rate
2016
Volume
Rate
2015


$m
$m
$m
$m
$m
$m
$m
Deposits by banks






EuropeHSBC Bank48
(12)11
49
(18)(8)75

HSBC Private Banking Holdings (Suisse)2
–
–
2
(1)2
1

HSBC France29
7
(11)33
1
(9)41
AsiaHang Seng Bank8
–
(3)11
(9)1
19

The Hongkong and Shanghai
Banking Corporation		164
(4)43
125
2
43
80

HSBC Bank Malaysia5
(1)2
4
(16)(6)26
MENAHSBC Bank Middle East10
2
4
4
(1)2
3
North AmericaHSBC Bank USA41
(9)20
30
(1)14
17

HSBC Bank Canada1
–
–
1
—
—
1
Latin AmericaHSBC Mexico120
8
42
70
5
10
55

Brazilian operations–
–
–
—
(49)—
49

HSBC Bank Argentina1
–
1
—
(2)—
2
Other operations
22
13
(4)13
(1)5
9


451
(17)126
342
(41)5
378
Customer accounts










EuropeHSBC Bank1,186
(44)(383)1,613
(68)(370)2,051

HSBC Private Banking Holdings (Suisse)70
2
37
31
(4)6
29

HSBC France84
16
(25)93
(9)(14)116
AsiaHang Seng Bank300
13
(52)339
20
(145)464

The Hongkong and Shanghai
Banking Corporation		1,926
83
(138)1,981
170
(635)2,446

HSBC Bank Malaysia205
(10)(13)228
(18)(18)264
MENAHSBC Bank Middle East40
(2)15
27
(13)(13)53
North AmericaHSBC Bank USA375
7
163
205
8
50
147

HSBC Bank Canada305
5
106
194
6
(9)197
Latin AmericaHSBC Mexico406
14
165
227
(25)51
201

Brazilian operations–
–
–
—
(830)—
830

HSBC Bank Argentina245
98
(204)351
(61)(24)436
Other operations
263
12
48
203
(41)77
167


5,405
103
(190)5,492
(9)(1,900)7,401

HSBC Holdings plc57

Report of the Directors | Financial summary

Interest expense 
Interest expense (continued)Interest expense (continued)
  
Increase/(decrease)
in 2016 compared
with 2015
 
Increase/(decrease)
in 2015 compared
with 2014
   Increase/(decrease)
in 2017 compared
with 2016		 Increase/(decrease)
in 2016 compared
with 2015		 
 2016
Volume
Rate
2015
Volume
Rate
2014
 2017
Volume
Rate
2016
Volume
Rate
2015

$m
$m
$m
$m
$m
$m
$m
Deposits by banks

EuropeHSBC Bank49
(18)(8)75
(19)(45)139

HSBC Private Banking Holdings (Suisse)2
(1)2
1
—
—
1

HSBC France33
1
(9)41
10
(22)53
AsiaHang Seng Bank11
(9)1
19
1
9
9

The Hongkong and Shanghai
Banking Corporation		125
2
43
80
(1)2
79

HSBC Bank Malaysia4
(16)(6)26
(3)3
26
MENAHSBC Bank Middle East4
(1)2
3
(1)1
3
North AmericaHSBC Bank USA30
(1)14
17
(2)7
12

HSBC Bank Canada1
—
—
1
—
—
1
Latin AmericaHSBC Mexico70
5
10
55
(20)2
73

Brazilian operations—
(49)—
49
(47)12
84

HSBC Bank Argentina—
(2)—
2
—
1
1
Other operations
13
(1)5
9
—
9
—

342
(41)5
378
(47)(170)481
Customer accounts








EuropeHSBC Bank1,613
(68)(370)2,051
(46)(171)2,268

HSBC Private Banking Holdings (Suisse)31
(4)6
29
(4)2
31

HSBC France93
(9)(14)116
(46)(27)189
AsiaHang Seng Bank339
20
(145)464
38
(46)472

The Hongkong and Shanghai
Banking Corporation		1,981
170
(635)2,446
121
(418)2,743

HSBC Bank Malaysia228
(18)(18)264
(34)7
291
MENAHSBC Bank Middle East27
(13)(13)53
(10)(12)75
North AmericaHSBC Bank USA205
8
50
147
6
63
78

HSBC Bank Canada194
6
(9)197
(37)(85)319
Latin AmericaHSBC Mexico227
(25)51
201
(49)(50)300

Brazilian operations—
(830)—
830
(1,144)146
1,828

HSBC Bank Argentina351
(61)(24)436
31
32
373
Other operations
203
(41)77
167
(19)22
164


5,492
(9)(1,900)7,401
(106)(1,624)9,131

$m
$m
$m
$m
$m
$m
$m
Repurchase agreements – non-tradingRepurchase agreements – non-trading  Repurchase agreements – non-trading













EuropeHSBC Bank88
(10)(21)119
(118)24
213
HSBC Bank340
31
221
88
(10)(21)119
HSBC France—
—
(2)2
(41)(16)59
HSBC France–
–
–
—
—
(2)2
AsiaHang Seng Bank9
4
1
4
—
4
—
Hang Seng Bank23
9
5
9
4
1
4

The Hongkong and Shanghai
Banking Corporation		118
19
(12)111
49
(8)70
The Hongkong and Shanghai
Banking Corporation		111
49
(8)70
40
(26)56
HSBC Bank Malaysia–
–
(1)1
—
—
1
HSBC Bank Malaysia1
—
—
1
—
—
1
HSBC Bank Middle East1
–
1
—
—
—
—
North AmericaHSBC Bank USA30
(12)16
26
(8)14
20
HSBC Bank USA57
1
26
30
(12)16
26
HSBC Bank Canada14
3
(6)17
4
(12)25
HSBC Bank Canada30
4
12
14
3
(6)17
Latin AmericaHSBC Mexico94
(1)33
62
(84)(6)152
HSBC Mexico259
79
86
94
(1)33
62
Brazilian operations—
(6)—
6
(61)(29)96
Brazilian operations–
–
–
—
(6)—
6
HSBC Bank Argentina2
—
2
—
—
—
—
HSBC Bank Argentina3
2
(1)2
—
2
—
Other operations 277
5
224
48
(2)20
30

834
16
541
277
5
224
48
 626
3
268
355
(247)(50)652
 1,665
94
945
626
3
268
355
Debt securities in issueDebt securities in issue  Debt securities in issue













EuropeHSBC Holdings1,087
497
(314)904
(31)(10)945
HSBC Holdings1,533
777
(331)1,087
497
(314)904
HSBC Bank397
(123)161
359
(160)(70)589
HSBC Bank355
(170)128
397
(123)161
359
HSBC France11
(16)(13)40
7
(19)52
HSBC France4
–
(7)11
(16)(13)40
AsiaHang Seng Bank6
(4)3
7
(5)4
8
Hang Seng Bank3
(4)1
6
(4)3
7
The Hongkong and Shanghai
Banking Corporation		88
(28)(7)123
(23)(30)176
The Hongkong and Shanghai
Banking Corporation		75
(14)1
88
(28)(7)123
HSBC Bank Malaysia15
(1)(1)17
(3)1
19
HSBC Bank Malaysia11
(4)–
15
(1)(1)17
MENAHSBC Bank Middle East20
(6)(7)33
(1)(11)45
HSBC Bank Middle East20
(5)5
20
(6)(7)33
North AmericaHSBC Bank USA690
78
70
542
394
(266)414
HSBC Bank USA678
(166)154
690
78
70
542
HSBC Finance266
(199)58
407
(151)75
483
HSBC Finance168
(120)22
266
(199)58
407
HSBC Bank Canada192
(17)(2)211
(38)(8)257
HSBC Bank Canada163
(13)(16)192
(17)(2)211
Latin AmericaHSBC Mexico60
(48)18
90
51
(18)57
HSBC Mexico77
17
–
60
(48)18
90
Brazilian operations—
(782)—
782
(975)192
1,565
Brazilian operations—
–
—
—
(782)—
782
HSBC Bank Argentina15
—
15
—
—
—
—
Other operations (25)—
(31)6
—
62
(56)
28
–
53
(25)—
(31)6
 2,807
(401)(313)3,521
(24)(1,009)4,554
 3,130
(139)462
2,807
(401)(313)3,521




58
HSBC Holdings plc Annual Report and Accounts 201653

Report of the Directors | Financial summary

Short-term borrowings
Short-term borrowings in the form of repurchase agreements – non-trading are shown separately on the face of the balance sheet. Other forms of short-term borrowings are included within customer accounts, deposits by banks, debt securities in issue and trading liabilities. Short-term borrowings are defined by the US Securities and Exchange Commission as Federal funds purchased and securities sold under agreements to repurchase, commercial paper and other short-term borrowings.
 
Our only significant short-term borrowings are securities sold under agreements to repurchase and certain debt securities in issue. For securities sold under agreements to repurchase, we run matched repo and reverse repo trading books. We generally observe lower year-end demand in our reverse repo lending business, which results in lower repo balances at the balance sheet date. Additional information on these is provided in the table below.

Repos and short-term bonds   
 2016
2015
2014
 $m
$m
$m
Securities sold under agreements to repurchase



 
Outstanding at 31 December90,386
80,842
111,230
Average amount outstanding during the year119,850
120,241
195,482
Maximum quarter-end balance outstanding during the year110,362
120,141
227,637
Weighted average interest rate during the year0.5%0.4%0.3%
Weighted average interest rate at the year-end0.8%0.8%0.6%
Short-term bonds   
Outstanding at 31 December24,580
36,614
38,868
Average amount outstanding during the year24,359
40,449
39,547
Maximum quarter-end balance outstanding during the year25,946
42,483
41,117
Weighted average interest rate during the year1.4%1.3%1.7%
Weighted average interest rate at the year-end1.4%1.2%1.6%
Contractual obligations
The table below provides details of our material contractual obligations at 31 December 2016.

 Payments due by period
 Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
 $m
$m
$m
$m
$m
Long-term debt obligations182,413
33,511
38,303
39,469
71,130
Term deposits and certificates of deposit95,925
87,271
3,726
3,891
1,037
Capital (finance) lease obligations30
7
5
4
14
Operating lease obligations3,893
859
1,237
717
1,080
Purchase obligations398
305
12
32
49
Short positions in debt securities and equity shares51,123
51,077
15
9
22
Current tax liability719
719
—
—
—
Pension/healthcare obligation15,302
1,341
2,876
3,090
7,995
 349,803
175,090
46,174
47,212
81,327
Repos and short-term bonds

2017
2016
2015

$m
$m
$m
Securities sold under agreements to repurchase



 
Outstanding at 31 December132,257
90,386
80,842
Average amount outstanding during the year138,957
119,850
120,241
Maximum quarter-end balance outstanding during the year148,259
110,362
120,141
Weighted average interest rate during the year1.2%
0.5%
0.4%
Weighted average interest rate at the year-end1.4%
0.8%
0.8%
Short-term bonds

  
Outstanding at 31 December25,874
24,580
36,614
Average amount outstanding during the year27,283
24,359
40,449
Maximum quarter-end balance outstanding during the year29,885
25,946
42,483
Weighted average interest rate during the year1.3%
1.4%
1.3%
Weighted average interest rate at the year-end1.7%
1.4%
1.2%

54
HSBC Holdings plc Annual Report and Accounts 2016
59

Report of the Directors | Financial summary

Contractual obligations
The table below provides details of our material contractual obligations at 31 December 2017.
 Payments due by period
 Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
 $m
$m
$m
$m
$m
Long-term debt obligations196,844
38,449
37,040
46,348
75,007
Term deposits and certificates of deposit97,696
85,479
8,963
1,533
1,721
Capital (finance) lease obligations26
3
4
4
15
Operating lease obligations3,950
850
1,231
780
1,089
Purchase obligations1,131
1,040
5
34
52
Short positions in debt securities and equity shares67,735
67,572
48
26
89
Current tax liability928
928
—
—
—
Pension/healthcare obligation15,302
1,341
2,876
3,090
7,995
 383,612
195,662
50,167
51,815
85,968
Loan maturity and interest sensitivity analysis
At 31 December 2016,2017, the geographical analysis of loan
maturity and interest sensitivity by loan type on a contractual repayment basis was as follows.

Europe
Asia
MENA
North America
Latin America
Total
Europe
Asia
MENA
North America
Latin America
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Maturity of 1 year or less 











Loans and advances to banks10,126
56,132
7,387
4,843
3,186
81,674
9,806
50,364
6,347
10,703
3,471
80,691
Commercial loans to customers



– manufacturing and international trade and services42,133
81,659
8,858
10,443
3,340
146,433
47,957
91,713
8,912
9,479
3,874
161,935
– real estate and other property related9,407
22,883
1,535
5,243
428
39,496
10,496
26,843
1,562
6,593
388
45,882
– non-bank financial institutions15,513
13,659
1,691
6,412
423
37,698
21,123
17,150
457
7,470
367
46,567
– governments652
276
1,444
55
172
2,599
1,152
884
1,239
282
192
3,749
– other commercial23,767
17,047
2,988
4,556
1,750
50,108
26,010
19,349
1,701
5,545
1,723
54,328
91,472
135,524
16,516
26,709
6,113
276,334
106,738
155,939
13,871
29,369
6,544
312,461
Maturity after 1 year but within 5 years   










Loans and advances to banks1,975
2,631
384
187
—
5,177
4,107
3,951
156
76
—
8,290
Commercial loans to customers



– manufacturing and international trade and services31,911
21,657
1,930
13,775
1,421
70,694
36,673
22,483
3,405
13,400
2,087
78,048
– real estate and other property related16,562
37,988
819
8,707
404
64,480
20,769
50,317
574
8,542
906
81,108
– non-bank financial institutions10,762
5,467
603
3,114
132
20,078
7,803
8,142
614
3,352
913
20,824
– governments1,308
1,999
175
217
37
3,736
1,427
4,413
121
53
5
6,019
– other commercial17,155
14,185
2,329
8,614
673
42,956
15,232
18,463
1,612
5,044
952
41,303
77,698
81,296
5,856
34,427
2,667
201,944
81,904
103,818
6,326
30,391
4,863
227,302
Interest rate sensitivity of loans and advances to banks and commercial loans to customers 











Fixed interest rate13,569
1,954
1,892
4,021
453
21,889
17,759
1,192
2,037
4,393
610
25,991
Variable interest rate66,108
81,974
4,346
30,592
2,214
185,234
68,254
106,576
4,446
26,074
4,253
209,603
79,677
83,928
6,238
34,613
2,667
207,123
86,013
107,768
6,483
30,467
4,863
235,594
Maturity after 5 years  








Loans and advances to banks258
974
—
43
—
1,275
268
1,103
—
41
—
1,412
Commercial loans to customers



– manufacturing and international trade and services8,836
1,414
601
2,165
542
13,558
9,617
2,419
649
1,896
520
15,101
– real estate and other property related2,516
9,555
226
2,722
814
15,833
2,675
9,249
371
1,781
581
14,657
– non-bank financial institutions5,032
391
305
224
1
5,953
3,167
1,019
36
104
2
4,328
– governments1,049
644
—
82
332
2,107
1,040
470
6
71
373
1,960
– other commercial6,357
3,541
1,173
1,697
1,059
13,827
9,470
4,345
1,370
2,226
747
18,158
23,790
15,545
2,305
6,890
2,748
51,278
25,969
17,502
2,432
6,078
2,223
54,204
Interest rate sensitivity of loans and advances to banks and commercial loans to customers  








Fixed interest rate4,999
1,019
686
1,120
592
8,416
5,654
1,281
855
994
90
8,874
Variable interest rate19,049
15,500
1,619
5,813
2,156
44,137
20,583
17,324
1,577
5,126
2,133
46,743
24,048
16,519
2,305
6,933
2,748
52,553
26,237
18,605
2,432
6,120
2,223
55,617

60
HSBC Holdings plc Annual Report and Accounts 201655

Report of the Directors | Financial summary

Deposits
The following tables summarise the average amount of bank deposits, customer deposits and certificates of deposit (‘CDs’) and other money market instruments (that are included within ‘Debt securities in issue’ in the balance sheet), together with the average
 
average interest rates paid thereon for each of the past three years. The geographical analysis of average deposits is based on the location of the office in which the deposits are recorded and excludes balances with HSBC companies.

Deposits by banks     

   
201620152014201720162015
Average
balance
Average
rate		Average balance
Average
rate
Average
balance

Average
rate

Average
balance
Average
rate		Average balance
Average
rate
Average
balance

Average
rate

$m
%$m
%$m
%
$m
%$m
%$m
%
Europe32,232
 32,297

36,150
 33,483

32,232

32,297
 
– demand and other – non-interest bearing11,696
 8,076
—8,795
—
12,825
—11,696
—8,076
—
– demand – interest bearing6,730
0.25,412
0.35,778
0.4
6,780
0.46,730
0.25,412
0.3
– time8,426
0.49,833
0.813,938
1.0
11,747
0.38,426
0.49,833
0.8
– other5,380
0.58,976
0.27,639
0.4
2,131
1.15,380
0.58,976
0.2
Asia26,945
 27,618

26,524
 25,253

26,945

27,618
 
– demand and other – non-interest bearing5,835
 6,114
—5,189
—
5,201
—5,835
—6,114
—
– demand – interest bearing13,230
0.416,107
0.513,828
0.5
12,521
0.513,230
0.416,107
0.5
– time3,593
1.92,209
1.53,581
0.7
3,355
1.53,593
1.92,209
1.5
– other4,287
0.63,188
0.53,926
0.3
4,176
1.64,287
0.63,188
0.5
Middle East and North Africa1,158
 1,548

1,823
 1,311

1,158

1,548
 
– demand and other – non-interest bearing391
 748
—587
—
430
—391
—748
—
– demand – interest bearing8
—3
—3
—
2
—8
—3
—
– time742
2.2775
0.81,191
0.8
871
3.0742
2.2775
0.8
– other17
—22
—42
—
8
—17
—22
—
North America7,594
 9,327

10,497
 5,721

7,594

9,327
 
– demand and other – non-interest bearing1,916
 3,499
—3,686
—
1,853
—1,916
—3,499
—
– demand – interest bearing2,402
0.31,956
0.22,557
0.1
1,744
0.52,402
0.31,956
0.2
– time3,185
0.83,746
0.43,308
0.3
2,116
1.63,185
0.83,746
0.4
– other91
—126
—946
0.1
8
—91
—126
—
Latin America1,820
 2,719

4,642
 2,042

1,820

2,719
 
– demand and other – non-interest bearing129
 88
—162
—
164
��129
—88
—
– demand – interest bearing313
5.4205
7.8837
3.8
376
6.9313
5.4205
7.8
– time1,378
5.71,905
4.52,244
3.0
1,502
6.51,378
5.71,905
4.5
– other—
—521
10.41,399
4.4
—
——
—521
10.4
Total69,749
 73,509

79,636
 67,810

69,749

73,509
 
– demand and other – non-interest bearing19,967
 18,525
—18,419
—
20,473
—19,967
—18,525
—
– demand – interest bearing22,683
0.423,683
0.523,003
0.6
21,423
0.622,683
0.423,683
0.5
– time17,324
1.318,468
1.224,262
1.0
19,591
1.217,324
1.318,468
1.2
– other9,775
0.512,833
0.613,952
0.7
6,323
0.49,775
0.512,833
0.6

56
HSBC Holdings plc Annual Report and Accounts 2016
61

Report of the Directors | Financial summary

Customer accounts Customer accounts
201620152014201720162015
Average
balance
Average
rate
Average
balance
Average
rate
Average
balance

Average
rate

Average
balance
Average
rate
Average
balance
Average
rate
Average
balance

Average
rate

$m
%
$m
%
$m
%
$m
%
$m
%
$m
%
Europe449,033


469,799


482,219
 458,710


449,033


469,799
 
– demand and other – non-interest bearing64,779

72,841
—
72,762
0
76,205
—
64,779
—
72,841
—
– demand – interest bearing312,808
0.3
316,055
0.4
313,214
0.4
310,887
0.3
312,808
0.3
316,055
0.4
– savings39,032
0.5
44,010
0.6
52,588
0.8
39,488
0.4
39,032
0.5
44,010
0.6
– time31,309
0.7
35,198
0.8
41,830
0.9
30,939
0.8
31,309
0.7
35,198
0.8
– other1,105
2.4
1,695
2.0
1,825
2.4
1,191
1.8
1,105
2.4
1,695
2.0
Asia613,303
 590,436


566,595
 639,925
 613,303


590,436
 
– demand and other – non-interest bearing68,772


67,460
—
62,988
0
73,704
—
68,772
—
67,460
—
– demand – interest bearing433,656
0.1
399,209
0.2
374,026
0.2
459,067
0.1
433,656
0.1
399,209
0.2
– savings90,175
2.0
100,801
2.3
108,074
2.3
87,551
1.8
90,175
2.0
100,801
2.3
– time19,530
0.8
22,035
0.9
21,381
0.9
17,183
1.0
19,530
0.8
22,035
0.9
– other1,170
0.4
931
3.7
126
2.4
2,420
0.3
1,170
0.4
931
3.7
Middle East and North Africa40,036
 44,826


47,368
 35,105
 40,036


44,826
 
– demand and other – non-interest bearing19,548


19,989
—
18,736
0
17,977
—
19,548
—
19,989
—
– demand – interest bearing9,558
0.3
11,303
0.3
12,747
0.3
6,586
0.5
9,558
0.3
11,303
0.3
– savings10,034
3.5
12,178
3.9
12,850
4.6
9,734
2.9
10,034
3.5
12,178
3.9
– time896
4.1
1,356
4.1
3,004
3.2
808
1.6
896
4.1
1,356
4.1
– other—
—
—
—
31
6.5
—
—
—
—
—
—
North America140,491
 136,773

135,692
 141,192
 140,491


136,773
 
– demand and other – non-interest bearing30,350


29,390
—
27,361
0
28,542
—
30,350
—
29,390
—
– demand – interest bearing37,382
0.2
37,234
0.2
38,843
0.3
39,050
0.3
37,382
0.2
37,234
0.2
– savings64,464
0.4
60,157
0.4
60,075
0.5
63,786
0.7
64,464
0.4
60,157
0.4
– time8,251
0.5
9,927
0.4
9,290
0.2
9,769
1.1
8,251
0.5
9,927
0.4
– other44
—
65
—
123
0.8
45
—
44
—
65
—
Latin America20,699
 32,097


50,918
 21,865
 20,699


32,097
 
– demand and other – non-interest bearing5,454

8,349
—
12,452
0
5,451
—
5,454
—
8,349
—
– demand – interest bearing6,629
1.3
6,848
0.9
7,412
1.2
7,217
2.1
6,629
1.3
6,848
0.9
– savings3,451
32.9
10,896
18.3
22,062
10.0
3,830
6.2
3,451
32.9
10,896
18.3
– time5,145
3.2
5,952
2.5
8,850
2.8
5,346
5.3
5,145
3.2
5,952
2.5
– other20
10.0
52
9.6
142
5.6
21
—
20
10.0
52
9.6
Total1,263,562
 1,273,931

1,282,792
 1,296,797
 1,263,562


1,273,931
 
– demand and other – non-interest bearing188,903
 198,029
—
194,299
0
201,879
—
188,903
—
198,029
—
– demand – interest bearing800,033
0.2
770,649
0.3
746,242
0.3
822,807
0.2
800,033
0.2
770,649
0.3
– savings207,156
1.8
228,042
2.3
255,649
2.3
204,389
1.3
207,156
1.8
228,042
2.3
– time65,131
1.0
74,468
0.9
84,355
1.1
64,045
1.3
65,131
1.0
74,468
0.9
– other2,339
1.9
2,743
1.9
2,247
2.6
3,677
1.0
2,339
1.9
2,743
1.9

Certificates of deposit and other money market instruments
201620152014201720162015
Average
balance

Average
rate

Average
balance

Average
rate

Average
balance

Average
rate
Average
balance
Average
rate
Average
balance

Average
rate

Average
balance

Average
rate
$m
%
$m
%
$m
%$m
%
$m
%
$m
%
Europe22,188
0.5
22,539
0.5
20,970
0.412,506
0.6
22,188
0.5
22,539
0.5
Asia609
2.3
1,275
2.4
2,441
1.6523
2.7
609
2.3
1,275
2.4
North America12,387
0.9
11,336
0.4
5,406
0.36,950
1.6
12,387
0.9
11,336
0.4
Latin America1,135
6.2
6,971
12.0
12,035
12.11,333
5.4
1,135
6.2
6,971
12.0
36,319
0.9
42,121
2.4
40,852
3.921,312
1.3
36,319
0.9
42,121
2.4

62
HSBC Holdings plc Annual Report and Accounts 201657

Report of the Directors | Financial summary

Certificates of deposit and other time deposits
The maturity analysis of certificates of deposit (‘CDs’) and other wholesale time deposits is expressed by remaining maturity. The
 
The majority of CDs and time deposits are in amounts of $100,000 and over or the equivalent in other currencies.

 At 31 December 2016
 3 months
or less
After
3 months
but within
6 months
After
6 months
but within
12 months
After
12 months
Total
 $m
$m
$m
$m
$m
Europe30,567
4,616
5,823
6,846
47,852
– certificates of deposit2,085
1,273
3,077
—
6,435
– time deposits:




banks3,834
1,120
487
5,059
10,500
customers24,648
2,223
2,259
1,787
30,917
Asia20,475
1,107
1,036
159
22,777
– certificates of deposit552
18
473
149
1,192
– time deposits:




banks2,605
588
292
—
3,485
customers17,318
501
271
10
18,100
Middle East and North Africa924
52
102
432
1,510
– certificates of deposit—
—
—
—
—
– time deposits:




banks198
50
101
227
576
customers726
2
1
205
934
North America12,345
2,583
2,587
198
17,713
– certificates of deposit3,509
2,111
1,112
—
6,732
– time deposits:




banks2,516
1
—
—
2,517
customers6,320
471
1,475
198
8,464
Latin America5,806
522
66
1,020
7,414
– certificates of deposit211
132
14
330
687
– time deposits:




banks903
—
—
689
1,592
customers4,692
390
52
1
5,135
Total70,117
8,880
9,614
8,655
97,266
– certificates of deposit6,357
3,534
4,676
479
15,046
– time deposits:




banks10,056
1,759
880
5,975
18,670
customers53,704
3,587
4,058
2,201
63,550
Ratio of earnings to fixed charges
 2016
2015
2014
2013
2012
 %
%
%
%
%
Ratio of earnings to fixed charges









– excluding interest on deposits1.79
3.68
3.39
3.84
3.03
– including interest on deposits1.37
2.00
1.86
2.09
1.76
Ratio of earnings to combined fixed charges and
preference share dividends		  





– excluding interest on deposits1.31
3.05
3.07
3.50
2.79
– including interest on deposits1.17
1.85
1.79
2.01
1.71
For the purpose of calculating the ratios, earnings consist of income from continuing operations before taxation and non-controlling interests, plus fixed charges, and after deduction of the unremitted pre-tax income of associated undertakings. Fixed charges consist of total interest expense, including or excluding interest on deposits, as appropriate, dividends on preference shares and other equity instruments, as applicable, and the proportion of rental expense deemed representative of the interest factor.

At 31 December 2017

3 months
or less
After
3 months
but within
6 months
After
6 months
but within
12 months
After
12 months
Total

$m
$m
$m
$m
$m
Europe31,893
2,526
6,733
8,812
49,964
– certificates of deposit629
—
4,102
—
4,731
– time deposits:




banks3,864
412
425
7,518
12,219
customers27,400
2,114
2,206
1,294
33,014
Asia20,550
1,175
671
392
22,788
– certificates of deposit281
529
193
390
1,393
– time deposits:




banks3,625
72
155
—
3,852
customers16,644
574
323
2
17,543
Middle East and North Africa254
35
114
369
772
– certificates of deposit—
—
—
—
—
– time deposits:




banks251
35
112
160
558
customers3
—
2
209
214
North America9,155
2,284
3,217
888
15,544
– certificates of deposit1,208
1,725
2,065
—
4,998
– time deposits:




banks1,620
1
—
—
1,621
customers6,327
558
1,152
888
8,925
Latin America5,720
720
432
1,756
8,628
– certificates of deposit437
235
338
512
1,522
– time deposits:




banks500
—
15
1,232
1,747
customers4,783
485
79
12
5,359
Total67,572
6,740
11,167
12,217
97,696
– certificates of deposit2,555
2,489
6,698
902
12,644
– time deposits:




banks9,860
520
707
8,910
19,997
customers55,157
3,731
3,762
2,405
65,055


58
HSBC Holdings plc Annual Report and Accounts 2016
63

Report of the Directors | Financial summary

Global businesses and
geographical regions
 
 Page
Change in reportable segments5964
Analysis of adjusted results by global business6064
Reconciliation of reported and adjusted items6266
Reconciliation of reported and adjusted items - global businesses

6367
Retail Banking and Wealth Management6673
Commercial Banking6754
Global Banking and Markets6854
Global Private Banking6875
Corporate Centre6955
Analysis of reported results by geographical regions7076
Reconciliation of reported and adjusted items - geographical regions7278
Analysis of reported results by country7581
Change in reportable segmentsSummary
(Audited)
The Group Chief Executive as supported byand the GMB is considered to berest of the CODM for the purposes of identifying the Group’s reportable segments.
TheyGroup Management Board (‘GMB’) review operating activity on a number of bases, including by global business and geographical region. While in 2015 we considered theGlobal businesses are our reportable segments to be the geographical regions, over time the focus of internal management reporting provided to the GMB and CODM has moved towards global business. The shift in internal reporting was further augmented in 2016 to include financial information and metrics on the consumption of, and returns on, capital by global business to support the GMB assessment of business performance and the allocation of capital resources. As a result global business is now the most prominent view used by management to allocate resources and assess performance, and is considered to be the Group’s reportable segment.under IFRS 8 ‘Operating segments’.
In addition, we made the following realignments within our internal reporting to the GMB and CODM:
Creation of a Corporate Centre: Certain functions were combined to create a Corporate Centre. These include Balance Sheet Management, legacy businesses and interests in associates and joint ventures. The Corporate Centre also includes the results of our financing operations, central support costs with associated recoveries and the UK bank levy, previously reported within Other.
Reallocation of Head Office costs: We have reviewed central costs previously reported in Other and reallocated them to
the global businesses where appropriate. Residual costs are reported within the Corporate Centre.
Customer realignment: We conducted a number of internal reviews aligning customer requirements to those global businesses best suited to service their respective needs, resulting in the transfer of a portfolio of customers from CMB to GB&M and the transfer of certain policyholders in Asia from CMB to RBWM during the year.
Comparative data have been represented accordingly.
In addition, geographical comparative data for Europe and Middle East and North Africa have been re-presented to reflect the management oversight provided by our Middle East and North Africa region following the management services agreement entered between HSBC Bank plc and HSBC Bank Middle East Limited in 2016 in respect of HSBC Bank A.S. (Turkey).
Basis of preparation
Following
The Group Chief Executive, supported by the changes in internal reporting torest of the CODM, analysisGMB, is considered the Chief Operating Decision Maker (‘CODM’) for the purposes of identifying the Group’s reportable segments.
Analysis by global business is considered more prominent than the geographical region view in the way the CODM assesses performance and allocates resources. The global businesses are therefore considered our reportable segments under IFRS 8.
Global business results are assessed by the CODM on the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. We therefore present these results on an adjusted basis as required by IFRSs. The 20152016 and 20142015 adjusted performance comparative information is presented on a constant currency basis as described on page 60.
32.
As required by IFRS 8, reconciliations of the total adjusted global business results ofto the Group reported results are presented on page 46.64. Supplementary reconciliations from reported to adjusted results by global business are presented on pages 6267 to 6669 for information purposes.
Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to operational business lines and geographical regions. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Costs which are not allocated to global businesses are included in the Corporate Centre.
Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-business line transactions. All such transactions are undertaken on arm’s length terms. The intra-Group elimination items for the global businesses are presented in the Corporate Centre.
The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy as a cost of being headquartered in the UK. For the purposes of the presentation by global business, the cost of the levy is included in the Corporate Centre.
The results of geographical regions are presented on a reported basis.
Geographical information is classified by the location of the principal operations of the subsidiary or, for The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the branch responsible for reporting the results or providing funding.
A description of the global businesses is provided in the Strategic Report,, pages 3 and 18 and 19.to 21.


HSBC Holdings plc Annual Report and Accounts 2016
59

Report of the Directors | Global businesses

Analysis of adjusted results by global business
(Audited)
HSBC adjusted profit before tax and balance sheet data
  2016
  Retail Banking
and Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total
 Footnotes$m
$m
$m
$m
$m
$m
Profit before tax       
Net interest income 13,198
8,689
4,923
809
1,243
28,862
Net fee income/(expense) 4,839
3,627
3,392
749
(63)12,544
Net trading income21435
447
6,327
183
2,542
9,934
Other income/(expenses)34453
124
277
16
(2,057)(1,187)
Net operating income before loan impairment charges and other credit risk provisions2218,925
12,887
14,919
1,757
1,665
50,153
– external 16,319
12,953
17,798
1,498
1,585
50,153
– inter-segment 2,606
(66)(2,879)259
80
—
Loan impairment (charges)/recoveries and other credit risk provisions (1,171)(1,000)(457)1
(25)(2,652)
Net operating income 17,754
11,887
14,462
1,758
1,640
47,501
Total operating expenses (12,441)(5,835)(8,865)(1,469)(1,946)(30,556)
Operating profit/(loss) 5,313
6,052
5,597
289
(306)16,945
Share of profit in associates and joint ventures 20
—
—
—
2,335
2,355
Adjusted profit before tax 5,333
6,052
5,597
289
2,029
19,300
  %
%
%
%
%
%
Share of HSBC’s adjusted profit before tax 27.6
31.4
29.0
1.5
10.5
100.0
Adjusted cost efficiency ratio 65.7
45.3
59.4
83.6
116.9
60.9
Adjusted balance sheet data $m
$m
$m
$m
$m
$m
Loans and advances to customers (net) 306,056
281,930
225,855
35,456
12,207
861,504
Interests in associates and joint ventures 395
—
—
—
19,634
20,029
Total external assets 413,287
306,256
925,187
41,459
688,797
2,374,986
Customer accounts 590,502
341,729
256,095
69,850
14,210
1,272,386
Adjusted risk-weighted assets (unaudited)37111,899
274,893
299,629
15,213
150,327
851,961
HSBC adjusted profit before tax and balance sheet dataHSBC adjusted profit before tax and balance sheet data
 2017
 Retail
Banking and
Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total

201535
Footnotes$m
$m
$m
$m
$m
$m
Profit before tax  
Net interest income 12,579
8,461
4,514
824
2,241
28,619
Net interest income/(expense) 13,959
9,062
4,886
816
(439)28,284
Net fee income/(expense) 5,545
3,739
3,500
933
(119)13,598
 5,156
3,518
3,489
704
(56)12,811
Net trading income21443
462
6,175
204
655
7,939
31453
539
5,995
170
807
7,964
Other income34675
91
377
4
116
1,263
33719
104
721
13
908
2,465
Net operating income before loan impairment charges and other credit risk provisions2219,242
12,753
14,566
1,965
2,893
51,419
320,287
13,223
15,091
1,703
1,220
51,524
– external 16,763
12,863
17,055
1,690
3,048
51,419
 17,040
13,383
16,378
1,438
3,285
51,524
– inter-segment 2,479
(110)(2,489)275
(155)—
 3,247
(160)(1,287)265
(2,065)—
Loan impairment charges and other credit risk provisions (1,060)(1,434)(74)(11)(25)(2,604)
Loan impairment (charges)/recoveries and other credit risk provisions (980)(496)(459)(16)182
(1,769)
Net operating income 18,182
11,319
14,492
1,954
2,868
48,815
 19,307
12,727
14,632
1,687
1,402
49,755
Total operating expenses (12,514)(5,896)(8,958)(1,567)(2,795)(31,730) (12,847)(5,947)(8,858)(1,391)(2,097)(31,140)
Operating profit 5,668
5,423
5,534
387
73
17,085
Operating profit/(loss) 6,460
6,780
5,774
296
(695)18,615
Share of profit in associates and joint ventures 22
—
—
—
2,421
2,443
 18
—
—
—
2,357
2,375
Adjusted profit before tax 5,690
5,423
5,534
387
2,494
19,528
 6,478
6,780
5,774
296
1,662
20,990
 %
%
%
%
%
%
 %
%
%
%
%
%
Share of HSBC’s adjusted profit before tax 29.1
27.8
28.3
2.0
12.8
100.0
 30.9
32.3
27.5
1.4
7.9
100.0
Adjusted cost efficiency ratio 65.0
46.2
61.5
79.7
96.6
61.7
 63.3
45.0
58.7
81.7
171.9
60.4
Adjusted balance sheet data $m
$m
$m
$m
$m
$m
 $m
$m
$m
$m
$m
$m
Loans and advances to customers (net) 296,607
269,758
231,215
41,161
23,451
862,192
 346,148
316,533
252,474
40,326
7,483
962,964
Interests in associates and joint ventures 393
—
—
—
18,080
18,473
 366
—
—
—
22,378
22,744
Total external assets 399,866
296,380
842,437
49,241
625,813
2,213,737
 468,281
348,243
980,485
45,745
679,017
2,521,771
Customer accounts 548,835
327,285
240,971
78,318
13,337
1,208,746
 639,592
362,908
283,943
66,512
11,507
1,364,462
Adjusted risk-weighted assets (unaudited)37113,268
270,915
308,189
17,121
305,691
1,015,184
Adjusted risk-weighted assets34121,466
300,995
299,272
16,036
130,848
868,617

6064
HSBC Holdings plc Annual Report and Accounts 2016

HSBC adjusted profit before tax and balance sheet data (continued)
 
201435

2016
 Retail
Banking
and Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total
 
Retail
Banking
and Wealth
Management

Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total
Footnotes$m
$m
$m
$m
$m
$m
Footnotes$m
$m
$m
$m
$m
$m
Profit before tax  
Net interest income 12,400
8,094
4,148
861
3,103
28,606
 12,919
8,491
4,798
801
1,170
28,179
Net fee income/(expense) 5,572
3,809
3,412
971
(115)13,649
 4,756
3,559
3,394
749
(63)12,395
Net trading income/(expense)21380
479
5,261
243
(18)6,345
Other income34623
216
757
4
929
2,529
Net trading income31426
442
6,231
183
2,426
9,708
Other income/(expense)33441
127
292
15
(1,867)(992)
Net operating income before loan impairment charges and other credit risk provisions2218,975
12,598
13,578
2,079
3,899
51,129
318,542
12,619
14,715
1,748
1,666
49,290
– external 17,050
13,103
15,406
1,799
3,771
51,129
 16,052
12,641
17,412
1,487
1,698
49,290
– inter-segment 1,925
(505)(1,828)280
128
—
 2,490
(22)(2,697)261
(32)—
Loan impairment (charges)/recoveries and other credit risk provisions (901)(894)(408)11
291
(1,901)
Loan impairment charges and other credit risk provisions (1,142)(969)(461)—
(22)(2,594)
Net operating income 18,074
11,704
13,170
2,090
4,190
49,228
 17,400
11,650
14,254
1,748
1,644
46,696
Total operating expenses (11,964)(5,576)(8,246)(1,551)(2,723)(30,060) (12,184)(5,746)(8,745)(1,476)(1,933)(30,084)
Operating profit 6,110
6,128
4,924
539
1,467
19,168
Operating profit/(loss) 5,216
5,904
5,509
272
(289)16,612
Share of profit in associates and joint ventures 40
—
—
—
2,342
2,382
 20
—
—
—
2,302
2,322
Adjusted profit before tax 6,150
6,128
4,924
539
3,809
21,550
 5,236
5,904
5,509
272
2,013
18,934
 %
%
%
%
%
%
 %
%
%
%
%
%
Share of HSBC’s adjusted profit before tax 28.6
28.4
22.8
2.5
17.7
100.0
 27.7
31.2
29.1
1.4
10.6
100.0
Adjusted cost efficiency ratio 63.1
44.3
60.7
74.6
69.8
58.8
 65.7
45.5
59.4
84.4
116.0
61.0
Adjusted balance sheet data $m
$m
$m
$m
$m
$m
 $m
$m
$m
$m
$m
$m
Loans and advances to customers (net) 287,496
259,053
228,323
40,928
28,844
844,644
 323,986
294,952
237,655
36,972
12,494
906,059
Interests in associates and joint ventures 383
—
—
—
16,801
17,184
 394
—
—
—
20,340
20,734
Total external assets 385,926
288,755
928,215
51,283
640,404
2,294,583
 435,839
320,173
981,893
43,234
708,320
2,489,459
Customer accounts 514,074
309,152
261,110
78,592
23,681
1,186,609
 611,846
356,885
272,159
72,730
15,037
1,328,657
Adjusted risk-weighted assets (unaudited)37109,526
262,634
349,661
17,660
343,882
1,083,363
Adjusted risk-weighted assets34114,683
286,912
307,736
15,649
153,324
878,304
  2015
Net interest income 12,299
8,287
4,422
819
2,167
27,994
Net fee income/(expense) 5,446
3,672
3,514
939
(121)13,450
Net trading income31427
460
5,960
206
721
7,774
Other income33666
88
382
2
66
1,204
Net operating income before loan impairment charges and other credit risk provisions318,838
12,507
14,278
1,966
2,833
50,422
– external 16,451
12,585
16,633
1,689
3,064
50,422
– inter-segment 2,387
(78)(2,355)277
(231)—
Loan impairment charges and other credit risk provisions (1,023)(1,447)(71)(11)(27)(2,579)
Net operating income 17,815
11,060
14,207
1,955
2,806
47,843
Total operating expenses (12,332)(5,826)(8,903)(1,582)(2,814)(31,457)
Operating profit/(loss) 5,483
5,234
5,304
373
(8)16,386
Share of profit/(loss) in associates and joint ventures 23
—
(1)—
2,387
2,409
Adjusted profit before tax 5,506
5,234
5,303
373
2,379
18,795
  %
%
%
%
%
%
Share of HSBC’s adjusted profit before tax 29.3
27.8
28.2
2.0
12.7
100.0
Adjusted cost efficiency ratio 65.5
46.6
62.4
80.5
99.3
62.4
Adjusted balance sheet data $m
$m
$m
$m
$m
$m
Loans and advances to customers (net) 313,927
281,826
243,662
42,592
23,690
905,697
Interests in associates and joint ventures 391
—
—
—
18,673
19,064
Total external assets 422,322
309,266
886,750
51,190
651,847
2,321,378
Customer accounts 569,183
341,717
256,374
80,442
13,956
1,261,672
Adjusted risk-weighted assets34116,047
282,149
318,818
17,661
313,100
1,047,775
For footnotes, see page 79.85.

HSBC Holdings plc Annual Report and Accounts 2016
6165

Report of the Directors | Global businessesFinancial summary

Reconciliation of reported and adjusted items
(Audited)
Adjusted results reconciliation
  201620152014
  Adjusted
Significant items
Reported
Adjusted
Currency translation
Significant items
Reported
Adjusted
Currency translation
Significant items
Reported
 Footnote$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Revenue2250,153
(2,187)47,966
51,419
3,001
5,380
59,800
51,129
7,612
2,507
61,248
LICs (2,652)(748)(3,400)(2,604)(184)(933)(3,721)(1,901)(918)(1,032)(3,851)
Operating expenses (30,556)(9,252)(39,808)(31,730)(2,091)(5,947)(39,768)(30,060)(5,433)(5,756)(41,249)
Share of profit
in associates
and joint ventures
 2,355
(1)2,354
2,443
114
(1)2,556
2,382
150
—
2,532
Profit/(loss) before tax 19,300
(12,188)7,112
19,528
840
(1,501)18,867
21,550
1,411
(4,281)18,680
Adjusted results reconciliation
  201720162015
  Adjusted
Significant items
Reported
Adjusted
Currency translation
Significant items
Reported
Adjusted
Currency translation
Significant items
Reported
 Footnote$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Revenue351,524
(79)51,445
49,290
736
(2,060)47,966
50,422
3,727
5,651
59,800
LICs (1,769)—
(1,769)(2,594)61
(867)(3,400)(2,579)(127)(1,015)(3,721)
Operating expenses (31,140)(3,744)(34,884)(30,084)(331)(9,393)(39,808)(31,457)(2,434)(5,877)(39,768)
Share of profit in associates
and joint ventures
 2,375
—
2,375
2,322
33
(1)2,354
2,409
149
(2)2,556
Profit/(loss) before tax 20,990
(3,823)17,167
18,934
499
(12,321)7,112
18,795
1,315
(1,243)18,867
Adjusted balance sheet reconciliation
201620152014201720162015
Adjusted
Brazil operations
Reported
Adjusted
Currency translation
Brazil operations
Reported
Adjusted
Currency translation
Brazil operations
Reported
Reported and Adjusted
Adjusted
Currency translation
Reported
Adjusted
Currency translation
Brazil operations1

Reported
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net)861,504
—
861,504
862,192
62,262
—
924,454
844,644
110,001
20,015
974,660
962,964
906,059
(44,555)861,504
905,697
18,757
—
924,454
Interests in associates and joint ventures20,029
—
20,029
18,473
666
—
19,139
17,184
990
7
18,181
22,744
20,734
(705)20,029
19,064
75
—
19,139
Total external assets2,374,986
—
2,374,986
2,213,737
145,747
50,172
2,409,656
2,294,583
289,936
49,620
2,634,139
2,521,771
2,489,459
(114,473)2,374,986
2,321,378
39,164
49,114
2,409,656
Customer accounts

1,272,386
—
1,272,386
1,208,746
80,840
—
1,289,586
1,186,609
145,084
18,949
1,350,642
1,364,462
1,328,657
(56,271)1,272,386
1,261,672
27,914
—
1,289,586
1Includes effects of foreign currency translation.
Adjusted profit reconciliation
  2016
2015
2014
 Footnotes$m
$m
$m
For the year ended 31 Dec    
Adjusted profit before tax 19,300
19,528
21,550
DVA on derivative contracts 26
230
(332)
Fair value movements on non-qualifying hedges23(687)(327)(541)
Gain on disposal of our membership interest in Visa – Europe 584
—
—
Gain on disposal of our membership interest in Visa – US 116
—
—
Gain on sale of shareholding in Bank of Shanghai —
—
428
Gain on the partial sale of shareholding in Industrial Bank —
1,372
—
(Loss)/gain and trading results from disposals and changes in ownership levels (2,081)(78)(163)
Impairment of our investment in Industrial Bank —
—
(271)
Own credit spread24(1,792)1,002
417
Portfolio disposals (163)(214)168
Releases/(provisions) arising from the ongoing review of compliance with the UK Consumer Credit Act 2
(10)(632)
Charge in relation to the settlement agreement with the Federal Housing
Finance Authority		 —
—
(550)
Costs associated with portfolio disposals (28)—
—
Costs to achieve (3,118)(908)—
Costs to establish UK ring-fenced bank (223)(89)—
Impairment of GPB – Europe goodwill (3,240)—
—
Regulatory provisions in GPB (344)(172)(65)
Restructuring and other related costs —
(117)(278)
Settlements and provisions in connection with legal matters (681)(1,649)(1,187)
UK customer redress programmes (559)(541)(1,275)
Currency translation 

840
1,411
Reported profit before tax 7,112
18,867
18,680
Adjusted profit reconciliation
  2017
2016
2015
 Footnotes$m
$m
$m
For the year ended 31 Dec    
Adjusted profit before tax 20,990
18,934
18,795
Significant items (3,823)(12,321)(1,243)
– customer redress programmes (revenue) (108)2
(10)
– DVA on derivative contracts (373)26
230
– fair value movements on non-qualifying hedges32128
(687)(327)
– gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank 126
—
—
– gain on disposal of our membership interest in Visa – Europe —
584
—
– gain on disposal of our membership interest in Visa – US 308
116
—
– gain on the partial sale of shareholding in Industrial Bank —
—
1,372
– gain/(loss) and trading results from disposed-of operations in Brazil 19
(2,081)(13)
– investment in new businesses (99)—
—
– other acquisitions, disposals and dilutions 78
—
—
– own credit spread25—
(1,792)1,002
– portfolio disposals (158)(163)(214)
– costs associated with portfolio disposals (53)(28)—
– costs associated with the UK’s exit from the EU (28)—
—
– costs to achieve (3,002)(3,118)(908)
– costs to establish UK ring-fenced bank (392)(223)(89)
– customer redress programmes (operating expenses) (655)(559)(541)
– gain on partial settlement of pension obligation 188
—
—
– impairment of GPB – Europe goodwill —
(3,240)—
– regulatory provisions in GPB (164)(344)(172)
– restructuring and other related costs —
—
(117)
– settlements and provisions in connection with legal matters 362
(681)(1,649)
– currency translation on significant items 

(133)193
Currency translation 

499
1,315
Reported profit before tax 17,167
7,112
18,867
For footnotes, see page 79.85.

6266
HSBC Holdings plc Annual Report and Accounts 2016

Reconciliation of reported and adjusted items – global businesses
Supplementary unaudited analysis of significant items by global business is presented below.
2016 compared with 2015 and 2014
Reconciliation of reported and adjusted itemsReconciliation of reported and adjusted items


2016
2017


Retail Banking
and Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total

Retail
Banking and
Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total

Footnotes$m
$m
$m
$m
$m
$m
Footnotes$m
$m
$m
$m
$m
$m
Revenue22











3











Reported 20,338
13,405
15,213
1,745
(2,735)47,966

20,519
13,120
14,617
1,723
1,466
51,445
Significant items (1,413)(518)(294)12
4,400
2,187

(232)103
474
(20)(246)79
– customer redress programmes 3
103
2
—
—
108
– DVA on derivative contracts —
—
(26)—
—
(26)
—
—
373
—
—
373
– fair value movements on non-qualifying hedges23—
—
—
—
687
687
32—
—
—
—
(128)(128)
– gain on disposal of our membership interest in Visa – Europe (354)(230)—
—
—
(584)
– gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank
—
—
—
—
(126)(126)
– gain on disposal of our membership interest in Visa – US (72)—
—
—
(44)(116)
(308)—
—
—
—
(308)
– own credit spread24—
—
—
—
1,792
1,792
– investment in new businesses
—
—
99
—
—
99
– portfolio disposals —
—
—
26
137
163

73
—
—
(20)105
158
– releases arising from the ongoing review of compliance with the UK Consumer Credit Act —
—
—
(2)—
(2)
– loss and trading results from disposed-of operations in Brazil
(987)(288)(268)(12)1,828
273
– gain on disposal of operations in Brazil —
—
—
—
(19)(19)
– other acquisitions, disposal and dilutions
—
—
—
—
(78)(78)
Adjusted
18,925
12,887
14,919
1,757
1,665
50,153

20,287
13,223
15,091
1,703
1,220
51,524
Loan impairment charge and other credit risk provisions (‘LICs’)

























Reported
(1,633)(1,272)(471)1
(25)(3,400)
(980)(496)(459)(16)182
(1,769)
Significant items
462
272
14
—
—
748
– trading results from disposed-of operations in Brazil
462
272
14
—
—
748
Adjusted
(1,171)(1,000)(457)1
(25)(2,652)
(980)(496)(459)(16)182
(1,769)
Operating expenses

























Reported
(14,138)(6,087)(9,302)(5,074)(5,207)(39,808)
(13,734)(6,001)(8,723)(1,586)(4,840)(34,884)
Significant items
1,697
252
437
3,605
3,261
9,252

887
54
(135)195
2,743
3,744
– costs associated with portfolio disposals
—
—
—
10
18
28

—
—
—
31
22
53
– costs associated with the UK’s exit from the EU
—
1
8
—
19
28
– costs to achieve
393
62
233
6
2,424
3,118

270
44
240
3
2,445
3,002
– costs to establish UK ring-fenced bank
2
1
—
—
220
223

6
2
—
—
384
392
– impairment of GPB – Europe goodwill
—
—
—
3,240
—
3,240
– customer redress programmes 637
16
2
—
—
655
– gain on partial settlement of pension obligation
 (26)(9)(9)(3)(141)(188)
– regulatory provisions in GPB
—
—
—
341
3
344
 —
—
—
164
—
164
– settlements and provisions in connection with legal matters
—
—
94
—
587
681

—
—
(376)—
14
(362)
– UK customer redress programmes
497
34
28
—
—
559
– trading results from disposed-of operations in Brazil
805
155
82
8
9
1,059
Adjusted
(12,441)(5,835)(8,865)(1,469)(1,946)(30,556)
(12,847)(5,947)(8,858)(1,391)(2,097)(31,140)
Share of profit in associates and joint ventures

























Reported
20
—
—
—
2,334
2,354

18
—
—
—
2,357
2,375
Significant items
—
—
—
—
1
1
– trading results from disposed-of operations in Brazil
—
—
—
—
1
1
Adjusted
20
—
—
—
2,335
2,355

18
—
—
—
2,357
2,375
Profit/(loss) before tax

























Reported
4,587
6,046
5,440
(3,328)(5,633)7,112

5,823
6,623
5,435
121
(835)17,167
Significant items
746
6
157
3,617
7,662
12,188

655
157
339
175
2,497
3,823
– revenue
(1,413)(518)(294)12
4,400
2,187

(232)103
474
(20)(246)79
– LICs
462
272
14
—
—
748
– operating expenses
1,697
252
437
3,605
3,261
9,252

887
54
(135)195
2,743
3,744
– share of profit in associates and joint ventures
—
—
—
—
1
1
Adjusted
5,333
6,052
5,597
289
2,029
19,300

6,478
6,780
5,774
296
1,662
20,990

HSBC Holdings plc Annual Report and Accounts 2016
6367

Report of the Directors | Global businessesFinancial summary

Reconciliation of reported and adjusted items (continued)


201535

2016


Retail Banking
and Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total

Retail
Banking and
Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total

Footnotes$m
$m
$m
$m
$m
$m
Footnotes$m
$m
$m
$m
$m
$m
Revenue22











3











Reported
22,624
14,198
15,972
2,076
4,930
59,800

20,338
13,405
15,213
1,745
(2,735)47,966
Currency translation
(1,288)(790)(724)(54)(145)(3,001)
(257)(242)(182)(7)(48)(736)
Significant items
(2,094)(655)(682)(57)(1,892)(5,380)
(1,539)(544)(316)10
4,449
2,060
– customer redress programmes —
—
—
(2)—
(2)
– DVA on derivative contracts
—
—
(230)—
—
(230)
—
—
(26)—
—
(26)
– fair value movements on non-qualifying hedges23—
—
—
—
327
327
32—
—
—
—
687
687
– gain on the partial sale of shareholding in Industrial Bank
—
—
—
—
(1,372)(1,372)
– gain on disposal of our membership interest in
Visa – Europe
(354)(230)—
—
—
(584)
– gain on disposal of our membership interest in
Visa – US
(72)—
—
—
(44)(116)
– own credit spread24—
—
—
—
(1,002)(1,002)25—
—
—
—
1,792
1,792
– portfolio disposals
—
—
—
—
214
214

—
—
—
26
137
163
– provisions/(releases) arising from the ongoing review of compliance with the UK Consumer Credit Act
22
18
—
(30)—
10
– trading results from disposed-of operations in Brazil
(2,116)(673)(452)(27)(59)(3,327)
– loss and trading results from disposed-of operations in Brazil
(987)(288)(268)(12)1,828
273
– currency translation on significant items
(126)(26)(22)(2)49
(127)
Adjusted
19,242
12,753
14,566
1,965
2,893
51,419

18,542
12,619
14,715
1,748
1,666
49,290
LICs

























Reported
(1,878)(1,761)(47)(13)(22)(3,721)
(1,633)(1,272)(471)1
(25)(3,400)
Currency translation
105
76
4
2
(3)184

(45)(12)(6)(1)3
(61)
Significant items
713
251
(31)—
—
933

536
315
16
—
—
867
– trading results from disposed-of operations in Brazil
713
251
(31)—
—
933

462
272
14
—
—
748
– currency translation on significant items
74
43
2
—
—
119
Adjusted
(1,060)(1,434)(74)(11)(25)(2,604)
(1,142)(969)(461)—
(22)(2,594)
Operating expenses

























Reported
(15,970)(6,852)(10,767)(1,840)(4,339)(39,768)
(14,138)(6,087)(9,302)(5,074)(5,207)(39,808)
Currency translation
1,015
352
573
46
105
2,091

133
69
125
(8)12
331
Significant items
2,441
604
1,236
227
1,439
5,947

1,821
272
432
3,606
3,262
9,393
– costs associated with portfolio disposals
—
—
—
10
18
28
– costs to achieve
153
163
69
16
507
908

393
62
233
6
2,424
3,118
– costs to establish UK ring-fenced bank
—
—
—
—
89
89

2
1
—
—
220
223
– customer redress programmes 497
34
28
—
—
559
– impairment of GPB – Europe goodwill
—
—
—
3,240
—
3,240
– regulatory provisions in GPB
—
—
—
171
1
172

—
—
—
341
3
344
– restructuring and other related costs
9
5
22
18
63
117
– settlements and provisions in connection with legal matters
—
—
949
—
700
1,649

—
—
94
—
587
681
– UK customer redress programmes
541
18
(19)—
1
541
– trading results from disposed-of operations in Brazil
1,738
418
215
22
78
2,471

805
155
82
8
9
1,059
– currency translation on significant items
124
20
(5)1
1
141
Adjusted
(12,514)(5,896)(8,958)(1,567)(2,795)(31,730)
(12,184)(5,746)(8,745)(1,476)(1,933)(30,084)
Share of profit in associates and joint ventures

























Reported
23
—
—
—
2,533
2,556

20
—
—
—
2,334
2,354
Currency translation
(1)—
—
—
(113)(114)
—
—
—
—
(33)(33)
Significant items
—
—
—
—
1
1

—
—
—
—
1
1
– trading results from disposed-of operations in Brazil
—
—
—
—
1
1

—
—
—
—
1
1
– currency translation on significant items
—
—
—
—
—
—
Adjusted
22
—
—
—
2,421
2,443

20
—
—
—
2,302
2,322
Profit/(loss) before tax

























Reported
4,799
5,585
5,158
223
3,102
18,867

4,587
6,046
5,440
(3,328)(5,633)7,112
Currency translation
(169)(362)(147)(6)(156)(840)
(169)(185)(63)(16)(66)(499)
Significant items
1,060
200
523
170
(452)1,501

818
43
132
3,616
7,712
12,321
– revenue
(2,094)(655)(682)(57)(1,892)(5,380)
(1,539)(544)(316)10
4,449
2,060
– LICs
713
251
(31)—
—
933

536
315
16
—
—
867
– operating expenses
2,441
604
1,236
227
1,439
5,947

1,821
272
432
3,606
3,262
9,393
– share of profit in associates and joint ventures
—
—
—
—
1
1

—
—
—
—
1
1
Adjusted
5,690
5,423
5,534
387
2,494
19,528

5,236
5,904
5,509
272
2,013
18,934

6468
HSBC Holdings plc Annual Report and Accounts 2016

Reconciliation of reported and adjusted items (continued)


2015


Retail
Banking and
Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total

Footnotes$m
$m
$m
$m
$m
$m
Revenue3











Reported
22,624
14,198
15,972
2,076
4,930
59,800
Currency translation
(1,486)(969)(984)(55)(233)(3,727)
Significant items
(2,300)(722)(710)(55)(1,864)(5,651)
– customer redress programmes 22
18
—
(30)—
10
– DVA on derivative contracts
—
—
(230)—
—
(230)
– fair value movements on non-qualifying hedges32—
—
—
—
327
327
– gain on the partial sale of shareholding in Industrial
Bank
—
—
—
—
(1,372)(1,372)
– own credit spread25—
—
—
—
(1,002)(1,002)
– portfolio disposals
—
—
—
—
214
214
– trading results from disposed-of operations in Brazil
(2,239)(712)(483)(29)(69)(3,532)
– currency translation on significant items
(83)(28)3
4
38
(66)
Adjusted
18,838
12,507
14,278
1,966
2,833
50,422
LICs












Reported
(1,878)(1,761)(47)(13)(22)(3,721)
Currency translation
82
40
8
2
(5)127
Significant items
773
274
(32)—
—
1,015
– trading results from disposed-of operations in Brazil
731
262
(28)—
—
965
– currency translation on significant items
42
12
(4)—
—
50
Adjusted
(1,023)(1,447)(71)(11)(27)(2,579)
Operating expenses












Reported
(15,970)(6,852)(10,767)(1,840)(4,339)(39,768)
Currency translation
1,119
403
768
29
115
2,434
Significant items
2,519
623
1,096
229
1,410
5,877
– costs to achieve
153
163
69
16
507
908
– costs to establish UK ring-fenced bank
—
—
—
—
89
89
– customer redress programmes 541
18
(19)—
1
541
– regulatory provisions in GPB
—
—
—
171
1
172
– restructuring and other related costs
9
5
22
18
63
117
– settlements and provisions in connection with legal matters
—
—
949
—
700
1,649
– trading results from disposed-of operations in Brazil
1,822
434
222
23
78
2,579
– currency translation on significant items
(6)3
(147)1
(29)(178)
Adjusted
(12,332)(5,826)(8,903)(1,582)(2,814)(31,457)
Share of profit in associates and joint ventures












Reported
23
—
—
—
2,533
2,556
Currency translation
—
—
(1)—
(148)(149)
Significant items
—
—
—
—
2
2
– trading results from disposed-of operations in Brazil
—
—
—
—
1
1
– currency translation on significant items
—
—
—
—
1
1
Adjusted
23
—
(1)—
2,387
2,409
Profit/(loss) before tax












Reported
4,799
5,585
5,158
223
3,102
18,867
Currency translation
(285)(526)(209)(24)(271)(1,315)
Significant items
992
175
354
174
(452)1,243
– revenue
(2,300)(722)(710)(55)(1,864)(5,651)
– LICs
773
274
(32)—
—
1,015
– operating expenses
2,519
623
1,096
229
1,410
5,877
– share of profit in associates and joint ventures
—
—
—
—
2
2
Adjusted
5,506
5,234
5,303
373
2,379
18,795
Reconciliation of reported and adjusted items (continued)


201435


Retail Banking
and Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total

Footnotes$m
$m
$m
$m
$m
$m
Revenue22











Reported
24,056
15,197
15,392
2,248
4,355
61,248
Currency translation
(3,490)(1,967)(1,725)(185)(245)(7,612)
Significant items
(1,591)(632)(89)16
(211)(2,507)
– DVA on derivative contracts
—
—
332
—
—
332
– fair value movements on non-qualifying hedges23—
—
—
—
541
541
– gain on sale of shareholding in Bank of Shanghai
—
—
—
—
(428)(428)
– impairment of our investment in Industrial Bank
—
—
—
—
271
271
– own credit spread24—
—
—
—
(417)(417)
– portfolio disposals
—
—
—
—
(168)(168)
– provisions arising from the ongoing review of compliance with the UK Consumer Credit Act
568
24
—
40
—
632
– (gain)/loss and trading results from disposals and changes in ownership levels
(2,159)(656)(421)(24)(10)(3,270)
Adjusted
18,975
12,598
13,578
2,079
3,899
51,129
LICs












Reported
(1,905)(1,551)(721)8
318
(3,851)
Currency translation
488
318
139
—
(27)918
Significant items
516
339
174
3
—
1,032
– trading results from disposals and changes in ownership levels
516
339
174
3
—
1,032
Adjusted
(901)(894)(408)11
291
(1,901)
Operating expenses












Reported
(17,670)(7,115)(11,257)(1,780)(3,427)(41,249)
Currency translation
2,869
976
1,455
136
(3)5,433
Significant items
2,837
563
1,556
93
707
5,756
– charge in relation to the settlement agreement with the Federal Housing Finance Authority
—
—
—
—
550
550
– regulatory provisions in GPB
—
—
—
65
—
65
– restructuring and other related costs
86
37
27
6
122
278
– settlements and provisions in connection with legal matters
—
—
1,187
—
—
1,187
– UK customer redress programmes
992
138
145
—
—
1,275
– trading results from disposals and changes in
ownership levels
1,759
388
197
22
35
2,401
Adjusted
(11,964)(5,576)(8,246)(1,551)(2,723)(30,060)
Share of profit in associates and joint ventures












Reported
41
—
—
—
2,491
2,532
Currency translation
(1)—
—
—
(149)(150)
Significant items
—
—
—
—
—
—
– trading results from disposals and changes in ownership levels
—
—
—
—
—
—
Adjusted
40
—
—
—
2,342
2,382
Profit/(loss) before tax












Reported
4,522
6,531
3,414
476
3,737
18,680
Currency translation
(134)(673)(131)(49)(424)(1,411)
Significant items
1,762
270
1,641
112
496
4,281
– revenue
(1,591)(632)(89)16
(211)(2,507)
– LICs
516
339
174
3
—
1,032
– operating expenses
2,837
563
1,556
93
707
5,756
– share of profit in associates and joint ventures
—
—
—
—
—
—
Adjusted
6,150
6,128
4,924
539
3,809
21,550
For footnotes, see page 79.85.


HSBC Holdings plc Annual Report and Accounts 2016
6569

Report of the Directors | Global businessesFinancial summary

Reconciliation of reported and adjusted risk-weighted assets
2016
At 31 Dec 2017

Retail Banking
and Wealth
Management
Commercial
Banking
Global
Banking and
Markets
Global
Private
Banking
Corporate Centre
Total
Retail
Banking and
Wealth
Management

Commercial
Banking
Global
Banking and
Markets
Global Private
Banking
Corporate Centre
Total
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
Risk-weighted assets  
Reported115.1
275.9
300.4
15.3
150.5
857.2
121.5
301.0
299.3
16.0
133.5
871.3
Brazil operations(3.2)(1.0)(0.8)—
(0.2)(5.2)
Disposals—
—
—
—
(2.7)(2.7)
– Brazil operations—
—
—
—
(2.6)(2.6)
– Lebanon operations—
—
—
—
(0.1)(0.1)
Adjusted111.9
274.9
299.6
15.3
150.3
852.0
121.5
301.0
299.3
16.0
130.8
868.6
  
201535
At 31 Dec 2016

Risk-weighted assets  
Reported130.7
302.2
330.3
18.0
321.8
1,103.0
115.1
275.9
300.4
15.3
150.5
857.2
Currency translation(3.8)(14.9)(9.0)(0.7)(13.0)(41.4)3.0
12.4
8.0
0.4
3.5
27.3
Brazil operations(13.6)(16.4)(13.1)(0.2)(3.1)(46.4)
Disposals(3.4)(1.4)(0.7)—
(0.7)(6.2)
– Brazil operations(3.2)(1.0)(0.7)—
(0.2)(5.1)
– Lebanon operations(0.2)(0.4)—
—
(0.5)(1.1)
Adjusted113.3
270.9
308.2
17.1
305.7
1,015.2
114.7
286.9
307.7
15.7
153.3
878.3
201435
At 31 Dec 2015

Risk-weighted assets  
Reported133.7
312.1
385.8
18.9
369.3
1,219.8
130.7
302.2
330.3
18.0
321.8
1,103.0
Currency translation(12.0)(32.6)(23.2)(1.1)(24.2)(93.1)(1.0)(3.5)1.4
(0.1)(5.0)(8.2)
Brazil operations(12.2)(16.9)(12.9)(0.1)(1.2)(43.3)
Disposals(13.7)(16.5)(12.9)(0.2)(3.7)(47.0)
– Brazil operations(13.5)(16.1)(12.9)(0.2)(3.1)(45.8)
– Lebanon operations(0.2)(0.4)—
—
(0.6)(1.2)
Adjusted109.5
262.6
349.7
17.7
343.9
1,083.4
116.0
282.2
318.8
17.7
313.1
1,047.8
For footnote, see page 79.

Retail Banking and Wealth Management view of adjusted revenue
The tables below provide a breakdown2017 compared with 2016
Adjusted profit before tax of $6.5bn was $1.2bn or 24% higher. This reflected strong revenue growth, notably in net interest income from deposits, and an increase in Wealth Management, as well as lower LICs. This was partly offset by major products for RBWM, CMB, GB&M and Corporate Centre. These reflect the basis on which revenue performancehigher operating expenses. We achieved positive adjusted jaws of the businesses is assessed and managed.4.0%.
For GPB, the key measure of business performance is client assets, which is presented below.
Adjusted return on risk-weighted assets (‘RoRWA’revenue of $20.3bn was $1.7bn or 9% higher, reflecting:
Higher revenue in Retail Banking (up $0.8bn or 6% to $13.5bn):
Growth in revenue from current accounts, savings and deposits (up $1.1bn to $6.3bn) is usedfrom higher net interest income due to measure performance of RBWM, CMB, GB&Mwider spreads and GPBhigher balances, primarily in Hong Kong and is presented below.
Further information on the global businesses can be foundalso in the Strategic Report on pages 18US and Mexico.
This was partly offset by:
Lower personal lending revenue (down $0.3bn to 19.
A reconciliation$7.2bn), reflecting mortgage spread compression, primarily in Hong Kong, mainland China and the US. This was partly offset by lending growth of changes$22.2bn, notably driven by mortgages in the global businesses is availableUK and Hong Kong, where we grew our market share.
Higher revenue in Wealth Management (up $0.9bn or 18% to $6.2bn):
Growth in insurance manufacturing revenue (up $0.5bn to $1.9bn) was a significant factor in the re-segmentation data pack which can be found online at www.hsbc.com/investor-relations.
rise in other income. This included favourable movements in market impacts of Retail Banking$0.3bn in 2017 compared with adverse movements of $0.4bn in 2016, due to interest rate and Wealth Managementequity market movements, notably in Asia and France, and to a lesser extent higher insurance sales in Asia
Management view of adjusted revenue 
  2016
2015
2014
 Footnotes$m
$m
$m
Net operating income22   
Retail Banking 12,979
12,806
13,041
Current accounts, savings and deposits 5,359
4,941
4,881
Personal lending 7,620
7,865
8,160
– mortgages 2,590
2,694
2,758
– credit cards 3,111
3,312
3,438
– other personal lending261,919
1,859
1,964
Wealth Management 5,288
5,799
5,331
– investment distribution252,926
3,262
3,030
– life insurance manufacturing 1,404
1,553
1,384
– asset management 958
984
917
Other27658
637
603
Year ended 31 Dec 18,925
19,242
18,975
  %
%
%
RoRWA384.6
4.9
5.4
Higher investment distribution revenue (up $0.4bn to $3.3bn), driven by an increase in fee income, primarily from higher sales of mutual funds and retail securities in Hong Kong, reflecting increased investor confidence.
For footnotes, see page 79.

Adjusted LICs of $1.0bn were $0.2bn or 14% lower, reflecting reductions in Turkey of $85m, and in the US of $44m, as credit
 
quality improved. This was partly offset in Mexico where higher LICs ($24m) reflected targeted growth in unsecured lending and associated higher delinquency rates. In the UK LICs of $132m were marginally higher, but remained at very low levels (10bps of the portfolio) as higher LICs relating to mortgages and unsecured lending were partly offset by a release from the sale of a loan portfolio.
Adjusted operating expenses of $12.8bn were $0.7bn or 5% higher, mainly due to investment in growth initiatives, notably in retail business banking, in our international proposition as we introduced new products and services, and in mainland China. Transformational and other cost savings partly offset inflation and higher performance-related pay.


70HSBC Holdings plc

2016 compared with 2015
Adjusted profit before tax of $5.3bn$5.2bn was $0.4bn$0.3bn or 6%5% lower compared with 2015. This was driven by lower revenue in our Wealth Management, business, together with higher LICs. By contrast, lowerLICs, while operating expenses reflected our continued focus on cost management.were broadly unchanged.
Adjusted revenue of $18.9bn$18.5bn was $0.3bn or 2% lower, as growth in Retail Banking revenue resulted in higher net interest income, but this was more than offset by a fall in Wealth Management. The reductionManagement, notably in net fee income.
Revenue of $5.3bn in Wealth Management (down $0.5bn) was drivenfell by decreased$0.5bn or 8%, which resulted from:
lower investment distribution revenue (down $0.3bn to $2.9bn), mainly in Hong Kong as a result of lower fee income from mutual fund and retail securities turnover due toreflecting weaker market sentiment. This compared with a strong performance in the first half of 2015. In addition,
lower revenue in insurance manufacturing revenue fell,(down $0.1bn or 9% to $1.4bn), mainly in other income reflecting higher adverse market impacts ($345m), although thiscompared with 2015. This was partly offset by the value of new business. However,
Revenue of $12.7bn in Retail Banking revenue roseincreased by $0.2bn or 1%, as revenue increased resulted from:
income in current accounts, savings and savings (up $0.4bn) fromdeposits of $5.2bn increased by $0.4bn or 8%, reflecting increased net interest income as a result of strong growth in balances, notably in Hong Kong and the UK. We also benefited from wider deposit spreads in Hong Kong and Mexico. By contrast, revenue in
This was partly offset by:
lower personal lending revenue of $7.5bnfell (down $0.2bn)by $0.2bn or 3%, despite growth in balances, of $9bn or (3)%, notably in Hong Kong, the UK and Mexico, driven byMexico. The reduction in revenue primarily reflected spread compression, (mainlymainly in the UK).UK.
Adjusted LICs of $1.1bn increased by $0.1bn notablyor 12%, mainly in Mexico reflecting growth inour strategic focus on growing unsecured lending, balances.as well as an increase in delinquency rates.
Adjusted operating expenses of $12.2bn were $0.1bn or 1% lower as inflation and investments were more thansubstantially offset by transformationtransformational and other cost-saving initiatives.
2015 compared with 2014
Adjusted profit before tax
A breakdown of $5.7bn was $0.5bn or 7% lower than 2014 asRBWM by business unit is presented below to reflect the basis of how the revenue growth from Wealth Management was more than offset by an increase in our operating expenses and higher LICs.
Our adjusted revenue rose by $0.3bn to $19.2bn. This was driven by our Wealth Management business, where in Hong Kong investment distribution was higher reflecting higher sales of equities as a result of increased stock market turnover in the first halfperformance of the year, which offset weaker investor sentiment in the second half of 2015. Wealth Management income in Europe also grew as insurance manufacturing increased. This was partly offset by lower revenue in personal lending, notably in thebusiness units is assessed and managed.
RBWM – adjusted profit before tax data
  Consists of
  
Total
RBWM

Banking
operations

Insurance manufacturing
Asset
management

 Footnote$m
$m
$m
$m
Year ended 31 Dec 2017     
Net operating income before loan impairment charges and other credit risk provisions320,287
17,235
1,997
1,055
– net interest income 13,959
11,947
2,012
—
– net fee income/(expense) 5,156
4,642
(494)1,008
– other income 1,172
646
479
47
LICs (980)(980)—
—
Net operating income 19,307
16,255
1,997
1,055
Total operating expenses (12,847)(11,748)(408)(691)
Operating profit 6,460
4,507
1,589
364
Income from associates 18
7
11
—
Profit before tax 6,478
4,514
1,600
364
      
Year ended 31 Dec 2016     
Net operating income before loan impairment charges and other credit risk provisions318,542
16,029
1,526
987
– net interest income 12,919
11,015
1,895
9
– net fee income/(expense) 4,755
4,361
(538)932
– other income 868
653
169
46
LICs (1,142)(1,142)—
—
Net operating income 17,400
14,887
1,526
987
Total operating expenses (12,181)(11,147)(374)(660)
Operating profit 5,219
3,740
1,152
327
Income from associates 20
—
20
—
Profit before tax 5,239
3,740
1,172
327

For footnote, see page 85.

66
HSBC Holdings plc Annual Report and Accounts 2016
71

Report of the Directors | Global businessesFinancial summary

UK due to lower overdraft fees and lower cards revenue due to reduced balances.
Adjusted LICs were $0.2bn higher than in 2014. LICs increased notably in the UAE reflecting increased charges on mortgages,
in part due to higher write-offs and additional provisions following a review of portfolio collateral.
Adjusted operating expenses rose by $0.6bn or 5% primarily due to investment in regulatory programmes and compliance, together with inflationary pressures in Asia and Latin America. In addition, staff costs increased in Hong Kong and the UK.


RBWM – summary  
   Consists of
  
Total
RBWM

Banking
operations

Insurance manufacturing
Asset
management

 Footnote$m
$m
$m
$m
Year ended 31 Dec 2016     
Net operating income before loan impairment charges and other credit risk provisions2218,925
16,437
1,531
957
– net interest income 13,198
11,292
1,898
8
– net fee income/(expense) 4,839
4,474
(539)904
– other income/(loss) 888
671
172
45
LICs (1,171)(1,171)—
—
Net operating income 17,754
15,266
1,531
957
Total operating expenses (12,441)(11,415)(380)(646)
Operating profit/(loss) 5,313
3,851
1,151
311
Income from associates 20
—
20
—
Profit/(loss) before tax 5,333
3,851
1,171
311
      
Year ended 31 Dec 2015     
Net operating income before loan impairment charges and other credit risk provisions2219,242
16,548
1,709
985
– net interest income 12,579
10,807
1,763
9
– net fee income/(expense) 5,545
5,081
(493)957
– other income 1,118
660
439
19
LICs (1,060)(1,060)—
—
Net operating income 18,182
15,488
1,709
985
Total operating expenses (12,514)(11,484)(364)(666)
Operating profit/(loss) 5,668
4,004
1,345
319
Income from associates 22
—
22
—
Profit/(loss) before tax 5,690
4,004
1,367
319
For footnote, see page 79.
Insurance manufacturing for
RBWM excluded other global businesses which contributedinsurance manufacturing performance reported above excludes insurance manufacturing related adjusted net operating income of $167m (2015: $171m)$202m (2016: $167m) and adjusted profit before tax of $117m (2015: $108m) to overall insurance manufacturing. In 2016$145m (2016: $117m) contributed by other global businesses.
Of the total RBWM insurance manufacturing net operating income for RBWM included $1,404madjusted revenue of $1,997m, $1,893m was disclosed within Wealth Management (2015: $1,553m)(2016: $1,401m) and $127m$104m within other products (2015: $156m).Other (2016: $125m) in the Management view of adjusted revenue on page 18.
In total insurance manufacturing generated $2,634m of annualisedAnnualised new business premiums (2015: $2,349m)of $2,805m (2016: $2,626m) were generated in Insurance manufacturing, of which $2,519m (2015: $2,230m)$2,730m (2016: $2,557m) related to RBWM.
Distribution of insurance products by HSBC channels contributed $1,048m$1,035m of net fee income (2015: $994m)(2016: $1,034m) of which RBWM channels earned $922m (2015: $896m)$911m (2016: $909m). Of this total income, $615m$629m was in respect of HSBC manufactured products (2015: $568m)(2016: $612m) and a corresponding fee expense is therefore recognised within the Insuranceinsurance manufacturing.
Commercial Banking
Commercial Banking2017 compared with 2016
Adjusted profit before tax of $6.8bn was $0.9bn or 15% higher, reflecting higher revenue and lower LICs. This was partly offset by an increase in operating expenses. We achieved positive jaws of 1.3%.
Adjusted revenue of $13.2bn was $0.6bn or 5% higher, notably in net interest income, as strong growth in GLCM and increased revenue in C&L were partly offset by a reduction in GTRF revenue.
In GLCM, revenue increased by $536m or 13% to $4.8bn, notably in Hong Kong and mainland China, as higher net interest income reflected wider spreads. Average balances grew 5%, reflecting customer deposit retention and new customer acquisitions. In the UK, average balance sheet growth of 10% was more than offset by narrower spreads due to the impact of the base rate reduction in 2016.
Management view of adjusted revenue 
  2016
2015
2014
 Footnotes$m
$m
$m
Net operating income22   
Global Trade and
Receivables Finance
 1,879
2,077
2,125
Credit and Lending 5,102
5,019
4,688
Global Liquidity and
Cash Management
 4,345
4,164
4,014
Markets products, Insurance and Investments and Other301,561
1,493
1,771
Year ended 31 Dec 12,887
12,753
12,598
  %
%
%
RoRWA382.1
1.9
2.4
In C&L, revenue increased by $52m or 1% to $5.1bn. In the UK, net interest income increased as lending growth more than offset narrower spreads. By contrast, revenue in Asia was lower, mainly driven by lower net interest income, as balance growth in Hong Kong was more than offset by the effects of spread compression in Hong Kong and mainland China, in part reflecting competitive pressures. Revenue in the US was lower, as we reposition the portfolio towards higher returns.
In GTRF, revenue was $21m or 1% lower at $1.8bn, representing a stabilisation in performance following a challenging 2016. Notably, revenue increased in both Asia and the UK, reflecting balance sheet growth. However, this was more than offset by a reduction in revenue in the Middle East and North Africa (‘MENA’), reflecting the effect of managed customer exits in the UAE.
Adjusted LICs of $0.5bn were $0.5bn or 49% lower, notably in North America and the UK, primarily related to exposures in the oil and gas sectors, and were also lower in France and Spain. In Asia, lower LICs in Singapore and mainland China were largely offset by higher LICs in Hong Kong, across various sectors.
Adjusted operating expenses of $5.9bn were $0.2bn or 3% higher. This reflected our continued investment in Global Standards and digital capabilities, as well as inflation. This was partly offset by a reduction from our cost-saving initiatives.
Adjusted RWAs increased by 5% to $301bn reflecting growth in lending, mainly in Asia and Europe, in part funded through management initiatives which reduced RWAs by $14bn.


2016 compared with 2015
Adjusted profit before tax of $6.1bn$5.9bn was 12%$0.7bn or 13% higher than in 2015 primarily because of lower LICs, and revenue growth despite challenges inlower levels of global trade. We achieved positive adjusted jaws of 2.3%, as revenue grew by 0.9%, while costs fell by 1.4%.
Adjusted revenue rose by $0.1bn or(or 1%. This included growth of $0.2bn) to $12.6bn, reflecting an increase in net interest income in GLCM drivenand C&L, partly offset by lower net fee income in GTRF.
In GLCM revenue increased by $170m (or 4%) to $4.2bn, from growth in net interest income arising from increased balances and wider spreads in Hong Kong. Kong, also higher in the UK from strong balance growth, partly offset by narrower spreads. Net interest income fell in Canada and France as a result of narrower spreads.
Revenue in Credit and Lending alsoC&L increased (up $0.1bn)by $75m (or 2%) to $5.0bn, reflecting increased net interest income from continued loan growth in the UK. UK, also higher in Mexico as a result of balance growth and wider spreads.
This was partly offset by:
In GTRF, revenue decreased by $201m (or 10%) to $1.8bn, mainly reflecting lower revenuenet fee income as a result of customer and product repositioning in Global Trade and Receivables Finance (‘GTRF’).Hong Kong, also lower in the UAE from managed customer exits.
Adjusted LICs of $1.0bn reduced by $0.4bn$0.5bn or 33% as 2016 included lower levels of individually assessed LICs, as well asnotably in Indonesia, where charges in 2015 related to a small number of exposures in a number of sectors. Lower charges in both the UK and the UAE also contributed to the reduction in individually assessed LICs. In addition, LICs in 2016 included a net release of collective allowances, primarily relating to charges madenotably in the fourth quarter ofoil and gas sector in the US and Canada, the UAE and Asia. This reflected a more positive outlook for this sector. By contrast, in 2015 notably inwe increased our collective allowances on exposures related to the oil and gas sector.
Adjusted operating expenses reducedwere $0.1bn or 1% lower compared with 2015 as the effect of inflation and investment in Global Standards was more than offset by ongoing cost discipline and the impact of our transformation initiatives.
Management initiatives drove a further reduction in RWAs of $23bn in 2016, leading to a cumulative reduction of $46bn since our Investor Update in 2015, compared with 2014
Adjusted profit before tax of $5.4bn was $0.7bn lower than for 2014, as revenue growth was more than offset by an increase in LICs and costs.
Adjusted revenue increased by $0.2bn to $12.8bn, driven by Credit and Lending and GLCM. This was primarily in Hong Kong and the UK reflecting average balance sheet growth although demand for credit in Hong Kong was subdued in the second half of 2015, with balances remaining broadly unchanged.
Adjusted LICs were $0.5bn or 60% higher, reflecting enhanced credit risk in the oil and gas sector, notably in North America, Asia and Middle East and North Africa. In addition, we raised LICs against a small number of specific clients in Indonesia, the UAE and the UK.
Adjusted operating expenses increased by $0.3bn or 6%, primarily in Asia and the US due to growth initiatives, regulatory and compliance programmes and wage inflation.$18bn above our target.



72
HSBC Holdings plc Annual Report and Accounts 201667

Report of the Directors | Global businesses

Global Banking and Markets
Global Banking and Markets2017 compared with 2016
Management view of adjusted revenue 
  2016
2015
2014
 Footnotes$m
$m
$m
Net operating income22   
Global Markets 6,775
6,140
5,488
– Credit 803
631
669
– Rates 2,149
1,391
1,172
– Foreign Exchange 2,813
2,714
2,519
– Equities 1,010
1,404
1,128
Global Banking 3,820
3,801
3,521
Global Liquidity and
Cash Management
 1,951
1,798
1,699
Securities Services 1,585
1,620
1,508
Global Trade and Receivables Finance 702
691
693
Principal Investments 218
226
467
Credit and funding
valuation adjustments
28(70)227
127
Other29(62)63
75
Year ended 31 Dec 14,919
14,566
13,578
  %
%
%
RoRWA381.8
1.6
1.5
Adjusted profit before tax of $5.8bn was $0.3bn or 5% higher, reflecting a strong revenue performance, partly offset by higher operating expenses, while achieving positive adjusted jaws of 1.3%.
Adjusted revenue of $15.1bn was $0.4bn or 3% higher, with growth in all of our businesses. The table above has been re-presented. In 2016, ‘Creditincrease included a net adverse movement of $0.2bn on credit and funding valuation adjustments’adjustments. Excluding these movements, adjusted revenue increased by $0.6bn or 4%. The increase in revenue primarily reflected the following:
Revenue growth in all of $(70)m isour transaction banking products, notably GLCM (up $0.3bn to $2.2bn) and Securities Services (up $0.2bn to $1.7bn). These increases reflected continued momentum as we won and retained client mandates, and benefited from higher interest rates, particularly in Asia and the US.
Global Markets revenue was resilient, (up $33m to $6.7bn), despite lower volatility in 2017, compared with more robust trading conditions in 2016. In Equities revenue increased by $0.3bn to $1.3bn, as we continued to capture market share from Prime Financing products. This was largely offset by Fixed Income, Currencies and Commodities, where revenue decreased by $0.2bn to $5.4bn, reflecting subdued trading conditions.
Global Banking revenue was marginally higher than 2016 (up $16m to $3.8bn), reflecting growth in lending balances and continued momentum in investment banking products, which broadly offset the effects of tightening spreads on lending in Asia.
Adjusted LICs of $0.5bn were broadly unchanged from the prior year. LICs in 2017 related to two large corporate exposures in Europe, compared with 2016, which included a separate line previously included within ‘Markets’ (2015: $227m).small number of individually assessed LICs, notably on exposures in the oil and gas, and mining sectors in the US.
Adjusted operating expenses increased by $0.1bn or 1% to $8.9bn, reflecting higher performance-related pay, pension and severance costs. Our continued cost management and efficiency improvements, and savings from technology investments, broadly offset the effects of inflation.
We have exceeded the RWA reduction target set in our Investor Update in June 2015, with a cumulative reduction in RWAs from management initiatives of $128bn. This includes a further RWA reduction of $32bn in 2017. Our adjusted RoRWA improved to 1.9% from 1.7% in 2016.


2016 compared with 2015
Adjusted profit before tax of $5.6bn$5.5bn was $63m$206m higher than in 2015, as revenue increased and operating expenses decreased, reflecting transformational cost savings, partly offset by an increase in LICs. We achieved positive adjusted jaws of 4.9%.
Adjusted revenue of $14.9bn$14.7bn rose $353m$0.4bn or 2%3%, despite adverse movements in credit and funding valuation adjustments compared with favourable movements in 2015 (net effect down $297m)$237m lower), primarily relating to movements on our own credit spreads on structured liabilities. Excluding these movements, adjusted revenue rose $650m $0.7bnor 5%:
Global Markets revenue increased by $0.6bn or 11%, mainly in Rates (up $0.7bn) and Credit (up $0.2bn), as we gained market share in Europe. In GLCM, revenue increased as we grew average balances and benefited from wider spreads. By contrast,This was partly in Equities where revenue fell in Equities,by $0.4bn, primarily reflecting lower trading volumes in Europe and Asia.
In GLCM, revenue increased by $0.1bn from growth in average balances reflecting an increase in client mandates. We also benefited from wider deposit spreads.
Adjusted LICs increased (up $0.4bn), predominantlymainly driven by a small number of individually assessed exposures within the oil and gas, and metals and mining sectors, notably in the first half of 2016 in the US.
Adjusted operating expenses fell by $93m,$158m, reflecting reduced performance-related pay, disciplined cost management, efficiency improvements including technology delivery rationalisation, and FTE reductions. These reductions more than offset the investments we made in the business.
2015Through 2016, we continued to focus on delivery of our RWA reductions, and achieved a reduction of $11bn, which included $39bn through management initiatives, partly offset by business growth.


Global Private Banking
2017 compared with 20142016
Adjusted profit before tax of $5.5bn$296m was $0.6bn$24m or 12%9% higher than prior year as revenue rose and LICs decreased,a reduction in operating expenses was partly offset by increased costs.lower revenue. We achieved positive adjusted jaws of 3.2%.
Adjusted revenue grewof $1.7bn was $45m or 3% lower, mainly due to a reduction in net trading income and net fee income, reflecting the continued impact of client repositioning. Revenue from the markets that we have targeted for growth increased by $1.0bn or 7% to $14.6bn with higher revenue in all businesses except Principal Investments.10%. This was primarily driven bymainly in Hong Kong, due to growth in investment fee income reflecting increased client flowsactivity, and volatility in Equities (up by $0.3bn) and transaction banking products (up by $0.2bn).higher net interest income from deposits reflecting wider spreads.
Adjusted LICs were $0.3bn lower, reflectingof $16m in 2017 primarily related to a significant reductionsingle client in impairments compared with 2014.the UK.
Adjusted operating expenses increasedof $1.4bn were $85m or 6% lower, mainly as a result of a managed reduction in FTEs and the impact of our cost-saving initiatives.
In 2017, net new money inflows of $15bn in key markets targeted for growth, especially in Hong Kong, were offset by $0.7bn or 9% primarily due to wage inflation and higher performance-related costs. We continued to invest in GLCM and Foreign Exchange businesses as well as regulatory and compliance programmes.outflows resulting from the repositioning of the business.

Global Private Banking
Management view of adjusted revenue
  2016
2015
2014
  $m
$m
$m
Net operating income    
Investment Revenue 725
899
954
Lending 414
416
425
Deposit 343
355
381
Other 275
295
319
Year ended 31 Dec 1,757
1,965
2,079
     
Reported client assets31
  2016
2015
2014
 Footnote$bn
$bn
$bn
At 1 Jan 349
365
382
Net new money (17)1
(3)
– of which: areas targeted for growth 2
14
14
Value change 1
1
8
Disposals (24)—
(11)
Exchange and other (11)(18)(11)
At 31 Dec 298
349
365
  %
%
%
RoRWA381.7
2.1
2.9
HSBC Holdings plc73

Report of the Directors | Financial summary

Reported client assets by geography
  2016
2015
2014
 Footnote$bn
$bn
$bn
Europe 147
167
177
Asia 108
112
112
North America 40
61
63
Latin America 3
8
11
Middle East40—
1
2
At 31 Dec 298
349
365
For footnotes, see page 79.

2016 compared with 2015
Adjusted profit before tax of $0.3bn fell by $0.1bn$101m or 27% as revenue decreased, partly offset by a reduction in costs.operating expenses.
Adjusted revenue of $1.8bn$1.7bn fell by $0.2bn or 11%, as net fee income from brokerage and trading activity in both Europe and Asia decreased. This reflected the continued impact of our client repositioning actions, in addition to adverse market sentiment and unfavourable market conditions throughout the year.
Adjusted operating expenses of $1.5bn decreased by $0.1bn,$106m or 7%, primarily as a result of reduceda managed reduction in FTEs, and the impact of our cost-saving initiatives.
2015 compared with 2014
Adjusted profit before tax decreased by 28% to $387m,In 2016, we recorded negative net new money of $17bn, primarily reflecting continued repositioning, partly offset by revenue growth in Asia.
Our adjusted revenue fell by $114m to $2.0bn primarily from the repositioning of the business,business. However, in key markets that we have targeted for growth we attracted positive net new money, notably in Switzerland. This was partly offset by increased revenue in Hong Kong and Singapore due to higher transaction volumes and higher market turnover in the first half of 2015, which more than offset weaker investor sentiment in the second half of the year.
Adjusted operating expenses rose by 1% to $1.6bn reflecting investment in the UK, Channel Islands and Hong Kong. This was partly offset by lower staff costs in Switzerland.




6874
HSBC Holdings plc Annual Report and Accounts 2016

For GPB, a key measure of business performance is client assets, which is presented below.
Corporate Centre
Management view of adjusted revenue 
  2016
2015
2014
 Footnotes$m
$m
$m
Net operating income22   
Central Treasury421,504
1,905
1,938
Legacy portfolios 715
1,234
1,571
– US run-off portfolio 692
1,164
1,548
– Legacy credit 23
70
23
Other43(554)(246)390
Year ended 31 Dec 1,665
2,893
3,899
GPB – reported client assets35
 2017
2016
2015
 $bn
$bn
$bn
At 1 Jan298
349
365
Net new money—
(17)1
– of which: areas targeted for growth15
2
14
Value change21
(1)1
Disposals(10)(24)—
Exchange and other21
(9)(18)
At 31 Dec330
298
349
GPB – reported client assets by geography
  2017
2016
2015
 Footnote$bn
$bn
$bn
Europe 162
147
168
Asia 129
108
112
North America 39
40
61
Latin America —
3
8
Middle East36—
—
—
At 31 Dec 330
298
349
For footnote, see page 85.
Corporate Centre
2017 compared with 2016
Adjusted profit before tax of $1.7bn was $0.4bn or 17% lower, reflecting lower revenue and higher operating expenses, partly offset by a fall in LICs.
Adjusted revenue fell by $0.4bn or 27% to $1.2bn, mainly due to a decrease of $0.7bn related to the US run-off portfolio with respect to the disposal of the remaining loan portfolio during 2017. In Central Treasury revenue also decreased (down $0.1bn), due to:
higher interest on our debt (up $0.3bn), mainly from higher costs of debt issued to meet regulatory requirements; and
a reduction in revenue in BSM ($0.3bn) reflecting lower yield rates and increased utilisation of the Group’s surplus liquidity by the global businesses; partly offset by:
favourable fair value movements relating to the economic hedging of interest and exchange rate risk on our long-term debt with long-term derivatives of $0.1bn, compared with adverse movements of $0.3bn in 2016.
Other income increased by $0.4bn, which included revaluation gains on investment properties.
Net loan impairment releases of $182m compared with adjusted LICs of $22m in 2016. This reflected lower LICs in the US run-off portfolio, and higher net releases related to our legacy credit portfolio.
Adjusted operating expenses of $2.1bn were $0.2bn or 8% higher due to investment in regulatory programmes and compliance, partly offset by lower US run-off portfolio costs.
Adjusted income from associates rose by $55m or 2%.


2016 compared with 2015
Adjusted profit before tax of $2.0bn was $0.5bn$0.4bn or 19%15% lower, driven by a fall in revenue and lower income from associates, partly offset by lower operating expenses, notably a reduced charge relating to the UK bank levy.
Adjusted revenue fell by $1.2bn or 41%, partly driven by reductions in our US CMLrun-off portfolio ($0.5bn)(down $0.5bn) as a result of lower average lending balances and portfolio sales. Revenue also fell in Central Treasury (down $0.3bn) as a result of of:
higher adverse fair value movements relating to the economic hedging of interest and exchange rate risk on our long-term debt with long-term derivatives ($0.2bn); and
higher interest expense ($0.2bn).on our debt (up $0.3bn), mainly reflecting a higher cost of debt.
Adjusted LICs of $22m were broadly unchanged$5m or 19% lower compared with 2015, as increased charges in the US CMLrun-off portfolio were broadly offset by higher releases of credit risk provisions in the legacy creditour Legacy Credit portfolio.
Adjusted operating expenses were $0.8bn$0.9bn or 31% lower, partly reflecting the benefits of transformational savings in our technology, operations and other functions, and a lower UK bank levy charge (down $0.5bn).
Adjusted income from associates was $0.1bn$85m or 4% lower, primarily in Saudi Arabia.
2015 compared with 2014
Adjusted profit before tax of $2.5bn was $1.3bn lower, mainly due to a fall in revenue.
Adjusted revenue fell $1.0bn. This was driven by a decrease in our US CML run-off portfolio, as we continued to reduce lending balances. We also recorded adverse net fair value movements relating to the hedging of our long-term debt with long-term derivatives compared to favourable movements in the prior year (a net adverse movement of $0.2bn). In addition, revenue was affected by the non-recurrence of a gain on the external hedging of an intra-Group financing transaction
($0.2bn).
Adjusted LICs in 2015 were $25m. This compared with a net release of adjusted LICs of $0.3bn in 2014. This reflected lower net releases on available-for-sale asset-backed securities in Legacy Credit.
Adjusted operating expenses were $0.1bn higher. This reflected a $0.4bn rise in the UK bank levy and higher regulatory programmes and compliance costs. These factors were partly offset by the initial effects of our cost-saving initiatives and a strong focus on cost management.
Income from associates was $0.1bn higher, reflecting an increase in contributions from BoCom.


HSBC Holdings plc Annual Report and Accounts 2016
6975

Report of the Directors | Geographical regionsFinancial summary

Analysis of reported results by geographical regions

HSBC reported profit/(loss) before tax and balance sheet data

HSBC reported profit/(loss) before tax and balance sheet data

HSBC reported profit/(loss) before tax and balance sheet data
 2016 2017
 
Europe35

Asia
MENA35

North America
Latin America
Intra-HSBC
items

Total
 Europe
Asia
MENA
North America
Latin America
Intra-HSBC
items
Total
Footnotes$m
$m
$m
$m
$m
$m
$m
Footnotes$m
$m
$m
$m
$m
$m
$m
Profit/(loss) before tax  
Net interest income 8,346
12,490
1,831
4,220
3,006
(80)29,813
 6,970
14,153
1,752
3,441
2,098
(238)28,176
Net fee income/(expense) 4,247
5,200
709
1,898
723
—
12,777
Net trading income/(expense)214,949
3,127
385
462
449
80
9,452
Other income/(expense)34(2,026)2,503
44
485
(1,492)(3,590)(4,076)
Net fee income 4,161
5,631
619
1,880
520
—
12,811
Net trading income 3,425
2,944
180
527
405
238
7,719
Other income332,864
3,078
109
865
202
(4,379)2,739
Net operating income before loan impairment charges and other credit risk provisions2215,516
23,320
2,969
7,065
2,686
(3,590)47,966
317,420
25,806
2,660
6,713
3,225
(4,379)51,445
Loan impairment charges and other credit risk provisions (446)(677)(316)(732)(1,229)—
(3,400) (658)(570)(207)189
(523)—
(1,769)
Net operating income 15,070
22,643
2,653
6,333
1,457
(3,590)44,566
 16,762
25,236
2,453
6,902
2,702
(4,379)49,676
Total operating expenses (21,845)(10,785)(1,584)(6,147)(3,037)3,590
(39,808) (18,665)(11,790)(1,394)(5,305)(2,109)4,379
(34,884)
Operating profit/(loss) (6,775)11,858
1,069
186
(1,580)—
4,758
 (1,903)13,446
1,059
1,597
593
—
14,792
Share of profit/(loss) in associates and joint ventures 1
1,921
434
(1)(1)—
2,354
Share of profit in associates and joint ventures 39
1,883
442
4
7
—
2,375
Profit/(loss) before tax (6,774)13,779
1,503
185
(1,581)—
7,112
 (1,864)15,329
1,501
1,601
600
—
17,167
 %
%
%
%
%
 %
 %
%
%
%
%
 %
Share of HSBC’s profit before tax (95.2)193.7
21.1
2.6
(22.2)

100.0
 (10.8)89.3
8.7
9.3
3.5


100.0
Cost efficiency ratio 140.8
46.2
53.4
87.0
113.1


83.0
 107.1
45.7
52.4
79.0
65.4


67.8
Balance sheet data20$m
$m
$m
$m
$m
$m
$m
 $m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net) 336,670
365,430
30,740
111,710
16,954
—
861,504
 381,547
425,971
28,050
107,607
19,789
—
962,964
– reported in held for sale 1,057
—
474
2,092
—
—
3,623
Total external assets 1,068,446
965,730
60,472
409,021
43,137
(171,820)2,374,986
Total assets 1,169,515
1,008,498
57,469
391,292
48,413
(153,416)2,521,771
Customer accounts 446,615
631,723
34,766
138,790
20,492
—
1,272,386
 505,182
657,395
34,658
143,432
23,795
—
1,364,462
– reported in held for sale 2,012
—
701
—
—
—
2,713
Risk-weighted assets (unaudited)33298,384
333,987
59,065
150,714
34,341
—
857,181
Risk-weighted assets37311,612
357,808
59,196
131,276
36,372
—
871,337
  
 2015
Profit/(loss) before tax  
Net interest income 9,686
12,184
1,849
4,532
4,318
(38)32,531
Net fee income/(expense) 4,702
6,032
822
2,018
1,131
—
14,705
Net trading income/(expense)213,968
3,090
418
545
664
38
8,723
Other income/(expense)342,116
3,997
90
562
479
(3,403)3,841
Net operating income before loan impairment charges and other credit risk provisions2220,472
25,303
3,179
7,657
6,592
(3,403)59,800
Loan impairment charges and other credit risk provisions (519)(693)(470)(544)(1,495)—
(3,721)
Net operating income 19,953
24,610
2,709
7,113
5,097
(3,403)56,079
Total operating expenses (19,274)(10,889)(1,721)(6,501)(4,786)3,403
(39,768)
Operating profit/(loss) 679
13,721
988
612
311
—
16,311
Share of profit/(loss) in associates and joint ventures 9
2,042
504
2
(1)—
2,556
Profit/(loss) before tax 688
15,763
1,492
614
310
—
18,867
 %
%
%
%
%
 %
Share of HSBC’s profit before tax 3.6
83.5
7.9
3.3
1.7


100.0
Cost efficiency ratio 94.1
43.0
54.1
84.9
72.6


66.5
Balance sheet data20$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net) 385,037
356,375
36,898
128,851
17,293
—
924,454
– reported in held for sale —
—
—
2,020
17,001
—
19,021
Total external assets 1,121,401
889,747
70,157
393,960
86,262
(151,871)2,409,656
Customer accounts 491,520
598,620
42,824
135,152
21,470
—
1,289,586
– reported in held for sale —
—
—
1,588
15,094
—
16,682
Risk-weighted assets (unaudited)33327,219
459,680
70,585
191,611
73,425
—
1,102,995

7076
HSBC Holdings plc Annual Report and Accounts 2016

         
HSBC reported profit/(loss) before tax and balance sheet data (continued)     
  2016
  Europe
Asia
MENA
North America
Latin America
Intra-HSBC
items

Total
 Footnotes$m
$m
$m
$m
$m
$m
$m
Net interest income 8,346
12,490
1,831
4,220
3,006
(80)29,813
Net fee income 4,247
5,200
709
1,898
723
—
12,777
Net trading income 4,949
3,127
385
462
449
80
9,452
Other income/(expense)33(2,026)2,503
44
485
(1,492)(3,590)(4,076)
Net operating income before loan impairment charges and other credit risk provisions315,516
23,320
2,969
7,065
2,686
(3,590)47,966
Loan impairment charges and other credit risk provisions (446)(677)(316)(732)(1,229)—
(3,400)
Net operating income 15,070
22,643
2,653
6,333
1,457
(3,590)44,566
Total operating expenses (21,845)(10,785)(1,584)(6,147)(3,037)3,590
(39,808)
Operating profit/(loss) (6,775)11,858
1,069
186
(1,580)—
4,758
Share of profit/(loss) in associates and joint ventures 1
1,921
434
(1)(1)—
2,354
Profit/(loss) before tax (6,774)13,779
1,503
185
(1,581)—
7,112
  %
%
%
%
%
 %
Share of HSBC’s profit before tax (95.2)193.7
21.1
2.6
(22.2)

100.0
Cost efficiency ratio 140.8
46.2
53.4
87.0
113.1


83.0
Balance sheet data $m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net) 336,670
365,430
30,740
111,710
16,954
—
861,504
– reported in held for sale 1,057
—
474
2,092
—
—
3,623
Total assets 1,068,446
965,730
60,472
409,021
43,137
(171,820)2,374,986
Customer accounts 446,615
631,723
34,766
138,790
20,492
—
1,272,386
– reported in held for sale 2,012
—
701
—
—
—
2,713
Risk-weighted assets37298,384
333,987
59,065
150,714
34,341
—
857,181
         
  2015
Net interest income 9,686
12,184
1,849
4,532
4,318
(38)32,531
Net fee income 4,702
6,032
822
2,018
1,131
—
14,705
Net trading income 3,968
3,090
418
545
664
38
8,723
Other income332,116
3,997
90
562
479
(3,403)3,841
Net operating income before loan impairment charges and other credit risk provisions320,472
25,303
3,179
7,657
6,592
(3,403)59,800
Loan impairment charges and other credit risk provisions (519)(693)(470)(544)(1,495)—
(3,721)
Net operating income 19,953
24,610
2,709
7,113
5,097
(3,403)56,079
Total operating expenses (19,274)(10,889)(1,721)(6,501)(4,786)3,403
(39,768)
Operating profit 679
13,721
988
612
311
—
16,311
Share of profit/(loss) in associates and joint ventures 9
2,042
504
2
(1)—
2,556
Profit before tax 688
15,763
1,492
614
310
—
18,867
  %
%
%
%
%
 %
Share of HSBC’s profit before tax 3.6
83.5
7.9
3.3
1.7


100.0
Cost efficiency ratio 94.1
43.0
54.1
84.9
72.6


66.5
Balance sheet data38$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net) 385,037
356,375
36,898
128,851
17,293
—
924,454
– reported in held for sale —
—
—
2,020
17,001
—
19,021
Total assets 1,121,401
889,747
70,157
393,960
86,262
(151,871)2,409,656
Customer accounts 491,520
598,620
42,824
135,152
21,470
—
1,289,586
– reported in held for sale —
—
—
1,588
15,094
—
16,682
Risk-weighted assets37327,219
459,680
70,585
191,611
73,425
—
1,102,995
  2014
  Europe
Asia
MENA
North America
Latin
America

Intra-HSBC
items

Total
 Footnotes$m
$m
$m
$m
$m
$m
$m
Net interest income 10,115
12,273
2,014
5,015
5,310
(22)34,705
Net fee income 5,738
5,910
954
1,940
1,415
—
15,957
Net trading income/(expense)212,557
2,622
292
411
856
22
6,760
Other income/(expense)342,394
2,872
79
786
691
(2,996)3,826
Net operating income before loan impairment charges and other credit risk provisions2220,804
23,677
3,339
8,152
8,272
(2,996)61,248
Loan impairment charges and other credit risk provisions (518)(647)(240)(322)(2,124)—
(3,851)
Net operating income 20,286
23,030
3,099
7,830
6,148
(2,996)57,397
Total operating expenses (19,633)(10,427)(1,824)(6,429)(5,932)2,996
(41,249)
Operating profit/(loss) 653
12,603
1,275
1,401
216
—
16,148
Share of profit in associates and joint ventures 6
2,022
488
16
—
—
2,532
Profit/(loss) before tax 659
14,625
1,763
1,417
216
—
18,680
  %
%
%
%
%
 %
Share of HSBC’s profit before tax 3.6
78.3
9.4
7.6
1.1


100.0
Cost efficiency ratio 94.4
44.0
54.6
78.9
71.7


67.3
Balance sheet data20$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers (net) 401,642
362,955
37,154
129,787
43,122
—
974,660
– reported in held for sale 91
—
—
486
—
—
577
Total external assets 1,279,817
878,723
76,609
436,859
115,354
(153,223)2,634,139
Customer accounts 538,104
577,491
47,575
138,884
48,588
—
1,350,642
– reported in held for sale 145
—
—
—
—
—
145
Risk-weighted assets (unaudited)33363,473
499,846
74,785
221,378
88,781
—
1,219,765
For footnotes, see page 79.85.

HSBC Holdings plc Annual Report and Accounts 2016
7177

Report of the Directors | Geographical regionsFinancial summary

Reconciliation of reported and adjusted items – geographical regions

2016 compared with 2015 and 2014
Reconciliation of reported and adjusted itemsReconciliation of reported and adjusted items

 2016
2017

 Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong
Kong

Europe
Asia
MENA
North
America*
Latin
America†

Total
UK
Hong
Kong

Footnotes$m
$m
$m
$m
$m
$m
$m
$m
Footnotes$m
$m
$m
$m
$m
$m
$m
$m
Revenue22















3















Reported3215,516
23,320
2,969
7,065
2,686
47,966
10,893
14,014
3917,420
25,806
2,660
6,713
3,225
51,445
12,922
16,117
Significant items 1,740
(6)(11)155
309
2,187
1,795
(1)
64
121
1
(93)(14)79
54
(51)
– customer redress programmes 108
—
—
—
—
108
108
—
– DVA on derivative contracts (56)(15)—
9
36
(26)(63)(22)
211
123
1
34
4
373
179
43
– fair value movements on non-qualifying hedges23563
17
—
107
—
687
532
26
32(157)25
—
3
1
(128)(155)32
– gain on disposal of our membership interest in Visa – Europe (573)—
(11)—
—
(584)(441)—
– gain on disposal of our investment in Vietnam Technological and Commercial Joint Stock Bank
—
(126)—
—
—
(126)—
(126)
– gain on disposal of our membership interest in Visa – US —
—
—
(116)—
(116)—
—

—
—
—
(308)—
(308)—
—
– own credit spread241,782
(8)—
18
—
1,792
1,769
(5)
– investment in new businesses
—
99
—
—
—
99
—
—
– portfolio disposals 26
—
—
137
—
163
—
—

(20)—
—
178
—
158
—
—
– releases arising from the ongoing review
of compliance with the UK Consumer
Credit Act		 (2)—
—
—
—
(2)(2)—
– loss and trading results from disposed-of operations in Brazil —
—
—
—
273
273
—
—
– gain on disposal of operations in Brazil —
—
—
—
(19)(19)—
—
– other acquisitions, disposals and dilutions
(78)—
—
—
—
(78)(78)—
Adjusted3217,256
23,314
2,958
7,220
2,995
50,153
12,688
14,013
3917,484
25,927
2,661
6,620
3,211
51,524
12,976
16,066
LICs 
































Reported (446)(677)(316)(732)(1,229)(3,400)(245)(321)
(658)(570)(207)189
(523)(1,769)(492)(396)
Significant items —
—
—
—
748
748
—
—
– trading results from disposed-of operations in Brazil —
—
—
—
748
748
—
—
Adjusted (446)(677)(316)(732)(481)(2,652)(245)(321)
(658)(570)(207)189
(523)(1,769)(492)(396)
Operating expenses 
































Reported32(21,845)(10,785)(1,584)(6,147)(3,037)(39,808)(14,562)(5,646)39(18,665)(11,790)(1,394)(5,305)(2,109)(34,884)(15,086)(6,131)
Significant items 6,632
430
103
989
1,098
9,252
2,670
183

2,804
640
34
200
66
3,744
2,469
308
– costs associated with portfolio disposals 28
—
—
—
—
28
—
—

36
—
—
17
—
53
—
—
– costs associated with the UK’s exit from the EU
28
—
—
—
—
28
18
—
– costs to achieve 2,098
476
103
402
39
3,118
1,838
229

1,908
623
34
371
66
3,002
1,766
291
– costs to establish UK ring-fenced bank 223
—
—
—
—
223
223
—

392
—
—
—
—
392
392
—
– impairment of GPB – Europe goodwill 3,240
—
—
—
—
3,240
—
—
– customer redress programmes 655
—
—
—
—
655
655
—
– gain on partial settlement of pension obligation
 —
—
—
(188)—
(188)—
—
– regulatory provisions in GPB 390
(46)—
—
—
344
—
(46) 147
17
—
—
—
164
—
17
– settlements and provisions in connection with legal matters 94
—
—
587
—
681
50
—

(362)—
—
—
—
(362)(362)—
– UK customer redress programmes 559
—
—
—
—
559
559
—
– trading results from disposed-of operations in Brazil —
—
—
—
1,059
1,059
—
—
Adjusted32(15,213)(10,355)(1,481)(5,158)(1,939)(30,556)(11,892)(5,463)39(15,861)(11,150)(1,360)(5,105)(2,043)(31,140)(12,617)(5,823)
Share of profit in associates and joint ventures 
































Reported 1
1,921
434
(1)(1)2,354
1
22

39
1,883
442
4
7
2,375
38
8
Significant items —
—
—
—
1
1
—
—
– trading results from disposed-of operations in Brazil —
—
—
—
1
1
—
—
Adjusted 1
1,921
434
(1)—
2,355
1
22

39
1,883
442
4
7
2,375
38
8
Profit/(loss) before tax 
































Reported (6,774)13,779
1,503
185
(1,581)7,112
(3,913)8,069

(1,864)15,329
1,501
1,601
600
17,167
(2,618)9,598
Significant items 8,372
424
92
1,144
2,156
12,188
4,465
182

2,868
761
35
107
52
3,823
2,523
257
– revenue 1,740
(6)(11)155
309
2,187
1,795
(1)
64
121
1
(93)(14)79
54
(51)
– LICs —
—
—
—
748
748
—
—
– operating expenses 6,632
430
103
989
1,098
9,252
2,670
183

2,804
640
34
200
66
3,744
2,469
308
– share of profit in associates and joint ventures —
—
—
—
1
1
—
—
Adjusted 1,598
14,203
1,595
1,329
575
19,300
552
8,251
401,004
16,090
1,536
1,708
652
20,990
(95)9,855
*Of which US Principal: adjusted revenue $4,737m (RBWM: $1,194m; CMB: $947m; GB&M $1,951m; GPB: $317m); adjusted LICs $118m; adjusted operating expenses $(3,936)m; adjusted PBT $920m (RBWM: $(58)m; CMB: $432m; GB&M $527m; GPB: $64m); adjusted RWAs (RBWM: $11.0bn; CMB: $25.1bn; GB&M $45.2bn; GPB: $4.2bn; Corporate Centre: $10.0bn).
†
Of which Mexico: adjusted revenue $2,164m (RBWM: $1,442m; CMB: $350m; GB&M $284m); adjusted LICs $(473)m; adjusted operating expenses $(1,251)m; adjusted PBT $440m (RBWM: $147m; CMB: $105m; GB&M $162m); adjusted RWAs (RBWM: $6.9bn; CMB: $5.9bn; GB&M $8.3bn; Corporate Centre: $2.8bn).

78HSBC Holdings plc

Reconciliation of reported and adjusted items (continued)


2016


Europe
Asia
MENA
North
America*
Latin
America†

Total
UK
Hong
Kong

Footnotes$m
$m
$m
$m
$m
$m
$m
$m
Revenue3















Reported 
3915,516
23,320
2,969
7,065
2,686
47,966
10,893
14,014
Currency translation39(545)8
(363)32
130
(736)(668)(53)
Significant items
1,848
(7)(9)155
73
2,060
1,898
(1)
– customer redress programmes (2)—
—
—
—
(2)(2)—
– DVA on derivative contracts
(56)(15)—
9
36
(26)(63)(22)
– fair value movements on non-qualifying hedges32563
17
—
107
—
687
532
26
– gain on the disposal of our membership
interest in Visa – Europe
(573)—
(11)—
—
(584)(441)—
– gain on disposal of our membership
interest in Visa – US
—
—
—
(116)—
(116)—
—
– own credit spread251,782
(8)—
18
—
1,792
1,769
(5)
– portfolio disposals
26
—
—
137
—
163
—
—
– loss and trading results from disposed-of
operations in Brazil
—
—
—
—
273
273
—
—
– currency translation on significant items
108
(1)2
—
(236)(127)103
—
Adjusted 
3916,819
23,321
2,597
7,252
2,889
49,290
12,123
13,960
LICs
















Reported
(446)(677)(316)(732)(1,229)(3,400)(245)(321)
Currency translation
27
(3)27
1
(113)(61)33
1
Significant items
—
—
—
—
867
867
—
—
– trading results from disposed-of operations in Brazil
—
—
—
—
748
748
—
—
– currency translation on significant items
—
—
—
—
119
119
—
—
Adjusted
(419)(680)(289)(731)(475)(2,594)(212)(320)
Operating expenses
















Reported 
39(21,845)(10,785)(1,584)(6,147)(3,037)(39,808)(14,562)(5,646)
Currency translation39300
11
143
(21)(100)331
367
22
Significant items
6,611
434
90
991
1,267
9,393
2,642
182
– costs associated with portfolio disposals
28
—
—
—
—
28
—
—
– costs to achieve
2,098
476
103
402
39
3,118
1,838
229
– costs to establish UK ring-fenced bank
223
—
—
—
—
223
223
—
– customer redress programmes 559
—
—
—
—
559
559
—
– impairment of GPB – Europe goodwill
3,240
—
—
—
—
3,240
—
—
– regulatory provisions in GPB
390
(46)—
—
—
344
—
(46)
– settlements and provisions in connection
with legal matters
94
—
—
587
—
681
50
—
– trading results from disposed-of operations
in Brazil
—
—
—
—
1,059
1,059
—
—
– currency translation on significant items
(21)4
(13)2
169
141
(28)(1)
Adjusted 
39(14,934)(10,340)(1,351)(5,177)(1,870)(30,084)(11,553)(5,442)
Share of profit in associates and joint ventures
















Reported
1
1,921
434
(1)(1)2,354
1
22
Currency translation
1
(34)—
—
—
(33)1
(1)
Significant items
—
—
—
—
1
1
—
—
– trading results from disposed-of operations
in Brazil
—
—
—
—
1
1
—
—
– currency translation on significant items
—
—
—
—
—
—
—
—
Adjusted
2
1,887
434
(1)—
2,322
2
21
Profit/(loss) before tax
















Reported
(6,774)13,779
1,503
185
(1,581)7,112
(3,913)8,069
Currency translation
(217)(18)(193)12
(83)(499)(267)(31)
Significant items
8,459
427
81
1,146
2,208
12,321
4,540
181
– revenue
1,848
(7)(9)155
73
2,060
1,898
(1)
– LICs
—
—
—
—
867
867
—
—
– operating expenses
6,611
434
90
991
1,267
9,393
2,642
182
– share of profit in associates and joint ventures
—
—
—
—
1
1
—
—
Adjusted
1,468
14,188
1,391
1,343
544
18,934
360
8,219
*Of which US Principal: adjusted revenue $4,698m (RBWM: $1,161m; CMB: $981m; GB&M $1,979m; GPB: $303m); adjusted LICs $(503)m; adjusted operating expenses $(3,808)m; adjusted PBT $387m (RBWM: $(81)m; CMB: $341m; GB&M $100m; GPB: $67m); adjusted RWAs (RBWM: $11.0bn; CMB: $26.8bn; GB&M $48.3bn; GPB: $4.1bn; Corporate Centre: $13.6bn).
†Of which Mexico: adjusted revenue $1,949m (RBWM: $1,285m; CMB: $336m; GB&M $217m; GPB: $13m); adjusted LICs $(450)m; adjusted operating expenses $(1,225)m; adjusted PBT $274m (RBWM: $100m; CMB: $83m; GB&M $79m; GPB: $5m); adjusted RWAs (RBWM: $6.4bn; CMB: $6.3bn; GB&M $6.7bn; Corporate Centre: $1.7bn).

HSBC Holdings plc79

Report of the Directors | Financial summary

Reconciliation of reported and adjusted items (continued)


2015


Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong
Kong

Footnotes$m
$m
$m
$m
$m
$m
$m
$m
Revenue3















Reported3920,472
25,303
3,179
7,657
6,592
59,800
15,493
15,616
Currency translation39(2,263)(330)(497)(30)(685)(3,727)(2,298)(74)
Significant items
(611)(1,425)(10)98
(3,703)(5,651)(546)(1,378)
– customer redress programmes 10
—
—
—
—
10
10
—
– DVA on derivative contracts
(95)(58)(1)(21)(55)(230)(78)(13)
– fair value movements on non-qualifying hedges32200
2
—
124
1
327
204
6
– gain on the partial sale of shareholding in Industrial Bank
—
(1,372)—
—
—
(1,372)—
(1,372)
– own credit spread25(771)(3)(9)(219)—
(1,002)(731)(4)
– portfolio disposals
—
—
—
214
—
214
—
—
– trading results from disposed-of operations in Brazil
—
—
—
—
(3,532)(3,532)—
—
– currency translation on significant items
45
6
—
—
(117)(66)49
5
Adjusted3917,598
23,548
2,672
7,725
2,204
50,422
12,649
14,164
LICs
















Reported
(519)(693)(470)(544)(1,495)(3,721)(248)(155)
Currency translation
24
11
47
(5)50
127
34
1
Significant items
—
—
—
—
1,015
1,015
—
—
– trading results from disposed-of operations in Brazil
—
—
—
—
965
965
—
—
– currency translation on significant items
—
—
—
—
50
50
—
—
Adjusted
(495)(682)(423)(549)(430)(2,579)(214)(154)
Operating expenses
















Reported39(19,274)(10,889)(1,721)(6,501)(4,786)(39,768)(15,555)(5,686)
Currency translation391,668
191
223
13
417
2,434
1,698
30
Significant items
2,115
131
14
851
2,766
5,877
1,858
48
– costs to achieve
600
122
14
103
69
908
536
43
– costs to establish the UK ring-fenced bank
89
—
—
—
—
89
89
—
– customer redress programmes 541
—
—
—
—
541
541
—
– regulatory provisions in GPB
172
—
—
—
—
172
—
—
– restructuring and other related costs
68
8
1
34
6
117
50
6
– settlements and provisions in connection with legal matters
935
—
—
714
—
1,649
935
—
– trading results from disposed-of operations in Brazil
—
—
—
—
2,579
2,579
—
—
– currency translation on significant items
(290)1
(1)—
112
(178)(293)(1)
Adjusted39(15,491)(10,567)(1,484)(5,637)(1,603)(31,457)(11,999)(5,608)
Share of profit in associates and joint ventures
















Reported
9
2,042
504
2
(1)2,556
10
31
Currency translation
—
(149)—
—
—
(149)(1)—
Significant items
—
—
—
—
2
2
—
—
– trading results from disposed-of operations in Brazil
—
—
—
—
1
1
—
—
– currency translation on significant items
—
—
—
—
1
1
—
—
Adjusted
9
1,893
504
2
1
2,409
9
31
Profit/(loss) before tax
















Reported
688
15,763
1,492
614
310
18,867
(300)9,806
Currency translation
(571)(277)(227)(22)(218)(1,315)(567)(43)
Significant items
1,504
(1,294)4
949
80
1,243
1,312
(1,330)
– revenue
(611)(1,425)(10)98
(3,703)(5,651)(546)(1,378)
– LICs
—
—
—
—
1,015
1,015
—
—
– operating expenses
2,115
131
14
851
2,766
5,877
1,858
48
– share of profit in associates and joint ventures
—
—
—
—
2
2
—
—
Adjusted
1,621
14,192
1,269
1,541
172
18,795
445
8,433
For footnotes, see page 85.

7280
HSBC Holdings plc Annual Report and Accounts 2016

Reconciliation of reported and adjusted items (continued)


2015


Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong
Kong

Footnotes$m
$m
$m
$m
$m
$m
$m
$m
Revenue22















Reported3220,472
25,303
3,179
7,657
6,592
59,800
15,493
15,616
Currency translation32(1,613)(305)(182)(60)(896)(3,001)(1,577)(20)
Significant items (656)(1,431)(10)98
(3,381)(5,380)(595)(1,383)
– DVA on derivative contracts (95)(58)(1)(21)(55)(230)(78)(13)
– fair value movements on non-qualifying hedges23200
2
—
124
1
327
204
6
– gain on the partial sale of shareholding in Industrial Bank —
(1,372)—
—
—
(1,372)—
(1,372)
– own credit spread24(771)(3)(9)(219)—
(1,002)(731)(4)
– portfolio disposals —
—
—
214
—
214
—
—
– provisions arising from the ongoing review of compliance with the UK Consumer Credit Act 10
—
—
—
—
10
10
—
– trading results from disposed-of operations in Brazil —
—
—
—
(3,327)(3,327)—
—
Adjusted3218,203
23,567
2,987
7,695
2,315
51,419
13,321
14,213
LICs 















Reported (519)(693)(470)(544)(1,495)(3,721)(248)(155)
Currency translation 36
6
19
3
120
184
39
—
Significant items —
—
—
—
933
933
—
—
– trading results from disposed-of operations in Brazil —
—
—
—
933
933
—
—
Adjusted (483)(687)(451)(541)(442)(2,604)(209)(155)
Operating expenses 















Reported32(19,274)(10,889)(1,721)(6,501)(4,786)(39,768)(15,555)(5,686)
Currency translation321,287
177
83
32
567
2,091
1,253
7
Significant items 2,405
130
15
851
2,546
5,947
2,151
49
– costs to achieve 600
122
14
103
69
908
536
43
– costs to establish UK ring-fenced bank 89
—
—
—
—
89
89
—
– regulatory provisions in GPB 172
—
—
—
—
172
—
—
– restructuring and other related costs 68
8
1
34
6
117
50
6
– settlements and provisions in connection with legal matters 935
—
—
714
—
1,649
935
—
– UK customer redress programmes 541
—
—
—
—
541
541
—
– trading results from disposed-of operations in Brazil —
—
—
—
2,471
2,471
—
—
Adjusted32(15,582)(10,582)(1,623)(5,618)(1,673)(31,730)(12,151)(5,630)
Share of profit in associates and joint ventures 















Reported 9
2,042
504
2
(1)2,556
10
31
Currency translation —
(113)—
(1)—
(114)(1)—
Significant items —
—
—
—
1
1
—
—
– trading results from disposed-of operations in Brazil —
—
—
—
1
1
—
—
Adjusted 9
1,929
504
1
—
2,443
9
31
Profit/(loss) before tax 















Reported 688
15,763
1,492
614
310
18,867
(300)9,806
Currency translation (290)(235)(80)(26)(209)(840)(286)(13)
Significant items 1,749
(1,301)5
949
99
1,501
1,556
(1,334)
– revenue (656)(1,431)(10)98
(3,381)(5,380)(595)(1,383)
– LICs —
—
—
—
933
933
—
—
– operating expenses 2,405
130
15
851
2,546
5,947
2,151
49
– share of profit in associates and joint ventures —
—
—
—
1
1
—
—
Adjusted 2,147
14,227
1,417
1,537
200
19,528
970
8,459

HSBC Holdings plc Annual Report and Accounts 2016
73

Report of the Directors | Geographical regions

Reconciliation of reported and adjusted items (continued)


2014


Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong
Kong

Footnotes$m
$m
$m
$m
$m
$m
$m
$m
Revenue22















Reported3220,804
23,677
3,339
8,152
8,272
61,248
15,727
13,844
Currency translation32(3,404)(964)(367)(311)(2,703)(7,612)(2,574)(17)
Significant items 708
(48)(3)116
(3,280)(2,507)353
(119)
– DVA on derivative contracts 234
69
5
16
8
332
203
26
– fair value movements on non-qualifying hedges23235
4
—
302
—
541
(8)11
– gain on sale of shareholding in Bank of Shanghai —
(428)—
—
—
(428)—
(428)
– impairment of our investment in Industrial Bank —
271
—
—
—
271
—
271
– own credit spread24(393)4
6
(34)—
(417)(474)1
– portfolio disposals —
—
—
(168)—
(168)—
—
– provisions arising from the ongoing review of compliance with the UK Consumer Credit Act 632
—
—
—
—
632
632
—
– (gain)/loss and trading results from
disposals and changes in ownership levels		 —
32
(14)—
(3,288)(3,270)—
—
Adjusted3218,108
22,665
2,969
7,957
2,289
51,129
13,506
13,708
LICs 















Reported (518)(647)(240)(322)(2,124)(3,851)(214)(320)
Currency translation 137
38
71
16
656
918
81
1
Significant items —
—
(2)—
1,034
1,032
—
—
– trading results from disposals and
changes in ownership levels		 —
—
(2)—
1,034
1,032
—
—
Adjusted (381)(609)(171)(306)(434)(1,901)(133)(319)
Operating expenses 















Reported32(19,633)(10,427)(1,824)(6,429)(5,932)(41,249)(15,576)(5,424)
Currency translation322,797
509
212
158
1,894
5,433
2,165
6
Significant items 2,600
58
34
578
2,486
5,756
2,553
56
– charge in relation to the settlement agreement with the Federal Housing Finance Authority —
—
—
550
—
550
—
—
– regulatory provisions in GPB 16
49
—
—
—
65
—
49
– restructuring and other related costs 122
9
3
28
116
278
91
7
– settlements and provisions in connection with legal matters 1,187
—
—
—
—
1,187
1,187
—
– UK customer redress programmes 1,275
—
—
—
—
1,275
1,275
—
– trading results from disposals and changes in ownership levels —
—
31
—
2,370
2,401
—
—
Adjusted32(14,236)(9,860)(1,578)(5,693)(1,552)(30,060)(10,858)(5,362)
Share of profit in associates and joint ventures 















Reported 6
2,022
488
16
—
2,532
7
42
Currency translation (1)(147)—
(2)—
(150)(1)1
Significant items —
—
—
—
—
—
—
—
– trading results from disposals and changes in ownership levels —
—
—
—
—
—
—
—
Adjusted 5
1,875
488
14
—
2,382
6
43
Profit/(loss) before tax 















Reported 659
14,625
1,763
1,417
216
18,680
(56)8,142
Currency translation (471)(564)(84)(139)(153)(1,411)(329)(9)
Significant items 3,308
10
29
694
240
4,281
2,906
(63)
– revenue 708
(48)(3)116
(3,280)(2,507)353
(119)
– LICs —
—
(2)—
1,034
1,032
—
—
– operating expenses 2,600
58
34
578
2,486
5,756
2,553
56
– share of profit in associates and joint ventures —
—
—
—
—
—
—
—
Adjusted 3,496
14,071
1,708
1,972
303
21,550
2,521
8,070
For footnotes, see page 79.


74
HSBC Holdings plc Annual Report and Accounts 2016

Analysis of reported results by country
Profit/(loss) before tax by priority markets within global businessesProfit/(loss) before tax by priority markets within global businessesProfit/(loss) before tax by priority markets within global businesses 
 Retail Banking
and Wealth
Management
Commercial
Banking
Global
Banking
and Markets
Global
Private
Banking
Corporate
Centre



Total
 Retail Banking
and Wealth
Management
Commercial
Banking
Global
Banking
and Markets
Global
Private
Banking
Corporate
Centre


Total
Footnotes$m
$m
$m
$m
$m
$m
Footnotes$m
$m
$m
$m
$m
$m
Europe 524
2,129
1,009
(3,695)(6,741)(6,774) (159)1,899
777
(231)(4,150)(1,864)
– UK 338
1,834
385
86
(6,556)(3,913) (177)1,539
192
(23)(4,149)(2,618)
– of which: HSBC Holdings
36, 41(676)(379)(425)(63)(3,748)(5,291)
of which: HSBC Holdings41(658)(372)(739)(89)(3,308)(5,166)
– France 147
198
289
9
(53)590
 (12)204
228
5
(156)269
– Germany 23
68
142
7
13
253
 21
61
141
9
39
271
– Switzerland —
9
—
(493)(7)(491) (2)7
1
(192)2
(184)
– other 16
20
193
(3,304)(138)(3,213) 11
88
215
(30)114
398
Asia 4,115
2,920
3,211
268
3,265
13,779
 5,372
3,394
3,135
285
3,143
15,329
– Hong Kong 3,796
2,191
1,298
221
563
8,069
 5,039
2,460
1,357
257
485
9,598
– Australia 108
74
156
—
31
369
 122
101
108
(1)35
365
– India 15
123
355
10
240
743
 21
159
362
—
374
916
– Indonesia (9)66
110
—
11
178
 (24)76
98
—
30
180
– Mainland China (72)68
456
(3)2,158
2,607
– mainland China (44)161
387
(4)1,988
2,488
– Malaysia 65
65
172
—
53
355
 85
50
162
—
28
325
– Singapore 107
43
170
42
77
439
 69
94
202
34
64
463
– Taiwan 24
10
102
(1)13
148
 43
10
107
(1)40
199
– other 81
280
392
(1)119
871
 61
283
352
—
99
795
Middle East and North Africa 20
290
652
—
541
1,503
 144
199
593
—
565
1,501
– Egypt 58
104
213
—
79
454
 26
69
164
—
46
305
– UAE 83
94
298
—
5
480
 110
53
268
—
48
479
– Saudi Arabia 1
—
—
—
434
435
 —
—
—
—
441
441
– other (122)92
141
—
23
134
 8
77
161
—
30
276
North America 64
648
259
90
(876)185
 305
932
671
67
(374)1,601
– US (28)336
86
67
(932)(471) 166
435
494
66
(444)717
– Canada 46
292
155
—
47
540
 61
453
132
—
43
689
– other 46
20
18
23
9
116
 78
44
45
1
27
195
Latin America (136)59
309
9
(1,822)(1,581) 161
199
259
—
(19)600
– Mexico 94
84
79
5
(15)247
 139
105
158
—
(12)390
– other (230)(25)230
4
(1,807)(1,828) 22
94
101
—
(7)210
– of which: Brazil
 (281)(139)176
4
(1,836)(2,076)
Year ended 31 Dec 2017 5,823
6,623
5,435
121
(835)17,167
  
Europe 524
2,129
1,009
(3,695)(6,741)(6,774)
– UK 338
1,834
385
86
(6,556)(3,913)
of which: HSBC Holdings41, 42(676)(379)(425)(63)(3,748)(5,291)
– France 147
198
289
9
(53)590
– Germany 23
68
142
7
13
253
– Switzerland —
9
—
(493)(7)(491)
– other 16
20
193
(3,304)(138)(3,213)
Asia 4,115
2,920
3,211
268
3,265
13,779
– Hong Kong 3,796
2,191
1,298
221
563
8,069
– Australia 108
74
156
—
31
369
– India 15
123
355
10
240
743
– Indonesia (9)66
110
—
11
178
– mainland China (72)68
456
(3)2,158
2,607
– Malaysia 65
65
172
—
53
355
– Singapore 107
43
170
42
77
439
– Taiwan 24
10
102
(1)13
148
– other 81
280
392
(1)119
871
Middle East and North Africa 20
290
652
—
541
1,503
– Egypt 58
104
213
—
79
454
– UAE 83
94
298
—
5
480
– Saudi Arabia 1
—
—
—
434
435
– other (122)92
141
—
23
134
North America 64
648
259
90
(876)185
– US (28)336
86
67
(932)(471)
– Canada 46
292
155
—
47
540
– other 46
20
18
23
9
116
Latin America (136)59
309
9
(1,822)(1,581)
– Mexico 94
84
79
5
(15)247
– other (230)(25)230
4
(1,807)(1,828)
of which: Brazil (281)(139)176
4
(1,836)(2,076)
Year ended 31 Dec 2016 4,587
6,046
5,440
(3,328)(5,633)7,112
 4,587
6,046
5,440
(3,328)(5,633)7,112

HSBC Holdings plc Annual Report and Accounts 2016
7581

Report of the Directors | Geographical regions / Other informationFinancial summary

Profit/(loss) before tax by priority markets within global businesses (continued)Profit/(loss) before tax by priority markets within global businesses (continued)Profit/(loss) before tax by priority markets within global businesses (continued) 
 Retail Banking
and Wealth
Management
Commercial
Banking
Global
Banking
and Markets
Global Private Banking
Corporate
Centre
Total
 Retail Banking
and Wealth
Management
Commercial
Banking
Global
Banking
and Markets
Global Private Banking
Corporate
Centre

Total
 $m
$m
$m
$m
$m
$m
Footnotes$m
$m
$m
$m
$m
$m
Europe 914
1,953
122
(93)(2,208)688
 914
1,953
122
(93)(2,208)688
– UK 560
1,722
(361)126
(2,347)(300) 560
1,722
(361)126
(2,347)(300)
– of which: HSBC Holdings
36, 41(530)(399)(274)(91)(2,892)(4,186)
of which: HSBC Holdings41, 42(530)(399)(274)(91)(2,892)(4,186)
– France 357
130
84
14
54
639
 357
130
84
14
54
639
– Germany 23
66
137
20
(7)239
 23
66
137
20
(7)239
– Switzerland —
8
—
(267)43
(216) —
8
—
(267)43
(216)
– other (26)27
262
14
49
326
 (26)27
262
14
49
326
Asia 4,154
2,843
3,653
252
4,861
15,763
 4,154
2,843
3,653
252
4,861
15,763
– Hong Kong 3,811
2,317
1,629
177
1,872
9,806
 3,811
2,317
1,629
177
1,872
9,806
– Australia 60
51
232
—
30
373
 60
51
232
—
30
373
– India (25)79
321
14
217
606
 (25)79
321
14
217
606
– Indonesia (6)(128)76
—
51
(7) (6)(128)76
—
51
(7)
– Mainland China 32
97
574
(3)2,360
3,060
– mainland China 32
97
574
(3)2,360
3,060
– Malaysia 118
78
196
—
50
442
 118
78
196
—
50
442
– Singapore 105
81
193
65
63
507
 105
81
193
65
63
507
– Taiwan 10
17
113
—
15
155
 10
17
113
—
15
155
– other 49
251
319
(1)203
821
 49
251
319
(1)203
821
Middle East and North Africa   (1)188
610
2
693
1,492
– Egypt 50
92
179
—
89
410
 50
92
179
—
89
410
– UAE 85
(24)270
—
36
367
 85
(24)270
—
36
367
– Saudi Arabia 2
—
—
—
498
500
 2
—
—
—
498
500
– other (138)120
161
2
70
215
 (138)120
161
2
70
215
North America (23)445
444
59
(311)614
 (23)445
444
59
(311)614
– US (112)194
319
64
(424)41
 (112)194
319
64
(424)41
– Canada 57
240
101
—
87
485
 57
240
101
—
87
485
– other 32
11
24
(5)26
88
 32
11
24
(5)26
88
Latin America (245)156
329
3
67
310
 (245)156
329
3
67
310
– Mexico 70
(8)(70)(2)42
32
 70
(8)(70)(2)42
32
– other (315)164
399
5
25
278
 (315)164
399
5
25
278
– of which: Brazil
 (344)13
341
6
(11)5
 (344)13
341
6
(11)5
Year ended 31 Dec 2015 4,799
5,585
5,158
223
3,102
18,867
 4,799
5,585
5,158
223
3,102
18,867
  
Europe 352
2,238
(1,010)181
(1,102)659
– UK 283
1,917
(1,655)154
(755)(56)
– of which: HSBC Holdings
36, 41(335)(321)(206)(22)(1,965)(2,849)
– France 6
215
319
—
(326)214
– Germany 28
70
139
26
15
278
– Switzerland —
5
2
(46)81
42
– other 35
31
185
47
(117)181
Asia 4,239
3,123
3,102
212
3,949
14,625
– Hong Kong 3,727
2,217
1,163
145
890
8,142
– Australia 78
99
222
—
33
432
– India 4
101
378
11
206
700
– Indonesia 10
42
101
—
45
198
– Mainland China 31
86
449
(3)2,388
2,951
– Malaysia 155
108
165
—
68
496
– Singapore 162
120
181
57
69
589
– Taiwan 18
29
130
—
44
221
– other 54
321
313
2
206
896
Middle East and North Africa 84
379
695
—
605
1,763
– Egypt 64
84
136
—
51
335
– UAE 162
158
363
—
(21)662
– Saudi Arabia 1
—
—
—
485
486
– other (143)137
196
—
90
280
North America 19
799
388
87
124
1,417
– US (99)323
215
84
9
532
– Canada 95
479
140
—
115
829
– other 23
(3)33
3
—
56
Latin America (172)(8)239
(4)161
216
– Mexico 4
(27)11
(2)65
51
– other (176)19
228
(2)96
165
– of which: Brazil
 (230)(97)79
(2)3
(247)
Year ended 31 Dec 2014 4,522
6,531
3,414
476
3,737
18,680
For footnotes, see page 79.85.

7682
HSBC Holdings plc Annual Report and Accounts 2016

Other information 
 Page
Funds under management and assets held in custody7761
Taxes paid by region and country7783
Conduct-related matters7884
Carbon dioxide emissions7884
Disclosure controls78
Management’s assessment of internal controls over financial reporting79
Funds under management and assets held
in custody
Funds under management
 2016
2015
 2017
2016
Footnote$bn
$bn
Footnote$bn
$bn
Funds under management44  43  
At 1 Jan 896
954
 831
896
Net new money (8)(3) 2
(8)
Value change 25
2
 77
25
Exchange and other (40)(57) 33
(40)
Disposals (42)–
 0
(42)
At 31 Dec 831
896
 943
831
Funds under management by business      
Global Asset Management 410
419
 462
410
Global Private Banking 222
261
 258
222
Affiliates 2
4
 4
2
Other 197
212
 219
197
At 31 Dec 831
896
 943
831
For footnote, see page 79.85.
Funds under management (‘FuM’) represents assets managed, either actively or passively, on behalf of our customers. At 31 December 2016,2017, FuM amounted to $831bn, a decrease$943bn, an increase of 7%13% as a result of adverse foreign exchange movements and disposals, which included our sale of operations in Brazil, partly offset by favourable market performance.performance and favourable foreign currency movements.
Global Asset Management FuM decreasedincreased by 2%13% to $410bn$462bn compared with 31 December 2015.2016. Excluding foreign currency translation,movements, FuM increased by 3% 6% primarily as a result of positive market performance, with net new money from our retail and institutional customers mainly from fixed income and multi asset products in Asia into fixed income products beingand money market solutions in North America, partly offset by net outflows from our customers in Europe and the Americas.Europe.
GPB FuM decreasedincreased by 15%16% to $222bn$258bn compared with 31 December 2015.2016. Excluding currency translation, FuM decreasedincreased by 13%6%, reflecting the ongoing repositioning of our client base. This was partly offset bymarket performance and the positive net new money in areas targeted for growth, notably inmainly Hong Kong. This was partly offset by the UK, the Channel Islands and Hong Kong.ongoing repositioning of our client base.
Other FuM, of which the main element is a corporate trust business in Asia, decreasedincreased by 7%11% to $197bn.$219bn.
Assets held in custody4443 and under administration
Custody is the safekeeping and servicing of securities and other financial assets on behalf of clients. At 31 December 2016,2017, we held assets as custodian of $6.3tn, 1%$7.7tn, 24% higher than the $6.2tn$6.3tn held at 31 December 2015.2016. The increase was mainly driven by net asset inflows and favourable foreign exchange movements in Asia and Europe, together with the onboarding of new clients in EuropeNorth America and Asia. This was partly offset by adverse foreign exchange movements in the UK.
Our Assets Under Administration business, which includes the provision of bond and loan administration services and the valuation of portfolios of securities and other financial assets on behalf of clients, complements the Custody business. At 31 December 2016,2017, the value of assets held under administration by the Group amounted to $2.9tn.$3.6tn. This was 7% lower19% higher than the $3.1tn$3.0tn held at 31 December 2015.2016. The decrease primarily reflectedincrease was mainly driven
by net asset outflowsinflows in the Corporate TrustEurope and Loan Agency business in North America,Asia together with adversefavourable foreign exchange movements in the UK.Europe.

Taxes paid by region and country
The following tables reflect a geographical view of HSBC’s operations.
Taxes paid by HSBC relate to HSBC’s own tax liabilities including tax on profits earned, employer taxes, bank levy and other duties/levies such as stamp duty. Numbers are reported on a cash flow basis.
Taxes paid by country
 2016
2015
2014
 2017
2016
2015
Footnote$m
$m
$m
Footnote$m
$m
$m
Europe453,151
3,644
3,550
443,340
3,151
3,644
Home and priority markets
3,096
3,346
3,391
– UK
2,385
2,526
2,363
 2,654
2,385
2,526
of which: HSBC Holdings 1,078
1,253
1,348
– France
553
620
790
 530
553
620
– Germany
124
108
131
 140
124
108
– Switzerland
34
92
107
 (67)34
92
Other markets
55
298
159
– other 83
55
298
Asia 2,755
2,780
2,687
 2,277
2,755
2,780
Home and priority markets
2,470
2,458
2,418
– Hong Kong
1,488
1,415
1,273
 1,043
1,488
1,415
– Mainland China
241
277
278
– Australia 142
147
173
– mainland China 227
241
277
– India
315
285
290
 297
315
285
– Australia
147
173
204
– Indonesia 84
46
70
– Malaysia
99
92
133
 81
99
92
– Indonesia
46
70
76
– Singapore
85
80
101
 64
85
80
– Taiwan
35
53
44
 42
35
53
– Japan
14
13
19
Other markets
285
322
269
– other 297
299
335
Middle East and North Africa
293
449
369
 419
293
449
Priority markets
267
407
246
– Saudi Arabia
60
151
84
 170
60
151
– UAE
89
120
102
 101
89
120
– Egypt
97
136
60
 58
97
136
– Turkey
21
16
75
Other markets
26
26
48
– other 90
47
42
North America
276
353
(108) 317
276
353
Priority markets
276
353
(108)
– US
135
127
(377) 134
135
127
– Canada
141
226
269
 182
141
226
Other markets
—
—
—
– other 1
—
—
Latin America
965
1,184
1,384
 443
965
1,184
Priority markets
303
431
534
– Argentina
224
340
333
– Mexico
79
91
201
 129
79
91
Brazil
658
735
804
Other markets
4
18
46
Total
7,440
8,410
7,882
– other 314
886
1,093
of which: Brazil 36
658
735
Year ended 31 Dec 6,796
7,440
8,410
For footnote, see page 79.85.


HSBC Holdings plc Annual Report and Accounts 2016
7783

Report of the Directors | Other informationFinancial summary

Conduct-related matters
Conduct-related costs included in significant items
2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
Income statement    
Net interest income/(expense)2
(10)(632)(108)2
(10)
provisions arising from the ongoing review of compliance with the UK Consumer Credit Act2
(10)(632)
– customer redress programmes(108)2
(10)
Operating expenses    
Comprising:

 

 
Legal proceedings and regulatory matters1,025
1,821
1,802
(198)1,025
1,821
– charge in relation to the settlement agreement with the Federal Housing Finance Authority—
—
550
– regulatory provisions in GPB344
172
65
164
344
172
– settlements and provisions in connection with legal matters681
1,649
1,187
(362)681
1,649
Customer remediation559
541
1,275
Customer redress programmes655
559
541
Total operating expenses1,584
2,362
3,077
457
1,584
2,362
Total charge for the year relating to significant items1,582
2,372
3,709
565
1,582
2,372
– of which:    
total provisions charge
for the year
1,584
2,362
2,500
565
1,584
2,362
total provisions utilised during the year2,265
1,021
2,503
1,136
2,265
1,021
Balance sheet at 31 Dec    
Total provisions3,056
3,926
2,545
2,595
3,056
3,926
– legal proceedings and regulatory matters2,060
2,729
1,154
1,248
2,060
2,729
– customer remediation996
1,197
1,391
– customer redress programmes1,347
996
1,197
Accruals, deferred income and other liabilities106
168
379
20
106
168
The table above provides a summary of conduct-related costs incurred and included within significant items (see pages 3335 and 39)42).
The HSBC approach to conduct is designed to ensure that through our actions and behaviours we deliver fair outcomes for our customers and do not disrupt the orderly and transparent operation of financial markets. The Board places a strong emphasis on conduct, requiring adherence to high behavioural standards and adhering to the HSBC Values. Board oversight of conduct matters is provided by the Conduct & Values Committee, which oversees the embedding of HSBC Values and our required global conduct outcomes, and the Remuneration Committee, which considers conduct and compliance-related matters relevant to remuneration. These committees’ reports may be found on pages 181176 to 183.178.
The management of business conduct and the steps taken to raise standards are described on page 114. ‘Regulatory focus on conduct of business and financial crime’ is one of the Group’s top and emerging risks and is discussed on page 91.117 under ‘Regulatory compliance risk management’.
Provisions relating to significant items raised for conduct costs in 20162017 resulted from the ongoing consequences of a small number of historical events.
Operating expenses included significant items related to conduct matters in respect of legal proceedings and regulatory matters of $1.0bn$(0.2)bn and customer remediation costs of $0.7bn. This included the release of provisions recognised in respectprior years in relation to the regulatory investigations into HSBC’s historical foreign exchange activities giving rise to a civil money penalty order in September 2017 with the Federal Reserve Board, and the three-year deferred prosecution agreement with the US Department of the mis-selling ofJustice in January 2018. For further details on payment protection insurance of $0.5bn. These are discussed in Note 27 and Note 35 oflegal proceedings and regulatory matters, see Notes 26 and 34 on the Financial Statements.Statements, respectively.

Carbon dioxide emissions
ToWe report our carbon emissions we usewith reference to the revised edition ofGHG Protocol including the Greenhouse Gas Protocol’s A Corporate Accounting and Reporting Standard guideline for disclosure that incorporates theamendments to Scope 2 Guidance which incorporate market-based emission methodology.
We report carbon dioxide emissions resulting from energy use in our buildings and employees’ business travel.
For 29In 2017, we collected data on energy use and business travel for our operations in 28 countries, where we operated in 2016, which accounted for approximately 92%93% of our full-time employees (‘FTEs’), we collect data on energy use and business travel. For. To estimate the otheremissions of our operations in countries where we have financialoperational control
and a small presence, we estimatescale up the emissions by scaling updata from 92%93% to 100% of FTEs..
We then apply emission uplift rates to reflect uncertainty concerning the quality and coverage of emission measurement and estimation. The rates are 4% for electricity, 10% for other energy and 6% for business travel. This is consistent both with the Intergovernmental Panel on Climate Change’s Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventoriesand our internal analysis of data coverage and quality.
Figures for 2016 and the previous year are in the following tables.
Carbon dioxide emissions in tonnes
 2017
2016
Total580,000
617,000
From energy473,000
529,000
From travel107,000
88,000
Carbon dioxide emissions in tonnes
Footnote2016
2015
Carbon dioxide emissions in tonnes per FTECarbon dioxide emissions in tonnes per FTE
46  2017
2016
Total 617,000
771,000
2.49
2.63
From energy 529,000
662,000
2.03
2.25
From travel 88,000
109,000
0.46
0.38
Carbon dioxide emissions in tonnes per FTE
 Footnote2016
2015
Total462.63
2.97
From energy 2.25
2.54
From travel 0.38
0.42
For footnote, see page 79.
The reduction in our carbon emissions continues to be driven by energy efficiency initiatives, as well as our procurement of electricity from renewable sources under Power Purchase Agreements. Travel emissions increased after a record low in 2016.
Our greenhouse gas reporting year runs from October to September. For the year from 1 October 20152016 to 30 September 2016,2017, carbon dioxide emissions from our global operations were 617,000580,000 tonnes. Independent assurance of our carbon dioxide emissions will be available in the first half of 20172018 on our website.

84HSBC Holdings plc

Disclosure controls
The Group Chief Executive and Group Finance Director, with the assistance of other members of management, carried out an evaluation of the effectiveness of the design and operation of HSBC Holdings’ disclosure controls and procedures as at 31 December 2016.2017. Based upon that evaluation, the Group Chief Executive and Group Finance Director concluded that ourthe disclosure controls and procedures at 31 December 20162017 were effective to provide reasonable assurance that information required to be disclosed in the reports that the company files and submits under the US Securities Exchange Act of 1934, as amended, is recorded, processed, summarised and reported as and when required. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.


78
HSBC Holdings plc Annual Report and Accounts 2016

Report of the Directors | Other information

In 2015, deficiencies in the design and operational effectiveness of a number of controls associated with IT privileged access were identified. Significant improvement in the control environment has been observed as a result of management’s progress on the execution of the IT privileged access remediation programme. Management has assessed the effectiveness of relevant IT, business, monitoring and period-end mitigating controls for 2016. Please see ‘Internal controls’ on page 183.
There have been no changes in HSBC Holdings’ internal control over financial reporting during the year ended 31 December 2016,2017 that have materially affected, or are reasonably likely to materially affect, HSBC Holdings’ internal control over financial reporting.
Management’s assessment of internal
controls over financial reporting
Management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting, and has completed an assessment of the effectiveness of the Group’s internal controls over financial reporting for the year ended 31 December 2016.2017. In making the assessment, management used the framework for internal control evaluation contained in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (September 2014), as well as the criteria established by the Committee of Sponsoring Organisations of the Treadway Commission (‘COSO’) in ‘Internal Control-Integrated Framework (2013)’.
Based on the assessment performed, management concluded that for the year ended 31 December 2016,2017, the Group’s internal controls over financial reporting were effective.
PricewaterhouseCoopers LLP, which has audited the consolidated financial statements of the Group for the year ended 31 December 2016,2017, has also audited the effectiveness of the Group’s internal control over financial reporting under Auditing Standard No. 5 of the Public Company Accounting Oversight Board (United States) as stated in their report on pages 212 and 212.page 210.

Footnotes to strategic report, financial
summary, global businesses, geographical
regions and other information
1Achieved Mexico profit before tax target on a local currency basis; US dollar target set using the 2014 average exchange rate.
2Further detail on the Monitor can be found on page 118.
3
informationNet operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.

Consolidated income statement/
Group performance by income4
‘Other personal lending’ includes personal non-residential closed-end loans and expense itempersonal overdrafts.
15‘Investment distribution’ includes Investments, which comprises mutual funds (HSBC manufactured and third party), structured products and securities trading, and Wealth Insurance distribution, consisting of HSBC manufactured and third-party life, pension and investment insurance products.
6‘Other’ mainly includes the distribution and manufacturing (where applicable) of retail and credit protection insurance.
7Adjusted return on average risk-weighted assets (‘RoRWA’) is used to measure the performance of RBWM, CMB, GB&M and GPB. Adjusted RoRWA is calculated using profit before tax and reported average risk-weighted assets at constant currency adjusted for the effects of significant items.
8‘Markets products, Insurance and Investments and Other’ includes revenue from Foreign Exchange, insurance manufacturing and distribution, interest rate management and global banking products.
9In 2017, credit and funding valuation adjustments included an adverse fair value movement of $546m on the tightening of own credit spreads on structured liabilities (2016: adverse fair value movement of $125m; 2015: favourable fair value movement of $163m).
10‘Other’ in GB&M includes net interest earned on free capital held in the global business not assigned to products, allocated funding costs and gains resulting from business disposals. Within the management view of adjusted revenue, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities which is not reflected within operating income; for example, notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offsets to these tax credits are included within ‘Other’.
11Central Treasury includes revenue relating to BSM of $2,688m (2016: $3,007m; 2015: $2,805m), interest expense of $1,275m (2016: $967m; 2015: $696m) and favourable valuation differences on issued long-term debt and associated swaps of $122m (2016: loss of $271m; 2015: loss of $63m). Revenue relating to BSM includes other internal allocations, including notional tax credits to reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offsets to these tax credits are included in other Central Treasury.
12Other miscellaneous items in Corporate Centre includes internal allocations relating to Legacy Credit.
13Dividends recorded in the financial statements are dividends per ordinary share declared in a year and are not dividends in respect of, or for, that year.
214Dividends per ordinary share expressed as a percentage of basic earnings per share.
315Return on average risk-weighted assets (‘RoRWA’) is calculated using pre-tax returnprofit before tax and reported average RWAs.risk-weighted assets.
4Net interest income includes the cost of internally funding trading assets, while the related external revenues are reported in ‘Trading income’. In our global business results, the cost of funding trading assets is included with Global Banking and Market’s net trading income as interest expense.
516Gross interest yield is the average annualised interest rate earned on average interest-earning assets (‘AIEA’).
617Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the average annualised interest rate paidpayable on average interest-bearing funds.
718Net interest margin is net interest income expressed as an annualised percentage of AIEA.
819Interest income on trading assets is reported as ‘Net trading income’ in the consolidated income statement.
920Interest income on financial assets designated at fair value is reported as ‘Net income/(expense) from financial instruments designated at fair value’ in the consolidated income statement.
1021Including interest-bearing bank deposits only.
1122Interest expense on financial liabilities designated at fair value is reported as ‘Net income on financial instruments designated at fair value’ in the consolidated income statement, other than interest on own debt, which is reported in ‘Interest expense’.
1223Including interest-bearing customer accounts only.
1324Trading income also includes movements on non-qualifying hedges. These hedges are derivatives entered into as part of a documented interest rate management strategy for which hedge accounting was not, nor could be, applied. They are principally cross-currency and interest rate swaps used to economically hedge fixed rate debt issued by HSBC Holdings and floating rate debt issued by HSBC Finance. The size and direction of the changes in the fair value of non-qualifying hedges that are recognised in the income statement can be volatile from year-to-year, but do not alter the cash flows expected as part of the documented interest rate management strategy for both the instruments and the underlying economically hedged assets and liabilities if the derivative is held to maturity.
1425Net insurance claims and benefits paid and movement in liabilities
‘Own credit spread’ includes the fair value movements on our long-term debt attributable to policyholders arise from both life and non-life insurance business. For non-life business, amounts reported representcredit spread where the costnet result of claims paid during the year and the estimated cost of incurred claims. For life business, the main element of claims is the liability to policyholders created on the initial underwritingsuch movements will be zero upon maturity of the policydebt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities. From 1 January 2017, HSBC adopted, in its consolidated financial statements, the requirements of IFRS 9 ‘Financial Instruments’ relating to the presentation of gains and any subsequent movementlosses on financial liabilities designated at fair value. As a result, changes in fair value attributable to changes in own credit risk are presented in other comprehensive income with the liability that arises, primarily fromremainder of the attribution of investment performance to savings-related policies. Consequently, claims riseeffect presented in line with increases in sales of savings-related businessprofit and with investment market growth.loss.








Consolidated balance sheet
1526Net of impairment allowances.
1627On 1 January 2014, CRD IV came into force and the calculation of capital resources and RWAs for 2014 to 20162017 are calculated and presented on this basis. 2012 and 2013 comparatives arecomparative is on a Basel 2.5 basis.
1728Capital resources are regulatory capital, the calculation of which is set out on page 165.162.
1829Including perpetual preferred securities, details of which can be found in Note 2827 on the Financial Statements.
1930The definition of net asset value per ordinary share is total shareholders’ equity, less non-cumulative preference shares and capital securities, divided by the number of ordinary shares in issue excluding shares the company has purchased and are held in treasury.

20
HSBC Holdings plc85

Report of the Directors | Financial summary

31
Net trading income includes interest expense relating to the internal funding of trading assets, in GB&M. In the statutory presentation, internal funding in GB&M net trading income is eliminated through Corporate Centre, and in our other global businesses it is eliminated within net interest income.


32Excludes items where there are substantial offsets in the income statement for the same year.
33‘Other income’ in this context comprises where applicable net income/expense from other financial instruments designated at fair value, gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.
34Adjusted risk-weighted assets are calculated using reported risk-weighted assets adjusted for the effects of currency translation differences and significant items.
35
‘Client assets’ are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets were funds under management ($258bn at 31 December 2017) which were not reported on the Group’s balance sheet, and customer deposits ($72bn at 31 December 2017), of which $67bn was reported on the Group’s balance sheet and $5bn were off-balance sheet deposits.

36
Client assets related to our Middle East clients are booked across to various other regions, primarily in Europe.

37
Risk-weighted assets are non-additive across geographical regions due to market risk diversification effects within the Group.

38In the first half of 2015 our operations in Brazil were classified as held for sale. As a result, balance sheet accounts were classified as ‘Assets held for sale’ and ‘Liabilities of disposal groups held for sale’. There was no separate income statement classification. The sale completed on 1 July 2016.
Global businesses and geographical regions
2139
Net interest income includes the cost of internally funding trading assets, while the related revenues are reported in net trading income. In our global business results, the total cost of funding trading assets is included within Corporate Centre net trading income as an interest expense. In the statutory presentation, internal interest income and expense are eliminated.

22
Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.

23Excludes items where there are substantial offsets in the income statement for the same year.
24
‘Own credit spread’ includes the fair value movements on our long-term debt attributable to credit spread where the net result of such movements will be zero upon maturity of the debt. This does not include fair value changes due to own credit risk in respect of trading liabilities or derivative liabilities.

25‘Investment distribution’ includes Investments, which comprises mutual funds (HSBC manufactured and third party), structured products and securities trading, and Wealth Insurance distribution, consisting of HSBC manufactured and third-party life, pension and investment insurance products.
26‘Other personal lending’ includes personal non-residential closed-end loans and personal overdrafts.
27‘Other’ mainly includes the distribution and manufacturing (where applicable) of retail and credit protection insurance.
28In 2016, credit and funding valuation adjustments included an adverse fair value movement of $110m on the widening of own credit spreads on structured liabilities (2015: favourable fair value movement of $179m; 2014: favourable fair value movement of $12m).
29‘Other’ in GB&M includes net interest earned on free capital held in the global business not assigned to products, allocated funding costs and gains resulting from business disposals. Within the management view of total operating income, notional tax credits are allocated to the businesses to reflect the economic benefit generated by certain activities which is not reflected within operating income; for example, notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits are included within ‘Other’.
30‘Markets products, Insurance and Investments and Other’ includes revenue from Foreign Exchange, insurance manufacturing and distribution, interest rate management and GCF products.
31
‘Client assets’ are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported separately. The main components of client assets were funds under management ($222bn at 31 December 2016) which were not reported on the Group’s balance sheet, and customer deposits ($76bn at 31 December 2016), of which $70bn was reported on the Group’s balance sheet and $6bn were off-balance sheet deposits.

32
Amounts are non-additive across geographical regions due to inter-company transactions within the Group.

3340
Risk-weighted assetsEurope’s adjusted 2017 profit of $1.0bn includes a number of items incurred centrally on behalf of the Group as a whole, but which are non-additive across geographical regions due to market risk diversification effects withindisclosed in the Group.

Europe segment, including consolidation adjustments and Holdings costs such as interest costs on Group debt and the UK bank levy.
3441Other income in this context comprises where applicable net income/expense from other financial instruments designated at fair value, gains less losses from financial investments,Excludes intra-Group dividend income, net insurance premium income and other operating income less net insurance claims and benefits paid and movement in liabilities to policyholders.income.
35422015 and 2014 figures are restated for the changes explained on page 59.


HSBC Holdings plc Annual Report and Accounts 2016
79

Report of the Directors | Other information

36
For the purposes of the analysis of reported results by country table, HSBC Holdings profit/(loss) is presented excluding the effect of the early adoption of the requirements of IFRS 9 ‘Financial Instruments’ relating to the presentation of gains and losses on financial liabilities designated at fair value’, which was early adopted in the separate financial statements of HSBC Holdings but not in the consolidated financial statements of HSBC.

37Adjusted RWAs are calculated using reported RWAs adjusted for the effects of currency translation differences and significant items.
38Adjusted RoRWA is calculated using adjusted profit before tax and adjusted average risk-weighted assets.
39Includes Head Office costs attributable to Global Business operations.
40
Client assets related to our Middle East clients are booked across to various other regions, primarily in Europe.

41Excludes intra-Group dividend income.
42Central Treasury includes revenue relating to BSM of $3,060m (2015: $2,885m; 2014:$2,794m ), interest expense of $948m (2015: $710m; 2014: $484m) and adverse valuation differences on issued long-term debt and associated swaps of $278m (2015: loss of $64m; 2014: gain of $33m). Revenue relating to BSM includes other internal allocations, including notional tax credits to reflect the economic benefit generated by certain activities which is not reflected within operating income, for example notional credits on income earned from tax-exempt investments where the economic benefit of the activity is reflected in tax expense. In order to reflect the total operating income on an IFRS basis, the offset to these tax credits are included in other Central Treasury.
43Other miscellaneous items in Corporate Centre includes internal allocations relating to Legacy Credit.
Other information
44
Funds under management and assets held in custody are not reported on the Group’s balance sheet, except where it is deemed that we are acting as principal rather than agent in our role as investment manager, and these assets are consolidated as Structured entities (see Note 19 on the Financial Statements).

4544
Taxes paid by HSBC relate to HSBC’s own tax liabilities, including tax on profits earned, employer taxes, the UK bank levy and other duties/levies such as stamp duty. Numbers are reported on a cash flow basis.

46In the Annual Report and Accounts 2015, we applied our own internal methodology which did not contain the Greenhouse Gas Protocol’s Scope 2 quality criteria verification and the residual mix factors which are recommended in the Scope 2 market-based methodology.

Average balance sheet
4744a
This includes interest-bearing bank deposits only. See page 5224 for an analysis of all bank depositsdeposits.
4844bInterest expense on financial liabilities designated at fair value is reported as ‘Net income on financial instruments designated at fair value’ in the consolidated income statement, other than interest on own debt, which is reported in ‘Interest Expense’.
4944c
This includes interest-bearing customer accounts only. See page 5625 for an analysis of all customer accounts.
5044dNet interest margin is calculated as net interest income divided by average interest earninginterest-earning assets.




8086
HSBC Holdings plc Annual Report and Accounts 2016

Report of the Directors | Other information

Regulation and supervision
With listingsThe ordinary shares of its ordinary sharesHSBC Holdings are listed in London, Hong Kong, New York, Paris and Bermuda,Bermuda. As a result of the listing in London HSBC Holdings complies with the relevant requirements for listing and trading on each of these exchanges. In the UK, these areis subject to the Listing Rules of the Financial Conduct Authority (‘FCA’) in its role as the UK Listing Authority; as a result of the listing in Hong Kong, HSBC Holdings is subject to The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (‘HKSE’); in the US, where the shares are traded in the form of ADS, HSBC Holdings’ shares are registered with the US Securities and Exchange Commission (‘SEC’). As a consequence of its US listing, HSBC Holdings is also subject to the reporting and other requirements of the US Securities Act of 1933, as amended; the Securities Exchange Act of 1934, as amended; and the New York Stock Exchange’s (‘NYSE’) Listed Company Manual, in each case as applied to foreign private issuers. In France and Bermuda, HSBC Holdings is subject to the listing rules of Euronext, Paris and the Bermuda Stock Exchange, respectively, applicable to companies with secondary listings.
A statement of our compliance with the provisions of the UK Corporate Governance Code issued by the Financial Reporting Council and with the Hong Kong Corporate Governance Code set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited can be found in the ‘Report of the Directors: Corporate Governance Codes’ on page 170.185.
Our operations throughout the world are regulated and supervised globally by approximately 400 different regulatory authorities, central banks and other regulatory authoritiesbodies in those jurisdictions in which we have offices, branches or subsidiaries. These authorities impose a variety of requirements and controls designed to provide financial stability, transparency in financial markets and a contribution to economic growth. The regulationsRequirements to which our operations must adhere include those relating to capital requirements,and liquidity, disclosure standards and restrictions

on certain types of products or transaction structures, requirements on recovery and resolutions, market liquidity,resolution, governance standards and those relating to conduct of business and financial crime.
The Prudential Regulation Authority (‘PRA’) is the HSBC Group’s consolidated lead regulator. The other UK regulator, the FCA, supervises 1116 HSBC-regulated entities in the UK, including sixeight where the PRA is responsible for prudential supervision. The FCA also supervises the Group globally in relation to financial crime matters. Additionally, both the PRA and FCA have certain limited direct supervisory powers over our unregulated qualifying parent company, HSBC Holdings, including (in the FCA’s case) pursuant to the FCA Direction in connectionagreements entered into with HSBC Holdings and HSBC North America Holdings, Inc. having entered into agreements as part of a global settlement with a number of US authorities in relation to the Group’s failure to comply with anti-money laundering (‘AML’) rules, US sanctions requirements and related matters.matters (‘the FCA Requirements Notice’). In addition, each operating bank, finance company or insurance operation within HSBC is regulated by local supervisors.
The Group’s primary regulatory authorities are those in the UK, Hong Kong and the US, our principal jurisdictions of operation. However, and in addition, with the implementation of the EU’s Single Supervisory Mechanism (‘SSM’) in 2014, the European Central Bank (‘ECB’) assumed direct supervisory responsibility for HSBC France and HSBC Malta as ‘significant supervised entities’ within the eurozone for the purposes of the EU’s SSM Regulation and HSBC Germany may also come under ECB supervision in the near future. Under the SSM, the ECB increasingly engages with the relevant ‘National Competent Authorities’ in relation to HSBC’s businesses in other eurozone countries and more widely with other HSBC regulators. It is therefore expected that we will continue to see changes in how the Group is regulated and supervised on a day-to-day basis in the eurozone and, more generally, as the ECB and other of our regulators develop their powers having regard to some of the regulatory initiatives highlighted in this report.report including the UK’s decision to exit the European Union.
UK regulation and supervision
The UK financial services regulatory structure is comprised of three regulatory bodies: the Financial Policy Committee (‘FPC’), a committee of the Bank of England (‘BoE’),; the PRA, a subsidiary of the BoE,BoE; and the FCA.
The FPC is responsible for macro-prudential supervision, focusing on systemic risk that may affect the UK’s financial stability. The BoE prudentially regulates and supervises financial services firms through the PRA and in addition to its wider role as the UK’s central bank, the BoE is also responsible for taking action to manage the failure of financial institutions in the UK if necessary.
The PRA and the FCA are micro-prudential supervisors. The Group’s banking subsidiaries, such as HSBC Bank plc (our principal authorised institution in the UK),and HSBC UK, are ‘dual-regulated’ firms, subject to prudential regulation by the PRA and to conduct regulation by the FCA. Other (generally smaller, non-bank) UK-based Group subsidiaries are ‘solo regulated’ by the FCA (i.e. the FCA is responsible for both prudential and conduct regulation of those subsidiaries). HSBC Group is subject to consolidated supervision by the PRA.
UK banking and financial services institutions are subject to multiple regulations. The primary UK statute in this context is the Financial Services and Markets Act 2000 (‘FSMA’), as amended by subsequent legislation. Other UK financial services legislation currently includes that derived from EU directives and regulations relating to banking, securities, insurance, investments and sales of personal financial services.
The PRA and FCA are together responsible for authorising and supervising all our operating businesses in the UK that require authorisation under FSMA. These include deposit-taking, retail banking, consumer credit, life and general insurance, pensions, investments, mortgages, custody and share-dealing businesses, and treasury and capital markets activity. The FCA is also responsible for promoting effective competition in the interests of consumers, and an independent subsidiary of the FCA, Thethe Payment Systems Regulator, regulates payment systems in the UK.
The PRA and FCA rules establish the minimum criteria for the authorisation of banks and other financial sector entities that carry out regulated activities. In the UK, the PRA and FCA have the right to object, on prudential grounds, to persons who hold, or intend to hold, 10% or more of the voting power or shares of a financial institution that it regulates,they regulate, or of its parent undertaking. In its capacity as our supervisor on a consolidated basis, the PRA receives information on the capital adequacy of, and sets requirements for, the Group as a whole, as well as conducting stress tests both on HSBC’s UK entities and more widely on the Group, including in conjunction with other regulators. Individual banking subsidiaries in the Group are directly regulated by their local banking supervisors, who set and monitor, inter alia, their capital adequacy requirements.
The Group is subject to capital requirements as set out in CRD IV and implemented by the PRA. The Pillar 1 regulatory capital framework has been, and continues to be, significantly enhanced. It is also envisaged that existing capital requirements will be complemented by a specification of total loss absorbing capacity (‘TLAC’)., in accordance with the final standards adopted by the Financial Stability Board which are to apply to G-SIBs from 1 January 2019. In the EU, the TLAC parallels Europeanrequirements will be introduced in the form of minimum requirements for entities in the EU to meet minimum requirements forown funds and eligible liabilities (although the latterrules are expectedstill to be revised for greater consistency with TLAC requirements)finalised), that can absorb losses in the event of a failure of a bank or be bailed in to provide additional capital resources.
The Group is also subject to liquidity requirements as set out in CRD IV and implemented by the PRA, and will in due course become subject to the quantitative leverage and net stable funding requirements prescribed under Basel III and expected to be implemented in or around 2019 through changes to CRD IV or otherwise.
The PRA and FCA monitor authorised institutions through ongoing supervision and the review of routine and ad hoc reports relating to financial, prudential and conduct of business matters. They may also obtain independent reports from a skilled person on the

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adequacy of procedures and systems covering internal control and governing records and accounting. The PRA meet regularly with the Group’s senior executives to discuss our adherence to the PRA’s prudential guidelines. In addition, both the PRA and FCA regularly discuss fundamental matters relating to our business in the UK and internationally with relevant management, including areas such as strategic and operating plans, risk control, loan portfolio composition


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and organisational changes, including succession planning and recovery and resolution arrangements.
There are a substantial number of other ongoing regulatory initiatives affecting the Group driven by or from the UK. Current and anticipated areas of particular focus for the UK regulators include:
changes to UK law and regulation following the UK's decision to leave the EU;
the UK’s implementation of the final reforms to Basel III including the changes to the market risk framework and the implementation of revised approaches to calculate credit, counterparty, operational and credit valuation adjustment (‘CVA’) risk, RWAs, changes to the leverage ratio framework and the application of capital floors;
the UK’s implementation of the outstanding elements of Basel III reforms, including the sovereign risk regime and the long-term treatment of International Financial Reporting Standard 9, Financial Instruments (‘IFRS 9’) provisions;
the UK’s implementation of the FSB’s principles and standards relating to resolution regimes and including TLAC requirements for G-SIBS and changes to UK law and regulation following changes in European legislation revising the European requirements in the area of prudential rules and including recovery and resolution and TLAC/MREL requirements;
ongoing implementation of requirements regarding resolution plans (see further details outlined below under ‘Recovery and resolution’);
implementation and operation of the ring-fencing requirements to separate retail banking activities;
implementation of revisions to the PRA’s approach to groups policy (and including double-leverage) and large exposures/intra-group regimes;
post implementation review and monitoring of the revised EU Markets in Financial Instruments Directive and Regulation (MiFID II), which became effective in January 2018 and which willis intended to result in substantial changes to market transparency requirements and other obligations for trading in financial instruments, as well as enhanced client conduct of business obligations;
implementationembedding of the Senior Managers and Certification Regime, aimed at strengthening accountability in banking. In October 2015, HM Treasury announced that the Senior Managersbanking and Certification Regime would be extendedits extension to all UK authorised firms by 2018;during 2019;
standards issued by the Fixed Income, Currencies and Commodities Market Standards Board aimed at improving conduct in the fixed income, commodities and currency markets. The FCA expects firms to adhere to these standards, many of which have global application;
proposed plans to increase consumer access to financial advice;
proposals driven by the UK Competition and Markets Authority’s (‘CMA’) investigation into the supply of retail banking services that are designed to deliver increased transparency and innovation; and
continued high level of focus by the FCA on management of conduct of business and customer outcomes.outcomes as well as on controls to combat financial crime (including market abuse and fraud); and
We have started makingcyber risk, financial technology and data security initiatives which may require changes to our corporate structuresystems and processes.
The UK legal and regulatory requirement to mitigate or remove critical interdependencies to further facilitate the resolution of the Group. In particular, in order to remove operational dependencies (where one subsidiary bank provides critical services to another), we areseparate retail and SME banking from trading activities in the process of transferring critical services from our subsidiary banks to a separately incorporated group of service companies (‘ServCo group’UK ('ring-fencing'). must
The Group presented a ring-fencing project plan to regulators in January 2016. The plan provides for the transfer into a separate subsidiary of the HSBC Group, the qualifying components of HSBC Bank plc’s UK RBWM, CMB and GPB businesses. We continue to work with regulators as we prepare to implement the ring-fencing requirements
be completed by 1 January 2019.2019.Our implementation plans are well advanced with the internal separation of our systems and infrastructure now complete. Our UK ring-fenced bank, HSBC UK plc, will be fully established by mid-2018, well ahead of the regulatory deadline.
The FCA also continues to apply close scrutiny to the Group’s financial crime control framework both generally in conjunction with the exercise of its wider powers under FSMA and more specifically under the FCA Direction asRequirements Notice described above. This includes ongoing consideration of the Group’s progress in meeting its obligations under the US DPA and other commitments outlined below.
As a result of the decision of the UK to leave the EU following the referendum on 23 June 2016, there could be significant changes to those EU laws applicable in the UK (depending on whether the UK will subsequently be readmitted to the European Free Trade Association and European Economic Area(‘EEA’), and therefore remain subject to EU legislation applicable to the EEA). While leavingLeaving the EU should not in and of itself affect existing UK laws such as the FSMA and the Banking Act, it is possibleexpected that significant changesEU laws and regulations which are directly applicable to UK firms should be transposed into UK law and regulation ahead of the official date of exit but the process of transposition has not yet been agreed by the UK Parliament. There may be changes in the application of laws and regulations concerning banking and financial services as a result of this process and there could take place before or following departurebe other ancillary impacts as a result of the UK’s exit from the EU. In particular, EU laws may be revised, placing restrictions on third country access to EU Member States and/or on the ability for EU based firms to outsource, delegate or transfer material risk to non-EU firms.
Hong Kong regulation and supervision
Banking in Hong Kong is subject to the provisions of the Banking Ordinance and to the powers, functions and duties
ascribed by the Banking Ordinance to the Hong Kong Monetary Authority (the ‘HKMA’). The HKMA is the government authority in Hong Kong responsible for maintaining monetary and banking stability. One of the principal functions of the HKMA is to promote the stability and integrity of the financial system, including the banking system in Hong Kong. The HKMA is responsible for regulating and supervising banking business and the business of taking deposits in Hong Kong. Under the Banking Ordinance, the HKMA is the licensing authority responsible for the authorisation, suspension and revocation of authorised institutions. To provide checks and balances, the HKMA is required under the Ordinance to consult with the Financial Secretary on important authorisation decisions, such as suspension and revocation.
The Hongkong and Shanghai Banking Corporation Limited and its overseas branches and subsidiaries are licensed under the Banking Ordinance and hence subject to the supervision, regulation and examination of the HKMA.
The HKMA follows international practices as recommended by the Basel Committee on Banking Supervision (‘Basel Committee’) to supervise authorised institutions. The HKMA adopts a risk-based supervisory approach based on a policy of ‘continuous supervision’ through on-site examinations, off-site reviews, prudential meetings, cooperation with external auditors and sharing information with other supervisors. The HKMA requires all authorised institutions to have adequate systems of internal control and requires the institutions’ external auditors, upon request, to report on those systems and other matters, such as the accuracy of information provided to the HKMA. In addition, the HKMA may from time to time conduct tripartite discussions with banksauthorised institutions and their external auditors.
The HKMA aims to ensure that the standards for regulatory disclosure in Hong Kong remain in line with those of other leading financial centres. The Banking (Disclosure) Rules take into account the latest disclosure standards released by the Basel Committee, which prescribe quarterly, semi-annual and annual disclosure of specified items, including in the form of standard templates and tables, in order to promote user-relevance and the consistency and comparability of regulatory disclosure among banks and across jurisdictions.
The HKMA's powers to collect prudential data from authorised institutions on a routine or ad hoc basis are provided by Section 63

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of the Banking Ordinance. The same section of the Ordinance also empowers the HKMA to require any holding company or subsidiary or sister company of an authorised institution to submit such information as may be required for the exercise of the HKMA’s functions under the Ordinance.
The HKMA has the power to serve a notice of objection on persons if they are no longer deemed to be fit and proper to be controllers of the bank,authorised institution, if they may otherwise threaten the interests of depositors or potential depositors, or if they have contravened any conditions specified by the HKMA. The HKMA may revoke authorisation in the event of an institution’s non-compliance with the provisions of the Banking Ordinance. These provisions require, among other things, the furnishing of accurate reports.
The HKMA is the relevant authority under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (‘AMLO’) for supervising authorised institutions’ compliance with the legal and supervisory requirements set out in the AMLO and the Guideline on Anti-Money Laundering and Counter-Terrorist Financing (for Authorised Institutions). The HKMA requires authorised institutions in Hong Kong and its overseas branches and subsidiaries to establish effective systems and controls to prevent and detect money laundering and terrorist financing. They work closely with other stakeholders within both the Government and the industry to ensure that the banking sector is able to play its gatekeeper role in Hong Kong’s Anti-Money Laundering and Counter-Terrorist Financing regime.
To enhance the exchange of supervisory information and cooperation, the HKMA has entered into Memoranda of Understanding or other formal arrangements with a number of banking supervisory authorities within and outside Hong Kong.
The marketing of, dealing in and provision of advice and asset management services in relation to securities and futures in Hong Kong are subject to the provisions of the Securities and Futures Ordinance of Hong Kong. Entities engaging in activities regulated by the Ordinance are required to be licensed or registered with the Securities and Futures Commission (‘SFC’). The HKMA is the frontline regulator for banks involved in the securities and futures business.
The HKMA and the SFC work very closely to ensure that there is an open market with a level playing field for all intermediaries in the securities industry of Hong Kong. The HKMA has entered into a Memorandum of Understanding with the SFC, which elaborates on the legal framework and sets out the operational details relating to the respective roles and responsibilities of the two regulators regarding the securities related activities of authorised institutions. The HKMA and the SFC hold regular meetings under the Memorandum of Understanding to discuss matters of mutual interest. The training programmes of either regulator are also made available to the staff of the other where relevant.
Among other functions, the Securities and Futures Ordinance vested the SFC with powers to set and enforce market regulations, including investigating breaches of rules and market misconduct and taking appropriate enforcement action. The SFC is responsible for licensing and supervising intermediaries conducting SFC- regulatedSFC-regulated activities; for example investment advisors, fund managers and brokers. Additionally, the SFC sets standards for the authorisation and regulation of investment products, and reviews and authorises offering documents of retail investment products to be marketed to the public.
On 30 June 2016,The HKMA and the Insurance Authority (‘IA’) have signed a Memorandum of Understanding to enhance the co-operation, exchange of information and mutual assistance between the two authorities. Under this Memorandum of Understanding, the HKMA and the IA agree to work together to co-ordinate the supervision of the insurance-related activities of authorised institutions in Hong Kong Government gazetted(such as when they act as insurance intermediaries) and authorised insurers that are connected to them and to promote information exchange and sharing, as permitted under the Banking Ordinance and the Insurance Ordinance, between the HKMA and the IA in order to assist each other to exercise their respective statutory functions.
Under the statutory regime for the regulation of Mandatory Provident Fund ('MPF') intermediaries, the Mandatory Provident Fund Schemes Authority is the lead regulator in respect of regulation of MPF intermediaries whereas the HKMA, the IA and the SFC are the frontline regulators of the MPF intermediaries.  A Memorandum of Understanding Concerning the Regulation of Regulated Persons with Respect to Registered Schemes under the Mandatory Provident Fund Schemes Ordinance has been signed by the four regulators. It sets out certain administrative and operational arrangements among the four regulators regarding the exercise of their respective functions under the Mandatory Provident Fund Schemes Ordinance concerning regulation of MPF intermediaries Hong Kong’s Financial Institutions (Resolution) Ordinance (the ‘Resolution Ordinance’), which establishesOrdinance) that was passed in June 2016 and came into effect on 7 July 2017.
The Ordinance established the legal basis for a cross-sector resolution regime in Hong Kong, to mitigateunder which the risks posedHKMA is the resolution authority for banking sector entities including all authorised institutions. The HKMA is also designated as the lead resolution authority for the cross-sectoral groups in Hong Kong that involve both banking sector entities and securities and futures sector entities. The HKMA’s function as a resolution authority is supported by the non-viability of systemically important financial institutionsResolution Office within the HKMA. The Resolution Office is operationally independent and has a direct reporting line to the stability and effective workingChief Executive of the financial system of Hong Kong. Under the Resolution Ordinance,HKMA. As a resolution authority, the HKMA the Insurance Authority (‘IA’is responsible for:
setting resolution standards for authorised institutions ('AIs');
undertaking resolution planning and the SFC are designated as resolution authorities. They are vested with a range ofresolvability assessments for AIs;
identifying, and requiring AIs to remove, impediments to their orderly resolution; and
executing, where necessary, powers to effectthe orderly resolution of a failed systemically important financial institution, which means maintaining continuityany failing AIs through the application of access toresolution powers under the essential financial services it provides by imposing losses on creditors, while minimising the risks posed to public funds.Ordinance.
The Resolution Ordinance was passed by the Legislative Council on 22 June 2016 and will commence operation on a date to be appointed by the Secretary for Financial Services and the Treasury pending the Legislative Council’s passing of certain


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of the regulations to be made as subsidiary legislation under the Resolution Ordinance.
TheHong Kong Government, along with the HKMA, the IA and the SFC, will maintain close liaison with the industry and the relevant stakeholders in the formulation of regulations, rules and codes of practice. They will also carry out publicity through their respective websites and publications to explain the work being undertaken to make the regime operational and the implications of resolution for relevant stakeholders.
US regulation and supervision
The Group is subject to federal and state supervision and regulation in the US. Banking laws and regulations of the Federal Reserve Board (‘FRB’), the Office of the Comptroller of the Currency (the ‘OCC’) and the Federal Deposit Insurance Corporation (the ‘FDIC’) (collectively, the ‘US banking regulators’) govern all aspects of our US business. Furthermore, since we have substantial operations outside the US that conduct many of their day-to-day transactions with the US, HSBC entities’ operations outside the US are also subject to the extra-territorial effects of US regulation in many respects. The requirements
In September 2017, HSBC Holdings and HSBC North America Holdings Inc. (‘HNAH’) consented to a civil money penalty order with the FRB in connection with its investigation into HSBC’s historical foreign exchange activities. Under the terms of the order, HSBC Holdings and HNAH agreed to undertake certain remedial steps and topay a civil money penalty to the FRB. In January 2018, HSBC Holdings entered into a three-year deferred prosecution agreement with the Criminal Division of the US Department of Justice (‘DoJ’) (the 'FX DPA'), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. This concluded the DoJ's investigation into HSBC’s historical foreign exchange activities. Under the terms of the FX DPA, entered into by HSBC has a number of ongoing obligations, including continuing to cooperate with authorities and implementing enhancements to its internal controls and procedures in December 2012its Global Markets business, which will be the subject of annual reports to the DoJ. In addition, HSBC agreed to pay a financial penalty and described in this section under ‘Anti-money laundering and related regulation’ should also be noted in this context.restitution. For further details, see Note 34 on the Financial Statements.

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HSBC Holdings and its US operations are subject to supervision, regulation and examination by the FRB because HSBC Holdings is a ‘bank holding company’ under the US Bank Holding Company Act of 1956, as a result of its control of HSBC Bank USA, N.A., McLean, Virginia (‘HSBC Bank USA’) and HSBC Trust Company (Delaware), N.A., Wilmington, Delaware (‘HTCD’). HSBC North America Holdings Inc. (‘HNAH’)HNAH is also a ‘bank holding company’. Both HSBC Holdings and HNAH have elected to be financial holding companies pursuant to the provisions of the Gramm-Leach-Bliley Act (the ‘GLB Act’‘GLBA’) and, accordingly, may affiliate with securities firms and insurance companies, and engage in other activities that are financial in nature or incidental or complementary to activities that are financial in nature.
Under regulations implemented by the FRB, if any financial holding company, or any depository institution controlled by a financial holding company, ceases to meet certain capital or management standards, the FRB may impose corrective capital and/or managerial requirements on the financial holding company and place limitations on its ability to conduct the broader financial activities permissible for financial holding companies. In addition, the FRB may require divestiture of the holding company’s depository institutions or its affiliates engaged in broader financial activities in reliance on financial holding company status under the GLB ActGLBA if the deficiencies persist. The regulations also provide that if any depository institution controlled by a financial holding company fails to maintain a satisfactory rating under the Community Reinvestment Act of 1977, the FRB must prohibit the financial holding company and its subsidiaries from engaging in any additional activities other than those permissible for bank holding companies that are not financial holding companies. See page 9198 for further information on the regulatory consent orders with which HSBC Bank USA must comply in accordance with the agreement entered into with the OCC in December 2012 (the ‘GLBA’ Agreement)‘GLBA Agreement').
The two US banks, HSBC Bank USA and HTCD, are subject to regulation and examination primarily by the OCC. HSBC Bank USA and HTCD are subject to additional regulation and supervision, secondly by the FDIC, and by the FRB and the Consumer Financial Protection Bureau (‘CFPB’). Banking laws and regulations restrict many aspects of their operations and administration, including the establishment and maintenance of branch offices, capital and reserve requirements, deposits and borrowings, investment and lending activities, payment of dividends and numerous other matters.
In the US, parent company insolvencies are governed by the US Bankruptcy Code, 11 U.S.C. § 101 et seq. (the ‘Bankruptcy Code’). Chapter 7 of the Bankruptcy Code sets forth the procedures for liquidation of a debtor company’s assets for distribution to creditors, whereas Chapter 11 permits the operation of the debtor’s business while either negotiating
a plan of reorganisation with the company’s creditors or liquidating the business. Subsidiary banks are subject to the Federal Deposit Insurance Act (the ‘FDIA’). Under the FDIA, the FDIC has the authority as receiver to liquidate and wind up a bank’s affairs and to succeed to all rights, titles, powers and privileges of the bank and relevant associated persons.
Under a special regime introduced by Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (‘Dodd-Frank’), the US Secretary of the Treasury has the authority to appoint the FDIC as receiver of certain qualifying parent companies and their subsidiaries under specified conditions. The FDIC’s powers under what is referred to as the Orderly Liquidation Authority (‘OLA’) incorporate elements of both the FDIA and the Bankruptcy Code, and are intended to minimise the adverse effects of a complex financial group’s failure on the financial stability of the US. In respect of a banking group with a parent company not organised under the laws of the US, any actions under the OLA would likely be directed at the US-based intermediate holding company.
In January 2014, the FRB implemented the Basel III capital framework for bank holding companies such as HNAH, which will bewere required to phase in many of the requirements, including a minimum supplementary leverage ratio of 3% and an effective
minimum total risk-based capital ratio of 10.5% over a transition period from 2014 to 2019. The 10.5% ratio includes the capital conservation buffer, which is not a minimum requirement, per se, but rather a necessary condition to allow capital distributions. A counter-cyclicalcountercyclical capital buffer requirement, applicable to banking organisations that meet the advanced approaches thresholds, also applies to HNAH and HSBC Bank USA, and the buffer has been currently set at 0%. Additionally, failure to maintain minimum regulatory ratios in simulated stress conditions, as required by the FRB’s Comprehensive Capital Analysis and Review (‘CCAR’) programme, would restrict HNAH from engaging in capital distributions such as dividends or share repurchases. In addition to the CCAR stress testing requirements, the Dodd-Frank Act Stress Test (‘DFAST’) requires HNAH and HSBC Bank USA to undergo regulatory stress tests conducted by the FRB annually, and to conduct and publish the results of its own internal stress tests semi-annually.
As part of the CCAR process, the FRB undertakes a supervisory assessment of the capital adequacy of bank holding companies, including HNAH, based on a review of a comprehensive capital plan submitted by each participating bank holding company to the FRB that describes the company’s planned capital actions, such as plans to pay or increase common stock dividends, reinstate or increase common stock repurchase programs, or redeem preferred stock or other regulatory capital instruments, during the nine-quarter review period, as well as the results of stress tests conducted by both the company and the FRB under different hypothetical macroeconomic scenarios, including a supervisory adverse scenario and severely adverse scenario provided by the FRB. The FRB can object to a capital plan for qualitative or quantitative reasons, in which case the company cannot make capital distributions without specific FRB approval.
HNAH submitted its latest CCAR capital plan and annual company-run DFAST results in April 2016.2017. HSBC Bank USA is also subject to the OCC's DFAST requirements, which require certain banks to conduct annual company-run DFAST, and submitted its latest annual DFAST results in April 2016.2017. The company-run stress tests are forward-looking exercises to assess the impact of hypothetical macroeconomic baseline, adverse and severely adverse scenarios provided by the FRB and the OCC for the annual exercise, and internally developed scenarios for both the annual and mid-cycle exercises, on the financial condition and capital adequacy of a bank-holding company or bank over a nine-quarter planning horizon.
In June 2016,2017, the FRB informed HNAH that it did not object to HNAH’s capital plan or the planned capital distributions included in its 20162017 CCAR submission.
HSBC Holdings isand HSBC Bank USA are also required to file resolution plans with regard to itstheir US operations describing what strategy would be followed to resolve the institution.institutions. If the FRB and the FDIC both determine that these resolution plans are not ‘credible’ (which, although not defined, is generally believed to mean the regulators do not believe the plans are feasible or would


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otherwise allow for the rapid and orderly resolution of the US businesses in a way that protects systematically important functions without severe systematic disruption and without exposing taxpayers to loss), our failure to cure deficiencies in a resolution plan required by Dodd-Frank to be filed by HSBC Holdings and HSBC Bank USA would enable the FRB and the FIDC,FDIC, acting jointly, to impose more stringent prudential limits or require the divestiture of assets or operations.
In March 2015, the FRB and the FDIC announced the completion of their reviews of the second round of resolution plans submitted in 2014 by three foreign banking organisations, including the HSBC Holdings resolution submitted in 2014 (the ‘2014 Plan’). Although the agencies noted some improvements in the 2014 Plan, they jointly identified specific shortcomings that were to be addressed with the 2015 annual submission. In addition, the FDIC board of directors stated in a press release that the 2014 resolution plans submitted by these filers are not credible and do not facilitate an orderly resolution under the US Bankruptcy Code. HSBC and HSBC Bank USA submitted their 2015required resolution plans to the FDIC and the FRB in December 2015, and have not received formal feedback on the 2015 resolution plans. During the third quarter of 2016, the next annual submission date for both the HSBC Plan and theFRB. In June 2017, HSBC Bank USA Plan wasreceived feedback from the FDIC regarding its resolution plan that will be addressed in its next plan submission. In January 2018, the FRB and FDIC provided HSBC Holdings with their expectations as to the content of its next US resolution plan submission. These expectations requested additional information regarding HSBC Holdings’ methodology for estimating capital needs and liquidity capabilities and its plans for maintaining continuity of payments, clearance and settlement activities and shared support services for its US operations in a resolution

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scenario. In addition, HSBC Holdings and HSBC Bank USA have been advised that the next submission dates for their plans have been extended to 31 December 2017.2018 and 1 July 2018 respectively.
In February 2014, the FRB adopted a rule requiring enhanced supervision of the US operations of non-US banks such as HSBC Holdings. The rule requires certain large non-US banks with significant operations in the United Statesrequired HSBC to establish a single intermediate holding company (‘IHC’) to hold their US bank and non-bank subsidiaries. Thesubsidiaries, although because the HSBC Group hashad been operating in the United States through such an IHC structure (i.e., HNAH), and, therefore, the implementation of this requirement did not by itself have a significant impact on our US operations.
In MarchHowever, in 2016, the FRB, issued a re-proposal of its requirements relating to single counterparty credit limits that would apply to IHCs, such as HNAH. The re-proposal is still under consideration. In addition, the FRB is still considering an ‘early remediation’ framework under which the FRB would implement prescribed restrictions and penalties against banking organisations, such as HNAH and HSBC, if certain risk-based capital, leverage, liquidity, stress testing or other risk management requirements are not met, and would authorise limitations on, or possible termination of, their US operations under certain circumstances.
An IHC may calculate its capital requirements under the US standardised approach, even if it meets the asset thresholds that would require a bank holding company to use advanced approaches. HNAH and HSBC Bank USA received regulatory approval to opt out of the advanced approach in 2015. In 2016,2017, HSBC Bank USA submitted a requestan annual statement to the OCC to renew its opt out of the opt-out and received approval.advanced approaches. HNAH and HSBC Bank USA remain subject to the other capital requirements applicable to advanced approachesadvanced-approaches banking organisations, such as the supplementary leverage ratio, the countercyclical capital buffer, stress testing requirements, certain deductions and adjustments to capital, enhanced risk management standards, enhanced governance and stress testing requirements for liquidity management, and other applicable prudential standards. Most of these requirements became effective on 1 July 2016.
The US banking regulators adopted a final rule in September 2014 that implementsimplemented a quantitative liquidity requirement consistent with the liquidity coverage ratio standard established by the Basel Committee. The final rule establishesestablished a liquidity coverage ratio (‘LCR’), which is designed to ensure that a banking organisation maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon under an acute liquidity stress scenario. The rule which applies to HNAH, is more stringent than the Basel III LCR in several respects. Starting on 1 January 2015, covered2017, companies subject to the rule, including HNAH and HSBC Bank USA, were required to maintain an LCR of 80%, increasing annually by 10% increments and reaching 100% on 1 January 2017..
In April 2016, the US banking regulators proposed a rule to implement the Basel Committee’s final standard for NSFR
calculated by dividing the level of a banking organisation’s available stable funding by its required stable funding. The minimum NSFR requirement for HNAH and HSBC Bank USA under the NSFR proposal would be 100%. A banking organisation’s available stable funding would be calculated as the sum of the banking organisation’s liabilities and regulatory capital elements, which are first multiplied by factors determined based on their tenor, funding type and counterparty type. The required stable funding would be calculated as the sum of the banking organisation’s assets, commitments and derivatives, which are first multiplied by factors based on their relative liquidity. Consistent with the Basel Committee’s NSFR final standard, the FRB’s NSFR proposal would become effectivewas proposed to take effect on 1 January 2018. TheHowever, the NSFR proposal has not yet been finalised and the potential effects of the NSFR continue to be evaluated.
In November 2015, the Financial Stability Board (‘FSB’) issued final standards for TLAC requirements for global systemically important banks (‘G-SIB’s)G-SIBs'), which will apply to HSBC Holdings once implemented in the UK. The new standards also permit authorities in host jurisdictions to require ‘internal’ TLAC to be prepositioned (issued by local entities to either parent entities or third parties). The purpose of these new standards is to ensure that G-SIBs have
sufficient loss absorbing and recapitalisation capacity available to implement an orderly resolution with continuity of critical functions and minimal impact on financial stability and to ensure cooperation between home and host authorities during resolution. The new standards call for all
G-SIBs to be subject to TLAC requirements starting 1 January 2019, to be fully phased in by 1 January 2022. In the US, the FRB adopted final rules on 15 December 2016 implementing the FSB’s TLAC standard in the US. The rules require, among other things, the US intermediate holding companies of non US
G-SIBs, including HNAH, to maintain minimum amounts of TLAC that would include minimum levels of tier 1 capital and long-term debt satisfying certain eligibility criteria, and a related TLAC buffer commencing 1 January 2019 without the benefit of a phase-in period. The TLAC rules also include ‘clean holding company requirements’ that impose limitations on the types of financial transactions HSBC’s US intermediate holding company, HNAH, could engage in.
HSBC Bank USA and HTCD are subject to risk-based assessments from the FDIC, which insures deposits generally to a maximum of $250,000 per depositor for domestic deposits. Dodd-Frank changed the FDIC’s risk-based deposit insurance assessment framework primarily by basing assessments on an FDIC-insured institution’s total assets less tangible equity rather than US domestic deposits, which is expected to shift a greater portion of the aggregate assessments to large FDIC-insured institutions. In March 2016, the FDIC imposed an additional temporary surcharge on the quarterly assessments of insured depository institutions with total consolidated assets of $10bn or more, including HSBC Bank USA. The new large bank pricing system will result in higher assessment rates for banks with high-risk asset concentrations, less stable balance sheet liquidity or potentially higher loss severity in the event of failure.
HSBC’s US consumer finance operations are subject to extensive state-by-state regulation in the US, and to laws relating to consumer protection (both in general, and in respect of sub-prime lending operations, which have been subject to enhanced regulatory scrutiny); discrimination in extending credit; use of credit reports; privacy matters; disclosure of credit terms; and correction of billing errors. These operations are subject to regulations and legislation that limit operations in certain jurisdictions.
In December 2013, US regulators finalised the ‘Volcker Rule’, which limits the ability of banking entities to sponsor or invest in certain private equity or hedge funds or to engage in certain types of proprietary trading. During 2015, the Group implemented its conformance plans related to its businesses and risk management and control frameworks both in the US and elsewhere, including establishing a defined Volcker compliance programme and related CEO attestation processes to ensure compliance with the final rule by the relevant effective dates.
Title VII of Dodd-Frank provides for an extensive framework for the regulation of over-the-counter (‘OTC’) derivatives by the


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Commodity Futures Trading Commission(‘CFTC’) and the SEC, including mandatory clearing, exchange trading, and public and regulatory transaction reporting of certain OTC derivatives, as well as rules regarding the registration of swap dealers and major swap participants, and related capital, margin, business conduct, record keeping and other requirements applicable to such entities.
The CFTC has adopted rules implementing many of the most significant provisions of Title VII, most of which came into effect in 2013 and 2014. In particular, HSBC Bank USA and HSBC Bank plc are provisionally registered as swap dealers with the CFTC. Because HSBC Bank plc is a non-US swap dealer, the CFTC generally limits its direct regulation of HSBC Bank plcplc’s swap transactions to swaps with US persons and certain affiliates of US persons. However, the CFTC continues to consider whether to apply mandatory clearing, exchange trading, public transaction reporting, margin and business conduct rules to swaps with non-US persons arranged, negotiated or executed by US personnel or agents. The CFTC is also considering whether to apply regulatory transaction reporting requirements on all swaps entered into by a non-US swap dealer or instead to permit reliance on transaction reporting under comparable EU rules. The application of CFTC rules to HSBC Bank plc’s swaps with non-US persons could have an adverse effect on the willingness of non-US counterparties to trade swaps with HSBC Bank plc, and we continue to assess how developments in these areas will affect our business. On 4 August 2016,25 July 2017, the CFTC extended by a year (to 30 September 2017) pre-existing relief from the requirement for non-US swap dealers (e.g., HSBC Bank plc) to comply with clearing, trade execution, margin, reporting, and business conduct rules for tradesswaps with non-US counterparties, when using personnel or agents located in the US to arrange, negotiate, or execute such

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swaps. This relief extends until the CFTC takes further action on whether to subject such swaps to particular rule requirements. The CFTC also finalised rules in 2016 that will require additional interest rate swaps to be cleared, which are expected to come into effect in phases based on the implementation of parallel clearing requirements in non-US jurisdictions, and in any event by October 2018, and has also proposed rules that would apply position limits to certain physical commodity swaps.
In June 2014, the SEC finalised rules regarding the cross-border application of the security-based swap dealer (‘SBS’) and major security-based swapSBS participant definitions. These rules share many similarities with parallel guidance finalised by the CFTC in July 2013. In January 2015, the SEC also finalised rules regarding reporting and public dissemination requirements for security-based swapSBS transaction data. In August 2015, the SEC also finalised rules for the registration of security-based swap (‘SBS’)SBS dealers and major SBS participants. The SEC has not yet finalised the implementation dates for these rules or finalised several related Title VII rules. Because our equity and credit derivatives businesses are also subject to the CFTC’s jurisdiction under Title VII, material differences between the final SEC rules and existing CFTC rules could materially increase our costs of compliance with Title VII by requiring the implementation of significant additional policies, procedures, documentation, systems and controls for those businesses. On 13 July 2016, the SEC delayed its SBS reporting requirement to one month after its SBS dealer registration rule takes effect. SBS dealer registration won’twill not be required until six months after the SEC finalises a number of additional rules, including on capital, margin and segregation. Previously, the timelines for SBS reporting and registration were independent of each other, raising the prospect of pre-registration reporting followed by significant post-registration changes to reporting hierarchies. The CFTC also finalised rules in 2016 that will require additional interest rate swaps to be cleared, which are expected to come into effect in phases based on the implementationultimate timeframe for finalisation and effectiveness of parallel clearing requirements in non-US jurisdictions,remaining SEC rulemakings, including SBS dealer and in any event by October 2018, and has also proposed rules that would apply position limits to certain physical commodity swaps.major SBS participant registration, remains uncertain.
In November 2015, the OCC, jointly with other US banking regulators, adopted final rules establishing margin requirements. The final margin rules will require HSBC Bank USA and HSBC Bank plc to collect and post initial and variation margin for certain non-cleared swaps and security-based swapsSBS entered into with other swap dealers and financial end-users that exceed a minimum threshold of transactional activity. For certain non-cleared swaps and security-based swapsSBS entered into with financial end-users that do not meet the minimum transactional activity threshold, HSBC Bank USA and HSBC Bank plc will only be required to collect and post variation margin (but not initial margin). The US banking regulators’ final rules do not impose margin requirements for non-cleared swaps and security-based swapsSBS entered into with non-financial end-
users,end-users, certain sovereigns and multilateral development banks or qualifying hedging transactions with certain small depository institutions.
The final margin rules also limit the types of assets that are eligible to satisfy initial and variation margin requirements, require initial margin to be segregated at a third-party custodian, impose requirements on internal models used to calculate initial margin requirements and contain specific provisions for cross-border transactions and inter-affiliate transactions. The final margin rules follow a phased implementation schedule, with variation margin requirements coming into effect in March 2017 and certain initial margin requirements already in effect and additional initial margin requirements to be phased in on an annual basis from September 2016 through September 2020, with the relevant compliance dates depending on the transactional volume of the parties and their affiliates. These final rules, as well as parallel margin rules from the CFTC, the SEC and certain non-US regulators will increase the costs and liquidity burden associated with trading non-cleared swaps and security-based swaps,SBS, and may adversely affect our business in such products. In particular, the imposition of initial margin requirements on inter-affiliate transactions will significantly increase the cost of certain consolidated risk management activities and may adversely affect HSBC to a greater extent than some of our competitors.
Dodd-Frank also included a ‘swaps push-out’ provision that would have effectively limited the range of OTC derivatives activities in which an insured depository institution, including HSBC Bank
USA, could engage. The scope of this provision was significantly reduced in December 2014, and now effectively only restricts HSBC Bank USA’s ability to enter into certain ‘structured finance swaps’ after 16 July 2015 that are not entered into for hedging or risk mitigation purposes.
Dodd-Frank grants the SEC discretionary rule-making authority to modify the standard of care that applies to brokers, dealers and investment advisers when providing personalised investment advice to retail customers and to harmonise other rules applying to these regulated entities. Dodd-Frank also expands the extra-territorial jurisdiction of US courts over actions brought by the SEC or the US with respect to violations of the anti-fraud provisions in the Securities Act, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. In addition, regulations which the FSOC, the CFPB or other regulators may adopt could affect the nature of the activities that our FDIC-insured depository institution subsidiaries may conduct, and may impose restrictions and limitations on the conduct of such activities.
The implementation of the remaining Dodd-Frank provisions, including those related to the recommended imposition of the fiduciary standard on broker-dealers, could result in additional costs or limit or restrict the way we conduct our business in the US.
Global and regional prudential and other regulatory developments
The Group is subject to regulation and supervision by a large number of regulatory bodies and other agencies. In addition to changes being introduced at a country level, changes are often driven by global bodies such as the G-20,G‑20, the FSB and Basel Committee, which are then implemented at country level or regionally through the EU sometimes with modifications and with separate additional measures. Key areas include the work of the FSB on G-SIBs, the Basel Committee’s ongoing consultations on revised approaches across a number of risk areas and the FSB’s final standard for requirements for total loss-absorbing capacity.
We are also subject to regulatory stress testing in many jurisdictions. These have increased both in frequency and in the granularity of information required by supervisors. They include the programmes of the BoE, the FRB (as explained in the ‘US regulation and supervision’ section), the OCC, the EBA, the ECB, the HKMA and other regulators. For further details, see ‘Stress testing’ on page 103.109.
There areThe Basel Committee finalised the package of revisions to the Basel III framework on 6 December 2017. These will affect the measurement of market, credit, counterparty, CVA and operational risk RWAs and will incorporate a number of consultations that have been issued byfloor to the modelled capital calculations based on standardised approaches. It is also consulting on changes to the sovereign risk regime. In addition, in March 2017, the Basel Committee proposed several changes to the framework for assessing and are yetdesignating G-SIBs and determining their respective surcharges. The proposed changes would maintain the current assessment categories but would revise indicators relating to be finalised. These are likelycertain categories that could lead to have an impact on measurement of credit and operational risk and will determine whether a floor to modelled capital


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calculations will be included in the Basel capital framework.increased surcharges. Changes in local capital regimes willare expected to result from the final Basel agreement. Further details can be found in the ‘Regulatory Developments’developments’ on page 3 of the Pillar 3 Disclosures 2016at 31 December 2017 report..
Recovery and resolution
Globally, there have been a number of developments relating to banking structural reform and the introduction of recovery and resolution regimes.
As recovery and resolution planning has developed, some regulators and national authorities have also required changes to the corporate structures of banks. These include requiring the local incorporation of banks or ring-fencing of certain businesses.
We are working with our primary regulators to develop and agree a resolution strategy for HSBC. It is our view that athe most appropriate resolution strategy by whichfor the HSBC Group would include the bail-in of external TLAC and the conversion of internal TLAC to equity in order to stabilise the Group breaksand keep the Group together, at least initially. Thereafter, the resolution strategy allows for the restructuring and potential break up of the Group at a subsidiary bank level atfollowing the point of resolution (referred to as a multiple point of entry) is the optimal approach, as itinitial stabilisation via bail-in. This two step strategy is aligned to our existing legal and business structure. Similarlystructure and to the approach to TLAC issuance taken by the Group.
Similar to all G-SIBs, we are working with our regulators to mitigate or remove critical inter-dependencies between our subsidiaries to further facilitate the resolution of the Group. In particular, in order to remove operational dependencies (where one subsidiary bank provides critical services to another), we are

92HSBC Holdings plc

in the process of transferring critical services from our subsidiary banks to a separate internal ServCo group.
To date, more than 18,000 employees performing shared services in the UK were transferred to the ServCo group. Further transfers of employees, critical shared services and assets, Hong Kong and other jurisdictions will occur in due course.service company sub-group.
European regulation
Through the UK’s membership of the EU, HSBC is currently both directly and indirectly subject to European financial services regulation.
As part of the SSM, a Single Resolution Mechanism (‘SRM’) was also established to apply to all banks covered by the SSM. This is intended to ensure that bank resolution is managed effectively through a Single Resolution Board and a Single Resolution Fund financed by the banking sector. Non-eurozone countries within the EU may opt to join the Banking Union, but the UK has indicated that it will not do so.
In January 2014, the European Commission published legislative proposals on the structural reform of the European banking sector that would prohibit proprietary trading and give supervisors discretion to require trading activities to be undertaken in a separate subsidiary from deposit taking activities. Although limited progress has been made on these proposals in the past year, they remain under consideration.
In the EU, the Bank Recovery and Resolution Directive(‘BRRD’)
provides the framework for the recovery and introducesresolution of credit institutions, including requirements for banks to maintain at all times a sufficient aggregate amount of own funds and ‘eligible liabilities’ (that is, liabilities that may be bailed in using the bail-in tool) known as the minimum requirements for eligible liabilities (‘MREL’). The Bank of England has set out how MREL requirements will be applied in the UK in a manner that is also consistent with the FSB’s global proposals on TLAC.
On 23 November 2016, the European Commission published proposals for amendments to the BRRD and CRD IV, designed to implement (among other changes) global standards for TLAC and certain changessome, but not all, of the reforms to the global capital standardsBasel III prescribed by the Basel Committee, as well as various related changes to the EU prudential framework. Of particular concern in the latter category is a proposed requirement for G-SIBs and certain other banking groups with two or more institutions in the EU, but whose ultimate parent is outside the EU, to establish an EU intermediate financial holding company, that would be subject to consolidated prudential supervision in the EU. These proposals are yet to be finalised, and it is unclear, particularly in light of the vote to leave the EU, how these requirements (including the intermediate holding requirement for non-EU banking groups) will affect the HSBC group.Group.
The EU also continueswill continue to pursue the development of markets, and conduct-related EU regulations. This includes completingdrive forward with implementation of the European Markets Infrastructureits General Data Protection Regulation and implementingis expected also to focus on the embedding of recently implemented measures such as Markets in Financial Instrument Regulation/Directive (‘MiFID II’), the EU’s Framework for Benchmarks and Indices, the Packaged Retail Investment and Insurance Products Regulation, the Second Payment Services Directive, Money Markets Fund Regulation, Securities Financing Transactions Regulation, and the Fourth Money Laundering Directive. The Market Abuse Regulation which came into force July 2016 willVarious proposals falling under the EU’s Capital Markets Union initiative in the areas of consumer protection and financial markets are also likely to progress to final legislative measures through 2018 and 2019. Cyber-risk and risks emerging from the use and development of financial technology and data use and processing are becoming an increasing priority of EU and other regulatory authorities globally more generally. These regulations and directives are expected to continue to be embedded intoapply to HSBC’s UK business after the regulatory framework.UK’s exit from the EU under the UK withdrawal arrangements as currently understood. The Group continues to enhance and strengthen its governance and resourcing more generally around regulatory change management and the implementation of required measures, actively to address this ongoing and significant agenda of regulatory change.
Anti-money laundering and sanctions regulation
HSBC places a high priority on its obligations to deter money laundering and terrorist financing and to enforce global sanctions. The European Commission has published a Fourth Directive on the prevention of the use of the financial system for money laundering and terrorist financing. Member States are required to incorporate the Fourth Directive into national laws by 26 June 2017 and financial institutions are required to comply with these laws from this date. HSBC policy requires that all Group companies to adhere to the letter and spirit of all applicable laws and regulations, and we have policies, procedures and training intendedin place to ensure that our employees know and understand our criteria for deciding when adetermining the risk rating of client relationship or business should be evaluated as higher risk.relationships.
Risk mitigation measures aimed at deterringThe European Commission updated the Fourth Directive on the prevention of the use of the financial system for money laundering and terrorist financing during 2016 and weapons proliferation financing (collectively referred to as ‘AML’) and enforcing sanctions have been focused on three key areas:
managing risk;
transitioning to a new operating and governance model; and
meeting HSBC’s regulatory obligations.
During 2016, our global businesses and countries continued to focus on embedding the AML and sanctions proceduresmember states were required to effect our AML and Sanctions policies inincorporate the updated Directive into national laws by 26 June 2017. Financial institutions were required to comply with these areas. This supported our ongoing effort to addresslaws from this date; HSBC’s Global Anti-money Laundering ('AML') policy incorporates the US DPA requirements. These actions were in line with our strategic target to implement the highest or most effective standards globally. The workrequirements of the Monitor, who was appointedupdated directive.
We continue to assess the effectiveness of our AML and sanctions compliance programme, is discussed on page 115. Conducting customer due diligence is one of the fundamental ways in which we know our customers and understand and manage financial crime risk. A key enhancement during 2016 was the deployment of our global customer due diligence system to 35 markets for RBWM, 52 for CMB, 36 for GB&M and 2 for GPB.
As part of our continuing evaluation of AML and sanctions risk, we also monitor activities relating to thethose countries which are subject to
US economic sanctions programmes administered by the Office of Foreign Assets Control, as well as those subject toUnited States ('US'), the United Nations UK('UN'), the United Kingdom ('UK') and EU the European Union ('EU'). Additionally, our
sanctions as well as complying withscreening also incorporates local lists as required in the jurisdictions in which we operate.
HSBC policy requires all Group companies to comply to the extent applicable with US sanctions laws. This means that not only must US subsidiaries and US nationals must comply with US sanctions butand that HSBC subsidiaries outside the US which are not US persons must not participate in transactions within US jurisdictions (including most US dollar transactions) that would contravene US sanctions.
During 2017 the US issued new legislation expanding sanctions on Russia, Venezuela, and North Korea, and issued an executive order modifying sanctions with respect to Sudan. HSBC’s GlobalSanctions Policy has been updated to ensure compliance with the various requirements resulting from changes in US sanctions laws.
We do not consider that our business activities with counterparties with whom transactions are restricted or prohibited under US sanctions are material to our business, and such activities represented a very small part of the Group’s total assets at 31 December 20162017 and total revenues for the year ended 31 December 2016.2017.
We entered into agreements with the US Department of Justice (‘DoJ’) and the UK Financial Conduct Authority (‘FCA’) in 2012, including the five-year Deferred Prosecution Agreement (‘DPA’) which required the implementation of an effective AML and sanctions compliance programme. On 11 December 2017, with the DoJ’s agreement, the DPA expired and the charges deferred by the DPA were dismissed on 12 December 2017. Despite the expiration of the DPA and the dismissal of the charges contained within, we will continue to develop the AML and sanctions compliance programme.
Holdings entered into a Consent Order with the Federal Reserve Bank of Chicago (FRB-C) in 2012 which also required the implementation of an effective AML and sanctions compliance programme. This Consent Order remains in effect as of year-end 2017.
Other
HSBC Bank USA entered into a consent cease and desist orderConsent Order with the Office of the Comptroller of the Currency, and HSBC North American Holdings (‘HNAH’) entered into a consent cease and


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desist orderConsent Order with the Federal Reserve Board in October 2010. These Orders requirerequired improvement of our compliance risk management programme, including AML controls across our US businesses. Steps continueHSBC Bank USA and HNAH have taken appropriate steps to be taken to addresscomply with the requirements of these Orders and to ensurewhile ensuring that compliance and effective policies and procedures are maintained.
Disclosures pursuant to Section 13(r) of the Securities Exchange Act
Section 13(r) of the Securities Exchange Act requires each issuer registered with the SEC to disclose in its annual or quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions with persons or entities targeted by US sanctions programmes relating to Iran, terrorism, or the proliferation of weapons of mass destruction, even if those activities are not prohibited by US law and are conducted outside the US by non-US affiliates in compliance with local laws and regulations.
To comply with this requirement, HSBC Holdings plc (together with its affiliates, ‘HSBC’) has requested relevant information from its affiliates globally. The following activities conducted by HSBC are disclosed in response to Section 13(r).:
Loans in repayment
Between 2001 and 2005, the Project and Export Finance business of HSBC arranged or participated in a portfolio of loans to Iranian energy companies and banks. All of these loans were guaranteed by European and Asian export credit agencies and have varied maturity dates with final maturity in 2018. For those loans that remain outstanding, we continue to seek repayment in accordance with our obligations to the supporting export credit agencies. Details of these loans follow.

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At 31 December 2016,2017, we had five loans outstanding to an Iranian petrochemical company. These loans are supported by the official export credit agencies of the following countries: the UK, South Korea and Japan. We continue to seek repayments from the Iranian company under the outstanding loans in accordance with their original maturity profiles. Two repayments werehave been made under each loanof the five loans in 2016.2017.
Five loans to the same Iranian petrochemical company matured in 2016. Bank MelliWe also acted as a sub-participant in two of these loans, although a number of the payments dueSpanish Export Credit Agency supported loan provided by another international bank to Bank MelliMellat. This loan matured in 2016 are yet2013 with claims for non-payment being settled by the agency. A small balance which had remained unpaid by Bank Mellat in relation to be remitted by HSBC.this legacy asset was recovered in the first quarter of 2017.
Estimated gross revenue to HSBCand net profit generated by thethese loans in repayment for 2016,2017, which includes interest and fees, was approximately $464,000, and net estimated profit was approximately $432,000.$107,000. While we intend to continue to seek repayment under the existing loans, all of which were entered into before the petrochemical sector of Iran became a target of US sanctions, we do not currently intend to extend any new loans.
Legacy contractual obligations related to guarantees
Between 1996 and 2007, we provided guarantees to a number of our non-Iranian customers in Europe and the Middle East for various business activities in Iran. In a number of cases, we issued counter indemnitiescounter-indemnities in support of guarantees issued by Iranian banks as the Iranian beneficiaries of the guarantees required that they be backed directly by Iranian banks. The Iranian banks to which we provided counter indemnitiescounter-indemnities included Bank Tejarat, Bank Melli and the Bank of Industry and Mine.
There was no measurable gross revenue in 20162017 under those guarantees and counter indemnities. We do not allocate direct costs to fees and commissions and, therefore, have not disclosed a separate net profit measure. We are seeking to cancel all relevant guarantees and counter-indemnities and do not currently intend to provide any new guarantees or counter indemnitiescounter-indemnities involving Iran. One wasNone were cancelled during the fourth quarter of 2016in 2017 and approximately 19 remain outstanding.
Other relationships with Iranian banks
Activity related to US-sanctioned Iranian banks not covered elsewhere in this disclosure includes the following:
We maintain several accounts in the UK for an Iranian-owned, UK-regulated financial institution. Prior to Implementation Day of the Joint Comprehensive Plan of Action, these accounts were frozen and transactions relating to these accounts were carried out under UK Government license. These accounts are generally no longer restricted under UK law, though we maintain restrictions on the accounts as a matter of policy. We are seeking to exit these accounts and have begun transferring the funds to the clients' accounts at other financial institutions. Estimated gross revenue in 2016 for2017 on these accounts, which includes fees and/or commissions, was approximately $154,100.$109,090.
We act as the trustee and administrator for a pension scheme involving fiveeight employees of a US-sanctioned Iranian bank in Hong Kong, twosix of whom resigned fromjoined the scheme during the third and fourth quarters of 2016.2017. Under the rules of this scheme, we accept contributions from the Iranian bank each month and allocate the funds into the pension accounts of the Iranian bank’s employees. We run and operate this pension scheme in accordance with Hong Kong laws and regulations. Estimated gross revenue, which includes fees and/or commissions, generated by this pension scheme in 20162017 was approximately $3,790. Three cheques amounting to HK$5,469 (equal to $705.09 based on the HK$ – US dollar exchange rate on 31 December 2016) were issued to the Iranian bank employer during the second quarter of 2016, as a result of the employer’s overpayment of contributions.
$2,910.
For the Iranian bank related-activitybank-related activity discussed above, we do not allocate direct costs to fees and commissions and, therefore, have not disclosed a separate net profit measure.
We have been holding a safe custody box for the Central Bank of Iran. For a number of years, the box has not been accessed by the Central Bank of Iran and no fees have been charged to the Central Bank of Iran.
We currently intend to continue to wind down the activity discussed in this section, to the extent legally permissible, and not enter into any new such activity.
Activity related to US Executive Order 13224
We maintainedmaintain an account for a frozen personalcorporate customer whose owner was designated under Executive Order 13382 during the first quarter of 2017. The customer made a payment of $370,000 shortly after the owner’s designation, which was cleared locally. The account was subsequently frozen. There was no measurable gross revenue or net profit generated from this transaction in 2017.
Other activity
We have an insurance company customer in the United Arab Emirates that during 2017 made six payments and processed five cheques for the reimbursement of medical treatment to a hospital located in the United Arab Emirates and owned by the Government of Iran. HSBC processed all 11 transactions to the hospital made by its customer.
We have a travel agent customer in Europe that made 12 payments to an airline owned by the Government of Iran for the purchase of airline tickets on behalf of a customer.
We maintain an account for an individual customer who was sanctioned under US Executive Order 13224. We issuedthat made a chequepayment to the customer and processed the cheque deposit to close the account. We exited the customer relationshipEmbassy of Iran in the first quarter of 2016.
We maintainedMalaysia through a credit carddepository account for an individual who was sanctioned under US Executive Order 13224 during the first quarter of 2016. The account was frozen during the first quarter of 2016. During the third quarter, the credit card was used2017, which pertained to charges for one minor debit transaction, and we receivedsending a payment relativedocument to the credit card, which has now been cancelled.
We maintain accounts for a corporate customer that was sanctioned under US Executive Order 13224 during the first quarter of 2016. The accounts were frozen during the first quarter of 2016.his father in Iran.
We maintain an account for a corporate customer that was sanctioned under US Executive Order 13224received a payment from an Iranian-owned financial institution during the first quarter of 2016. The2017.
We maintain an account was frozenfor an individual customer that received a cheque payment from an Iranian state owned entity during the first quarter of 2016.2017.
We maintain frozen personal accounts for an individual customer who was sanctioned under US Executive Order 13224 during the second quarter of 2016. The accounts were frozen during the second quarter of 2016.
We maintained a jointly owned safekeeping box during 2016 for an individual customer who was sanctioned under US Executive Order 13224 in 2014. During the first quarter of 2016, the safekeeping box was accessed by the other joint owner (who is not a sanctioned individual).
For activity related to US Executive Order 13224, there was no measurable gross revenue or net profit to HSBC in 2016.
Other activity
We maintained an account for a customer that received and deposited a cheque issued by the Iranian embassy in Brunei for payment of monthly rental property fees in the first quarter of 2016. The relationship was exited in the third quarter of 2016.


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We held a lease of branch premises in London which we entered into in 2005 and was due to expire in 2020. The landlord of the premises is owned by the Iranian government. We exercised the break clause in the lease and exited the property during 2015. During the third quarter of 2016, we paid all outstanding rent and service charges to the landlord, and also made a payment to a third party company that dealt with refurbishment to the premises.
We maintain an account for a corporate customer in Germany for whom wethat received fundsa cheque payment issued by an Iranian-owned financial institution during the secondfirst quarter of 2016 from an account at a European bank2017.
We maintain accounts for certain individual and corporate customers that is named on the List of Persons Identifiedhave used HSBC credit cards to make payments to Iranian owned entities (such as Blocked Solely Pursuant to Executive Order 13599Iranian embassies located in different countries for consular services), in relation to the purchase of software.during 2017.
For the activity in this section, there was no measurable gross revenue or net profit to HSBC in 2016.2017.
Frozen accounts and transactions
We maintain several accounts that are frozen underas a result of relevant sanctions programmes, and onsafekeeping boxes and other similar custodial relationships, for which no activity, except as licensed or otherwise authorised, took place during 2016.2017. There was no measurable gross revenue or net profit to HSBC in 20162017 relating to these frozen accounts.



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Report of the Directors | Risk


Risk
 Page
Our conservative risk appetite89
95
Top and emerging risks89
95
Externally driven89
95
Internally driven91
97
Risk factors92
98
Areas of special interest100
106
Process of UK withdrawal from the European Union100
Oil and gas prices101
106
Risk management101
106
Our risk management framework101
106
Our material banking and insurance risks104
110
Credit risk management106
112
Liquidity and funding risk management108
113
Market risk management110
114
Operational risk management113
117
Regulatory compliance risk management114
117
Financial crime risk management114
118
Insurance manufacturing operations risk management115
118
Other material risks 
– Reputational risk management116
119
– Sustainability risk management117
120
– Pension risk management117
120
Key developments and risk profile in 20162017118
121
Key developments in 20162017118
121
Credit risk profile118
121
Liquidity and funding risk profile143
145
Market risk profile152
150
Operational risk profile159
156
Insurance manufacturing operations risk profile159
157
Our conservative risk appetite
Throughout its history, HSBC has maintained aan evolving conservative risk profile. This is central to our business and strategy.
The following principles guide the Group’s overarching risk appetite and determine how its businesses and risks are managed.
Enterprise-wide application
Our risk appetite encapsulates consideration of financial and non-financial risks and is expressed in both quantitative and qualitative terms.
It is applied at the global business level, at the regional level, and to material operating entities.
Financial position
Strong capital position, defined by regulatory and internal capital ratios.
Liquidity and funding management for each operating entity, on a stand-alone basis.
Operating model
Returns generated in line with risk taken.
Sustainable and diversified earnings mix, delivering consistent returns for shareholders.
Business practice
Zero tolerance for knowingly engaging in any business, activity or association where foreseeable reputational risk or damage has not been considered and/or mitigated.
No appetite for deliberately or knowingly causing detriment to consumers, arising from our products and services or incurring a breach of the letter or spirit of regulatory requirements.
No appetite for inappropriate market conduct by a member of staff or by any Group business.

 
Top and emerging risks
Our approach to identifying and monitoring top and emerging risks is described on page 103.109. During 2016, we made2017, there have been a number of changes todevelopments in our top and emerging risks analysis to reflect our assessment of the issues facing HSBC and their effect on the Group, which are described on page 27.
HSBC. Our current top and emerging risks are as follows.
Externally driven
Economic outlook and capital flows
GlobalAlthough global economic activity strengthened in 2017, growth remained mutedwas weak in 2016, withmany countries and headwinds adversely affectingremain in both developed and emerging markets.economies. Global central banks have initiated a gradual tightening of monetary policy that will likely continue into 2018. Sharper than expected interest rate rises, or economic and/or geopolitical shocks, could lead to an increase in capital flows volatility, especially for emerging markets, potentially impacting economic growth.
Protectionism is on the rise in many parts of the world, driven by both populist sentiment and structural challenges facing developed economies. This rise could contribute to weaker global trade, potentially affecting HSBC’s traditional lines of business.
The UK electorate’s vote to leave the European Union (‘EU’) caused significant market volatility in its immediate aftermath, and since then sterling has depreciated against major currencies. Uncertaintyongoing uncertainty regarding the terms of the UK’s exit agreement, itsfrom the EU, the UK’s future relationship with the EU, and its trading relationship with the rest of the world, may lead to economic uncertainty and market volatility, which could affect both the Group and its customers.
Following robustThe level of indebtedness in mainland China remains high. Any policy action during the course of 2016, market concerns have eased over the extent of the slowdown of the mainland Chinese economy, and the potential for further renminbi depreciation. However, a prolonged or severe slowdown cannot be ruled out, which wouldto restrain credit growth could have wider ramifications for regional and global economic growth, and global trade and capital flows, as a consequence.flows.
While oilIncreased tensions in the Middle East may have significant regional economic and gaspolitical consequences which could impact the Group’s operations within the region.
Oil prices have partly recovered from the lows of 2015, global supplystaged a partial recovery since mid-2017, returning to levels last seen in late 2014. Nevertheless, certain producers, exporters and demand imbalances continue to place considerableoil services companies are still under financial strain, on some producerswhich could negatively affect their investment budgets and exporters. A continuation of low oil prices, particularly in conjunction with a low inflation environment and/or low or negative interest rates, would adversely affect global growththus business prospects and, as a consequence, our results.for HSBC.
Mitigating actions
We actively assess the impact of economic developments in key markets on specific customers, customer segments orand portfolios and take appropriate mitigating action – that mayactions. These actions include revising risk appetite and/or limits, – as circumstances evolve.
We use internal stress testing and scenario analysis, as well as regulatory stress test programmes, to evaluate the potential impact of macroeconomic shocks on our businesses and portfolios. Analysis undertaken on our oil and gas lending portfolios are described on page 101, and our widerOur approach to stress testing is described on page 103109.
We have carriedcarried out detailed reviews and stress tests of our wholesale credit portfolios, particularly across those sectors most affected by the UK referendum result. We have also run a number of stress tests on our wholesale and trading portfolios to examine potential impacts under a range of possibledetermine those sectors and customers most vulnerable to the UK’s exit scenariosfrom the EU, in order to proactively manage and develop a suite of possible mitigating actions.
mitigate this risk.
Geopolitical risk
Our operations and portfolios are exposed to risks arising fromassociated with political instability, civil unrest and military conflict, in many parts of the world. These may includewhich could lead to disruption to our operations, physical risk to our staff and/or physical damage to our assets, disruption to our operationsassets. In addition, rising protectionism and a curtailment inthe increasing trend of using trade and investment policies as diplomatic tools may also adversely affect global trade flows.
The outcomeGeopolitical risk remained heightened throughout 2017. While elections across the EU during 2017 have temporarily stemmed a populist tide, political uncertainty remains high in the UK as negotiations progress towards an exit from the EU (see ‘Process of UK withdrawal from the US election has added to concerns about a riseEuropean Union’ in protectionism. This has been accentuated in many partsAreas of special interest on page 106). In addition, the world by rapid technological change and income inequality. Any amplificationthreat of this trend could cause a curtailment in global trade, and thus impact HSBC’s traditional lines of business.terrorism within the region remains high.


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European states are experiencing heightened political tension, reflecting concerns over migration, fears of terrorism, increased tension with Russia, and uncertainty about the future relationship between the UK and the EU. Elections in France, Germany, the Netherlands and possibly Italy in 2017 are adding to the uncertainty.
In the Middle East, a number of countries severed diplomatic and transport ties with Qatar, a leading exporter of liquefied natural gas and a significant global investor. Further sanctions may be imposed on Iran outside the terrorist group Daesh has come under increasing pressure as an international coalition recaptured territory across Syriaguidelines laid out in the Joint Comprehensive Plan of Action, which was decertified, rather than dismantled, by the Trump administration. The tensions between Saudi Arabia, the US and Iraq. Despite this, Daesh has proved capable of carrying out terrorist attacks both in neighbouring countries and further afield.Iran may remain.
In Asia, ongoing territorial disputes in the South China Seatensions continue to rise between North Korea and a region-wide build-up in military capability have strained diplomatic relations, and are testing the resolve of the US to defend freedomas a result of navigation.North Korean progress in its missile and nuclear programmes. The stronger Chinese enforcement of UN sanctions on North Korea may not halt further missile and nuclear tests. Any escalation could have a significant impact on regional and global trade.
Mitigating actions
We continually monitor the geopolitical outlook, in particular in countries where we have material exposures and/or a physical presence. We have also established a new dedicated forumforums to monitor and advise senior management on global developments, including analysis on how the Group’s strategy could be affected by geopolitical events.developments.
We have taken stepsuse internal stress tests and scenario analysis as well as regulatory stress test programmes, to increase the physical security of our premises and have enhanced our major incident response capabilities, particularly in those geographical areas deemed to be at a higher risk from terrorism and military conflicts.
Our internal credit risk ratings of sovereign counterparties take geopolitical factors into account and drive our appetite for conducting business in those countries. Where necessary, we adjust our country limits and exposures to reflect our risk appetite and mitigate risks as appropriate.
We incorporate Our internal credit risk ratings of sovereign counterparties take into account geopolitical scenarios, such as conflicts in countries where we have a significant presence or political developments that could potentially disrupt our operations, into our internal stress tests to assess their potential effect on our portfolios and businesses.
Turning ofContingency planning for the UK’s exit from the EU continues and we are assessing the potential impact on our portfolios, operations and staff.
We have taken steps to enhance physical security in those geographical areas deemed to be at high risk from terrorism and military conflicts.
The credit cycle
Although theThe credit environment has stabilisedremains benign as evidenced by the continued fall in the latter part of the year, due in part to further monetary loosening,loan impairment charges during 2017. However, there is a risk that the credit cycle could turn sharply in 2017 if economic and/or geopolitical shocks unfold.
Stressas a result of shocks. These could appear acrossoccur as a wide arrayresult of credit segments, particularly given the substantial amounts of external refinancing due in emerging markets in 2017 and 2018. Sentiment towards mainland China could also deteriorate amid concerns over its increasing debt burden, or political events in the US, UK and EU, or sentiment towards mainland China deteriorating amid concerns over increasing leverage in the financial system. Additionally, a renewed downward trend in oil prices could deliver negative economic outcomes. Impairmentincrease financial difficulties in the oil and gas sector.
Substantial amounts of external refinancing are due in emerging markets in 2018. Stress could appear in a wide array of credit segments and impairment allowances could increase if the credit quality of our customers is affected by less favourable global economic conditions in some markets. Should oil prices remain low or fall, our oil and gas portfolios would come under further pressure.
Mitigating actions
We closely monitor economic developments in key markets and sectors takingand undertake scenario analysis. This enables us to take portfolio actions where necessary, including enhanced monitoring, amending our risk appetite and/or reducing limits and exposures.
We stress test portfolios of particular concern to identify sensitivity to loss under a range of scenarios, with management actions being taken to rebalance exposures and manage risk appetite where necessary.
Reviews of key portfolios are undertaken regularly to help ensure that individual customer or portfolio risks are understood and thatour ability to manage the level of facilities offered and our ability to
manage these through any downturn areis appropriate.
Cyber threatCyber-threat and unauthorised access to systems
HSBC and other public and private organisations continue to be the targets of increasingincreasingly sophisticated cyber-attacks. Ransomware and more sophisticated cyberdistributed denial of service attacks thatappear to be an increasingly dominant threat to the financial industry, which may disruptresult in disruption to our operations and customer-facing websites or loss of customer services.data.
Mitigating actions
We continue to strengthen and significantly invest in our ability to prevent, detect and respond to the ever-increasing and sophisticated threat of cyber attacks.cyber-attacks. Specifically, we continue to enhance our capabilities to protect against increasingly sophisticated malware, denial of service attacks and data leakage prevention, as well as enhancing our security event detection and incident response processes.
Cyber risk is a priority area for the Board and is regularly reported at Board level to ensure appropriate visibility, governance and executive support for our ongoing cybersecurity programme.
We participate in intelligence sharing with both law enforcement and industry schemes to help improve our understanding of, and ability to respond to, the evolving threats faced by us and our peers within our industry.peers.
Regulatory, technological and technologicalsustainability developments including conduct, with adverse impact on business model and profitability
Financial service providers continue to face stringent regulatory and supervisory requirements, particularly in the areas of capital and liquidity management, conduct of business, financial crime, operational structures,internal control frameworks, the use of models and the integrity of financial services delivery. The competitive landscape in which the Group operates may be significantly altered by future regulatory changes and government intervention, which could be introduced with different, potentially conflicting requirements and to differing timetables by different regulatory regimes.intervention. Regulatory changes, including any resulting from the UK’s exit from the EU, may affect the activities of the Group as a whole, or of some or all of its principal subsidiaries.
In September 2017, HSBC Holdings and HSBC North America Holdings Inc. (‘HNAH’) consented to a civil money penalty order with the US Federal Reserve Board (‘FRB’) in connection with its investigation into HSBC’s foreign exchange activities. Under the terms of the order, HSBC Holdings and HNAH agreed to undertake certain remedial steps and to pay a civil money penalty to the FRB. In January 2018, HSBC Holdings entered into a three-year deferred prosecution agreement with the US Department of Justice (‘DoJ’) (‘FX DPA’), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. This concluded the DoJ’s investigation into HSBC’s historical foreign exchange activities. Under the terms of the FX DPA, HSBC has a number of ongoing obligations, including continuing to cooperate with authorities and implementing enhancements to its internal controls and procedures in its Global Markets business which will be the subject of annual reports to the DoJ. In addition, HSBC agreed to pay a financial penalty and restitution.
While we are actively engaging in opportunities, there is a risk that the rise of financial technology (‘fintech’) presents acould disrupt the traditional business model of financial institutions.
The financial sector has also been subject to an increasing number of opportunities that we are actively engaging in, there is also a risk that it could disrupt financial institutions’ traditional business model.campaigns promoting environmental objectives, including climate change related risks (see page 27 ), as the sophistication of campaigns and research capabilities of non-governmental organisations (‘NGOs’) develop.
Mitigating actions
We are fully engaged closely with governments and regulators in the countries in which we operate to help ensure that new requirements are considered properly by regulatory authorities and the financial sector and can be implemented effectively.
We have strengthened governance and resourcing around regulatory change management. Significant regulatory programmes, such as Global Standards (see page13) and the implementationestablishment of International Financial Reporting Standard 9,the UK ring-fenced bank, are overseen by the Group Change Committee (see ‘Execution risk’ on page 92(‘GCC’).
We are actively pursuing opportunities inhold regular meetings with UK authorities to discuss strategic contingency plans covering a wide range of scenarios relating to the fintech space,UK’s exit from the EU.
We have invested significant resources and have established HSBC Digital Solutions,taken, and will continue to take, a specialist teamnumber of steps to design, buildimprove our compliance systems and run digital services. We have also established a technology advisory boardcontrols relating to help ensure we are fully aware of, and respond to, industry developments as they arise.
Regulatory focus on conduct of business and financial crime
Financial institutions remain under considerable scrutiny regarding conduct of business, particularly in relation to fair outcomes for customers and orderly and transparent operations in financialglobal markets as well as financial crime. Regulators, prosecutors, the media and the public all have heightened expectations as to the behaviour and conduct of financial institutions, and any shortcomings or failure to demonstrate adequate controls are in place to mitigate such risks could result in regulatory sanctions or fines. This could also lead toactivities. For


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an increase in civil litigation arising from or relating to issues which are subject to regulatory investigation, sanction or fine.
Mitigating actions
We have created a new function, Financial Crime Risk, which brings together all areas of financial crime risk management at HSBC. For further details, see ‘Financial crime risk management’ on page 114.
We have also continued to enhance our management of conduct in areas including the treatment of potentially vulnerable customers, market surveillance, employee training and performance management (see ‘Regulatory compliance risk management’ on page 114117).
The HSBC Digital Solutions team is actively pursuing opportunities in the fintech space and is deploying solutions with a higher level of agility than our traditional model, helping to enable us to be more competitive in this area.
We continue to work with NGOs to enhance our policies to support sustainable finance.
Financial crime risk environment
Financial institutions remain under considerable regulatory scrutiny regarding their ability to prevent and detect financial crime. Financial crime threats continue to evolve, often in tandem with geopolitical developments. The financial crime risks related to the use of innovative fintech are not yet fully understood, while the changing sanctions regulatory landscape presents execution challenges.
Recent terrorist attacks in Europe and the US deferred prosecution agreementmay increase law enforcement and/or regulatory focus on bank controls to combat terrorist financing and related agreementstimely reporting to authorities. This focus may also lead to conflicts between data demands from law enforcement and consent ordersthe data protections which HSBC is required to enforce.
HSBC is subjectBank USA entered into a consent cease and desist order with the OCC in October 2010 and HSBC North America Holdings entered into a consent cease and desist order with the FRB. HSBC Bank USA further entered into an enterprise-wide compliance consent order in 2012. HSBC Holdings consented to a five-year deferred prosecution agreement (‘US DPA’) with the US DoJcease and related agreements and consent ordersdesist order with the FRB in December 2012. Together, these orders required improvements to establish an effective compliance risk management programme across HSBC, including risk management related to the OCC and the FCA. Under the agreements entered into with the DoJ and the FCA in 2012, an independent compliance monitor (the ‘Monitor’) was appointed in July 2013 for an expected five-year period to produce annual assessments of the effectiveness of the Group’s anti-money laundering (‘AML’) and sanctions compliance programme.
The design and execution of theBank Secrecy Act, AML and compliance with US sanctions remediation planslaws. Failure to address the findings of the US DPA and the Monitor are complex and require major investments in people, systems and other infrastructure. This complexity creates significant execution risk that could affect our ability to effectively identify and manage financial crime risk and remedy AML and sanctions compliance deficiencies in a timely manner. This, in turn, could impact our ability to satisfy the Monitor or comply with these orders by HSBC could place further restrictions on the terms of the US DPA and related agreements and consent orders, and may require us to take additional remedial measures in the future. These risks could be further heightened if the Monitor’s reports were to become public.
In February 2017, the Monitor delivered his third annual follow-up review report as required by the US DPA. In his report, which is discussed on page 115, the Monitor concluded that, in 2016, HSBC continued to make progress in enhancing its financial crime compliance controls, including improvements to our global AML policies and procedures. However, the Monitor also expressed significant concerns about the pace of that progress, instances of potential financial crime that the DoJ 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 Monitor also found that there remain substantial challenges for HSBC to meet its goal of developing a reasonably effective and sustainable AML and sanctions compliance programme. In addition, the Monitor did not certify as to HSBC’s implementation of and adherence to remedial measures specified in the US DPA.
Potential consequences of breaching the US DPA could include the imposition of additional terms and conditions on HSBC, an extension of the agreement, including its monitorship, or the criminal prosecutionoperations of HSBC that could, in turn, entail further financial penaltiesentities, and collateral consequences.therefore impact the achievement of our strategic objectives.
Moreover, HSBC Bank USA, as the primary US dollar correspondent bank for the Group, is subject to heightened financial crime risk arising from business conducted on behalf of clients as well as its non-US HSBC affiliates. If HSBC Bank USA fails to conduct adequate due diligence on clients, including its affiliates, or otherwise inappropriately processes US dollar payments on behalf of non-US HSBC affiliates, it could be in breach of applicable US AML and sanctions laws and regulations and become subject to legal or regulatory enforcement actions by OFAC orthe Office of Foreign Assets Control and other US agencies and be required to pay substantial fines or penalties. In addition, any such breaches of US legislation could constitute a breach of the US DPA.
Under the terms of the US DPA, upon notice and an opportunity to be heard, the DoJ has sole discretion to determine whether HSBC has breached the US DPA.agencies.
Mitigating actions
We continued to make progress during 2016 toward putting in place an effective and sustainable AML and sanctions compliance programme, including through the creation of a newenhance our Financial Crime Risk function and improvements in technology and systems to managewhich brings together all areas of financial crime risk.risk management at HSBC (see page 118).
We strengthened governance processes during 2017 by establishing formal financial crime risk governance committees at region, global business and country levels of the organisation. This will help to ensure appropriate oversight and escalation of issues to the Financial Crime Risk Management Meeting of the Group Management Board.
We are working to implementdevelop enhanced risk management capabilities through better use of sophisticated analytical techniques.
We are working to ensure that the agreed recommendations flowing fromreforms we have put in place are both effective and sustainable over the Monitor’s previous reviews,long term. Work in these areas will continue to be consistent with the terms of the orders by which weare bound and to implement the agreed recommendations fromstrategic objectives of the 2016 review.Group.

Internally driven
IT systems infrastructure and resilience
HSBC continues to invest in the reliability and resilience of our IT Systems,systems and critical services. We do so to help ensure thatprevent disruption to customer services, resultingwhich could result in reputational and regulatory damage does not occur.damage.
Mitigating actions
WeStrategic initiatives are part-way through a multi-year investment programme that is transforming how technology is developed, delivered and maintained, with a particular focus on providing high-quality, stable and secure services. As part of this, we are concentrating on materially improving system resilience and service continuity testing. In addition, we have enhanced the security of our development life cycle and improved our testing processes and tools.
During 2017, we continued to monitor and upgrade our IT systems, simplifying our service provision and replacing older IT infrastructure and applications. These investments are designed to improve IT systems resilience.
During 2016, we continued to upgrade our IT Systems, improve disruption free change, and materially reduce the number of incidents relating to our critical business services. These enhancements led to a materialfurther improvement in service availability during the year and helped reduce impact tofor our customers and colleagues by 45% (when compared with the same period in 2015).employees.
Impact of organisational change and regulatory demands on employees
The cumulative workload arising from ourOur success in delivering the Group’s strategic priorities, as well as significant regulatory reform and remediationchange programmes, together with those related todepends in part on the deliveryretention of key members of our strategy, continuesmanagement team and wider employee base. The ability to place increasingly complexcontinue to attract, train, motivate and conflicting demands on a workforce that operatesretain highly qualified professionals in an employment market where expertise in key markets is often mobile and in short supply is critical. This may depend on factors beyond our control, including economic, market and mobile. Theregulatory conditions. In addition, the impact of the UK’s exit from the EU on our employees and the scale of the resultant organisational change including the establishment of the ring-fenced bank in the UK, has increased pressure on employees and requires usis yet to ensure that key skills and experience are retained. Furthermore, the outcome of the UK referendum on EU membership has led to some uncertainties regarding movement of labour.be fully understood.
Mitigating actions
We have enhanced our wellbeing programme to support our employees, particularly those affected by the Group’s considerable change agenda.
Risks related to organisational change are subject to close management oversight. A range of actions are being developed to address the risks associated with the Group’s major change initiatives, including recruitment, development and extensive relocation support to existing employees in the UK ring-fenced bank.
WeThrough dedicated work streams, we continue to increase the level of specialist resource in key areas, and to engage with our regulators as they finalise new regulations. We usedevelop succession plans using a broad array of talent-sourcing channels succession planning for key management roles, and heightened promotionwhich are reviewed on a regular basis.
Contingency planning to address the potential impacts of opportunities internally,the UK’s exit from the EU on our staff is underway with particular attention in our more challenging markets.regular updates provided to the UK authorities.


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Execution risk
Execution risk remained heightened during 2016 as we continuedIn order to work towards delivering thedeliver our strategic actions announced at the Investor Update in June 2015 (see page 12). These, along with theobjectives and meet mandatory regulatory reform agenda and our commitments under the US DPA, require therequirements, it is important for HSBC to maintain a strong focus on execution risk. This requires robust management of significant projects that are resource intensiveresource-intensive and time sensitive.time-sensitive programmes. Risks arising from the volume, magnitude and complexity of the projects underway to meet these demandschange may include regulatory censure, reputational damage or financial losses.
Mitigating actions
We have strengthened our prioritisation and governance processes for significant projects. The Group Change Committee (‘GCC’),GCC, chaired by the Group Chief Operating Officer, oversees these key regulatory and strategic initiatives, managing interdependencies and providing direction and support to help ensure their effective and timely delivery.
In 2017, we continued to manage execution risks through closely monitoring the most significantpunctual delivery of critical initiatives, internal and external dependencies, and key risks, to allow better portfolio management across Group. The GCC also monitors the ongoing completion of material deliverables across these programmes and provides regular updatesin order to address any resourcing challenges.
The GCC escalates any necessary issues to the Group Risk Management Meeting of the GMB.Group Management Board.
The GCC monitors
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Risks arising from the receipt of deliverables to ensure that potential resource constraints over the medium term are understood and addressed.
Third-party risk managementservices from third parties
We utilise third parties for the provision of a range of goods and services, in common with other financial servicesservice providers. Global regulatorsRisks arising from the use of third-party service providers may be less transparent and therefore more challenging to manage or influence. It is critical that we ensure that we have increased their scrutiny of these arrangementsappropriate risk management policies, processes and expect firms to be able to demonstratepractices, including adequate control over the selection, governance and oversight of their third parties, including affiliates.particularly for key processes and controls that could affect operational resilience. Any deficiency in our management of third-party riskrisks arising from the use of third parties could affect our ability to meet strategic, regulatory or client expectations. This may, in turn, lead to a range of consequences, including regulatory censure or reputational damage.
Mitigating actions
We are part-way throughIn the fourth quarter, we commenced the deployment of our delivery model in the first line of defence by establishing a multi-year strategic programme to enhance ourdedicated team and developing associated processes, controls and technology for undertaking assessments of third-party risk management capability. This is designed to enable the consistent risk assessment of any third-party service providers against key criteria along withthroughout the third-party life cycle. In addition, we started to roll out associated control monitoring, testing and assurance throughout the third-party life cycle.processes.
A new Group policy and supporting framework was published in December 2016. The supporting delivery model and technology will be developed and will start to deployWe established a dedicated oversight forum in the second halfline of 2017.defence to monitor the embedding of policy requirements and performance against risk appetite.
Enhanced model risk management expectations
We use models for a range of purposes in managing our business, including regulatory capital calculations, stress testing, credit approvals, financial crime and fraud risk management and financial reporting. Regulatory requirements for models are rapidly increasingInternal and often fast-moving. The scaleexternal factors have had a significant impact on our approach to model risk management. Moreover, the adoption of more sophisticated modelling techniques and scope oftechnology across the industry could also lead to increased model development expected by regulators pose significant execution challenges, especially where the breadth and scope are beyond what has previously been expected of the Group.
Regulatory scrutiny and supervisory concerns over banks’ use of models is considerable, particularly the internal models and assumptions used by banks in the calculation of regulatory capital. If regulatory approval for key capital models is not achieved in a timely manner, we could be required to hold additional capital.risk.
Mitigating actions
We have established a model risk management sub-function in the second line of defence to strengthen governance and oversight of this risk type.
We further strengthened our model risk governancemanagement framework throughout 2017 by establishing additional global model oversight committees and implementing policies and standards in accordance with key regulatory requirements.
We have strengthenedAs we adopt new modelling technologies, we are updating our governance over the development, usage and validation of models including
the creation of centralised global analytical functions with necessary subject matter expertise.
We have hired additional subject matter experts within our Independent Model Review sub-function and empowered the team to ensure appropriate challenge and feedback are given to models prior to and as part of their ongoing use.
We have strengthened the model risk policymanagement framework and introduced a Group-wide single model inventory system detailing key metrics on all models, and an assessment of their relative importancegovernance standards to the organisation.help address any new risks arising.
Data management
The Group currently uses a large number of systems and applications to support key business processes and operations. MultipleAs a result, we often need to reconcile multiple data sources, including customer data sources, introduce the need for reconciliation to reduce the risk of error. Strong data governance and enhanced data quality are requiredHSBC, along with other organisations, also needs to meet our external/regulatory obligations relating to risksuch as the General Data Protection Regulation (‘GDPR’) which requires implementation of data aggregationprivacy and risk reporting as set outprotection capabilities across our customer data systems by the Basel Committee and our obligations under the US DPA, as well as to service our customers more effectively and improve our product offering.May 2018.
Mitigating actions
The Chief Information Officer continues to drive the Group’s efforts to enhance data governance, quality and architecture. These services underpin key programmes and initiatives, such as our Global Standards programme.
We are significantly reducing the number of systems and applications that support key business processes, which will streamline the number of data sources across the Group, particularly data used in our customer and transaction screening processes.
We continue to make progress on key initiativesimprove data quality across a large number of systems globally. Our data management and projectsaggregation continues to implementstrengthen and enhance the effectiveness of internal systems and processes. We are implementing data controls for critical processes in the ‘front-office’ systems to improve our data strategycapture at the point of entry.
We continue to proactively monitor customer and transaction data resolving any associated data issues. We have also implemented data controls and enhanced reconciliation in order to improve the reliability of data used by our customers and staff.
Our data culture is strengthening with ownership and accountability attributed to our businesses and increased focus on data as a Group asset.
We have deployed risk and finance data aggregation and advanced reporting capabilities to key markets in 2017. We are on track for completing actions for the remaining countries in scope by the end of 2018.
A dedicated programme of work towards meetinghas been mobilised to execute the GDPR requirements in order to enhance our Basel Committeecustomers’ data obligations.protection and privacy.
Risk factors
We have identified a comprehensive suite of risk factors that covers the broad range of risks our businesses are exposed to. A number of the risk factors have the potential to have a material adverse effect on our business, prospects, financial condition, capital position, reputation, results of operations and/or our customers. They may not necessarily be deemed as top or emerging risks; however, they inform the ongoing assessment of our top and emerging risks that may result in our risk appetite being revised. The risk factors are set out below.
Macroeconomic and geopolitical risk
Current economic and market conditions may adversely affect our results
Our earnings are affected by global and local economic and market conditions.
Uncertain and at times volatile economic conditions can create a challenging operating environment for financial services companies such as HSBC. In particular, we may face the following challenges to our operations and operating model in connection with these factors:
the demand for borrowing from creditworthy customers may diminish if economic activity slows or remains subdued;
asif capital flows are increasingly disrupted, some emerging markets have imposedmay impose protectionist measures that could affect financial institutions and their clients, and other emerging, as well as non-emergingdeveloped markets, may be tempted to follow suit;
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particularly in the EU, and uncertainties about the new EU bank resolution regime raise funding costs;
the prolonged period of low, or negative,if interest rates constraints; for example, through margin compressionbegin to increase, consumers and low returns on assets,businesses may struggle with the net interest income we earn from investing our excess deposits;additional debt burden which could lead to increased delinquencies and loan impairment charges;
our ability to borrow from other financial institutions or to engage in funding transactions may be adversely affected by market disruption; for example, in the event of contagion from stress in the eurozone sovereign and financial sectors; and
market developments may depress consumer and business confidence beyond expected levels. If economic growth remains subdued;is subdued, for example, asset prices and payment patterns may be adversely affected, leading to greater than expected increases in our delinquencies, default rates write-offs and loan impairment charges. However, if growth is too rapid, new asset valuation bubbles could appear, particularly in the real estate sector, with potentially negative consequences for banks; and
a rise in protectionism, including as may be driven by populist sentiment and structural challenges facing developed economies. This rise could contribute to weaker global trade, potentially affecting HSBC’s traditional lines of business.
The occurrence of any of these events or circumstances could have a material adverse effect on our business prospects, financial condition, customers and results of operations.
We are subject to political risks in the countries in which we operate, including the risk of government intervention
We operate through an international network of subsidiaries and affiliates in 70over 65 countries and territories around the world. Our operations in such countries are subject to potential unfavourable political developments (which may include coups and/or civil wars), currency fluctuations, social instability and changes in

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government policies.policies in the countries in which we operate or where we have exposure. These may take the form of expropriation, restrictions on international ownership, interest-rate caps, limits on dividend flows and tax in the jurisdictions in which we operate. Such developments could cause disruptions to our operations and result in a material adverse effect on our business, prospects, financial condition and results of operations.
The UK’s withdrawal from the European Union may adversely affect our operating model and financial results
The UK electorate’s vote and the exit agreement to leave the European Union may have a significant impact on general macroeconomic conditions in the United Kingdom, the European Union and globally, and is likely to usher in a prolonged period of uncertainty.globally. Negotiations of the UK’s exit agreement, its future relationship with the EU and its trading relationships with the rest of the world will likely take a number of years to resolve. TheThis may result in a prolonged period of uncertainty and market volatility, that followed the UK’s decision to leave the EU is likely to continue until the UK’s future relationship with the EU and the rest of the world is clearer. Given the timeframetime frame and the complex negotiations involved, a clearer picture is not expected to emerge for some time.
Uncertainty as to the precise terms of these arrangements, and the future legal and regulatory landscape, may lead to uncertainunstable economic conditions, market volatility and currency fluctuations. Among other issues, the UK’s future relationship with the EU may have implications for the future business model for our London-based European cross-border banking operations, which relies on unrestricted access to the European financial services market. The current negotiating stance of the UK government is likely to increase the likelihood of a ‘hard exit’ which may include the loss of EU ‘passporting rights’ (that would require us to make use of alternative licensing arrangements for our operations in EU jurisdictions), a discontinuation of the free movement of services and significant changes to the UK’s immigration policy. As a result, meeting our client’sclients' needs following the UK’s departure from the EU will likely require adjustments to our London-based European cross-border banking operations.
These types of challenging market conditions have historically resulted in reduced liquidity, greater volatility, widening of credit spreads and lack of price transparency in credit and capital markets. The adverse market conditions have impacted investment markets globally, including adverse changes and increased volatility in interest rates and exchange rates, and decreased returns from equity, property and other investments.
We may face the following challenges to our operations and operating model in connection with these factors, as a result of the UK’s exit from the EU:
our operating costs could increase, and we could be forced to relocate UK staff and businesses to other jurisdictions;
the demand for borrowing from creditworthy customers may diminish if economic activity slows or remains subdued;
if capital flows are disrupted, some emerging markets may impose protectionist measures that could affect financial institutions and their clients;
our ability to borrow from other financial institutions or to engage in funding transactions may be adversely affected by market disruption; for example, in the event of contagion from stress in the eurozone and global sovereign and financial sectors, andsectors;
market developments may depress consumer and business confidence beyond expected levels. If economic growth remains subdued;subdued, for example, asset prices and payment patterns may be adversely affected, leading to greater than expected increases in delinquencies, default rates, write-offs and loan impairment charges. However, if growth is too rapid, new asset valuation bubbles could appear, particularly in the real estate sector, with potentially negative consequences for banks, suchbanks; and
the other challenges due to uncertain and at times volatile economic conditions, as the Issuer.described under 'Current economic
and market conditions may adversely affect our results', could be exacerbated.
The occurrence of any of the events described above could have a material adverse effect on HSBC’s business, financial condition and prospects, the results of the operations and/or our customers.
Changes in foreign currency exchange rates may affect our results
We prepare our accounts in US dollars because the US dollar and currencies linked to it form the major currency bloc in which we transact and fund our business. However, a substantial portion of our assets, liabilities, assets under management, revenues and expenses are denominated in other currencies. Changes in foreign exchange rates, including those that may result from a currency becoming de-pegged from the US dollar, have an effect on our reported income, cash flows and shareholders’ equity, and could have a material adverse effect on our business, prospects, financial condition and results of operations.
Macro-prudential, regulatory and legal risks to our business model
Failure to implement and adhere to our obligations under the deferred prosecution agreement could have a material adverse effect on our resultsand operations
HSBC is subject to a five-year Deferred Prosecution Agreement (‘US DPA’) with the US DoJ and related agreements and consent orders with the FRB, the OCC and the FCA. Under the agreements entered into with the DoJ and the FCA in 2012, an independent compliance monitor (‘the Monitor’) was appointed in July 2013 for an expected five-year period to produce annual assessments of the effectiveness of our AML and sanctions compliance programme.
The design and execution of AML and sanctions remediation plans to address the findings of the US DPA and the Monitor are complex and require major investments in people, systems and other infrastructure. This complexity creates significant execution risk, which could affect our ability to effectively identify and manage financial crime risk, and remedy AML and sanctions compliance deficiencies in a timely manner. This could, in turn, impact our ability to satisfy the Monitor or comply with the terms of the US DPA and related agreements and consent orders, and may require us to take additional remedial measures in the future. These risks could be further heightened if the Monitor's report were to become public.
In February 2017, the Monitor delivered his third annual follow-up review report as required by the US DPA. In his report, which is discussed on page 115, the Monitor concluded that, in 2016, HSBC continued to make progress in enhancing its financial crime compliance controls, including improvements to our global AML policies and procedures. However, the Monitor also


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expressed significant concerns about the pace of that progress, instances of potential financial crime that the DoJ 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 Monitor also found that there remain substantial challenges for HSBC to meet its goal of developing a reasonably effective and sustainable AML and sanctions compliance programme. In addition, the Monitor did not certify as to HSBC’s implementation of and adherence to remedial measures specified in the US DPA.
Potential consequences of breaching the US DPA could include the imposition of additional terms and conditions on HSBC, an extension of the agreement, including its monitorship, or the criminal prosecution of HSBC, which could, in turn, entail further financial penalties and collateral consequences. Under the terms of the US DPA, upon notice and an opportunity to be heard, the DoJ has sole discretion to determine whether HSBC has breached the US DPA.
Breach of the US DPA or related agreements and consent orders could have a material adverse effect on our business, financial condition and results of operations, including loss of business and withdrawal of funding, restrictions on performing dollar-clearing functions through HSBC Bank USA or revocation of bank licences. Even if we are not determined to have breached these agreements, but the agreements are amended or their terms extended, our business, reputation and brand could suffer materially. See ‘Third parties may use us as a conduit for illegal activities without our knowledge’. Moreover, these consent orders do not prelude additional enforcement actions by bank regulatory, governmental or law enforcement agencies or private litigation.
We may fail to effectively manage affiliate risk
HSBC Bank USA, as the primary US dollar correspondent bank for the Group, is subject to heightened financial crime risk arising from business conducted on behalf of clients, as well as its non-US HSBC affiliates. If HSBC Bank USA fails to conduct adequate due diligence on clients, including its affiliates, or otherwise inappropriately processes US dollar payments on behalf of non-US HSBC affiliates, it could be in breach of applicable US AML and sanctions laws and regulations, become subject to legal or regulatory enforcement actions by OFAC or other US agencies and be required to pay substantial fines or penalties. In addition, any such breaches of US legislation could constitute a breach of the US DPA, leading to the potential consequences described under ‘Failure to implement and adhere to our obligations under the deferred prosecution agreement could have a material adverse effect on our results and operations’. In particular, any such breaches could require HSBC to restructure its operations or cease to offer certain products or services, which could potentially include a suspension or restriction of HSBC Bank USA’s ability to process US dollar payment transactions, all of which would have a material adverse effect on our business, financial condition, results of operations and prospects.
Failure to comply with certain regulatory requirements would have a material adverse effect on our results and operations
HSBC Bank USA is also subject to an agreement entered into with the OCC in December 2012, the Gramm-Leach-Bliley Act (‘GLBA’) Agreement and other consent orders. As reflected in the agreement entered into with the OCC in December 2012 (‘the GLBA Agreement’), the OCC has determined that HSBC Bank USA is not in compliance with the requirements that a national bank, and each depository institution affiliate of the national bank, must be both well capitalised and well managed in order to own or control a financial subsidiary. As a result, HSBC Bank USA and its parent holding companies, including HSBC Holdings, do not meet the qualification requirements for financial holding company status. If all of our affiliate depository institutions are not in compliance with these requirements within the time periods specified in the GLBA Agreement, as they may be extended, HSBC could be required either to divest HSBC Bank USA or to divest or terminate any financial activities conducted in reliance on financial holding company status under the GLBA. Similar consequences could result for financial
subsidiaries of HSBC Bank USA that engage in activities in reliance on expanded powers provided for in the GLBA. Any such divestiture or termination of activities would have a material adverse effect on our business, prospects, financial condition and results of operation.
We may fail to meet the requirements of regulatory stress tests
We are subject to regulatory stress testing in many jurisdictions which are described on page 115.118. These exercises are designed to assess the resilience of banks to potential adverse economic or financial developments and ensure that they have robust, forward-looking capital planning processes that account for the risks associated with their business profile. Assessment by regulators is on both a quantitative and qualitative basis, the latter focusing on our data provision, stress testing capability and internal management processes and controls.
Failure to meet quantitative or qualitative requirements of regulatory stress test programmes, or the failure by regulators to approve our stress results and capital plans, could have a material

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adverse effect on our prospects, financial condition and results of operations.
We are subject to a number of legal and regulatory actions and investigations, the outcomes of which are inherently difficult to predict
We face significant legal and regulatory risks in our business. The volume and amount of damages claimed in litigation, regulatory proceedings and other adversarial proceedings against financial institutions are increasing for many reasons, including a substantial increase in the number of regulatory changes taking place globally, increased media attention and higher expectations from regulators and the public. In addition, criminal prosecutions of financial institutions for, among other things, alleged conduct, breaches of AML and sanctions regulations, antitrust violations, market manipulation, aiding and abetting tax evasion, and providing unlicensed cross-border banking services, have become more commonplace and may increase in frequency due to increased media attention and higher expectations from prosecutors and the public. Any such prosecution of HSBC or one or more of its subsidiaries could result in substantial fines, penalties and/or forfeitures, and could have a material adverse effect on our business, financial condition, results of operations, prospects and reputation, including the potential loss of key licences, requirement to exit certain businesses and withdrawal of funding from depositors and other stakeholders.
Additionally, we continue to be subject to a number of material legal proceedings, regulatory actions and investigations, (including criminal), including for example in relation to HSBC’s historical foreign exchange sales and trading activities, which concluded with the entry into a deferred prosecution agreement with the Criminal Division of the DoJ (the ‘FX DPA’)as described in Note 3534 on the Financial Statements. It is inherently difficult to predict the outcome of many of the legal, regulatory and other adversarial proceedings involving our businesses, particularly those cases in which the matters are brought on behalf of various classes of claimants, seek damages of unspecified or indeterminate amounts or involve novel legal claims. Additionally, potential consequences of breaching the FX DPA could include the imposition of additional terms and conditions on HSBC, an extension of the agreement or the criminal prosecution of HSBC, which could, in turn, entail further financial penalties and collateral consequences.Moreover, we may face additional legal proceedings, investigations or regulatory actions in the future, including in other jurisdictions and/or with respect to matters similar to, or broader than, the existing legal proceedings, investigations or regulatory actions. An unfavourable result in one or more of these proceedings could have a material adverse effect on our business, prospects, financial condition, reputation and/or results of operations.
We are subject to unfavourable legislative or regulatory developments and changes in the policy of regulators or governments
Our businesses are subject to ongoing regulation and associated regulatory risks, including the effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations in the UK, the US, Hong Kong, the EU and the other markets in which we operate. This is particularly the case given the current environment, where we expect government and regulatory intervention in the banking sector to remain high for the foreseeable future. Additionally, many of these changes have an effect beyond the country in which they are enacted, as regulators either deliberately enact regulation with extra-


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territorialextra-territorial impact or our operations mean that the Group is obliged to give effect to ‘local’ laws and regulations on a wider basis.
In recent years, regulators and governments have focused on reforming both the prudential regulation of the financial services industry and the ways in which the business of financial services is conducted. Measures include enhanced capital, liquidity and funding requirements, the separation or prohibition of certain activities by banks, changes in the operation of capital markets activities, the introduction of tax levies and transaction taxes, changes in compensation practices and adjustments tomore detailed requirements on how business is conducted. The government governments
and regulators in the UK, the US, Hong Kong, the EU or elsewhere may intervene further in relation to areas of industry risk already identified, or in new areas, which could adversely affect us.
More stringent regulatory requirements, including further capital, liquidity and funding requirements, and adjustments in the use of models for measuring risk, may adversely affect elements of our business, particularly if capital requirements are increased.
There may be changes in laws, rules or regulations, or in their interpretation or enforcement, or in how new laws, rules or regulations are implemented. Further, there may be uncertainty and lack of international regulatory coordination as enhanced supervisory standards are developed and implemented. These developments are expected to continue to change the way in which we are regulated and supervised, and could affect the manner in which we conduct our business activities, capital requirements, risk management or how the Group is structured; all of which could have a material adverse effect on our business, prospects, financial condition, reputation and results of operations.
We may not manage risks associated with the replacement of benchmark indices effectively
The expected replacement of the key London Interbank Offered Rate (‘LIBOR’) with alternative benchmark rates introduces a number of risks for HSBC, its clients, and the financial services industry more widely. This includes, but is not limited to:
Legal risks, as changes required to documentation for new and existing transactions may be required;
Financial risks, arising from any changes in the valuation of financial instruments linked to benchmark rates;
Pricing risks, as changes to benchmark indices could impact pricing mechanisms on some instruments;
Operational risks, due to the potential requirement to adapt IT systems, trade reporting infrastructure and operational processes; and
Conduct risks, relating to communication with potential impact on customers, and engagement during the transition period.
The replacement of benchmarks together with the timetable and mechanisms for implementation have not yet been confirmed by central banks. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect HSBC. However, the implementation of alternative benchmark rates may have a material adverse effect on our financial condition, customers and operations.
We may fail to comply with all applicable regulations, particularly any changes thereto
Authorities in many jurisdictions have the power to bring administrative or judicial proceedings against us that could result in, among other things, the suspension or revocation of our licences, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary actions.
Areas where changes could have an adverse effect on our business, prospects, financial condition or results of operations include, but are not limited to:
general changes in government, central bank, or regulatory or competition policy, or changes in regulatory regimes that may influence investor decisions in particular markets in which we operate;
the structural separation of certain banking and other activities proposed or enacted in a number of jurisdictions, including the UK, US and France;jurisdictions;
requirements flowing from arrangements for the resolution strategy of the Group and its individual operating entities, that may have different effects in different countries;
the implementation of extra-territorial laws, including initiatives to share tax information, such as the Common Reporting Standard introduced by the OECD;information;
the implementation in January 2018 of CRD IV, notably the UK application of the capital buffer frameworkDirective 2014/65/EU and its interactionRegulation 600/2014/EU (collectively referred to as 'MiFID II'), which impose (among others) enhanced transparency

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requirements and related restrictions in relation to dealings with Pillar 2clients, markets and the PRA buffer;regulators;
the implementation of Directive 2014/59/EU establishing the framework for the recovery and resolution of credit institutions and investment firms (the ‘BRRD’), including minimum requirements for own funds and eligible liabilities or MREL, by the Bank of England (‘BoE’) and its interaction with TLAC requirements for G-SIBs in other jurisdictions particularly in the US and Hong Kong. Under the FSB Standard, G-SIBs are required to meet the TLAC requirement alongside the minimum regulatory capital requirements set out in the Basel III framework (some elements of which have also been or are expected to be revised), discussed on page 6386;
the UK’s exit from the EU, which could result in significant changes to those EU laws (including taxation laws) applicable in the UK (depending on whether the UK were to be readmitted to the European Free Trade Association and EEA). While the UK's exit from
the EU should not in and of itself affect existing UK laws such as the Banking Act 2009, as amended (the 'Banking Act') (discussed below), it is possible that significant changes to UK law and regulation concerning banking and financial services could take place before or following the UK’s exit from the EU;
changes to EU laws relating to taxation in the UK that could result from the UK’s exit from the EU;UK;
the implementation of the European Commission’s proposals for amendments to the BRRD and CRD IV, designed to implement (among other changes) various changes to the EU prudential framework and the implementation of the remaining reforms to the Basel III package including a proposed requirement for G-SIBsthe approaches to credit risk, operational risk, credit valuation adjustment capital charges and certain otherthe application of capital floors;
the proposal that EU banking groups with two or more institutions in the EU, but whose ultimate parent is outside the EU, tomust establish an EU intermediate financial holding company,parent undertaking that would be subject to consolidated prudential supervision in the EU. These proposals are yetEU and subject to be finalisedcapital requirements, recovery and itresolution measures and separate reporting and disclosure requirements. It is unclear, particularly in light of the UK’s exit from the EU, how these requirements will affect the Group;Group or how the Group will arrange any required restructuring in order to comply with the requirements;
the international developments on non-modelled, standardised requirements for credit and operationalcompletion of the outstanding work by the Basel Committee in relation to the Basel II framework, including the treatment of sovereign risk and the use of capital floors;long-term regulatory treatment for International Financial Reporting Standard 9, Financial Instruments (‘IFRS 9’) provisions;
the corporate governance, business conduct, capital, margin, reporting, clearing, execution and other regulatory requirements to which HSBC Bank USA and certain of our affiliates are or may become subject to in their role as a swap dealer, including as imposed by the CFTC and the SEC. Although many significant regulations applicable to swap dealers are already in effect and have imposed significant costs on our derivatives business, we are still in the process of assessing the full impact of certain recently released requirements and the potential impact of future security-based swap requirements;SEC;
the increasing focus by regulators on how institutions conduct business, particularly with regard to the delivery of fair outcomes for customers and orderly/transparent markets, promoting effective competition in the interests of consumers and ensuring the orderly and transparent operation of global financial markets;
restrictions on the structure of remuneration and increasing requirements to detail management accountability within the Group (e.g. the requirements of the Senior Managers and Certification Regime in the UK);
the continued focusUK and similar regimes in the UK on matters relating to institutional ‘culture’, employee conductHong Kong and obligations more generally such as whistleblowing;elsewhere that are under consideration/implementation);
the implementation of any conduct measures as a result of regulators’ increased focus on ‘conduct’ matters,institutional culture, employee behaviour and whistleblowing, including measures resulting from ongoing thematic work into the workings of the retail, SME and wholesale banking sectors and the provision of financial advice to consumers;
the focus globally on data (including on data processing and subject rights / transfer of information) and financial technology risks and cybersecurity and the introduction of new and/or enhanced standards in this area;
changes in national or supra-national requirements regarding the ability to offshore or outsource the provision of services and resources or transfer material risk to financial services companies located in other countries, that impact our ability to implement globally consistent and efficient operating models;
external bodies applying or interpreting standards or laws differently to us;
further requirements relating to financial reporting, corporate governance and employee compensation; and
expropriation, nationalisation, confiscation of assets and changes in legislation or regulations relating to foreign ownership.
We and our UK subsidiaries may become subject to stabilisation provisions under the Banking Act 2009, as amended, in certain significant stress situations
The Banking Act 2009, as amended, (the ‘Banking Act’) implements the BRRD in the UK and creates a special resolution regime (the ‘SRR’). Under the SRR, HM Treasury, the BoE and the PRA and FCA (together, the ‘Authorities’) are granted substantial powers to resolve and stabilise UK-incorporated institutions with permission to accept deposits pursuant to Part 4A of the FSMA that are failing or are likely to fail to satisfy the threshold conditions (within the meaning of section 55B of the FSMA) where it is in the public interest to do so. The SRR presently consists of five stabilisation options: (i) transfer of all of the business of a relevant entity or the shares of the relevant


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entity to a private sector purchaser; (ii) transfer of all or part of the business of the relevant entity to a ‘bridge bank’ wholly-ownedwholly owned by the BoE; (iii) transfer of part of the assets, rights or liabilities of the relevant entity to one or more asset management vehicles for management of the transferor’s assets, rights or liabilities; (iv) the write-down, conversation, transfer, modification, or suspension of the relevant entity’s equity, capital instruments and liabilities; and (v) temporary public ownership of the relevant entity. These tools may also be applied to a parent company or affiliate of a relevant entity where certain conditions are met. In addition, the SRR provides for modified insolvency and administration procedures for relevant entities. It also confers ancillary powers on the Authorities, including the power to modify or override certain contractual arrangements in certain circumstances. The Authorities are also empowered by order to amend the law for the purpose of enabling the powers under the SRR to be used effectively. Such orders may promulgate provisions with retrospective applicability.
In general, the Banking Act requires the Authorities to have regard to specified objectives in exercising the powers provided for by the Banking Act. One of the objectives (which is required to be balanced as appropriate with the other specified objectives) refers to the protection and enhancement of the stability of the financial system of the UK. The Banking Act includes provisions related to compensation in respect of transfer instruments and orders made under it.
There is considerable uncertainty about how the Authorities may exercise the powers granted to them under the Banking Act. However, if we are at or approaching the point of non-viability, such as to require regulatory intervention, any exercise of any resolution regime powers by the Authorities may result in holders of our ordinary shares or other instruments that may fall within the scope of the ‘bail in’ powers described above being adversely affected, including by the write-downcancellation of shares, the write-down or conversion into shares of other instruments, the loss of rights associated with shares or other instruments (including rights to dividends or interest payments), the dilution of their percentage ownership of our share capital, and any corresponding material adverse effect on the market price of our ordinary shares and other instruments.
Structural separation requirements of banking and trading activities proposed or enacted in a number of jurisdictionsthe UK could have a material adverse effect on us
In December 2013, the UK Financial Services (Banking Reform) Act 2013 received Royal Assent. It implements the recommendations of the Independent Commission on Banking which, among other things, establish a framework for ‘ring-fencing’ UK retail banking in separately incorporated banking entities (‘ring-fenced banks’) from trading activities. Secondary legislation and PRAregulatory rules have largelyalso been finalised.
The proposed separation of retail and SME banking in the UK wouldwill be a material change to the structure of HSBC Bank plc. We expectplc, and the cost of implementing structural separation has been and may continue to be material.
In January 2014, the European Commission published legislative proposals on the structural reform
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be material, which could have a material adverse effect on our business, prospects, financial instrumentscondition and commodities, and enable supervisors to require trading activities such as market-making, complex derivatives and securitisation operations to be undertaken in a separate subsidiary from deposit-taking activities. Although limited progress has been made on these proposals in the past year, they remain under consideration in the European Parliament and the Council.results of operations.
We are subject to tax-related risks in the countries in which we operate
We are subject to the substance and interpretation of tax laws in all countries in which we operate and are subject to routine review and audit by tax authorities in relation thereto. WeOur interpretation or application of these tax laws may differ from those of the relevant tax authorities and we provide for potential tax liabilities that may arise on the basis of the amounts expected to be paid to the tax authorities. The amounts ultimately paid may differ materially from the amounts provided depending on the ultimate resolution of such matters. For example, the new US tax legislation (the ‘Tax Legislation’) contains certain complex provisions such as the Base Erosion and Anti-Abuse Tax, which may have a material impact in future periods on income tax expense for certain of our subsidiaries, depending upon, among other things, the future issuance of regulatory guidelines and other interpretive guidance. Additionally, it is not yet clear how the Tax Legislation will impact our clients and there is a risk that the Tax Legislation could have an adverse impact on our commercial relationship with those clients. Changes to tax law, tax rates and penalties for failing to comply
could have a material adverse effect on our business, prospects, financial condition and results of operations.
Risks related to our business, business operations, governance and internal control systems
The delivery of our strategic actions is subject to execution risk
At our Investor Update in June 2015, we set out 10 strategic actions to be completed by the endRobust management of 2017. Nine of these are business-led initiatives, while one has been completed by the Board of Directors. The workcritical time-sensitive and resource-intensive projects is required to execute these actions is substantial.
Alongsideeffectively deliver the Group's strategic actions, wepriorities. We continue to implement a number of externally driven regulatory programmes. Theprogrammes and the magnitude and complexity of the projects required to meet these demands present heightened execution risk. The cumulative impact of the collective change initiatives underway within the Group is significant and has direct implications on resourcing and our people. In addition, the completion of these strategic actions is subject to economic and market conditions, which may be negatively affected as described under ‘Current economic and market conditions may adversely affect our results’.
The failure to successfully complete our 10deliver key strategic actions or other regulatory programmes (within the announced timeframe or at all) could have a significant impact on our financial condition, profitability, prospects and share price, as well as wider reputational and regulatory implications.
There also remains heightened risk around the execution of a number of disposals across the Group in line with our strategy. The potential risks of disposals include regulatory breaches, industrial action, loss of key personnel and interruption to systems and processes during business transformation. They can have both financial and reputational implications, and could also adversely affect the successful delivery of our strategic priorities.
We may not achieve any of the expected benefits of our strategic initiatives
The Group’s strategy (see pages 10 to 11), is built around two trends – the continued growth of international trade and capital flows, and wealth creation, particularly in faster-growing markets. We have analysed those trends and developed criteria to help us better deploy capital in response. The development and implementation of our strategy requires difficult, subjective and complex judgements, including forecasts of economic conditions in various parts of the world. We may fail to correctly identify the trends we seek to exploit and the relevant factors in making decisions as to capital deployment and cost reduction.
Key to achieving our growth strategy is increasing the number of HSBC products held by our customers through cross-selling and driving synergies across our global businesses to grow revenue and earnings. Key opportunities to drive business synergies arise
between CMB and GB&M, and separately in RBWM, which are both areas where many of our competitors also focus. In both instances, this may limit our ability to cross-sell additional products to our customers or may influence us to sell our products at lower prices, reducing our net interest income and revenue from our fee-based products. A failure to deliver the cross-selling and/or business synergies required to achieve our growth strategy could have a material adverse effect on our business, prospects,financial condition and results of operations.
Our ability to execute our strategy may be limited by our operational capacity and the increasing complexity of the regulatory environment in which we operate. We continue to pursue our cost management initiatives, though they may not be as effective as expected, and we may be unable to meet our cost-savingcost saving targets. In addition, factors beyond our control, including but not limited to economic and market conditions, could limit our ability to achieve any of the expected benefits of these initiatives.
Failure to achieve any of the expected benefits of our strategic initiatives could have a material adverse effect on our business, prospects, financial condition and results of operations.


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We operate in markets that are highly competitive
We compete with other financial institutions in a highly competitive industry that continues to undergo significant change as a result of financial regulatory reform, including Open Banking in the UK, as well as increased public scrutiny stemming from the financial crisis and continued challenging economic conditions.
We target internationally mobile clients who need sophisticated global solutions and generally compete on the basis of the quality of our customer service, the wide variety of products and services that we can offer our customers, and the ability of those products and services to satisfy our customers’ needs, the extensive distribution channels available for our customers, our innovation and our reputation. Continued and increased competition in any one or all of these areas may negatively affect our market share and/or cause us to increase our capital investment in our businesses in order to remain competitive. Additionally, our products and services may not be accepted by our targeted clients.
In many markets, there is increased competitive pressure to provide products and services at current or lower prices. Consequently, our ability to reposition or reprice our products and services from time to time may be limited, and could be influenced significantly by the actions of our competitors who may or may not charge similar fees for their products and services. Any changes in the types of products and services that we offer our customers, and/or the pricing for those products and services, could result in a loss of customers and market share.
Further, new entrants to the market or new technologies could require us to spend more to modify or adapt our products to attract and retain customers. We may not respond effectively to these competitive threats from existing and new competitors, and may be forced to increase our investment in our business to modify or adapt our existing products and services or develop new products and services to respond to our customers’ needs.
Any of these factors may have a material adverse effect on our business, prospects, financial condition and results of operations.
Our risk management measures may not be successful
The management of risk is an integral part of all our activities. Risk constitutes our exposure to uncertainty and the consequent variability of return. Specifically, risk equates to the adverse effect on profitability or financial condition arising from different sources of uncertainty, including retail and wholesale credit risk, market risk, operationalnon-traded market risk, non-traded marketoperational risk, insurance risk, concentration risk, liquidity and funding risk, litigation risk, reputational risk, strategic risk, pension obligation risk and regulatory risk. While we employ a broad and diversified set of risk monitoring and mitigation techniques, such methods and the judgements that accompany their application cannot anticipate every unfavourable event or the specifics and timing of every outcome. Failure to manage risks appropriately could have a material adverse effect on

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our business prospects, reputation, financial condition and results of operations.
Operational risks are inherent in our business
We are exposed to many types of operational risk that are inherent in banking operations, including fraudulent and other criminal activities (both internal and external), breakdowns in processes or procedures and systems failure or non-availability. These risks are also present when we rely on outside suppliers or vendors to provide services to us and our customers. These operational risks could have a material adverse effect on our business, prospects, financial condition and results of operations.
Our operations are subject to the threat of fraudulent activity
Fraudsters may target any of our products, services and delivery channels, including lending, internet banking, payments, bank accounts and cards. This may result in financial loss to the Group, an adverse customer experience, reputational damage and potential regulatory action depending on the circumstances of the event, any of which could have a material adverse effect on our business, prospects, financial condition and results of operations.
Our operations are subject to disruption from the external environment
HSBC operates in many geographical locations, which are subject to events that are outside our control. These events may be acts of God, such as natural disasters and epidemics, geopolitical risks, including acts of terrorism and social unrest, and infrastructure issues, such as transport or power failure. These risk events may give rise to disruption to our services, result in physical damage and/or loss of life, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
Our operations utilise third-party suppliers and service providers
HSBC relies on third parties to supply goods and services. Global regulators have increased their scrutiny of the use of third-party service providers by financial institutions, including with respect to how outsourcing decisions are made and how key relationships are managed. Risks arising from the use of third parties may be less transparent and therefore more challenging to manage. The inadequate management of third-party risk could impact our ability to meet strategic, regulatory and client expectations. This may lead to a range of effects, including regulatory censure, civil penalties or damage both to shareholder value and to our reputation, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
Our operations are highly dependent on our information technology systems
The reliability and security of our information and technology infrastructure, and our customer databases are crucial to maintaining the service availability of banking applications and processes and to protecting the HSBC brand. The proper functioning of our payment systems, financial control, risk management, credit analysis and reporting, accounting, customer service and other information technology systems, as well as the communication networks between our branches and main data processing centres, are critical to our operations.
Critical system failure, any prolonged loss of service availability or any material breach of data security, particularly involving confidential customer data, could cause serious damage to our ability to service our clients, could breach regulations under which we operate and cause long-term damage to our business and brand that could have a material adverse effect on our business, prospects, financial condition and results of operations.
We remain susceptible to a wide range of cyber riskscyber-risks that impact and/or are facilitated by technology.
The threat from cyber attacks iscyber-attacks remains a concern for our organisation, and failure to protect our operations from internet
crime or cyber attacks may result in financial loss, business disruption and/or loss of customer services and data or other sensitive information that could undermine our reputation and our ability to attract and keep customers.
Moreover, during 2016, we wereRansomware and Distributed Denial of Service ('DDOS') attacks are an increasingly dominant threat across the industry. In 2017, the bank was subjected to frequent ‘deniala small number of service’DDOS attacks on our external-facingexternal facing websites across the Group. A denial of service attack is the attempt to intentionally disrupt, paralyseGroup and potentially extract data from a computer network by flooding it with data sent simultaneously from many individual computers.no ransomware attacks.
Although the cyber attackscyber-attacks in 20162017 had a negligible effect on our customers, services or firm, due to the increasing sophistication of cyber-attacks there is the potential for future cyber attacks couldto have a material adverse effect on our business, prospects, financial condition, reputation and results of operations.
Our data management policies and processes may not be sufficiently robust
Critical business processes across the Group rely on large volumes of data from a number of different systems and sources. If data governance including retention and deletion, data quality and data architecture policies and procedures are not sufficiently robust, manual intervention, adjustments and reconciliations may be required to reduce the risk of error in reporting to senior management or regulators. Inadequate policies and processes may also affect our ability to use data within the Group to service customers more effectively and/or improve our product offering. This could have a material adverse effect on our business, prospects, financial condition and results of operations.
Moreover, financial institutions that fail to comply with the principles for effective risk data aggregation and risk reporting as set out by the Basel Committee by the required deadline may face supervisory measures. In addition, failure to comply with new Global Data Privacy Requirements may result in regulatory sanctions. Any of these failures could have a material adverse effect on our business, prospects, financial condition and results of operations.
Our operations have inherent reputational risk
Reputational risk is the risk of failing to meet stakeholder expectations as a result of any event, behaviour, action or inaction, either by HSBC, our employees or those with whom we are associated. This might cause stakeholders to form a negative view of the Group and result in financial or non-financial effects or loss of confidence in the Group.Reputational risk relates to stakeholders’ perceptions, whether fact-based or otherwise. Stakeholders’ expectations change constantly and so reputational risk is dynamic and varies between geographical regions, groups and individuals. We have an unwavering commitment to operating at the high standards we set for ourselves in every jurisdiction. Any material lapse in standards of integrity, compliance, customer service or operating efficiency may represent a potential reputational risk.
Modern technologies, in particular online social media channels and other broadcast tools that facilitate communication with large audiences in short time frames and with minimal costs may significantly enhance and accelerate the effect of damaging information and allegations. It could also arise from negative public opinion about the actual, or perceived, manner in which we conduct our business activities, or financial performance, as well as actual or perceived practices in banking and the financial services industry generally. Negative public opinion may adversely affect our ability to retain and attract customers, in particular, corporate and retail depositors, and retain and motivate staff, and could have a material adverse effect on our business, prospects, financial condition, reputation and results of operations.
We may suffer losses due to employee misconduct
Our businesses are exposed to risk from potential non-compliance with Group policies, including the HSBC Values, and related behaviours and employee misconduct such as fraud or negligence, all of which could result in regulatory sanctions or reputational or financial harm. In recent years, a number of multinational financial institutions have suffered material losses due to the actions of ‘rogue traders’ or other employees. It is not always possible to

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deter employee misconduct, and the precautions we take to prevent and detect this activity may not always be effective. Employee misconduct could have a material adverse effect on our business, prospects, financial condition and results of operations.
We rely on recruiting, retaining and developing appropriate senior management and skilled personnel
The demands being placed on the human capital of the Group are unprecedented. The cumulative workload arising from a regulatory reform programme that is often extra-territorial and regularly evolving consumes significant human resources, placing increasingly complex and conflicting demands on a workforce that operates in an employment market where expertise in key markets is often in short supply and mobile.
Our continued success depends in part on the retention of key members of our management team and wider employee base. The ability to continue to attract, train, motivate and retain highly qualified professionals is a key element of our strategy. The successful implementation of our growth strategy depends on the availability of skilled management in each of our global businesses and global functions, which may depend on factors beyond our control, including economic, market and regulatory conditions.
If global businesses or global functions fail to staff their operations appropriately or lose one or more of their key senior executives and fail to successfully replace them in a satisfactory and timely manner, or fail to implement successfully the organisational changes required to support the Group’s strategy, our business prospects, financial condition and results of operations, including control and operational risks, could be materially adversely affected.
Our financial statements are based in part on judgments,judgements, estimates and assumptions that are subject to uncertainty
The preparation of financial statements requires management to make judgments,judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, particularly those involving the use of complex models, actual results reported in future periods may be based upon amounts which differ from those estimates. Estimates, judgments,judgements, assumptions and models are continually evaluated, and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The accounting policies deemed critical to our results and financial position, based upon materiality and significant judgmentsjudgements and estimates, include impairment of loans and advances, goodwill impairment, valuation of financial instruments, deferred tax assets, provisions and interests in associates, which are discussed in detail in ‘Critical accounting estimates and judgments’judgements’ on page 30.32.
The valuation of financial instruments measured at fair value can be subjective, in particular where models are used that include unobservable inputs. Given the uncertainty and subjectivity associated with valuing such instruments, future outcomes may differ materially from those assumed using information available at the reporting date. The effect of these differences on the future results of operations and the future financial position of the Group may be material. For further details, see ‘Critical accounting estimates and judgements’ on page 30.32.
If the judgement, estimates and assumptions we use in preparing our consolidated financial statements are subsequently found to be materially different from those assumed using information available at the reporting date, this could affect our business, prospects, financial condition and results of operations.
Changes in accounting standards may have a material impact on how we report our financial results and financial condition
We prepare our consolidated financial statements of HSBC in accordance with International Financial Reporting Standards
(‘IFRSs’) as issued by the International Accounting Standards Board (‘IASB’), including interpretations (‘IFRICS’) issued by the IFRS Interpretations Committee, and as endorsed by the EU. From time to time, the IASB or the IFRS Interpretations Committee may issue new accounting standards or interpretations which could materially impact how we report and disclose our financial results and financial condition as well as affect the calculation of our capital ratios, including the CET1 ratio. We could also be required to apply a new or revised standards retrospectively, resulting in our restating prior period financial statements in material amounts.
We could incur losses or be required to hold additional capital as a result of model limitations or failure
HSBC uses models for a range of purposes in managing our business, including regulatory capital calculations, stress testing, credit approvals, calculation of loan impairment charges on an IFRS 9 basis, financial crime and fraud risk management and financial reporting. HSBC could face adverse consequences as a result of decisions that may lead to actions by management based on models that are poorly developed, implemented or used, or as a result of the modelled outcome being misunderstood or the use of such information for purposes for which it was not designed. Regulatory scrutiny and supervisory concerns over banks’ use of models is considerable, particularly the internal models and assumptions used by banks in the calculation of regulatory capital. If regulatory approval for key capital models is not achieved in a timely manner, we could be required to hold additional capital. Risks arising from the use of models could have a material adverse effect on our business, prospects, financial condition, results of operations, minimum capital requirements and reputation.
Third parties may use us as a conduit for illegal activities without our knowledge
We are required to comply with applicable AML laws and regulations, and have adopted various policies and procedures, including internal control and ‘know your customer’ procedures, aimed at preventing use of HSBC products and services for the purpose of committing or concealing financial crime. A major focus of US and UK government policy relating to financial institutions in recent years has been combating money laundering and enforcing compliance with US and EU economic sanctions. This focus is reflected in part by our agreements with US and UK authorities relating to various investigations regarding past inadequate compliance with AML and sanctions laws. These consent orders do not preclude additional enforcement actions by bank regulatory, governmental or law enforcement agencies or private litigation.
A number of the remedial actions taken or beinghave been taken as a result of the matters to which the US DPA relatesrelated, which are intended to ensure that the Group’s businesses are better protected in respect of these risks. However, there can be no assurance that the steps that continue to be taken to address the requirements of the US DPAthese will be completely effective.
Moreover, in relevant situations, and where permitted by regulation, we may rely upon certain counterparties to maintain and properly apply their own appropriate AML procedures. While permitted by regulation, such reliance may not be effective in preventing third parties from using us (and our relevant counterparties) as a conduit for money laundering, including illegal cash operations, without our knowledge (and that of our relevant counterparties). Becoming a party to money laundering, association with, or even accusations of being associated with, money laundering will damage our reputation and could make us subject to fines, sanctions and/or legal enforcement. Any one of these outcomes could have a material adverse effect on our business, prospects, financial condition and results of operations.
We have significant exposure to counterparty risk
We are exposed to counterparties that are involved in virtually all major industries, and we routinely execute transactions with counterparties in financial services, including brokers and dealers, central clearing counterparties, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default by our counterparty or client. Our ability to engage in routine transactions to fund our operations and manage our

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risks could be materially adversely affected by the actions and commercial soundness of other financial services institutions. Financial institutions are necessarily interdependent because of trading, clearing, counterparty or other relationships. As a consequence, a default by, or decline in market confidence in, individual institutions, or anxiety about the financial services industry generally, can lead to further individual and/or systemic difficulties, defaults and losses.
Mandatory central clearing of OTC derivatives, including under Dodd-Frank and the EU’s European Market Infrastructure Regulation, poses risks to HSBC. As a clearing member, we will be required to underwrite losses incurred at a Central Counterparty (‘CCP’) by the default of other clearing members and their clients. Hence, increased moves towards central clearing brings with it a newfurther element of interconnectedness between clearing members and clients that we believe may increase rather than reduce our exposure to systemic risk. At the same time, our ability to manage such risk ourselves will be reduced because control has been largely outsourced to CCPs, and it is unclear at present how, at a time of stress, regulators and resolution authorities will intervene.
Where bilateral counterparty risk has been mitigated by taking collateral, our credit risk may remain high if the collateral we hold cannot be realised or has to be liquidated at prices that are insufficient to recover the full amount of our loan or derivative exposure. There is a risk that collateral cannot be realised, including situations where this arises by change of law that may influence our ability to foreclose on collateral or otherwise enforce contractual rights.
The Group also has credit exposure arising from mitigants, such as credit default swaps (‘CDSs’), and other credit derivatives, each of which is carried at fair value. The risk of default by counterparties to CDSs and other credit derivatives used as mitigants affects the fair value of these instruments depending on the valuation and the perceived credit risk of the underlying instrument against which protection has been purchased. Any such adjustments or fair value changes may have a material adverse effect on our financial condition and results of operations.
Market fluctuations may reduce our income or the value of our portfolios
Our businesses are inherently subject to risks in financial markets and in the wider economy, including changes in, and increased volatility of, interest rates, inflation rates, credit spreads, foreign exchange rates, commodity, equity, bond and property prices, and the risk that our customers act in a manner inconsistent with our business, pricing and hedging assumptions.
Market movements will continue to significantly affect us in a number of key areas. For example, banking and trading activities are subject to interest rate risk, foreign exchange risk, inflation risk and credit spread risk. Changes in interest rate levels, interbank spreads over official rates, yield curves and spreads affect the interest rate spread realised between lending and borrowing costs. A declining or low interest rate environment could increase prepayment activity that reduces the weighted average lives of our interest-earning assets and could have a material adverse effect on us. The potential for future volatility and margin changes remains. Competitive pressures on fixed rates or product terms in existing loans and deposits sometimes restrict our ability to change interest rates applying to customers in response to changes in official and wholesale market rates. Our pension scheme assets include equity and debt securities, the cash flows of which change as equity prices and interest rates vary.
Our insurance businesses are exposed to the risk that market fluctuations will cause mismatches to occur between product liabilities and the investment assets that back them. Market risks can affect our insurance products in a number of ways depending upon the product and associated contract. For example, mismatches between assets and liability yields and maturities give rise to interest rate risk. Some of these risks are borne directly by the customer and some are borne by the insurance businesses, with their excess capital invested in the markets. Some insurance
contracts involve guarantees and options that increase in value in adverse investment markets. There is a risk that the insurance businesses will bear some of the cost of such guarantees and options. The performance of the investment markets will thus have a direct effect upon the value embedded in the insurance and investment contracts and our operating results, financial condition and prospects.
It is difficult to predict with any degree of accuracy changes in market conditions, and such changes may have a material adverse effect on our business, prospects, financial condition and results of operations.
Liquidity, or ready access to funds, is essential to our businesses
Our ability to borrow on a secured or unsecured basis, and the cost of doing so, can be affected by increases in interest rates or credit spreads, the availability of credit, regulatory requirements relating to liquidity or the market perceptions of risk relating to HSBC or the banking sector, including our perceived or actual creditworthiness.
Current accounts and savings deposits payable on demand or at short notice form a significant part of our funding, and we place considerable importance on maintaining their stability. For deposits, stability depends upon preserving investor confidence in our capital strength and liquidity, and on comparable and transparent pricing. Although deposits have been a stable source of funding historically, this may not continue.
We also access wholesale markets in order to provide funding for entities that do not accept deposits, to align asset and liability maturities and currencies, and to maintain a presence in local markets. In 2016,2017, we issued the equivalent of $54.9bn$38.5bn of debt securities in the public capital markets in a range of currencies and maturities from a number of Group entities, including $2.6bn of subordinated and $31.6bn$11.7bn of senior securities issued by HSBC Holdings.
An inability to obtain financing in the unsecured long-term or short-term debt capital markets, or to access the secured lending markets, could have a substantial adverse effect on our liquidity. Unfavourable macroeconomic developments, market disruptions or regulatory developments may increase our funding costs or challenge our ability to raise funds to support or expand our businesses.
If we are unable to raise funds through deposits and/or in the capital markets, our liquidity position could be adversely affected, and we might be unable to meet deposit withdrawals on demand or at their contractual maturity, to repay borrowings as they mature, to meet our obligations under committed financing facilities and insurance contracts or to fund new loans, investments and businesses. We may need to liquidate unencumbered assets to meet our liabilities. In a time of reduced liquidity, we may be unable to sell some of our assets, or we may need to sell assets at reduced prices, which in either case could materially adversely affect our business, prospects, financial condition and results of operations.
Any reduction in the credit rating assigned to HSBC Holdings, any subsidiaries of HSBC Holdings or any of their respective debt securities could increase the cost or decrease the availability of our funding and adversely affect our liquidity position and net interest margin
Credit ratings affect the cost and other terms upon which we are able to obtain market funding. Rating agencies regularly evaluate HSBC Holdings and certain of its subsidiaries, as well as their respective debt securities. Their ratings are based on a number of factors, including their assessment of the relative financial strength of HSBC or of the relevant entity, as well as conditions affecting the financial services industry generally. There can be no assurance that the rating agencies will maintain HSBC’s or the relevant entity’s current ratings or outlook, particularly given the rating agencies’ current review of their bank rating methodologies and the potential impact on HSBC’s or its subsidiaries’ ratings.

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At the date hereof, HSBC Holdings’ long-term debt was rated ‘AA-’ by Fitch, ‘A’ by Standard and Poor’s (‘S&P’) and ‘A1’‘A2’ by Moody’s. The ratings outlook by Fitch was stable and the ratings outlooks by both S&P and Moody’s were negative. Any reductions in these ratings and outlook could increase the cost of our funding, limit access to capital markets and require additional collateral to be placed and, consequently, materially adversely affect our interest margins and our liquidity position.
Under the terms of our current collateral obligations under derivative contracts, we could be required to post additional collateral as a result of a downgrade in HSBC’s credit rating, as described in Pillar 3 disclosures on page 148.66
Risks concerning borrower credit quality are inherent in our businesses
Risks arising from changes in credit quality and the recoverability of loans and amounts due from borrowers and counterparties (e.g. reinsurers and counterparties in derivative transactions) are inherent in a wide range of our businesses. Adverse changes in the credit quality of our borrowers and counterparties arising from a general deterioration in economic conditions or systemic risks in the financial systems could reduce the recoverability and value of our assets, and require an increase in our loan impairment charges.
We estimate and recognise impairment allowances for credit losses inherent in our credit exposure. This process, which is critical to our results and financial condition, requires difficult, subjective and complex judgements, including forecasts of how the economic conditions might impair the ability of our borrowers to repay their loans and the ability of other counterparties to meet their obligations. As is the case with any such assessments, we may fail to estimate accurately the effect of factors that we identify or fail to identify relevant factors. Further, the information we use to assess the creditworthiness of our counterparties may be inaccurate or incorrect. Any failure by us to accurately estimate the ability of our counterparties to meet their obligations may have a material adverse effect on our business, prospects, financial conditionscondition and results of operations.
Our insurance businesses are subject to risks relating to insurance claim rates and changes in insurance customer behaviour
We provide various insurance products for customers with whom we have a banking relationship, including several types of life insurance products. The cost of claims and benefits can be influenced by many factors, including mortality and morbidity rates, lapse and surrender rates and, if the policy has a savings element, the performance of assets to support the liabilities. Adverse developments in any of these factors may materially adversely affect our business, prospects, financial condition and results of operations.
HSBC Holdings is a holding company and, as a result, is dependent on loan payments and dividends from its subsidiaries to meet its obligations, including obligations with respect to its debt securities, and to provide profits for payment of future dividends to shareholders
HSBC Holdings is a non-operating holding company and, as such, its principal source of income is from operating subsidiaries that hold the principal assets of HSBC. As a separate legal entity, HSBC Holdings relies on remittance of its subsidiaries’ loan interest payments and dividends in order to be able to pay obligations to debt holders as they fall due, and to pay dividends to its shareholders. The ability of HSBC Holdingsour subsidiaries and affiliates to pay us remittances and dividends could be restricted by changes in regulation, exchange controls and other requirements.
We may be required to make substantial contributions to our pension plans
We operate a number of pension plans throughout the world, including defined benefit plans. Pension scheme obligations fluctuate with changes in long-term interest rates, inflation, salary levels and the longevity of scheme members. The level of
contributions we make to our pension plans has a direct effect on our cash flow. To the extent plan assets are insufficient to cover existing liabilities, higher levels of contributions will be required. As a result, deficits in those pension plans may have a material adverse effect on our business, prospects, financial condition and results of operations.

Areas of special interest
During 2016,2017, we considered a number of particular areas because of the effect they may have on the Group. While these areas have been identified and considered as part of our top and emerging risks, further details ofwe have placed particular focus on the actions taken duringUK withdrawal from the year are provided below.European Union in this section.
Process of UK withdrawal from the European Union
The period of uncertainty and market volatility that followed the UK’s decisionUK is due to formally leave the EU in March 2019. Before this can happen, the UK and the EU have to finalise the Article 50 Withdrawal Agreement, which will then need to be approved by their respective Parliaments. Concluding negotiations on a comprehensive trade deal within this time frame could be challenging. A period of transition is therefore possible but the scope and length of any such arrangement would need to be agreed between the UK and the EU. Uncertainty therefore continues and with it the risk of significant market volatility.
Our objective in all scenarios is to continue to meet customers’ needs and minimise disruption. This is likely to continue until the UK’s future relationship with the EU and the rest of the world is clearer. Given the time-frame and the complex negotiations involved, and assuming Article 50 is invoked by the end of March 2017, a clearer picture is not expected to emerge for some time. HSBC is working with clients as they adapt to this new environment and plan for what might follow.
Meeting our customers’ needs following the UK’s departure from the EU will likely require adjustments to our cross-border banking model. However,model, with Article 50 not yet invoked and formal negotiations not yet initiated, it is too early to determine precisely what will be required or what the likely effects on HSBC might be. Despite this uncertainty, use of HSBC’s existing subsidiaries in France, Germany, Malta and Poland should help us more quickly and seamlessly adapt our banking model to this new landscape. Such changes could, among other things, increase our operating costs and require us to relocate staff and businesses outsideimpacted business transferring from the UK to our existing subsidiary in France or other jurisdictions.


European subsidiaries, as appropriate.
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Through this periodGiven the tight time frame and the complexity of uncertainty, our priorities arethe negotiations, we have put in place a robust contingency plan. It is based on a scenario whereby the UK exits the EU in March 2019, without access to continue to support our clients, take appropriate actions to mitigate risksthe single market or customs union, and maintain stability,without a transitional arrangement. When negotiation positions and deliver on our strategy. We are actively monitoring our portfolio to identify areas of stress, with vulnerable sectors subject to management review to determine if any adjustment to our risk policy or appetite is required. As the UK's negotiating priorities and likelihood of achieving themtimelines become clearer, we will continue to monitor developments and take actions required to meet these priorities.
Oil and gas prices
Oil prices improved throughout 2016 and in early 2017, particularly after Opec agreed to cut supply levels. The improved oil prices resulted in a decline in new loan impairments in the second half of the year. The medium- to long-term outlook remains uncertain as technological change impacts the supply side through cheaper methods of extraction and the demand side through the development of renewable energy sources. At 31 December 2016, HSBC’s overall portfolio directly exposed to oil and gas sector had drawn risk exposure of $28bn (2015: $29bn). The portfolio has the following credit quality distribution: ‘strong’ and ‘good’ 53% (2015: 56%), ‘satisfactory’ 28% (2015: 35%), ‘sub-standard’ 15% (2015: 7%) and ‘impaired’ 4% (2015: 2%), with the majority of the exposures located in North America, Asia and Europe. Loan impairment charges in 2016 were approximately $0.3bn. The sector remains under
enhanced monitoring with risk appetite and new lending significantly curtailed.update our contingency plan.
Risk management
This section describes the enterprise-wideenterprise risk management framework, and the significant policies and practices employed by HSBC in managing its material risks.
Our risk management framework
We use an enterprise-wideenterprise risk management framework across the organisation and across all risk types. It is underpinned by our risk culture and is reinforced by the HSBC Values and our Global Standards programme.
The framework fosters continuous monitoring of the risk environment, and an integrated evaluation of risks and their interactions. It also ensures a consistent approach to monitoring, managing and mitigating the risks we accept and incur in our activities.
The following diagram and descriptions summarise key aspects of the framework, including governance and structure, our risk management tools and our risk culture, which together help align employee behaviour with our risk appetite.

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Key components of our risk management framework
HSBC Values and risk culture
           
Governance and structureRisk governance The Board and its sub-committeesNon-executive risk governance The Board approves the Group’s risk appetite, plans and performance targets. It sets the ‘tone from the top’ and is advised by the Group Risk Committee, the Financial System Vulnerabilities Committee, and the Conduct & Values Committee (see page 170)172).
    
    
 The Risk Management Meeting of the Group Management Board and its sub-committeesExecutive risk governance Responsible for the enterprise-wide management of all risks, including key policies and frameworks for the management of risk within the Group (see page 102). The Global Standards Steering Meeting is responsible for the management of financial crime risk (see page 114)pages 107 and 109).
     
     
Risk governance frameworkEnsures appropriate oversight ofRoles and accountability for the management
of risk (see page 101).
Responsibilitiesresponsibilities Three lines of defence model Our three lines of defence model defines roles and responsibilities for
risk management (see page 102).
management. An independent Global Risk functionAn independent function to help helps ensure the necessary balance in risk/return decisions (see page 102)108).
     
     
Processes and tools 
ProcessesEnterprise-wide risk management toolsRisk appetite Processes to identify,identify/assess, monitor, mitigatemanage and report risks to ensure
we remain within our risk appetite (see pages 103107 to 104)109).
   
 Risk appetiteTop and emerging risksEnterprise-wide risk management tools 
   
 Active risk management: identification/assessment, monitoring, management and reporting 
Risk mapStress testing
     
     
Internal controls Policies and procedures Policies and procedures define the minimum requirements for the controls required to manage our risks.
ControlsBanking and insurance risksMaterial risks arising from our business activities that are measured, monitored and managed (see pages 104 to 105).
    
 Risk Policies and PracticesSet by risk stewards for each of our material banking and insurance risks
(see pages 101 to 106.
Internal ControlsControl activities The operational risk management framework defines minimum standards and processes for managing operational risks and internal controls (see page 113)117).
Systems and infrastructureSystems and/or processes that support the identification, capture and exchange of information to support risk management activities.
           
           
Systems and tools
Our risk culture
Risk culture refers to HSBC’s norms, attitudes and behaviours related to risk awareness, risk taking and risk management.
HSBC has long recognised the importance of a strong risk culture, the fostering of which is a key responsibility of senior executives. Our risk culture is reinforced by the HSBC Values and our Global Standards programme. It is instrumental in aligning
the behaviours of individuals with our attitude to assuming and managing risk, which helps to ensure that our risk profile remains in line with our risk appetite.
We use clear and consistent employee communication on risk to convey strategic messages and set the tone from senior management.management and the Board. We also deploy mandatory training on risk and compliance topics to embed skills and understanding in order to strengthen our risk culture and reinforce the attitude to risk in


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the behaviour expected of employees, as described in our risk policies. Mandatory training materials are updated regularly, describing technical, cultural and ethical aspects of the various risks assumed by the Group and how they should be managed effectively.
We operate a global whistleblowing platform, HSBC Confidential, allowing staff to report matters of concern confidentially. We also maintain an external email address for concerns about accounting and internal financial controls or auditing matters (accountingdisclosures@hsbc.com). The Group has a strict policy prohibiting retaliation against those who raise concerns by this route.their concerns. All allegations of retaliation reported are escalated to senior management. For further details on whistleblowing, see page 23 and also our ESG reporting available on www.hsbc.com/our-approach/measuring-our-impact and for details on the governance of our whistleblowing policy, see pages 178172 and 182.177.
Our risk culture is also reinforced by our approach to remuneration. Individual awards, including those for senior executives, are based on compliance with the HSBC Values and the achievement of financial and non-financial objectives, which are aligned to our risk appetite and global strategy.
For further information on remuneration, see the Directors’ Remuneration Report on page 191.186.
Governance and structure
The Board has ultimate responsibility for the effective management of risk and approves HSBC’s risk appetite. It is advised on risk-related matters by the Group Risk Committee
(‘GRC’), the Financial System Vulnerabilities Committee (‘FSVC’), and the Conduct & Values Committee (‘CVC’) (see page 115)pages 175, 176 and 177 respectively).
Executive accountability for the ongoing monitoring, assessment and management of the risk environment and the effectiveness of the risk management framework resides with the Group Chief Risk Officer. He is supported by the Risk Management Meeting of the Group Management Board (‘RMM’).
InThe management of financial crime risk resides with the second halfGroup Head of 2016, we established aFinancial Crime Risk. He is supported by the Financial Crime Risk (‘FCR’) function and appointed a Group Head of FCR, who reports to the Group Chief Executive and chairs the Global Standards Steering Meeting. The FCR function is dedicated to implementing the most effective global standards to combat financial crime, Management Meeting, as described under ‘Financial crime risk management’ on page 114.118.
Day-to-day responsibility for risk management is delegated to senior managers with individual accountability for decision making. All employees have a role to play in risk management. These managersroles are supported by global functionsdefined using the three lines of defence model, which takes into account the Group’s business and functional structures as described under ‘Three lines of defence’ below.
We use a defined executive risk governance structure to help ensure appropriate oversight and accountability of risk, which
facilitates the reporting and escalation to the RMM. This structure is summarised below.in the following table.

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Governance structure for the management of risk
AuthorityMembershipResponsibilities include:
   
Risk Management Meeting of the Group Management Board

Group Chief Risk Officer
Chief Legal Officer
Group Chief Executive
Group Finance Director
All other Group Managing Directors
•
Supporting the Group Chief Risk Officer in exercising Board-delegated risk management authority
•
Overseeing the implementation of risk appetite and the enterprise-wideenterprise risk management framework
•
Forward-looking assessment of the risk environment, analysing the possible risk impactimpacts and taking appropriate action
•
Monitoring all categories of risk and determining appropriate mitigating action
•
Promoting a supportive Group culture in relation to risk management and conduct
Global Risk Management Board
Group Chief Risk Officer
Chief Risk Officers of HSBC’s global businesses and regions
Heads of Global Risk sub-functions
•
Supporting the Group Chief Risk Officer in providing strategic direction for the Global Risk function, setting priorities and providing oversight
•
Overseeing a consistent approach to accountability for, and mitigation of, risk across the Global Risk function
Global business/regional risk management meetings
Global Business/Regional Chief Risk Officer
Global Business/Regional Chief Executive
Global Business/Regional Chief Financial Officer
Global Business/Regional Heads of global functions
•
Supporting the Chief Risk Officer in exercising Board-delegated risk management authority
•
Forward-looking assessment of the risk environment, analysing the possible risk impact and taking appropriate action
•
Implementation of risk appetite and the enterprise-wideenterprise risk management framework
•
Monitoring all categories of risk and determining appropriate mitigating actions
•
Embedding a supportive culture in relation to risk management and controls
The Board committees with responsibility for oversight of risk-related matters are set out on page 178.172.
Our responsibilities
All employees are responsible for identifying and managing risk within the scope of their role as part of the three lines of defence model.
Three lines of defence
WeTo create a robust control environment to manage risks, we use an activity-based three lines of defence model. This model to delineatedelineates management accountabilities and responsibilities for risk management and the control environment. This creates a robust control environment to manage risks.
The model underpins our approach to risk management by clarifying responsibility, encouraging collaboration, and enabling efficient coordination of risk and control activities.
The three lines of defence are summarised below:
The first line of defence owns the risks and is responsible for identifying, recording, reporting and managing them, and ensuring that the right controls and assessments are in place to mitigate them.
The second line of defence sets the policy and guidelines for managing specific risk areas, provides advice and guidance in relation to the risk, and challenges the first line of defence on effective risk management.
The third line of defence is our Internal Audit function, which provides independent and objective assurance of the adequacy of the design and operational effectiveness of the Group’s risk management framework and control governance process.


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Global Risk function
We have a Global Risk function, headed by the Group Chief Risk Officer, which is responsible for the Group’s risk management framework. This responsibility includes establishing global policy, monitoring risk profiles, and forward-looking risk identification and management. Global Risk is made up of sub-functions covering all risks to our operations. Global Risk forms part of the second line of defence. It is independent from the global businesses, including sales and trading functions, to provide challenge, appropriate oversight and balance in risk/return decisions.
Enterprise-wide risk management tools
The Group uses a range of tools to identify, monitor and manage risk. The key enterprise-wide risk management tools are summarised below.
Risk appetite
Our risk appetite encapsulates consideration of financial and non-financial risks and is expressed in both quantitative and qualitative terms. It is applied at the global business level, at the regional level, and to material operating entities.
The Group’s risk appetite defines its desired forward-looking risk profile, and informs the strategic and financial planning process. Furthermore, it is integrated with other key risk management tools, such as stress testing and our top and emerging risk reports, to help ensure consistency in risk management practices.
The Group sets out the aggregated level and risk types it accepts in order to achieve its business objectives in a risk appetite statement (‘RAS’). ThisThe RAS is reviewed on an ongoing basis, and formally approved by the Board every six months on the recommendation of the GRC.
The Group’s actual performance is reported monthly against the approved RAS to the RMM, enabling senior management to monitor the risk profile and guide business activity to balance risk and return. This reporting allows risks to be promptly identified and mitigated, and informs risk-adjusted remuneration to drive a strong risk culture.
Global businesses, regions and strategically important countries are required to have their own RASs, which are monitored to ensure they remain aligned with the Group’s. All RASs and business activities are guided and underpinned by qualitative principles (see page 181)176). Additionally, for key risk areas, quantitative metrics are defined along with appetite and tolerance thresholds for key risk areas.thresholds.
Risk map
The Group risk map provides a point-in-time view of the risk profiles of countries, regions and global businesses across allHSBC’s risk categories.taxonomy. It assesses the potential for these risks to have a material impact on the Group’s financial results, reputation and the sustainability of its business. Risk stewards assign ‘current’ and ‘projected’ risk ratings, supported by commentary. Risks that have an ‘amber’ or ‘red’ risk rating require monitoring and mitigating action plans to be either in place or initiated to manage the risk down to acceptable levels.
Descriptions of our material banking and insurance risks are set out on page 104.110.

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Top and emerging risks
We use a top and emerging risks process to provide a forward-looking view of issues with the potential to threaten the execution of our strategy or operations over the medium to long term.
We proactively assess the internal and external risk environment, as well as review the themes identified across our regions and global businesses, for any risks that may require global escalation, updating our top and emerging risks as necessary.
We define a ‘top risk’ as a thematic issue that may form and crystallise in between six months and one year, and that has the potential to materially affect the Group’s financial results, reputation or business model. It may arise across any
combination of risk types, regions or global businesses. The impact may be well understood by senior management and some mitigating actions may already be in place. Stress tests of varying granularity may also have been carried out to assess the impact.
An ‘emerging risk’ is a thematic issue with large unknown components that may form and crystallise beyond a one-year time horizon. If it were to materialise, it could have a material effect on the Group’s long-term strategy, profitability and/or reputation. Existing mitigation plans are likely to be minimal, reflecting the uncertain nature of these risks at this stage. Some high-level analysis and/or stress testing may have been carried out to assess the potential impact.
Our current top and emerging risks are discussed on page 89.95.
Stress testing
HSBC operates a comprehensive stress testing programme that supports our risk management and capital planning. It includes execution of stress tests mandated by our regulators. Our stress testing is supported by dedicated teams and infrastructure, and is overseen at the most senior levels of the Group.
Our stress testing programme demonstratesassesses our capital strength and enhancesthrough a rigorous examination of our resilience againstto external shocks. It also helps us understand and mitigate risks and informs our decisions about capital levels. As well as taking part in regulators’undertaking regulatory-driven stress tests, we conduct our own internal stress tests.
Many of our regulators – especiallyincluding the Bank of England (‘BoE’),BoE, the Federal ReserveFRB and the HKMA – utiliseuse stress testing as an essentiala prudential regulatory tool and the Group has focused significant governance attention and resourcingresources to meet their requirements.
Bank of England stress test results for 2017
The BoE’s Annual Cyclical Scenario (‘ACS’) stress test in 2017 specified a global downturn with severe effects in the UK, US, Hong Kong and mainland China, which accounted for approximately two-thirds of HSBC’s RWAs at the end of 2016. We place particular emphasis onestimated that the economic shock to global GDP in this scenario was about as severe as in the global enterprise-wide stress test runfinancial crisis of 2007 to 2009, but with a greater impact on emerging markets: for example, the Group byscenario featured a contraction of 1.2% of the BoE, our lead regulator.Chinese economy in the first year. Additionally, and in contrast to 2016, the ACS featured a 32% depreciation of sterling in the first year and a rise of UK base rates to 4%. The assumed GDP growth rates are detailed in the following table.
Assumed GDP growth rates in the 2017 Bank of England ACS
stress test
 2016
2017
2018
2019
 %
%
%
%
UK2.2
(4.7)0.7
1.3
USA1.9
(3.5)0.7
1.4
Mainland China6.8
(1.2)3.7
5.0
Hong Kong1.8
(7.9)1.1
2.3
Source: Bank of England.
PRA assumed GDP growth rates are shown in terms of fourth quarter on fourth quarter annual changes.
In 2016,2017, the results for HSBC as published by the BoE showed that our capital ratios, after taking account of CRD IV restrictions and strategic management actions, exceeded the BoE’s requirements. The results for HSBC included an assumed dividend payment in the first year of the severe stress projection period.
This outcome reflected our strong capital position, conservative risk appetite and diversified geographical and business mix. It also reflected our ongoing strategic actions, including the sale of operations in Brazil, ongoing RWA reductions in GB&Mreduction initiatives and continued sales from our US CML run-off portfolio. These actions have materially reduced our RWAs, strengthened our capital position and made us even more robust under stress.
Bank of England stress test results for 2016
The BoE’s stress test in 2016 specified a global downturn with severe effects in the UK, US, Hong Kong and China, which accounted for approximately two-thirds of HSBC’s RWAs at the end of 2015. The assumed GDP growth rates are detailed in the following table. We estimated that the impact on global GDP in this scenario was about as severe as the global financial crisis of 2007 to 2009, but with a much greater focus on emerging markets. This made it particularly severe for HSBC, given its priority markets in these areas.
Assumed GDP growth rates in the 2016 Bank of England
stress test scenario
 2015
2016
2017
2018
 %
%
%
%
UK2.2
(4.3)1.1
1.7
USA1.8
(3.0)0.8
1.6
China6.7
(0.5)4.2
5.6
Hong Kong1.9
(7.4)1.5
2.7
Source: Bank of England.
PRA assumed GDP growth rates are shown in terms of fourth quarter on fourth quarter annual changes.


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The following table shows the results of the stress test for the past three years, and reflects HSBC’s resilience. From a starting CET1 ratio of 11.9%13.6% at the end of 2015,2016, the BoEBoE’s 2017 stress test results showed a projected minimum stressed CET1 ratiosratio of 7.6% and 9.1% before and8.9% after the impact of strategic management actions.
Results of Bank of England stress tests for the past three years
 201620152014
 %%%
CET1 ratio at scenario start point11.910.910.8
Minimum stressed CET1 ratio after
strategic management actions
9.17.78.7
Fall in CET1 ratio2.83.22.1
Results of Bank of England stress tests for the past three years
 201720162015
 %%%
CET1 ratio at scenario start point13.611.910.9
Minimum stressed CET1 ratio after
strategic management actions
8.99.17.7
Fall in CET1 ratio4.72.83.2
Source: Bank of England.
Data is presented in terms of the minimum CET1 ratio reached net of strategic management actions as per the results published by the PRA.
Internal stress tests are used intensivelyan important element in our enterprise-wide risk management and capital management frameworks. Risks to ourOur capital plan areis assessed through a range of stress scenarios which explore risks that management needs to consider under stress.identified by management. They include potential adverse macroeconomic, geopolitical and operational risk events, and other potential events that are specific to HSBC. The selection of scenarios reflects our top and emerging risks identification process and our risk appetite relating to metrics such as profitability, capital or liquidity.appetite. Stress testing analysis helps management understand the nature and extent of any vulnerability.vulnerabilities to which the bank is exposed. Using this information, management decides whether risks can or should be mitigated through management actions or, if they were to crystallise, should be absorbed through capital. This in turn informs decisions about preferred capital levels.
We conduct reverse stress tests each year at Group and, where required, subsidiary entity level in order to understand which potential extreme conditions would make our business model non-viable. Reverse stress testing identifies potential stresses and vulnerabilities we might face, and helps inform early warning triggers, management actions and contingency plans designed to mitigate risks.
In addition to the Group-wide stress testing scenarios, each major HSBC subsidiary conducts regular macroeconomic and event-driven scenario analyses specific to its region. They also participate as required in the regulatory stress testing programmes of the jurisdictions in which they operate, such as the Comprehensive Capital Analysis and Review and Dodd-Frank Act Stress Test programmes in the US, and the stress tests of the Hong Kong Monetary Authority.HKMA. Global functions and businesses also perform bespoke stress testing to inform their assessment of risks in potential scenarios.
The Group stress testing programme is overseen by the GRC and results are reported, where appropriate, to the RMM and GRC.

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Our material banking and insurance risks
The material risk types associated with our banking and insurance manufacturing operations are described in the following tables:

Description of risks – banking operations
RisksArising fromMeasurement, monitoring and management of risk
Credit risk (see page 106)112) 
Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract.Credit risk arises principally from direct lending, trade finance and leasing business, but also from certain other products such as guarantees and derivatives.
Credit risk is:
•
measured as the amount whichthat could be lost if a customer or counterparty fails to make repayments;
•
monitored using various internal risk management measures and within limits approved by individuals within a framework of delegated authorities; and
•
managed through a robust risk control framework which outlines clear and consistent policies, principles and guidance for risk managers.
Liquidity and funding risk (see page 108)113) 
Liquidity risk is the risk that we do not have sufficient financial resources to meet our obligations as they fall
due or that we can only do
so at an excessive cost.
Funding risk is the risk that funding considered to be sustainable, and therefore used to fund assets, is not sustainable over time.
Liquidity risk arises from mismatches in the timing of cash flows.

Funding risk arises when illiquid asset positions cannot be funded at the expected terms and when required.
Liquidity and funding risk is:
•
measured using a range of metrics including liquidity coverage ratio and net stable funding ratio;
•
assessed through the internal liquidity adequacy assessment process (‘ILAAP’);
•
monitored against the Group’s liquidity and funding risk framework; and
•
managed on a stand-alone basis with no reliance on any Group entity (unless pre-committed) or central bank unless this represents routine established business-as-usual market practice.
Market risk (see page 110)114) 
Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices, will reduce our income or the value of our portfolios.
Exposure to market risk is separated into two portfolios:
•
trading portfolios; and
•
non-trading portfolios.

non-trading.
Market risk exposures arising from our insurance operations are discussed on page 161.
159.
Market risk is:
•
measured in terms of using sensitivities, value at risk (‘VaR’), which measures the and stress testing, giving a detailed picture of potential gains and losses on risk positionsfor a range of market movements and scenarios, as well as tail risks over a specified time horizon for a given level of confidence, and assessed using stress testing;horizons;
•
monitored using VaR, stress testing and other measures including the sensitivity of net interest income and the sensitivity of structural foreign exchange; and
•
managed using risk limits approved by the RMM and the risk management meeting in various global businesses.
Operational risk (see page 113)117) 

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Description of risks – banking operations
RisksArising fromMeasurement, monitoring and management of risk
Operational risk is the risk to achieving our strategy or objectives as a result of inadequate or failed internal processes, people and systems or from external events.
Operational risk arises from day-to-day operations or external events, and is relevant to every aspect of our business.
Regulatory compliance risk and financial crime compliance risk are discussed below.
Operational risk is:
•
measuredMeasured using the risk and control assessment process, which assesses the level of risk and the effectiveness of controls;controls, and measured for Economic Capital management using risk event losses and scenario analysis;
•
monitored using key indicators and other internal control activities; and
•
managed primarily by global business and functional managers thatwho identify and assess risks, implement controls to manage them and monitor the effectiveness of these controls using the operational risk management framework.
Regulatory compliance risk (see page 116)117) 
Regulatory compliance risk is the risk that we fail to observe the letter and spirit of all relevant laws, codes, rules, regulations and standards of good market practice, and incur fines and penalties and suffer damage to our business as a consequence.Regulatory compliance risk is part of operational risk, and arises from the risks associated with breaching our duty to clients and other counter-parties,counterparties, inappropriate market conduct and breaching other regulatory requirements.
Regulatory compliance risk is:
•
measured by reference to identified metrics, incident assessments, regulatory feedback and the judgement and assessment of our Regulatory Complianceregulatory compliance teams;
•
monitored against our regulatory compliancethe first line of defence risk assessments and metrics,control assessments, the results of the monitoring and control assurance activities of the second line of defence functions, and the results of internal and external audits and regulatory inspections; and
•
managed by establishing and communicating appropriate policies and procedures, training employees in them, and monitoring activity to help ensure their observance. Proactive risk control and/or remediation work is undertaken where required.
Financial crime risk (see page 114)118)
Financial crime risk is the risk that we knowingly or unknowingly help parties to commit or to further potentially illegal activity through HSBC.Financial crime risk is part of operational risk and arises from day-to-day banking operations.
Financial crime risk is:
•
measured by reference to identified metrics, incident assessments, regulatory feedback and the judgement and assessment of our Financial Crime Riskfinancial crime risk teams;
•
monitored against our financial crime compliance risk appetite statementstatements and metrics, the results of the monitoring and control activities of the second line of defence functions, and the results of internal and external audits and regulatory inspections; and
•
managed by establishing and communicating appropriate policies and procedures, training employees in them, and monitoring activity to help ensure their observance. Proactive risk control and/or remediation work is undertaken where required.

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Description of risks – banking operations (continued)

RisksArising fromMeasurement, monitoring and management of risk
Other material risks
Reputational risk (see page 116)119)
Reputational risk is the risk of failure to meet stakeholder expectations as a result of any event, behaviour, action or inaction, either by HSBC itself, our employees or those with whom we are associated, that might cause stakeholders to form a negative view of the Group.Primary reputational risks arise directly from an action or inaction by HSBC, its employees or associated parties that are not the consequence of another type of risk. Secondary reputational risks are those arising indirectly and are a result of a failure to control any other risks.
Reputational risk is:
•
measured by reference to our reputation as indicated by our dealings with all relevant stakeholders, including media, regulators, customers and employees;
•
monitored through a reputational risk management framework that is integrated into the Group’s broader risk management framework; and
•
managed by every member of staff, and covered by a number of policies and guidelines. There is a clear structure of committees and individuals charged with mitigating reputational risk.
Pension risk (see page 117)120)
Pension risk is the risk of increased costs to HSBC from theoffering post-employment benefit plans that HSBC has established forto its employees.

Pension risk arises from investments delivering an inadequate return, adverse changes in interest rates or inflation, or members living longer than expected. Pension risk also includes operational and reputational risk of sponsoring pension plans.
Pension risk is:
•
measured in terms of the scheme’s ability to generate sufficient funds to meet the cost of their accrued benefits;
•
monitored through the specific risk appetite that has been developed at both Group and regional levels; and
•
managed locally through the appropriate pension risk governance structure and globally through the Global Pensions Oversight CommitteeForum and ultimately the RMM.
Sustainability risk (see page 117)120)
Sustainability risk is the risk that financial services provided to customers by the Group indirectly result in unacceptable impacts on people or the environment.Sustainability risk arises from the provision of financial services to companies or projects which indirectly result in unacceptable impacts on people or on the environment.
Sustainability risk is:
•
measured by assessing the potential sustainability effect of a customer’s activities and assigning a Sustainability Risk Ratingsustainability risk rating to all high riskhigh-risk transactions;
•
monitored quarterly by the RMM and monthly by the Group’s Sustainability Risksustainability risk function; and
•
managed using sustainability risk policies covering project finance lending and sector-based sustainability policies for sectors and themes with potentially large environmental or social impacts.
Our insurance manufacturing subsidiaries are regulated separately from our banking operations. Risks in our insurance entities are managed using methodologies and processes that are subject to
Group oversight. Our insurance operations are
also subject to some of the same risks as our banking operations, which are covered by the Group’s risk
management processes.


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Description of risks – insurance manufacturing operations
RisksArising fromMeasurement, monitoring and management of risk
Financial risk (see page 161)159) 
Our ability to effectively match liabilities arising under insurance contracts with the asset portfolios that back them is contingent on the management of financial risks and the extent to which these are borne by policyholders.
Exposure to financial risk arises from:
•
market risk affecting the fair values of financial assets or their future cash flows;
•
credit risk; and
•
liquidity risk of entities not being ableunable to make payments to policyholders as they fall due.
Financial risk is:
•
measured (i) for credit risk, in terms of economic capital and the amount that could be lost if a counterparty fails to make repayments; (ii) for market risk, in terms of economic capital, internal metrics and fluctuations in key financial variables; and (iii) for liquidity risk, in terms of internal metrics including stressed operational cash flow projections;
•
monitored through a framework of approved limits and delegated authorities; and
•
managed through a robust risk control framework which outlines clear and consistent policies, principles and guidance. This includes using product design, asset liability matching and bonus rates.
Insurance risk (see page 163)161) 
Insurance risk is the risk that, over time, the cost of the contract,insurance policies written, including claims and benefits, may exceed the total amount of premiums and investment income received.The cost of claims and benefits can be influenced by many factors, including mortality and morbidity experience, as well as lapse and surrender rates.
Insurance risk is:
•
measured in terms of life insurance liabilities and economic capital allocated to insurance underwriting risk;
•
monitored through a framework of approved limits and delegated authorities; and
•
managed through a robust risk control framework which outlines clear and consistent policies, principles and guidance. This includes using product design, underwriting, reinsurance and claims-handling procedures.

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Credit risk management
Details of changes in our credit risk profile in 20162017 can be found on page 118,121, in ‘Key developments and risk profile in 2016’2017’.
There were no material changes to the policies and practices for the management of credit risk in 2016.2017.
Credit risk sub-function
(Audited)
Credit approval authorities are delegated by the Board to the Group Chief Executive together with the authority to sub-delegate them. The Credit Risk sub-function in Global Risk is responsible for the key policies and processes for managing credit risk, which include formulating Group credit policies and risk rating frameworks, guiding the Group’s appetite for credit risk exposures, undertaking independent reviews and objective assessment of credit risk, and monitoring performance and management of portfolios.
The principal objectives of our credit risk management are:
to maintain across HSBC a strong culture of responsible lending, and robust risk policies and control frameworks;
to both partner and challenge our businesses in defining, implementing and continually re-evaluating our risk appetite under actual and scenario conditions; and
to ensure there is independent, expert scrutiny of credit risks, their costs and their mitigation.
Concentration of exposure
(Audited)
Concentrations of credit risk arise when a number of counterparties or exposures have comparable economic characteristics, or such counterparties are engaged in similar activities or operate in the same geographical areas or industry sectors so that their collective ability to meet contractual obligations is uniformly affected by changes in economic, political
or other conditions. We use a number of controls and measures to minimise undue concentration of exposure in our portfolios across industries, countries and global businesses. These include portfolio and counterparty limits, approval and review controls, and stress testing.
Credit quality of financial instruments
(Audited)
Our risk rating system facilitates the internal ratings-based approach under the Basel framework adopted by the Group to support calculation of our minimum credit regulatory capital requirement.
The customer risk rating (‘CRR’) 10-grade scale summarises a more granular underlying 23-grade scale of obligor probability of default (‘PD’). All corporate customers are rated using the 10- or 23-grade scale, depending on the degree of sophistication of the Basel II approach adopted for the exposure.
Each CRR band is associated with an external rating grade by reference to long-run default rates for that grade, represented by the average of issuer-weighted historical default rates. This mapping between internal and external ratings is indicative and may vary over time.
The expected loss (‘EL’) 10-grade scale for retail business summarises a more granular underlying EL scale for this customer segment. This combines obligor and facility/product risk factors in a composite measure.
For the five credit quality classifications defined, each encompasses a range of granular internal credit rating grades assigned to wholesale and retail lending businesses, and the external ratings attributed by external agencies to debt securities.
For debt securities and certain other financial instruments, external ratings have been aligned to the five quality classifications based upon the mapping of related CRR to external credit rating. The mapping is reviewed on a regular basis and the most recent review resulted in sovereign BBB+ and BBB exposures previously mapped to Credit Quality band ‘Good’ being mapped to Credit Quality Band ‘Strong’. Sovereign BB+ and BB exposures previously mapped to Credit Quality band ‘Satisfactory’ being mapped to Credit Quality Band ‘Good’. This represents a change in disclosure mapping unrelated to changes in counterparty creditworthiness. Had this mapping been applied in 2015, sovereign exposures would be changed as follows: ‘Satisfactory’ $1.4bn decrease, ‘Good’ $4.3bn decrease and $5.7bn ‘Strong’ increase.


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Credit quality classification
 
Sovereign debt securities
and bills
Other debt
securities
and bills
Wholesale lending
and derivatives
Retail lending 
Sovereign debt securities
and bills
Other debt
securities
and bills
Wholesale lending
and derivatives
Retail lending
FootnotesExternal credit ratingInternal credit rating12-month probability of default %Internal credit ratingExpected loss %FootnotesExternal credit ratingInternal credit rating12-month probability of default %Internal credit ratingExpected loss %
Quality classification    
Strong1, 2BBB and aboveA– and aboveCRR1 to CRR20 – 0.169EL1 to EL20 – 0.9991, 2BBB and aboveA- and aboveCRR 1 to CRR 20 – 0.169EL 1 to EL 20 – 0.999
Good BB to BBB–BBB+ to BBB–CRR30.170 – 0.740EL31.000 – 4.999 BBB- to BBBBB+ to BBB-CRR 30.170 – 0.740EL 31.000 – 4.999
Satisfactory BB- to B and unratedBB+ to B and unratedCRR4 to CRR50.741 – 4.914EL4 to EL55.000 – 19.999 BB- to B and unratedBB+ to B and unratedCRR 4 to CRR 50.741 – 4.914EL 4 to EL 55.000 – 19.999
Sub-standard B– to CCRR6 to CRR84.915 – 99.999EL6 to EL820.000 – 99.999 B- to CCRR 6 to CRR 84.915 – 99.999EL 6 to EL 820.000 – 99.999
Impaired3DefaultCRR9 to CRR10100EL9 to EL10100+ or defaulted3DefaultCRR 9 to CRR 10100EL 9 to EL 10100+ or defaulted
1Customer risk rating.rating (‘CRR’).
2Expected loss (‘EL’).
3The EL percentage is derived through a combination of probability of default (‘PD’) and loss given default (‘LGD’), and may exceed 100% in circumstances where the LGD is above 100% reflecting the cost of recoveries.
Quality classification definitions
•
‘Strong’ exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or low levels of expected loss.
•
‘Good’ exposures require closer monitoring and demonstrate a good capacity to meet financial commitments, with low default risk.
•
‘Satisfactory’ exposures require closer monitoring and demonstrate an average to fairaverage-to-fair capacity to meet financial commitments, with moderate default risk.
•
‘Sub-standard’ exposures require varying degrees of special attention and default risk is of greater concern.
•
‘Impaired’ exposures have been assessed as impaired, as described on page 123.126. These also include retail accounts classified as EL1EL 1 to EL8EL 8 that are delinquent by more than 90 days, unless individually they have been assessed as not impaired;impaired, and renegotiated loans that have met the requirements to be disclosed as impaired and have not yet met the criteria to be returned to the unimpaired portfolio (see below)following page).

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Renegotiated loans and forbearance
(Audited)
Where a loan is modified due to significant concerns about the borrower’s ability to meet contractual payments when due, a range of forbearance strategies is employed in order to improve the management of customer relationships, maximise collection opportunities and, if possible, avoid default, foreclosure or repossession.
Identifying renegotiated loans
Loans are identified as renegotiated loans when we modify the contractual payment terms due to significant credit distress of the borrower. ‘Forbearance’‘Forbearance’ describes concessions made on the contractual terms of a loan in response to an obligor’s financial difficulties. We classify and report loans on which concessions have been granted under conditions of credit distress
A loan is classed as ‘renegotiated loans’‘renegotiated’ when theirwe modify the contractual payment terms, have been modifiedon concessionary terms, because we have significant concerns about the borrowers’ ability to meet contractual payments when due. When considering modification terms, the borrower’s continued ability to repay is assessed and where they are unrelated to payment arrangements, whilst
Non-payment related concessions (e.g. covenant waivers), while potential indicators of impairment, these loans aredo not consideredtrigger identification as renegotiated loans. In HSBC Finance, loan modification and re-age policies, renegotiated real estate loans are not eligible for a subsequent renegotiation for six or 12 months depending upon the action, with a maximum of five renegotiations permitted within a five-year period.
Loans that have been identified as renegotiated retain this designation until maturity or derecognition. A loan that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement is made on substantially different terms, or if the terms of an existing agreement are modified such that the renegotiated loan is substantially a different financial instrument. Any new loans that arise followingLoans arising as a result of derecognition events will continue to be disclosed as renegotiated loans.
Credit quality of renegotiated loans
On execution of thea renegotiation, the loan will also be classified as impaired if it is not already so classified. In wholesale lending, all of the facilities with a customer, including loans which have not been modified, are considered impaired
following the provision of a renegotiated loan. In our US CML run-off portfolio in HSBC Finance, loans which are in the early stages of delinquency (less than 60 days delinquent) and typically have the equivalent of two payments deferred for the first time are not considered impaired, as the contractual payment deferrals are deemed to be insignificant compared with payments due on the loan as a whole.
Those loans that are considered impaired retain the impaired classification for a minimum of one year. Renegotiated loans will continue to be disclosed as impaired until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment of future cash flows (the evidence typically comprises a history of payment performance against the original or revised terms), and there are no other indicators of impairment. In our US CML run-off portfolio in HSBC Finance, all modified loans with terms of more than two years are considered to be permanently impaired.
Renegotiated loans and recognition of impairment allowances
(Audited)
For retail lending, renegotiated loans are segregated from other parts of the loan portfolio for collective impairment assessment to reflect the higher rates of losses oftentypically encountered in these segments.with renegotiated loans.
For wholesale lending, renegotiated loans are typically assessed individually. Credit risk ratings are intrinsic to the impairment assessment.assessments. The individual impairment assessment takes into account the higher risk of the non-payment of future cash flows inherent in renegotiated loans.
Impairment assessment
(Audited)
For details of our impairment policies on loans and advances and financial investments, see Note 1 to1.2(d) on the Financial Statements.
Write-off of loans and advances
(Audited)
For details of our policy on the write-off of loans and advances, see Note 1 to1.2(d) on the Financial Statements.


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In HSBC Finance, the carrying amounts of residential mortgages and second lien loans in excess of net realisable value are written off at or before the time foreclosure is completed or settlement is reached with the borrower. If there is no reasonable expectation of recovery, and foreclosure is pursued, the loan is normally written off no later than the end of the month in which the loan becomes 180 days contractually past due.
Unsecured personal facilities, including credit cards, are generally written off at between 150 and 210 days past due. The standard period runs until the end of the month in which the account becomes 180 days contractually delinquent. Write-off periods may be extended, generally to no more than 360 days past due but,due. However, in very exceptional circumstances, to longerthey may be extended further. For example, in a few countries where local regulation or legislation constrain earlier write-off, or where the realisation of collateral for secured real estate lending takes thismore time.
For secured personal facilities, final write-off should generally occur within 60 months of the default at the latest.default.
In the event of bankruptcy or analogous proceedings, write-off may occur earlier than the maximum periods stated above. Collection procedures may continue after write-off.
Impairment methodologies for available-for-sale asset-backed securities (‘ABSs’)
(Audited)
To identify objective evidence of impairment for available-for-sale ABSs, an industry standard valuation model is normally applied which uses data with reference to the underlying asset pools and models their projected future cash flows. The estimated future cash flows of the securities are assessed at the specific financial asset level to determine whether any of them are unlikely to be recovered as a result of loss events occurring on or before the reporting date.
The principal assumptions and inputs to the models are typically the delinquency status of the underlying loans, the probability of delinquent loans progressing to default, the prepayment profiles of the underlying assets and the loss severity in the event of default. However, the models utilise other variables relevant to specific classes of collateral to forecast future defaults and recovery rates. Management uses externally available data and applies judgement when determining the appropriate assumptions in respect of these factors. We use a modelling approach which incorporates historically observed progression rates to default to determine if the decline in aggregate projected cash flows from the underlying collateral will lead to a shortfall in contractual cash flows. In such cases, the security is considered to be impaired.
In respect of collateralised debt obligations (‘CDOs’), expected future cash flows for the underlying collateral are assessed to determine whether there is likely to be a shortfall in the contractual cash flows of the CDO.
When a security benefits from a contract provided by a monoline insurer that insures payments of principal and interest, the expected recovery on the contract is assessed in determining the total expected credit support available to the ABS.
Liquidity and funding risk management
Details of changes in our liquidityHSBC’s Liquidity and funding risk profile in 2016Funding Risk Management Framework (‘LFRF’) can be found on page 118, in ‘Key developments and risk profile in 2016’.the Group’s Pillar 3 Disclosures at December 2017 document.
Liquidity and funding risk management framework
HSBC has an internal liquidity and funding risk management framework (‘LFRF’) whichThe LFRF aims to allow itus to withstand very severe liquidity stresses. It is designed to be adaptable to changing business models, markets and regulations.
The managementGroup Treasurer, who reports to the Group Finance Director, has responsibility for the oversight of liquiditythe LFRF. Asset, Liability and funding is primarily undertaken locally (by country) in our operating entities in compliance withCapital Management (‘ALCM’) teams are responsible for the Group’sapplication of the LFRF and with practices and
limits set by the GMB through the RMM and approved by the Board. Our general policy is that each definedat a local operating entity should be self-sufficient in funding its own activities. Where transactions exist between operating entities, they are reflected symmetrically in both entities.
As part of our asset, liability and capital management (‘ALCM’) structure, we have established asset and liability committees (‘ALCO’) at Group level, in the regions and in operating entities. The terms of reference of all ALCOs include the monitoring and control of liquidity and funding.
The primary responsibility for managing liquidity and funding within the Group’s framework and risk appetite resides with the local operating entities’ ALCOs, Holdings ALCO and the RMM. The remaining smaller operating entities are overseen by regional ALCOs, with appropriate escalation of significant issues to Holdings ALCO and the RMM.
Operating entities are predominantly defined on a country basis to reflect our local management of liquidity and funding. Typically, an operating entity will be defined as a single legal entity. However, to take accountlevel. This comprises of the situation where operations in a country are booked across multiple subsidiaries or branches:
an operating entity may be defined as a wider sub-consolidated group of legal entities if they are incorporated in the same country, liquidity and funding are freely fungible between the entities and permitted by local regulation, and the definition reflects how liquidity and funding are managed locally; or
an operating entity may be defined more narrowly as a principal office (branch) of a wider legal entity operating in multiple countries, reflecting the local country management of liquidity and funding.
The RMM reviews and agrees annually the list of entities it directly oversees and the composition of these entities.
Key developments in 2016
On 1 January 2016, the Group implemented a new LFRF. It uses the liquidity coverage ratio (‘LCR’) and net stable funding ratio (‘NSFR’) regulatory framework as a foundation, but adds extra metrics, limits and overlays to address firm-specific risks:
The LFRF is delivered using the following key aspects:elements:
stand-alone management of liquidity and funding by operating entity;
operating entity classification by inherent liquidity risk (‘ILR’) categorisation;
minimum LCR requirement depending on ILR categorisation;
minimum NSFR requirement depending on ILR categorisation;
legal entity depositor concentration limit;
three-month and 12-month cumulative rolling term contractual maturity limits covering deposits from banks, deposits from non-bank financial institutions and securities issued;
annual individual liquidity adequacy assessment by principal operating entity;
minimum LCR requirement by currency;
management and monitoring of intra-day liquidity;
liquidity funds transfer pricing; and
forward-looking funding assessments.
The new internal LFRF and the risk tolerance limits were approved by the Board on the basis of recommendations made by the Group Risk Committee.
Our annual individual liquidity adequacy assessment process aims to:


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identify risks that are not reflected inRisk governance and oversight
The elements of the LFRF are underpinned by a robust governance framework, the two major elements of which are:
Group, regional and where required,entity level asset and liability management committees (‘ALCOs’).
Annual internal liquidity adequacy assessment process (‘ILAAP’) for principal operating entities used to assess additional limits required locally; and
validate the risk tolerance and set risk appetite.
Liquidity and funding are predominantly managed at an entity level. Where appropriate, management may be expanded to cover a consolidated group of legal entities or narrowed to a principal office (branch) of a wider legal entity to reflect the management under internal or regulatory definitions.
The RMM reviews and agrees annually the list of countries, legal entities or consolidated groups it directly oversees and the composition of these entities (‘principal operating entity level by demonstrating that reverse stress testing scenarios are acceptably remote and ensuring vulnerabilities have been assessed throughentities’). This list forms the use of severe stress scenarios.
Managementbasis of liquidity and funding risk disclosures.
Liquidity coverage ratio
The HSBC application of the LCR metric involves the following two key assumptions about the definition of operational deposits and the ability to transfer liquidity from non-EU legal entities:
we define operational deposits as transactional (current) accounts arising from the provision of custody services by HSBC Security Services or Global Liquidity and Cash Management, where the operational component is assessed to be the lower of the current balance and the separate notional values of debits and credits across the account in the previous calculation period; and
we assumeThere were no transferability of liquidity from non-EU entities other thanmaterial changes to the extent currently permitted.
Net stable funding ratio
HSBC uses the NSFR as a basis for establishing stable funding around the Group.
Liquid assets of HSBC’s principal operating entities
Liquid assets are heldpolicies and managed on a stand-alone operating entity basis. Most are held directly by each operating entity’s Balance Sheet Management (‘BSM’) department, primarilypractices for the purposemanagement of managing liquidity risk in line with the LFRF.
The liquid asset buffer may also include securities in held-to-maturity portfolios. To qualify as part of the liquid asset buffer, held-to-maturity portfolios must have a deep and liquid repo market in the underlying security.
Liquid assets also include any unencumbered liquid assets held outside BSM departments for any other purpose. The LFRF gives ultimate control of all unencumbered assets and sources of liquidity to BSM.
Sources of funding
Customer deposits in the form of current accounts and savings deposits payable on demand or at short notice form the significant part of our stable funding, and we place considerable importance on maintaining their stability. For deposits, stability depends upon maintaining depositor confidence in our capital strength and liquidity, and on competitive and transparent pricing.
We also access wholesale funding markets by issuing senior secured and unsecured debt securities (publicly and privately) and borrowing from the secured repo markets against high-quality collateral, in order to obtain funding for non-banking subsidiaries that do not accept deposits, to align asset and liability maturities and currencies, and to maintain a presence in local wholesale markets.
Ordinary share capital and retained reserves, non-core capital instruments and total loss-absorbing capacity (‘TLAC’) eligible debt securities are also a source of stable funding.
Analysis of on-balance sheet encumbered and unencumbered assets and off-balance sheet collateral
An asset is defined as encumbered if it has been pledged as collateral against an existing liability and, as a result, is no longer available to the Group to secure funding, satisfy collateral needs or be sold to reduce the funding requirement. An asset is therefore categorised as unencumbered if it has not been pledged against an existing liability. Unencumbered assets are further segmented into four separate sub-categories: ‘Readily realisable assets’, ‘Other realisable assets’, ‘Reverse repo/stock
borrowing receivables and derivative assets’ and ‘Cannot be pledged as collateral’.
Liquidity behaviouralisation
All stable deposits are assumed under the Group’s frameworks to have a liquidity behaviouralised life beyond one year and to represent a homogeneous source of stable funding. The behaviouralisation of assets is far more granular and seeks to differentiate the period for which we must assume that we will need stable funding for the asset.
Funds transfer pricing
Our funds transfer pricing policies give rise to a two-stage funds transfer pricing approach, reflecting the fact that we separately manage interest rate risk and liquidity and funding risk under different assumptions. They have been developed to be consistent with our risk management frameworks. Each operating entity is required to apply the Group’s transfer pricing policy framework to determine for each material currency the most appropriate interest rate risk transfer pricing curve, a liquidity premium curve (which is the spread over the interest rate risk transfer pricing curve) and a liquidity recharge assessment (which is the spread under or over the interest rate risk transfer pricing curve).
Repos and stock lending
GB&M provides collateralised security financing services to its clients, providing them with cash financing or specific securities. When cash is provided to clients against collateral in the form of securities, the cash provided is recognised on the balance sheet as a reverse repo. When securities are provided to clients against cash collateral, the cash received is recognised on the balance sheet as a repo or, if the securities are equity securities, as stock lending.
Each operating entity manages its collateral through a central collateral pool, in line with the LFRF. When specific securities need to be delivered and the entity does not have them currently available within the central collateral pool, the securities are borrowed on a collateralised basis. When securities are borrowed against cash collateral, the cash provided is recognised on the balance sheet as a reverse repo or, if the securities are equity securities, as stock borrowing.
Operating entities may also borrow cash against collateral in the form of securities, using the securities available in the central collateral pool. Repos and stock lending can be used in this way to fund the cash requirement arising from securities owned outright by Markets to facilitate client business, and the net cash requirement arising from financing client securities activity.
Reverse repos, stock borrowing, repos and stock lending are reported net when the IFRS offsetting criteria are met. In some cases, transactions to borrow or lend securities are collateralised using securities. These transactions are off-balance sheet.
Any security accepted as collateral for a reverse repo or stock borrowing transaction must be of very high quality and its value subject to an appropriate haircut. Securities borrowed under reverse repo or stock borrowing transactions can only be recognised as part of the liquidity asset buffer for the duration of the transactions and only if the security received is eligible under the liquid asset policy within the LFRF.
Credit controls are in place to ensure that the fair value of any collateral received remains appropriate to collateralise the cash or fair value of securities given.2017.
HSBC Holdings
HSBC Holdings’ primary sources of cashliquidity are dividends received from subsidiaries, interest on and repayment of intra-group loans and securities, and interest earned on its own liquid funds. HSBC Holdings also raises ancillary funds in the debt capital markets through subordinated and senior debt


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issuances. Cash is primarily used for the provision of capital and subordinated funding to subsidiaries, payment of operating expenses, interest payments to debt holders and dividend payments to shareholders.
HSBC Holdings is also subject to contingent liquidity risk by virtue of credit-related commitments and guarantees and similar contracts issued.issued relating to its subsidiaries. Such commitments and guarantees are only issued after due consideration of HSBC Holdings’ ability to finance the commitments and guarantees and the likelihood of the need arising.
HSBC Holdings actively manages the cash flows from its subsidiaries to optimise the amount of cash held at the holding company level. During 2016,2017, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant restrictions on paying dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or payments. However, the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial and operating performance.
None of the subsidiaries that are excluded from our regulatory consolidation has capital resources below its minimum regulatory requirement.
Market risk management
Details of changes in our market risk profile in 20162017 can be found on page 118,121, in ‘‘Key developments and risk profile in 2016’2017’.
There were no material changes to our policies and practices for the management of market risk in 2016.2017.
Market risk in global businesses
The diagram below summarises the main business areas where trading and non-trading market risks reside, and the market risk
measures used to monitor and limit exposures.
Risk typesTrading riskNon-trading risk
•
Foreign exchange and commodities
•
Interest rates
•
Credit spreads
•
Equities
•
Structural foreign exchange
•
Interest rates1
•
Credit spreads
Global business
GB&M and BSM2
GB&M, BSM2,
GPB, CMB and RBWM
Risk measureVaR | Sensitivity | Stress TestingVaR | Sensitivity | Stress Testing
1The interest rate risk on the fixed-rate securities issued by HSBC Holdings is not included in the Group VaR. The management of this risk is described on page 143.145.
2BSM, for external reporting purposes, forms part of Corporate Centre while daily operations and risk are managed within GB&M.
Where appropriate, we apply similar risk management policies and measurement techniques to both trading and non-trading portfolios. Our objective is to manage and control market risk exposures to optimise return on risk while maintaining a market profile consistent with our established risk appetite.
The nature of the hedging and risk mitigation strategies performed across the Group corresponds to the market risk management instruments available within each operating jurisdiction. These strategies range from the use of traditional market instruments, such as interest rate swaps, to more sophisticated hedging strategies to address a combination of risk factors arising at the portfolio level.
Market risk governance
(Audited)
Market risk is managed and controlled through limits approved by the RMM for HSBC Holdings. These limits are allocated
across business lines and to the Group’s legal entities.
    

B&M manages market risk, where the majority of HSBC’s total value at risk (excluding insurance) and almost all trading VaR resides, using risk limits approved by the GMB. VaR limits are set for portfolios, products and risk types, with market liquidity being a primary factor in determining the level of limits set. Global Risk is responsible for setting market risk management policies and measurement techniques.
Each major operating entity has an independent market risk management and control sub-function which is responsible for measuring market risk exposures, monitoring and reporting these exposures against the prescribed limits on a daily basis. The market risk limits are governed according to the framework illustrated to the left.
Each operating entity is required to assess the market risks arising on each product in its business and to transfer them to either its local GB&M unit for management, or to separate books managed under the supervision of the local ALCO.
Model risk is governed through Model Oversight Committees (‘MOCs’) at the regional and global Wholesale Credit and Market Risk levels. They have direct oversight and approval responsibility for all traded risk models utilised for risk measurement and management and stress testing. We are committed to the ongoing development of our in-house risk models.
The Markets MOC reports into the Group MOC, which oversees all model risk types at Group level. The Group MOC informs the RMM about material issues at least two times a year. The RMM is the Group’s ‘Designated Committee’ according to regulatory rules and has delegated day-to-day governance of all traded risk models to the Markets MOC.
Global Risk enforces trading in permissible instruments approved for each site, new product approval procedures, restricting trading in the more complex derivative products only to offices with appropriate levels of product expertise and robust control systems.
General

measures
 HSBC Holdings Board 
GB&M manages market risk, where the majority of HSBC’s total value at risk (excluding insurance) and almost all trading VaR resides, using risk limits approved by the RMM. VaR limits are set for portfolios, products and risk types, with market liquidity being a primary factor in determining the level of limits set. Global Risk is responsible for setting market risk management policies and measurement techniques.
Each major operating entity has an independent market risk management and control sub-function which is responsible for measuring market risk exposures, monitoring and reporting these exposures against the prescribed limits on a daily basis. The market risk limits are governed according to the framework illustrated to the left.
Each operating entity is required to assess the market risks arising on each product in its business and to transfer them to either its local GB&M unit for management, or to separate books managed under the supervision of the local ALCO.
Model risk is governed through Model Oversight Committees (‘MOCs’) at the regional and global Wholesale Credit and Market Risk levels. They have direct oversight and approval responsibility for all traded risk models used for risk measurement and management and stress testing. We are committed to the ongoing development of our in-house risk models.
The Markets MOC reports into the Group MOC, which oversees all model risk types at Group level. The Group MOC informs the RMM about material issues at least two times a year. The RMM is the Group’s ‘Designated Committee’ according to regulatory rules and has delegated day-to-day governance of all traded risk models to the Markets MOC.
Global Risk enforces trading in permissible instruments approved for each site, new product approval procedures, restricting trading in the more complex derivative products only to offices with appropriate levels of product expertise and robust control systems.
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Group Chairman/
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Market risk measures
Monitoring and limiting market risk exposures
Our objective is to manage and control market risk exposures while maintaining a market profile consistent with our risk appetite.
We use a range of tools to monitor and limit market risk exposures including sensitivity analysis, value at risk and stress testing.
Sensitivity analysis
Sensitivity analysis measures the impact of individual market factor movements on specific instruments or portfolios, including interest rates, foreign exchange rates and equity prices, such as the effect of a one basis point change in yield. We use sensitivity measures to monitor the market risk positions within each risk type. Sensitivity limits are set for portfolios, products and risk types, with the depth of the market being a principal factor in determining the level.
Value at risk
(Audited)
Value at risk (‘VaR’) is a technique for estimating potential losses on risk positions as a result of movements in market rates and prices over a specified time horizon and to a given level of confidence. The use of VaR is integrated into market risk management and calculated for all trading positions regardless of how we capitalise them. Where there is not an approved internal model, we use the appropriate local rules to capitalise exposures. In addition, we calculate VaR for non-trading portfolios to have a complete picture of risk. Where we do not calculate VaR explicitly, we use alternative tools as summarised in the ‘Stress testing’ section below.
Our models are predominantly based on historical simulation which incorporatethat incorporates the following features:
historical market rates and prices are calculated with reference to foreign exchange rates, commodity prices, interest rates, equity prices and the associated volatilities;
potential market movements utilised for VaR are calculated with reference to data from the past two years; and
VaR measures are calculated to a 99% confidence level and use a one-day holding period.
The models also incorporate the effect of option features on the underlying exposures. The nature of the VaR models means that an increase in observed market volatility will lead to an increase in VaR without any changes in the underlying positions.
VaR model limitations
Although a valuable guide to risk, VaR should always be viewed in the context of its limitations. For example:
use of historical data as a proxy for estimating future events may not encompass all potential events, particularly extreme ones;
the use of a holding period assumes that all positions can be liquidated or the risks offset during that period, which may not fully reflect the market risk arising at times of severe illiquidity, when the holding period may be insufficient to liquidate or hedge all positions fully;
the use of a 99% confidence level does not take into account losses that might occur beyond this level of confidence; and
VaR is calculated on the basis of exposures outstanding at the close of business and therefore does not necessarily reflect intra-day exposures.
Risk not in VaR framework
The risks not in VaR (‘RNIV’) framework aims to capture and capitalise material market risks that are not adequately covered
in the VaR model, such as the LIBOR tenor basis.
Risk factors are reviewed on a regular basis and either incorporated directly in the VaR models, where possible, or quantified through the VaR-based RNIV approach or a stress test
approach within the RNIV framework. The outcome of the VaR-based RNIV is included in the VaR calculation and back-testing; a stressed VaR RNIV is also computed for the risk factors considered in the VaR-based RNIV approach.
Stress-type RNIVs include a gap risk exposure measure to capture risk on non-recourse margin loans and a de-peg risk measure to capture risk to pegged and heavily-managed currencies.
Stress testing
Stress testing is an important procedure that is integrated into our market risk management framework to evaluate the potential impact on portfolio values of more extreme, although plausible, events or movements in a set of financial variables. In such scenarios, losses can be much greater than those predicted by VaR modelling.
Stress testing is implemented at legal entity, regional and overall Group levels. A set of scenarios is used consistently across all regions within the Group. Scenarios are tailored to capture the relevant potential events or market movements at each level. The risk appetite around potential stress losses for the Group is set and monitored against referral limits.
Market risk reverse stress tests are undertaken on the premise that there is a fixed loss. The stress testing process identifies which scenarios lead to this loss. The rationale behind the reverse stress test is to understand scenarios that are beyond normal business settings and could have contagion and systemic implications.
Stressed VaR and stress testing, together with reverse stress testing and the management of gap risk, provide management with insights regarding the ‘tail risk’ beyond VaR, for which HSBC’s appetite is limited.
Trading portfolios
Back-testing
We routinely validate the accuracy of our VaR models by back-testing them against both actual and hypothetical profit and loss against the corresponding VaR numbers. Hypothetical profit and loss excludes non-modelled items such as fees, commissions and revenues of intra-day transactions.
We would expect, on average, to see two or three profits and two or three losses in excess of VaR at the 99% confidence level over a one-year period. The actual number of profits or losses in excess of VaR over this period can therefore be used to gauge how well the models are performing.
We back-test our Group VaR at various levels that reflect a full legal entity scope of HSBC, including entities that do not have local permission to use VaR for regulatory purposes.
Structural foreign exchange exposures
Structural foreign exchange exposures represent net investments in subsidiaries, branches and associates, the functional currencies of which are currencies other than the US dollar. An entity’s functional currency is normally that of the primary economic environment in which the entity operates.
Exchange differences on structural exposures are recognised in ‘Other comprehensive income’. We use the US dollar as our presentation currency in our consolidated financial statements because the US dollar and currencies linked to it form the major currency bloc in which we transact and fund our business. Our consolidated balance sheet is, therefore, affected by exchange differences between the US dollar and all the non-US dollar functional currencies of underlying subsidiaries.
We hedge structural foreign exchange exposures only in limited circumstances. Our structural foreign exchange exposures are managed with the primary objective of ensuring, where


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practical, that our consolidated capital ratios and the capital ratios of individual banking subsidiaries are largely protected from the effect of changes in exchange rates. We hedge structural foreign exchange exposures only in limited circumstances.
For further details of our structural foreign exchange exposures, please see page 153.

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Interest rate risk in the banking book
TheOverview
Interest rate risk in the banking book is the risk of an adverse impact to earnings or capital due to changes in market interest rates. It is generated by our non-traded assets and liabilities and is monitored and controlled at Group level by Group Treasury and at the entity level by Asset, Liability and Capital Management (‘ALCM’) function. Group Treasury and ALCM functions are governed by RMM who approve risk limits used in the management of interest rate risk. Interest rate risk in the banking book is responsible for measuringtransferred to and controllingmanaged by BSM, which is overseen by Wholesale Market Risk, Product Control and Group Treasury functions.
Key risk drivers
The bank’s interest rate risk in the banking book undercan be segregated into the supervisionfollowing drivers:
Managed rate risk – the risk that the pricing of products, which are dependent upon business line decisions, do not correlate to movements in market interest rates.
Re-investment risk – risk arising due to change in rates when behaviouralised balances are reinvested as per the RMM.transfer pricing policy.
The component ofBasis risk – the risk arising from assets and liabilities that are priced referencing different market indices creating a repricing mismatch.
Prepayment risk – the risk that the actual customer prepayment in different interest rate scenarios does not match the profile used to hedge the interest rate risk.
Duration risk – the risk that there are changes in the banking book outside Balance Sheet Management (‘BSM’) or Global Markets that can be economically neutralised by fixed-rate government bonds ormaturities of assets and liabilities due to changes in interest rate, derivatives iswhich create or exacerbate a mismatch.
Governance and structure
Group Treasury and ALCM monitor and control non-traded interest rate risk. This includes reviewing and challenging the business prior to the release of new products and in respect of proposed behavioural assumptions used for hedging activities. ALCM are also responsible for maintaining and updating the transfer priced topricing framework, informing the Asset and managed by BSM. TheLiability Committee (‘ALCO’) of the Group’s overall banking book interest rate risk transferredexposure and managing the balance sheet in conjunction with BSM.
The internal transfer pricing framework is constructed to BSM is reflectedensure that structural interest rate risk, arising due to differences in the Group’s non-traded VaR measure.
BSM is overseen by the Market Riskrepricing timing of assets and Product Control functions in exactly the same way as Global Markets.
The price at which interest rate riskliabilities, is transferred to BSM and business lines are correctly allocated income and expense based on the products they write, inclusive of activities to mitigate this risk. Contractual principal repayments, payment schedules, expected prepayments, contractual rate indices used for repricing and interest rate reset dates are examples of elements transferred for risk management by BSM.
The internal transfer pricing framework is determinedgoverned by each entity’s ALCO. The ALCO defines each operating entity’s transfer pricing curve, reviews and approves the transfer pricing policy, including behaviouralisation assumptions used for products where there is either no defined maturity or customer optionality exists. The ALCO is also responsible for monitoring and reviewing each entity’s prevailingoverall structural interest rate risk transfer pricing curve defined by operating entities Asset and Liability Management Committee (‘ALCO’),position. Interest rate behaviouralisation policies have to be formulated in accordanceline with the Group’s funds transfer pricing policies. The transfer price seeksbehaviouralisation policies and approved at least annually by local ALCOs.
Non-traded assets and liabilities are transferred to reflectBSM based on their repricing and maturity characteristics. For assets and liabilities with no defined maturity or repricing characteristics behaviouralisation is used to assess the price at which BSM could neutralise the risk in the market at the point of transfer.
The banking book interest rate risk within HSBC Holdings is not transferred to BSM and is managed as an ALCO book.
Interest rate risk behaviouralisation
In assessingprofile; the banking book interest rate risk outside BSM and Global Markets, interest rate repricing behaviouralisation techniques are used where the interest repricing profile is uncertain due to customer/bank optionality or where non-interest bearing balances are withdrawable.
The maximum tenoraverage duration to which any individual tranchea portfolio of a non-interest bearing withdrawable/repayablenon-maturity defined customer balancebalances or equity can be behaviouralised is 10 years. The maximum weighted average behaviouralised tenor for any portfolio is five years. Interest-bearing managed/administered rate balances are behaviouralised to tenors less than one year, typically one month or three months.
The maximum percentage of any portfolio that can be behaviouralised is 90% with the residual treated as contractual, meaning overnight.
Unlike liquidity risk, which is assessed on
BSM manages the basis of a very severe stress scenario, banking book interest rate risk is assessed and managed according to business-as-usual conditions. In many cases, the contractual profile of banking book assets/liabilities arising from assets/liabilities created outside Markets or BSM does not reflect the behaviour observed.
Where there is no certainty with regard to interest rate repricing profile, behaviouralisation is used to assess the market interest rate risk of banking book assets/liabilities and this assessed market risk ispositions transferred to BSM, in accordance withit within the rules governing the transfer of interest rate risk from the global businesses to BSM.
Behaviouralisation is applied in three key areas:
the assessed repricing frequency of managed rate balances;
the assessed duration of non-interest bearing balances, typically capital and current accounts; and
the base case expected prepayment behaviour or pipeline take-up rate for fixed-rate balances with embedded optionality.
Interest rate behaviouralisation policies have to be formulated in line with the Group’s behaviouralisation policies andMarket Risk limits approved
at least annually by local ALCOs.
The extent to which balances can be behaviouralised is driven by:
the amount of the current balance that can be assessed as constant under business-as-usual conditions; and
for managed rate balances, the historical market interest rate repricing behaviour observed; or
for non-interest bearing balances, the duration for which the balance is expected to remain under business-as-usual conditions. This assessment is often driven by the re-investment tenors available to BSM to neutralise the risk through the use of fixed-rate government bonds or interest rate derivatives, and for derivatives the availability of cash flow hedging capacity.
Measurement of interest rate risk in the banking book
Interest rate risk in the banking book is measured and controlled using three metrics:
non-traded VaR;
net interest income sensitivity; and
economic value of equity.
Non-traded VaR excludes the non-traded interest rate risk not transferred to BSM and the non-traded interest rate risk of HSBC Holdings.
Net interest income (‘NII’) sensitivity captures the expected impact of changes in interest rates on base case projected net interest income.
Economic value of equity (‘EVE’) captures the expected impact of changes in interest rates on base case economic value. It captures all non-traded items irrespective of the profit and loss accounting treatment.
Balance Sheet Management
RMM. Effective governance acrossof BSM is supported by the dual reporting lines it has to the Chief Executive Officer of GB&M and to the Group Treasurer. In each operating entity,The global businesses can only transfer non-trading assets and liabilities to BSM provided BSM can economically hedge the risk they receive. Hedging is responsible for managing liquiditygenerally executed through vanilla interest rate derivatives or fixed rate government bonds. Any interest rate risk which BSM cannot economically hedge is not transferred and funding underwill remain within the supervisionglobal business where the risk is originated.
Measurement of the local ALCO (which usually meets on a monthly basis). It also managesinterest rate risk in the banking book
ALCM uses a number of measures to monitor and control interest rate positions transferred to it within a Markets limit structure.
In executing the management of the liquidity risk on behalf of ALCO, and managingin the banking book, interest rate positionsincluding:
non-traded VaR;
net Interest Income (‘NII’) sensitivity; and
economic value of equity (‘EVE’).
Non-traded VaR
Non-traded VaR uses the same models as those used in the trading book and excludes both HSBC Holdings and the elements of risk which are not transferred to it, BSM invests in highly rated liquid assets in line with the Group’s liquid asset policy. The majority of the liquidity is invested in central bank deposits and government, supranational and agency securities, with most of the remainder held in short-term interbank and central bank loans.BSM.
Withdrawable central bank deposits are accounted for as cash balances. Interbank loans, statutory central bank reserves and loans to central banks are accounted for as loans and advances to banks. BSM’s holdings of securities are accounted for as available-for-sale or, to a lesser extent, held-to-maturity assets.
Statutory central bank reserves are not recognised as liquid assets. The statutory reserves that would be released in line with the Group’s stressed customer deposit outflow assumptions are reflected as stressed inflows.
BSM is permitted to use derivatives as part of its mandate to manage interest rate risk. Derivative activity is predominantly through the use of vanilla interest rate swaps which are part of cash flow hedging and fair value hedging relationships.
Credit risk in BSM is predominantly limited to short-term bank exposure created by interbank lending, exposure to central banks and high-quality sovereigns, supranationals or agencies which constitute the majority of BSM’s liquidity portfolio. BSM does not manage the structural credit risk of any Group entity balance sheet.
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exposure specific to its securities portfolio in limited circumstances only. The risk limits are extremely limited and closely monitored. At 31 December 2016, BSM had no open credit derivative index risk.
VaR is calculated on positions held in BSM and is calculated by applying the same methodology used for the Markets business and utilised as a tool for market risk control purposes.
The vast majority of BSM’s VaR arises from banking book portfolios and is classified as non-traded VaR.
BSM is predominantly involved in managing liquidity in accordance with the LFRF, managing the daily cash position and managing the non-traded interest rate risk transferred to it, within non-traded market risk limits.
Net interest incomeNII sensitivity
A principal part of our management of non-traded interest rate risk is to monitor the sensitivity of expected net interest income under varying interest rate scenarios (simulation modelling), where all other economic variables are held constant. This monitoring is undertaken at an entity level by local ALCOs.ALCOs, where entities forecast both one-year and five-year net interest income sensitivities across a range of interest rate scenarios.
Entities apply a combination of scenarios and assumptions relevant to their local businesses, and standard scenarios which are required throughout HSBC. The latter are consolidated to illustrate the combined pro forma effect on a hypothetical base case of our consolidated net interest income.
Projected net interest income sensitivity figures represent the effect of the pro forma movements in projected yield curves based on a static balance sheet size and structure, assumption, other than instances where the size of the balances or repricing is deemed interest rate sensitive, (non-interestfor example, non-interest bearing current account migration and fixed rate loan early prepayment) and where non-traded VaR is assumed to contractually run off. This effect, however, doesprepayment. These sensitivity calculations do not incorporate actions which would probably be taken by BSM or in the business units to mitigate the effect of interest rate risk. In reality, BSM proactively seeks to change the interest rate risk profile to optimise net revenues. movements.
The net interest income sensitivity calculations assume that interest rates of all maturities move by the same amount in the ‘up-shock’ scenario. Rates are not assumed to become negative in the ‘down-shock’ scenario unless the central bank rate is already negative and thennegative. In these cases, rates are not assumed to go further negative, which may, in certain currencies, effectively result in non-parallel shock. In addition, the net interest income sensitivity calculations take account of the effect on net interest income of anticipated differences in changes between interbank interest rates and internally determined interest rates over which the entity has discretion in terms of the timing and extent of rate changes.
Tables showing our calculations of net interest income sensitivity can be found on page 153.
Economic value of equity
An economic value of equity (‘EVE value’) represents the present value of the future banking book cash flows that could be distributed to equity providers under a managed run-off scenario, which representsi.e. the current book value of equity plus the present value of future net interest income under a managed run-offin this scenario. The present value of net interest income under a managed run-off and under any interest rate scenarioThis can therefore be assessed by deductingused to assess the book value of equity from the EVE value calculated.
economic capital required to support IRRBB. An EVE sensitivity is the extent to which the EVE value will change due to a pre-specified movementmovements in interest rates, where all other economic variables are held constant. The EVE sensitivity represents the sensitivity of discounted net interest income plus the sensitivity of the net present value of any transactions used to hedge the interest income earned on equity. If the EVE sensitivity is adjusted to remove the sensitivity in net present value of any transactions used to hedge the interest income earned on equity, the resulting adjusted EVE sensitivity represents the extent to which, under a managed run-off scenario, discounted net interest income is sensitive to
a pre-specified movement in interest rates.
When assessing the sensitivity of economic value of equity to interest rate movements, the timing of principal cash flows can vary but the amount remains constant.
Operating entities are required to monitor EVE sensitivity as a percentage of total capital resources and adjusted EVE sensitivity as a percentage of the present value of future net interest income (base case EVE minus book value of equity) under a managed run-off assumption.resources.
EVE can also be used for assessing the economic capital required to support interest rate risk in the banking book (‘IRRBB’):
Where EVE under any scenario is higher than the current balance sheet carrying value of equity, the banking book income stream is positive (i.e. profit) and therefore capital accretive under that scenario and no economic capital for IRRBB is required.
Where EVE of any scenario is lower than the current balance sheet carrying value of equity, the banking book income stream is negative (i.e. loss) and therefore capital deductive under that scenario and economic capital for IRRBB should be held against this loss.
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Where banking book assets/liabilities are fair valued through profit and loss or where the fair value changes impact capital resources (i.e. available for sale), economic capital for this interest rate sensitivity is additionally assessed using a stressed VaR approach.
HSBC Holdings
AsHSBC Holdings is a financial services holding company, HSBC Holdings has limited market risk activity.company. Its activities predominantly involve maintaining sufficient capital resources to support the Group’s diverse activities; allocating these capital resources across our businesses; earning dividend and interest income on its investments in our businesses; payment of operating expenses; providing dividend payments to its equity shareholders and interest payments to providers of debt capital; and maintaining a supply of short-term capital resourcesliquid assets for deployment under extraordinary circumstances. It does not take proprietary trading positions.
The main market risks to which HSBC Holdings is exposed are banking book interest rate risk and foreign currency risk. Exposure to these risks arises from short-term cash balances, funding positions held, loans to subsidiaries, investments in long-term financial assets and financial liabilities including debt capital issued. The objective of HSBC Holdings’ market risk management strategy is to reduce exposure to these risks and minimise volatility in capital resources, cash flows and distributable reserves. Market risk for HSBC Holdings is monitored by Holdings ALCO in accordance with its risk appetite statement.
HSBC Holdings uses interest rate swaps and cross-currency interest rate swaps to manage the interest rate risk and foreign currency risk arising from its long-term debt issues.
Operational risk management
Details of our operational risk profile in 20162017 can be found on page 159,156, in ‘Operational risk exposures in 2016’2017’.
Responsibility for minimising operational risk lies with all HSBC’s employees. Specifically, all staff are required to manage the operational risks of the business and operational activities for which they are responsible.
Overview
The objective of our operational risk management is to manage and control operational risk in a cost-effective manner within targeted levels of operational risk consistent with our risk appetite, as defined by the GMB.


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Key developments in 20162017
HSBC’sDuring 2017 we implemented a new operational risk management framework (‘ORMF’) is our overarching approach for managing operationaland group-wide risk management system. The new ORMF provides an end-to-end view of non-financial risks, enhancing focus on the purpose of which is to:
identifyrisks that matter the most and manage our non-financial operational risks in an effective manner;
remain within the Group’s operationalassociated controls. It provides a platform to drive forward-looking risk appetite, whichawareness and assist management focus. It also helps the organisation understand the level of risk it is willing to accept; andaccept.
drive forward-looking risk awareness and assist management focus during 2016.
ActivityWe also maintained activity to continually strengthen our risk culture and better embedculture. In particular, we focused on the use of the ORMF was further implemented in 2016, in particular the use of the activity-based three lines of defence model whichto reinforce individual accountability. It sets outour roles and responsibilities for managing operational risksrisk on a daily basis.
Further information on the three lines of defence model can be found in the ‘Our risk management framework’ section on page 101.106.
Governance and structure
The ORMF defines minimum standards and processes, and the governance structure for the management of operational risk and internal control in our geographical regions, global businesses and global functions. The ORMF has been codified in a high-level standards manual, supplemented with detailed policies, which describes our approach to identifying, assessing, monitoring and controlling operational risk and gives guidance on mitigating action to be taken when weaknesses are identified.
Operational risk is organised asWe have a specific risk discipline within Global Risk, and a formal governance structure provides oversight over its management. Thededicated Global Operational Risk sub-function within our Global Risk function. It is responsible for leading the embedding of the ORMF, and assuring adherence to associated policies and processes across the first and second lines of defence. It supports the Group Chief Risk Officer and the Global Operational Risk Committee. It is responsible for leading the embeddingCommittee, which meets at least quarterly to discuss key risk issues and review implementation of the ORMF and assurance of adherence to associated policies and processes across the first and second lines. ItORMF. The sub-function is also responsible for preparation of operational risk reporting at Group level, including reports for consideration by the RMM and the Group Risk Committee. The Global Operational Risk Committee meets at least quarterly to discuss key risk issues and review the effective implementationA formal governance structure provides oversight of the ORMF.sub-function’s management.
Key risk management processes
Business managers throughout the Group are responsible for maintaining an acceptable level of internal control commensurate with the scale and nature of operations, and for identifying and assessing risks, designing controls and monitoring the effectiveness of these controls. The ORMF helps managers to fulfil these responsibilities by defining a standard risk assessment methodology and providing a tool for the systematic reporting of operational loss data.
A centralised databasegroup-wide risk management system is used to record the results of the operational risk management process. Operational risk and control self-assessments, along with issue and action plans, are inputtedentered and maintained by business units. Business and functional management and business risk and control managers monitor the progress of documented action plans to address shortcomings. To help ensure that operational risk losses are consistently reported and monitored at Group level, all Group companies are required to report individual losses when the net loss is expected to exceed $10,000, and to aggregate all other operational risk losses under $10,000. Losses are entered into the Group operationalgroup-wide risk databasemanagement system and reported to the RMMgovernance on a monthly basis.

Regulatory compliance risk management
Overview
The Regulatory Compliance sub-function (‘RC’) provides independent, objective oversight and challenge, and promotes a compliance-orientated culture supportingthat supports the business in delivering fair outcomes for customers, maintaining the integrity of financial markets and achieving HSBC’s strategic objectives.
Key developments in 20162017
InThere were no material changes to the second halfpolicies and practices for the management of 2016, we restructured partRC risk in 2017, except for the following:
We implemented a number of initiatives to raise our standards in relation to the conduct of our Global Risk function. The Financial Crime Compliance sub-function became partbusiness, as described below under ‘Conduct of our new Financial Crime Risk function, which reports directlybusiness’.
Surveillance capabilities have been strengthened during the year with the deployment of an unauthorised trading detection tool in London, New York and Hong Kong, implementation of a foreign exchange trade analytics platform and expanded coverage of electronic communications surveillance. Infrastructure to support the Group Chief Executive (see ‘Financial crime risk management’ below). The RC sub-function remains parteffective delivery and reporting of Global Risk, andsurveillance activity continues to oversee management ofmature.
We continued to take steps to enhance our regulatory compliance risk.risk management and controls, and to work with regulators in relation to their investigations into historical activities. This included, in September 2017, matters giving rise to a civil money penalty order with the Federal Reserve Board in connection with its investigation into HSBC’s historical foreign exchange activities, and in January 2018, matters giving rise to HSBC’s entry into a three-year deferred prosecution agreement with the US Department of Justice (‘DoJ’) regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011 which concluded the DoJ’s investigation into HSBC’s historical foreign exchange activities. For further details, see Note 34 on the Financial Statements.
Governance and structure
The Global Head of RC reports to the Group Chief Risk Officer. To align with our global business structure and help ensure coverage of local regulatory requirements, RC is structured as a global function with regional and country RC teams, which support and advise each global business and global function.
Key risk management processes
We regularly review our policies and procedures. Global policies and procedures require the prompt identification and escalation of any actual or potential regulatory breach to RC. Reportable events are escalated to the RMM and the Group Risk Committee, as appropriate. Matters relating to the Group’s regulatory conduct of business are reported to the Conduct & Values Committee.

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Conduct of business
In 2016,2017, we focused on embedding conduct considerations in business-as-usual activity and decision making across the Group, reflecting our values and required behaviours, to deliver fair outcomes for customers and maintain market integrity. During the year, we continued to take steps to raise our standardsfocus on work relating to conduct, whichpotentially vulnerable customers, third parties, digital channels, markets trading surveillance and monitoring and testing. Other key activities in 2017 included:
designing further global mandatoryOngoing oversight of the breadth, depth and effectiveness of conduct training for delivery to all employeesmanagement and governance at country level.
Identification and integration of conduct considerations in 2017;the enterprise-wide risk management framework and the Group’s planning processes.
incorporating the assessment of expected values and behaviours as key determinants in recruitment, performance appraisal and remuneration processes;
improving our Group-wide market surveillance capability;
introducing policies and procedures to strengthen support for potentially vulnerable customers;
enhancing the quality and depthExpansion of conduct management information to identify actual or potential issues for resolution, in the global functions and how it is used acrossHSBC Operations Services and Technology, complementing global business conduct management information.
Implementing new conduct-specific global mandatory training modules and an enhanced programme of conduct communications.
Enhancing the Group;
implementing an assessment process to check the effectiveness of our conduct initiatives across the Group;in performance appraisal scorecards and
assessing conduct standards and practices within our key third-party suppliers and distributors. remuneration decision-making processes.
The Board maintained oversight of conduct matters through the Conduct & Values Committee.
Further information on ourdetail can be found under the Our conduct is provided in the Strategic Report on page 22 andsection of www.hsbc.com. For conduct-related costs relating to significant items, see page 78.84.
Financial crime risk management
Overview
In the second half of 2016, we established a Financial Crime Risk (‘FCR’) function and appointed a Group Head of FCR, who reports to the Group Chief Executive and chairs the Global Standards Steering Meeting. FCR is a global function that brings together all areas ofHSBC continued its progress towards implementing an effective financial crime risk management at HSBCcapability across the Group. We completed the roll-out of major compliance systems and is dedicatedshifted our focus towards embedding a sustainable approach to implementing the most effective global standards to combat financial crime. The function has been set up to enable us to build on our achievements in managing financial crime risk effectively acrossmanagement everywhere we operate. This was underpinned by the bankimplementation of a target operating model for the Financial Crime Risk function and


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to continue to strengthen by the completion of a country-by-country assessment against our financial crime detection, and anti-money laundering (‘AML’), sanctions and anti-bribery and corruption compliance.risk framework.
Key developments in 20162017
The FCR function encompasses FCR Assurance,During 2017, HSBC continued to increase its efforts to assist with keeping financial crime out of the financial system. We completed the roll-out of compliance systems to support our anti-money laundering and sanctions policies, having invested $1bn in new and upgraded IT systems since 2015.
To ensure we have a clear view of our progress, we completed an assessment of each country in which we operate against the capabilities set out in our financial crime risk framework.
We implemented a new target operating model for the Financial Crime Compliance, Financial Crime Threat Mitigation, the Global Standards programme, the Monitor Liaison Office, FCR Strategy Implementation, FCR Chief of StaffRisk function which puts in place a sustainable structure at a global, regional and FCR COO.
The structure has been designed around the following key principles:
FCR sets policy and standards, provides subject matter expertise and guidance, drives execution at country level, via regions, and maintains lineacross all lines of business, subject matter expertiseand continued to build the function’s leadership at the most senior levels.
An engaged and well-trained workforce is crucial and in support2017 we continued to invest significantly in this area. We relaunched and refreshed our global mandatory training for all employees and introduced targeted training for relationship managers and other key roles.
Working in partnership is vital to managing financial crime risk. HSBC is a strong proponent of public-private partnerships and information-sharing initiatives. During 2017 we joined three new partnerships – in Australia, Singapore and Hong Kong – and co-sponsored a major public report into the global businesses.future of financial intelligence sharing. We also worked with, or invested in, a number of financial technology (‘fintech’) firms to help us continue to strengthen our analytical and innovative approach to financial crime risk management.
Country-level execution accountability is driven by a common set of global principles with material variations managed by exception.
Sub-functions within FCR are leveraged across the global function, ensuring consistency and utilising expertise and resourcing.
Key risk management processes
We continue to embed policies and procedures, introduce new technology solutions and support the cultural change needed to effectively manage financial crime risk. A key enhancement during 2016 was the deployment of our global customer due diligence system to 35 markets for RBWM, 52 for CMB, 36 for GB&M and two for GPB. This, along with the enhancedDuring 2017, HSBC introduced a strengthened financial crime risk training that we have taken more than 3,500 senior leaders through globally, will help ensure our people have the guidancemanagement governance framework, mandating Financial Crime Risk Management Committees with a standardised agenda at country, region and tools that they need.global business line levels.
TheAt a Group Head of FCR attendslevel, the Financial System Vulnerabilities Committee (‘FSVC’), which reportscontinues to report to the Board on matters relating to financial crime, and financial system abuse and provides a forward-looking perspective on financial crime risk, as well as cyber and information security. In 2016, the FSVC assumed responsibility from the CVC for oversight of controls relating to anti-bribery and corruption.
we introduced new members with significant external expertise in this area. Throughout the year the Committeecommittee, which is attended by the Group Head of Financial Crime Risk, received regular reports from country chief executives on the actions being taken by management to address local financial crime risk issues and vulnerabilities,vulnerabilities.
We strengthened our approach to affiliate risk management, implementing an effective Group-level process to assess and also received reports on specificremediate affiliate risk, and established a strong investigations and analytical capability to enable us to proactively identify emergent risk issues.
The Monitor
Under the agreements entered into with the DoJUS Department of Justice (‘DoJ’) and the FCAUK Financial Conduct Authority (‘FCA’) in 2012, including the five-year US DPA,deferred prosecution agreement (‘AML DPA’) and a Direction issued by the FCA, the Monitor (who is, for FCA purposes, a ‘skilled person’ under section 166 of the Financial Services and Markets Act) was appointed in July 2013 for an expected five-year period to produce annual assessments of the effectiveness of the Group’s AML and sanctions compliance programme. Additionally, under the Cease and Desist Order issued by the US Federal Reserve Board (‘FRB’) in 2012, the Monitor also serves as an independent consultant to conduct annual assessments.
In December 2017, the AML DPA expired and the charges deferred by the AML DPA were dismissed. The Monitor will continue working in his capacity as a skilled person and independent consultant for a period of time at the FCA’s and FRB’s discretion.
In February 2017,2018, the Monitor delivered his thirdfourth annual follow-up review report based on various thematic and country reviews he had conducted over the course of 2016.during 2017. In his report, the Monitor concluded that, in 2016,2017, HSBC continued to makemade significant progress in enhancing its financial crime compliance controls, including improvements to its Global AML policies and procedures. However, the Monitor also expressed significant concerns about the pace of that progress, instances of potential financial crime that the DoJ 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 its obligations under the US DPA - a matter that would be determined by the DoJ in its sole discretion. The Monitor also found that there remain substantial challenges for HSBC to meet its goal of developing a reasonably effective and sustainable AML and sanctions compliance programme. In addition,programme and expressed confidence that HSBC can achieve its target end state within the next 18 months if it is able to maintain the concerted effort and focus it has demonstrated in remediating and enhancing its programme over the last five years. Nonetheless, the Monitor dididentified various challenges that HSBC faces in achieving this objective, noted deficiencies in HSBC’s financial crime compliance controls and areas of HSBC’s programme that require further work, and highlighted potential instances of financial crime and certain areas in which he believes that HSBC is not certify as to HSBC’s implementation of and adherence to remedial measures specified in the US DPA. The ‘US deferred prosecution
agreement and related agreements and consent orders’ are discussed in ‘Top and emerging risks’yet adequately managing financial crime risk.  As described on page 89.282 of note 34, the Monitor identified potential anti-money laundering and sanctions compliance issues that HSBC is reviewing further with the DoJ, FRB and/or FCA.
Throughout 2016,2017, the FSVC received regular reports on HSBC’s relationship with the Monitor and its compliance with the USAML DPA. The FSVC received regular updates on the preliminary findings arising fromMonitor’s review activity as part of the Monitor’s thirdfourth annual review, and has received the Monitor’s thirdfourth annual review report.
Insurance manufacturing operations risk management
Details of changes in our insurance manufacturing operations risk profile in 20162017 can be found on page 159, in156, under ‘Insurance manufacturing operations risk profile’.
There were no material changes to our policies and practices for the management of risks arising in our insurance manufacturing operations in 2016.2017.

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Governance
(Audited)
Insurance risks are managed to a defined risk appetite, which is aligned to the GroupGroup’s risk appetite and risk management framework, including the Groupits three lines of defence model. For details of the Group’s governance framework, see page 101.106. The GroupGlobal Insurance Risk Management Meeting oversees the control framework globally and is accountable to the RBWM Risk Management Meeting on risk matters relating to the insurance business.
The monitoring of the risks within theour insurance operations is carried out by insurance risk teams. Specific risk functions, including Wholesale Credit & Market Risk, Operational Risk, Information Security Risk and Financial Crime Risk and Regulatory Compliance support Insurance Risk teams in their respective areas of expertise.
Stress and scenario testing
(Audited)
Stress testing forms a key part of the risk management framework for the insurance business. We participate in local and Group-wide regulatory stress tests, including the Bank of England stress test of the banking system, the Hong Kong Monetary Authority stress test, the European Insurance and Occupational Pensions Authority stress test, and individual country insurance regulatory stress tests.
These have highlighted that a key risk scenario for the insurance business is a prolonged low interest rate environment. In order to mitigate the impact of this scenario, the insurance operations have taken a rangenumber of strategies that could be employedactions including the hedging of investment risk, repricing currentsome products to reflect lower interest rates, improving risk diversification, moving towardslaunching less capital intensive products, investing in more capital efficient assets and developing investment strategies to optimise the expected returns against the cost of economic capital.
Management and mitigation of key risk types
Market risk
(Audited)
All our insurance manufacturing subsidiaries have market risk mandates which specify the investment instruments in which they are permitted to invest and the maximum quantum of market risk which they may retain. They manage market risk by using, among others, some or all of the techniques listed below, depending on the nature of the contracts written:
For products with discretionary participating features (‘DPF’), adjusting bonus rates to manage the liabilities to policyholders. The effect is that a significant portion of the market risk is borne by the policyholder.
Asset and liability matching where asset portfolios are structured to support projected liability cash flows. The groupGroup manages its assets using an approach that considers asset quality, diversification, cash flow matching, liquidity,


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volatility and target investment return. It is not always possible to match asset and liability durations, due to uncertainty over the receipt of all future premiums and the timing of claims; and also because the forecast payment dates of liabilities may exceed the duration of the longest dated investments available. We use models to assess the effect of a range of future scenarios on the values of financial assets and associated liabilities, and ALCOs employ the outcomes in determining how best to best structure asset holdings to support liabilities.
Using derivatives to protect against adverse market movements or better match liability cash flows.
For new products with investment guarantees, considering the cost when determining the level of premiums or the price structure.
Periodically reviewing products identified as higher risk, which contain investment guarantees and embedded optionality features linked to savings and investment products.products, for active management.
Designing new products to mitigate market risk, such as changing the investment return sharing portion between policyholders and the shareholder.
Exiting, to the extent possible, investment portfolios whose risk is considered unacceptable.
Repricing premiums charged to policyholders.
Credit risk
(Audited)
Our insurance manufacturing subsidiaries are responsible for the credit risk, quality and performance of their investment portfolios. Our assessment of the creditworthiness of issuers and counterparties is based primarily upon internationally recognised credit ratings and other publicly available information.
Investment credit exposures are monitored against limits by our local insurance manufacturing subsidiaries, and are aggregated and reported to the Group Insurance Credit Risk and Group Credit Risk functions. Stress testing is performed by Group Insurance on the investment credit exposures using credit spread sensitivities and default probabilities.
We use a number of tools to manage and monitor credit risk. These include a credit report which containscontaining a watch-list of investments with current credit concerns.concerns, primarily investments that may be at risk of future impairment or where high concentrations to counterparties are present in the investment portfolio. The report is circulated monthly to senior management in Group Insurance and the individual country chief risk officers to identify investments whichthat may be at risk of future impairment.
Liquidity risk
(Audited)
Risk is managed by cash flow matching and maintaining sufficient cash resources, investing in high credit-quality investments with deep and liquid markets, monitoring investment concentrations and restricting them where appropriate, and establishing committed contingency borrowing facilities.
Insurance manufacturing subsidiaries are required to complete quarterly liquidity risk reports for the Group Insurance Risk function and an annual review of the liquidity risks to which they are exposed.
Insurance risk
HSBC Insurance primarily uses the following techniques to manage and mitigate insurance risk:
formalised product approval process covering product design, pricing and overall proposition management (for example, management of lapses by introducing surrender charges);
underwriting policy;
claims management processes; and
reinsurance which cedes risks above our acceptable thresholds to an external reinsurer thereby limiting our exposure.
Reputational risk management
There were no material changes to our policies and practices for the management of reputational risk in 2016.
Overview
Reputational risk relatesis the risk of failing to stakeholders’ perceptions, whether fact-basedmeet stakeholder expectations as a result of any event, behaviour, action or otherwise.inaction, either by HSBC, our employees or those with whom we are associated. This might cause stakeholders to form a negative view of the Group and result in financial or non-financial effects and loss of confidence in the Group. Stakeholders’ expectations change constantly, and so reputational risk is dynamic and varies between geographical regions, groups and individuals. We have an unwavering commitment to operating at the high standards we set for ourselves in every jurisdiction. Any material lapse in standards of integrity, compliance, customer service or operating efficiency representsmay represent a potential reputational risk.

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Key developments in 2017
There were no material changes to the policies and practices for the management of reputational risk in 2017, except for the formation of a new Group Reputational Risk Committee which replaced the Group Reputational Risk Policy Committee and the Global Risk Resolution Committee, as described below.
Governance and structure
TheFrom December, the development of policies and an effective control environment for the identification, assessment, management and mitigation of reputational risk, are coordinated throughconsidered by the new Group Reputational Risk Policy Committee (‘GRRC’) which is chaired by the Group Chairman. In parallel, the Global Risk Resolution Committee, chaired by the Chief Risk Officer,Officer. It is the highest decision-making forum in the Group for dealing with matters arising from clients or transactions that either present a serious potential reputational risk to the Group or merit a Group-led decisionto ensure a consistent risk management approach across ourthe regions, global businesses and global businesses. Both committees keepfunctions. The committee is responsible for keeping the RMM apprised of areas and activities presenting significant reputational risk and, where appropriate, makefor making recommendations to the RMM to mitigate such risks. Significant issues posing reputational risk are also reportedrisk.
Prior to December, these responsibilities were split between the BoardGroup Reputational Risk Policy Committee and the Conduct & ValuesGlobal Risk Resolution Committee where appropriate.which were demised to create the GRRC.
Key risk management processes
The External AffairsGlobal Communications function maintains policies and gives policy advice for the issues that might affect HSBC’s reputation and standing with customers, employees, opinion formers and the public. It oversees the identification, management and control of reputational risk for all HSBC Group entities in the areas of media relations and engagement with non-governmental organisations and other external stakeholders.
Our Reputational Risk and Client Selection (‘RRCS’) team, which is jointly managed byreports to both the Global Head of Financial Crime Compliance and the Global Head of Regulatory Compliance, oversees the identification, management and control of all other significant reputational risks across HSBCthe Group. It is responsible for setting policies to guide the Group’s reputational risk management, devising strategies to protect against reputational risk, and advising the global businesses and global functions to help them identify, assess and mitigate such risks, where possible. It is led by a headquarters-based team. This is supported by teams in each business line and region, which help ensure that issues are directed to the appropriate forums, that decisions are made and implemented effectively, and that management information is generated to aid senior management in the businesses and regions in understanding where reputational risk exists. Each global business has established a governance process that empowers the RRCS’s committees to address reputational risk issues at the right level, escalating decisions where appropriate. The global functions manage and escalate reputational risks within established operational risk frameworks.
Our policies set out our risk appetite and operational procedures for all areas of reputational risk, including financial crime prevention, regulatory compliance, conduct-related concerns, environmental impacts, human rights matters and employee relations.
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and other regulatory compliance frameworks. These measures should also enhance our reputational risk management in the future. For further details onof our financial crime risk management and regulatory compliance risk management, see ‘Financial crime risk management’ on page 114.118 and ‘Regulatory compliance risk management’ on page 117 respectively.
Further details can be found at www.hsbc.com.
Sustainability risk management
Overview
Assessing the environmental and social impacts of providing finance to our customers is integral to our overall risk management processes.
Key developments in 20162017
We periodically review our sustainability risk policies. In 2016,2017, we issued a revised mining and metals policy. It replaced the one introducedAgricultural Commodities policy, requiring palm oil customers to make further commitments in 2007, and responds to increasing concerns regarding climate change by addressing thermal coal mining, and provides more details on how we dealline with human rights issuesrecently enhanced sustainability standards in the sector.industry. We are also currently conducting a review of our Energy Policy.
We also createdIn 2017, we rolled out a new training module for relevant relationship managers globally on our sustainability risk policies and their responsibilities, to ensure consistent implementation. Furthermore, we continued to improveBy the way sustainability risk is recorded inend of the year, over 9,000 of our information management system.employees had completed this training.
Governance and structure
The Global Risk function, with input from the Global Corporate Sustainability function is mandated to manage sustainability risk globally, working throughwith the Global Businesses, Global Functions and local offices as appropriate. Sustainability risk managers have regional or national responsibilities for advising on and managing environmental and social risks.
Key risk management processes
The Global Risk function’s responsibilities in relation to sustainability risk include:
Formulating sustainability risk policies. This includes work in several key areas: overseeing our sustainability risk standards; overseeing our application of the Equator Principles, which provide a framework for banks to assess and manage the social and environmental impact of large projects to which they provide finance to;financing; overseeing our application of our sustainability policies, covering agricultural commodities, chemicals, defence, energy, forestry, freshwater infrastructure, mining and metals, UNESCO World Heritage Sites and the Ramsar Convention on Wetlands; undertaking independent reviews of transactions where sustainability risks are assessed to be high; and supporting our operating companies to assess similar risks of a lesser magnitude.
Building and implementing systems-based processes to help ensure consistent application of policies, reduce the costs of sustainability risk reviews, and capture management information to measure and report on the effect of our lending and investment activities on sustainable development.
Providing training and capacity building within our operating companies to ensure sustainability risks are identified and mitigated consistently to appropriate standards.

Pension risk management
There were no material changes to our policies and practices for the management of pension risk in 2016.2017.
Governance and structure
A global pension risk framework and accompanying global policies on the management of risks related to defined benefit and defined contribution plans isare in place. Pension risk is managed by a network of local and regional pension risk forums. The Global Pensions Oversight CommitteeForum is responsible for the governance and oversight of all pension plans sponsored by HSBC around the world.
Key risk management processes
Our global pensions strategy is to move from defined benefit to defined contribution plans, where local law allows and it is considered competitive to do so.
In defined contribution pension plans, the contributions that HSBC is required to make are known, while the ultimate pension benefit will vary, typically with investment returns achieved by investment choices made by the employee. While the market risk to HSBC of defined contribution plans is low, the Group is still exposed to operational and reputational risk.
In defined benefit pension plans, the level of pension benefit is known. Therefore, the level of contributions required by HSBC will vary due to a number of risks, including:
investments delivering a return below that required to provide the projected plan benefits;

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the prevailing economic environment leading to corporate failures, thus triggering write-downs in asset values (both equity and debt);
a change in either interest rates or inflation expectations, causing an increase in the value of plan liabilities; and
plan members living longer than expected (known as longevity risk).
Pension risk is assessed using an economic capital model that takes into account potential variations in these factors. The impact of these variations on both pension assets and pension liabilities is assessed using a one-in-200-year stress test. Scenario analysis and other stress tests are also used to support pension risk management.
To fund the benefits associated with defined benefit plans, sponsoring Group companies, and in some instances employees, make regular contributions in accordance with advice from actuaries and in consultation with the plan’s trustees where relevant. These contributions are normally set to ensure that there are sufficient funds to meet the cost of the accruing benefits for the future service of active members. However, higher contributions are required when plan assets are considered insufficient to cover the existing pension liabilities. Contribution rates are typically revised annually or once every three years, depending on the plan.
The defined benefit plans invest contributions in a range of investments designed to limit the risk of assets failing to meet a plan’s liabilities. Any changes in expected returns from the investments may also change future contribution requirements. In pursuit of these long-term objectives, an overall target allocation of the defined benefit plan assets between asset classes is established. In addition, each permitted asset class has its own benchmarks, such as stock-market or property valuation indices. The benchmarks are reviewed at least once every three to five years and more frequently if required by local legislation or circumstances. The process generally involves an extensive asset and liability review.


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Key developments and risk profile in 20162017
Key developments in 20162017
In 2016,2017, HSBC undertook a number of initiatives to enhance its approach to the management of risk. These included:
Implementing a new internal liquidity and fundingoperational risk management framework which uses the liquidity coverage ratio(‘ORMF’) and net stable funding ratio regulatory frameworksystem of record (known as a foundation,Helios), as described on page 108 of the ‘Liquidity and funding risk management’ section.
Undertaking activities to strengthen our risk culture and further embed the use of the operational risk management framework, as described on page 114117 of the ‘Operational risk management’ section.
We have completed the introduction of the major compliance IT systems, put in place our AML and sanctions policy framework, and assessed our current financial crime risk management capabilities to identify any gaps and enable integration into our day-to-day operations. All of the actions that we committed to in 2013 as part of the Global Standards programme have been completed or superseded. Further improvements are underway to make our reforms more effective and sustainable.
ImplementingWe continued to take steps to enhance our regulatory compliance risk management and controls, implementing a number of initiatives to raise our standards in relation to the conduct of our business and other regulatory compliance-related initiatives, as described on page 114117 of the ‘Regulatory compliance risk management’ section.
Restructuring part
The formation of oura new Group Reputational Risk Committee which replaced the Group Reputational Risk Policy Committee and the Global Risk function. The Financial Crime Compliance sub-function became part of our new Financial Crime Risk (‘FCR’) function. The Regulatory Compliance sub-function remains part of Global Risk, and continues to oversee management of regulatory compliance risk.
Establishing an FCR function and appointing a Group Head of FCR, who chairs the Global Standards Steering Meeting and reports to the Group Chief Executive, to oversee all areas of financial crime risk management at HSBC. The FCR function is dedicated to implementing the most effective global standards to combat financial crime,Resolution Committee, as described on page 114119 of the ‘Financial crimeunder ‘Reputational risk management’ section..
Issuing a revised mining and metals policy and creating a new training module for relevant relationship managers globally on our sustainability risk policies and their responsibilities, to ensure consistent implementation, as described on page 117 in the ‘Sustainability risk management’ section.
There were no material changes to our policies and practices for the management of credit risk, market risk, insurance manufacturing operations risk, reputational risk and sustainability risk in 2016.

Credit risk profile
 Page
Credit risk in 20162017118
121
Credit exposure119
123
Wholesale lending127
130
Personal lending133
HSBC Finance
135
Supplementary information137
139
HSBC Holdings138
140
Securitisation exposures and other structured products138
140
Credit risk in 20162017
Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under a contract. It arises principally from direct lending, trade finance and leasing business, but also from other products, such as guarantees and credit derivatives and from holding assets in the form of debt securities. All amounts shown by geographical region or country are based on the location of the principal operations of the lending subsidiary or, in the case of the operations of The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East Limited and HSBC Bank USA, by the location of the lending branch.
For details on the adoption of IFRS 9, see Note 1.1(c) on the Financial Statements.
A summary of our current policies and practices regarding the management of credit risk is set out on pages 106 to 108.
The effect of commodity price movements in the oil and gas sectors is provided in ‘Areas of special interest’ onfrom page 100.112.
Gross loans and advances declinedincreased by $67bn, mainly due$103bn to $1,060bn. This included foreign exchange effects reducingmovements increasing balances by $68bn.$48bn.
Loan impairment charges and other credit provisions (‘LICs’) for the year were $3.4bn.$1.8bn, which was $1.6bn lower than the prior year.
In wholesale lending, balances declinedincreased by $33bn mainly due$67bn to $684bn. This increase included foreign exchange movements of $41bn.$30bn. Excluding foreign exchange movements, Asia grew strongly with loans and advances increasing by $34bn. In North America and Latin America, loans and advances increased by $2.3bn in each region, while Europe increased by $1.8bn. These increases were offset by a decrease in loans and advances in MENA of $3.2bn.
In personal lending, balances increased by $37bn to $376bn. This increase included foreign exchange movements of $19bn. Excluding foreign exchange movements, lending balances decreasedincreased by $13bn in Asia and $9.0bn in Europe. Growth was partly offset by a $3.7bn fall in North America, anddue to the final loans sales of $5.0bn in Middle East and North Africa butour US CML run-off portfolio, which were more than offset by increases in Asiasold through 2017. MENA and Latin America. EuropeAmerica lending balances were broadly unchanged.
In personal lending, balances decreased by $34bn, mainly due to foreign exchange movements of $26bn and $13bn in North America largely due to continued repayments and loan sales in the US CML run-off portfolio. Excluding foreign exchange movements and the US CML run-off portfolio, lending balances increased in Europe, Asia and Latin America and were offset by a decrease in Middle East and North Africa.
Information on constant currency movements is provided on page 30.
Summary of credit risk

 2016
2015
 
 $bn
$bn
Page
At 31 Dec   
Maximum exposure to credit risk2,898
2,947
119
– total assets subject to credit risk2,205
2,234
 
– off-balance sheet commitments subject to credit risk693
713
 
Gross loans and advances958
1,024
 
– personal lending340
374
134
– wholesale lending618
650
128
Impaired loans18
24
123
– personal lending6
12
 
– wholesale lending12
12
 
 %
%
 
Impaired loans as a % of gross loans and advances

  
– personal lending1.8
3.1
 
– wholesale lending1.9
1.9
 
– personal and wholesale lending1.9
2.3
 
 $bn
$bn
 
Impairment allowances7.9
9.6
127
– personal lending2.0
2.9
134
– wholesale lending5.9
6.7
129
Loans and advances net of
impairment allowances		950
1,015
 
For year ended 31 Dec

  
Loan impairment charge3.3
3.6
125
– personal lending1.7
1.8
 
– wholesale lending1.6
1.8
 
Other credit risk provisions0.1
0.1
 
 3.4
3.7
 
32.


115
HSBC Holdings plc Annual Report and Accounts 2016
121

Report of the Directors | Risk

Summary of credit risk

 2017
2016
 
 $bn
$bn
Page
At 31 Dec   
Maximum exposure to credit risk3,030
2,898
123
– total assets subject to credit risk2,306
2,205
 
– off-balance sheet commitments subject to credit risk724
693
 
Gross loans and advances1,060
958
 
– personal lending376
340
136
– wholesale lending684
618
130
Impaired loans15
18
126
– personal lending5
6
 
– wholesale lending10
12
 
 %
%
 
Impaired loans as a % of gross loans and advances

  
Personal lending1.3
1.8
 
Wholesale lending1.5
1.9
 
Total1.5
1.9
 
 $bn
$bn
 
Impairment allowances7.5
7.9
130
– personal lending1.7
2.0
129
– wholesale lending5.8
5.9
131
Loans and advances net of
impairment allowances		1,053
950
 
For year ended 31 Dec

  
Loan impairment charge2.0
3.3
128
– personal lending1.0
1.7
 
– wholesale lending1.0
1.6
 
Other credit risk provisions(0.2)0.1
 
 1.8
3.4
 
Gross loans to customers and banks over five years ($bn)
PersonalWholesale
a3arafinanci_chart-42807.jpg
UnimpairedImpaired

Loan impairment charge over five years ($bn)
a3arafinanci_chart-42104.jpg
PersonalWholesale
Loan impairment charges by geographical region ($bn)
a3arafinanci_chart-35837.jpg
 2017 2016
Loan impairment charges by industry ($bn)
a3arafinanci_chart-36067.jpg
 2017 2016


122HSBC Holdings plc

Loan impairment allowances over five years ($bn)
  Personal   Wholesale 
      
a3arafinanci_chart-42807.jpga3arafinanci_chart-47180.jpg
UnimpairedImpaired
Loan impairment charge over five years ($bn)
a3arafinanci_chart-42104.jpg
PersonalWholesale
Loan impairment charges by geographical region ($bn)
a3arafinanci_chart-35837.jpg
 2016 2015


Loan impairment charges by industry ($bn)
a3arafinanci_chart-36067.jpg
 2016 2015

Loan impairment allowances over five years ($bn)
PersonalWholesale
a3arafinanci_chart-47180.jpg
t
Loan impairment allowances as
a percentage of impaired loans
Loan impairment allowances ($bn)

–w–
Loan impairment allowances as
a percentage of impaired loans
 Loan impairment allowances ($bn)
Credit exposure
Maximum exposure to credit risk
(Audited)
The table that follows provides information on balance sheet items, offsets, and loan and other credit-related commitments. Commentary on consolidated balance sheet movements in 2017 is provided on page 45.48.
The offset on derivatives remains in line with the movements in maximum exposure amounts.
The offset on corporate and commercial loans to customers decreased by $17bn. This reduction was mainly related to corporate overdraft balances where a small number of clients benefited from the use of net interest arrangements across overdrafts and deposits. As a result, net risk exposures are usually stable, while gross balances can be volatile.


HSBC Holdings plc Annual Report and Accounts 2016
116

Report of the Directors | Risk


‘Maximum exposure to credit risk’ table

The following table presents our maximum exposure before taking account of any collateral held or other credit enhancements (unless such enhancements meet accounting offsetting requirements). The table excludes financial instruments whose carrying amount best represents the net exposure to credit risk;risk and it excludes equity securities as they are not subject to credit risk. For the financial assets recognised on the balance sheet, the maximum exposure to credit risk equals their carrying amount; for financial guarantees and similar contracts granted, it is the maximum amount that we would have to pay if the guarantees were called upon. For loan commitments and other credit-related commitments, it is generally the full amount of the committed facilities.

The offset in the table relates to amounts where there is a legally enforceable right of offset in the event of counterparty default and where, as a result, there is a net exposure for credit risk purposes. However, as there is no intention to settle these balances on a net basis under normal circumstances, they do not qualify for net presentation for accounting purposes. No offset has been applied to off-balance sheet collateral. In the case of derivatives the offset column also includes collateral received in cash and other financial assets.
Other credit risk mitigants
While not disclosed as an offset in the following ‘Maximum exposure to credit risk’ table, other arrangements are in place which reduce our maximum exposure to credit risk. These include a charge over collateral on borrowers’ specific assets such as residential properties, collateral held in the form of financial instruments that are not held on balance sheet and short positions in securities. In addition, for financial assets held as part of linked insurance/investment contracts the risk is predominantly borne by the policyholder. See Note 3029 and pages 230226 and 233 of229 on the Financial Statements for further details of collateral in respect of certain loans and advances and derivatives.


Maximum exposure to credit risk(Audited)
 20162015 20172016

Maximum
exposure
Offset
Net
Maximum
exposure
Offset
Net

Maximum
exposure
Offset
Net
Maximum
exposure
Offset
Net
 $m
$m
$m
$m
$m
$m
 $m
$m
$m
$m
$m
$m
Derivatives 290,872
(262,233)28,639
288,476
(258,755)29,721
 219,818
(204,829)14,989
290,872
(262,233)28,639
Loans and advances to customers held at amortised cost 861,504
(33,657)827,847
924,454
(52,190)872,264
 962,964
(35,414)927,550
861,504
(33,657)827,847
– personal 337,826
(3,629)334,197
371,203
(5,373)365,830
 374,762
(2,946)371,816
337,826
(3,629)334,197
– corporate and commercial 460,209
(27,686)432,523
493,078
(44,260)448,818
 516,754
(29,459)487,295
460,209
(27,686)432,523
– non-bank financial institutions 63,469
(2,342)61,127
60,173
(2,557)57,616
 71,448
(3,009)68,439
63,469
(2,342)61,127
Loans and advances to banks held at amortised cost 88,126
(248)87,878
90,401
(53)90,348
 90,393
(273)90,120
88,126
(248)87,878
Reverse repurchase agreements – non-trading 160,974
(4,764)156,210
146,255
(900)145,355
 201,553
(3,724)197,829
160,974
(4,764)156,210
Total balance sheet exposure to credit risk 2,204,751
(300,902)1,903,849
2,234,409
(311,898)1,922,511
 2,305,592
(244,240)2,061,352
2,204,751
(300,902)1,903,849
Total off-balance sheet 692,915
—
692,915
712,546
—
712,546
 723,917
—
723,917
692,915
—
692,915
– financial guarantees and similar contracts 37,072
—
37,072
46,116
—
46,116
 38,328
—
38,328
37,072
—
37,072
– loan and other credit-related commitments 655,843
—
655,843
666,430
—
666,430
 685,589
—
685,589
655,843
—
655,843
At 31 Dec 2,897,666
(300,902)2,596,764
2,946,955
(311,898)2,635,057
 3,029,509
(244,240)2,785,269
2,897,666
(300,902)2,596,764

HSBC Holdings plc
123

Report of the Directors | Risk

Concentration of exposure
The geographical diversification of our lending portfolio, and our broad range of global businesses and products, ensured that we did not overly depend on a few markets or businesses to generate growth in 2016.2017.
For an analysis of:
financial investments, see Note 15 toon the Financial Statements;
trading assets, see Note 10 toon the Financial Statements;
derivatives, see page 132134 and Note 14 toon the Financial Statements; and
loans and advances by industry sector and by the location of the principal operations of the lending subsidiary (or, in the case of the operations of The Hongkong and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East Limited and HSBC Bank USA, by the location of the lending branch) see page 127130 for wholesale lending and page 133135 for personal lending.


117
HSBC Holdings plc Annual Report and Accounts 2016

Credit quality of financial instruments
(Audited)
We assess the credit quality of all financial instruments that are subject to credit risk. Additional credit quality information in respect of our consolidated holdings of ABSs is provided on page 138.140.
For the purpose of the following disclosure, loans past due up to 90 days and not otherwise classified as impaired are separately classified as past due but not impaired, irrespective
of their credit quality grade. Trading assets, financial assets designated at fair value and financial investments exclude equity securities as they are not subject to credit risk. The changes to the mapping of sovereign external ratings to credit quality bands, described on page 106, mainly impacts the credit quality of financial investments in 2016 with an increase in the ‘Strong’ rating band and a decrease in the ‘Good’ and ‘Satisfactory’ rating bands.


 Distribution of financial instruments by credit quality
 (Audited)
 
Neither past due nor impairedPast due
but not
impaired
Impaired
Total
gross
amount
Impairment
allowances
Total
 
Strong
Good
Satisfactory
Sub-
standard
 
 
$m
$m
$m
$m
$m
$m
$m
$m
$m
 Cash and balances at central banks126,838
711
444
16




128,009


128,009
 Items in the course of collection from other banks4,656
14
329
4




5,003


5,003
 Hong Kong Government certificates of indebtedness31,228
—
—
—




31,228


31,228
 Trading assets127,997
20,345
21,947
1,232




171,521


171,521
 – treasury and other eligible bills13,595
672
138
46




14,451


14,451
 – debt securities73,171
7,746
12,741
396




94,054


94,054
 – loans and advances to banks15,356
6,119
3,250
44




24,769


24,769
 – loans and advances to customers25,875
5,808
5,818
746




38,247


38,247
 Financial assets designated at fair value3,249
367
542
314




4,472


4,472
 Derivatives236,693
45,961
7,368
850




290,872


290,872
 Loans and advances to customers held at amortised cost437,531
200,385
185,717
18,831
8,662
18,228
869,354
(7,850)861,504
 – personal290,313
24,544
12,505
884
5,062
6,490
339,798
(1,972)337,826
 – corporate and commercial111,848
158,878
163,107
17,504
3,128
11,362
465,827
(5,618)460,209
 – non-bank financial institutions35,370
16,963
10,105
443
472
376
63,729
(260)63,469
 Loans and advances to banks held at amortised cost73,516
8,238
6,293
73
6
—
88,126
—
88,126
 Reverse repurchase agreements
– non-trading		123,822
18,223
18,166
763
—
—
160,974
—
160,974
 Financial investments401,010
13,579
13,570
2,940
—
1,031
432,130


432,130
 Assets held for sale1,774
536
392
266
236
1,030
4,234
(250)3,984
 Other assets11,203
5,348
9,227
805
124
221
26,928


26,928
 – endorsements and acceptances1,160
3,688
3,125
474
35
92
8,574


8,574
 – accrued income and other10,043
1,660
6,102
331
89
129
18,354


18,354
 At 31 Dec 20161,579,517
313,707
263,995
26,094
9,028
20,510
2,212,851
(8,100)2,204,751
 
%
%
%
%
%
%
%




 Percentage of total gross amount71.4
14.2
11.9
1.2
0.4
0.9
100.0





 Distribution of financial instruments by credit quality
 (Audited)
 
Neither past due nor impairedPast due
but not
impaired
Impaired
Total
gross
amount
Impairment
allowances
Total
 
Strong
Good
Satisfactory
Sub-
standard
 
 
$m
$m
$m
$m
$m
$m
$m
$m
$m
 Cash and balances at central banks179,155
1,043
407
19




180,624


180,624
 Items in the course of collection from other banks6,322
29
273
4




6,628


6,628
 Hong Kong Government certificates of indebtedness34,186
—
—
—




34,186


34,186
 Trading assets137,983
22,365
26,438
1,949




188,735


188,735
 – treasury and other eligible bills15,412
531
491
1,098




17,532


17,532
 – debt securities84,493
9,517
12,978
498




107,486


107,486
 – loans and advances to banks15,496
5,778
4,757
26




26,057


26,057
 – loans and advances to customers22,582
6,539
8,212
327




37,660


37,660
 Financial assets designated at fair value3,378
269
1,029
28




4,704


4,704
 Derivatives181,195
31,827
5,874
922




219,818


219,818
 Loans and advances to customers held at amortised cost503,759
222,343
204,162
16,114
8,600
15,470
970,448
(7,484)962,964
 – personal324,960
26,612
14,549
780
4,658
4,922
376,481
(1,719)374,762
 – corporate and commercial140,382
176,745
176,661
14,784
3,422
10,254
522,248
(5,494)516,754
 – non-bank financial institutions38,417
18,986
12,952
550
520
294
71,719
(271)71,448
 Loans and advances to banks held at amortised cost77,175
9,026
4,144
39
9
—
90,393
—
90,393
 Reverse repurchase agreements – non-trading143,154
32,321
25,636
442
—
—
201,553
—
201,553
 Financial investments356,065
10,463
15,017
2,886
—
728
385,159


385,159
 Other assets12,714
6,526
10,705
681
107
143
30,876
(48)30,828
 – endorsements and acceptances1,430
4,636
3,455
183
15
31
9,750


9,750
 – accrued income and other11,175
1,837
7,124
361
91
56
20,644


20,644
 – assets held for sale109
53
126
137
1
56
482
(48)434
 At 31 Dec 20171,635,086
336,212
293,685
23,084
8,716
16,341
2,313,124
(7,532)2,305,592
 
%
%
%
%
%
%
%




 Percentage of total gross amount70.7
14.5
12.7
1.0
0.4
0.7
100.0





124
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Report of the Directors | Risk


Distribution of financial instruments by credit quality (continued)Distribution of financial instruments by credit quality (continued)  Distribution of financial instruments by credit quality (continued)
Neither past due nor impaired
Past due
but not
impaired

Impaired
Total
gross
amount

Impairment
allowances

Total
Neither past due nor impaired
Past due
but not
impaired

Impaired
Total
gross
amount

Impairment
allowances

Total
Strong
Good
Satisfactory
Sub-
standard

Strong
Good
Satisfactory
Sub-
standard

$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Cash and balances at central banks97,365
583
939
47




98,934


98,934
126,838
711
444
16




128,009


128,009
Items in the course of collection from other banks5,318
32
416
2




5,768


5,768
4,656
14
329
4




5,003


5,003
Hong Kong Government certificates of indebtedness28,410
—
—
—




28,410


28,410
31,228
—
—
—




31,228


31,228
Trading assets116,633
21,243
19,894
576
 158,346
 158,346
127,997
20,345
21,947
1,232
 171,521
 171,521
– treasury and other eligible bills6,749
790
190
100
 7,829
 7,829
13,595
672
138
46
 14,451
 14,451
– debt securities77,088
10,995
10,656
299
 99,038
 99,038
73,171
7,746
12,741
396
 94,054
 94,054
– loans and advances to banks14,546
4,391
3,239
127
 22,303
 22,303
15,356
6,119
3,250
44
 24,769
 24,769
– loans and advances
to customers		18,250
5,067
5,809
50
 29,176
 29,176
25,875
5,808
5,818
746
 38,247
 38,247
Financial assets designated at fair value3,037
701
736
383




4,857


4,857
3,249
367
542
314




4,472


4,472
Derivatives248,101
32,056
7,209
1,110




288,476


288,476
236,693
45,961
7,368
850




290,872


290,872
Loans and advances to customers
held at amortised cost		472,691
214,152
194,393
16,836
12,179
23,758
934,009
(9,555)924,454
437,531
200,385
185,717
18,831
8,662
18,228
869,354
(7,850)861,504
– personal309,720
29,322
15,021
944
7,568
11,507
374,082
(2,879)371,203
290,313
24,544
12,505
884
5,062
6,490
339,798
(1,972)337,826
– corporate and commercial127,673
168,772
171,466
15,379
4,274
11,949
499,513
(6,435)493,078
111,848
158,878
163,107
17,504
3,128
11,362
465,827
(5,618)460,209
– non-bank financial institutions35,298
16,058
7,906
513
337
302
60,414
(241)60,173
35,370
16,963
10,105
443
472
376
63,729
(260)63,469
Loans and advances to banks held
at amortised cost		73,226
11,929
4,836
407
1
20
90,419
(18)90,401
73,516
8,238
6,293
73
6
—
88,126
—
88,126
Reverse repurchase agreements
– non-trading		108,238
16,552
20,931
46
—
488
146,255
—
146,255
123,822
18,223
18,166
763
—
—
160,974
—
160,974
Financial investments382,328
18,600
16,341
4,525
—
1,326
423,120


423,120
401,010
13,579
13,570
2,940
—
1,031
432,130


432,130
Assets held for sale10,177
9,605
17,279
1,635
703
2,133
41,532
(1,454)40,078
Other assets8,306
5,688
10,204
632
147
333
25,310
 25,310
12,977
5,884
9,619
1,071
360
1,251
31,162
(250)30,912
– endorsements and acceptances1,084
3,850
3,798
343
22
52
9,149
 9,149
1,160
3,688
3,125
474
35
92
8,574
 8,574
– accrued income and
other		7,222
1,838
6,406
289
125
281
16,161
 16,161
10,043
1,660
6,102
331
89
129
18,354
 18,354
At 31 Dec 20151,553,830
331,141
293,178
26,199
13,030
28,058
2,245,436
(11,027)2,234,409
– assets held for sale1,774
536
392
266
236
1,030
4,234
(250)3,984
At 31 Dec 20161,579,517
313,707
263,995
26,094
9,028
20,510
2,212,851
(8,100)2,204,751
%
%
%
%
%
%
%
 %
%
%
%
%
%
%
 
Percentage of total gross amount69.2
14.7
13.1
1.2
0.6
1.2
100.0
 71.4
14.2
11.9
1.2
0.4
0.9
100.0
 
Past due but not impaired gross financial instruments
(Audited)
Past due but not impaired gross financial instruments are those loans where, although customers have failed to make payments
in accordance with the contractual terms of their facilities, they have not met the impaired loan criteria described on page 123.126.
In North America, past due but not impaired balances decreased, mainly due to the continued repayments andfinal loan sales in theour US CML run-off portfolio. Past due but not impaired balances are concentrated in the up to 29 days ageing bucket.


Past due but not impaired gross financial instruments by geographical region(Audited)
Europe
Asia
MENA
North
America
Latin
America
Total
Europe
Asia
MENA
North
America
Latin
America
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 31 Dec 20171,324
3,892
852
2,015
633
8,716
At 31 Dec 20161,206
3,484
1,260
2,549
529
9,028
1,206
3,484
1,260
2,549
529
9,028
At 31 Dec 20151,599
3,444
1,263
5,474
1,250
13,030
Ageing analysis of days for past due but not impaired gross financial instruments
(Audited)

Up to 29 days
30-59
days
60-89
days
90-179
days
180 days
and over
Total

$m
$m
$m
$m
$m
$m
Loans and advances to customers and banks held at amortised cost6,837
1,255
493
10
14
8,609
– personal3,455
866
337
—
—
4,658
– corporate and commercial2,899
343
156
10
14
3,422
– financial483
46
—
—
—
529
Other financial instruments33
12
18
12
32
107
At 31 Dec 20176,870
1,267
511
22
46
8,716
       
Loans and advances to customers and banks held at amortised cost6,743
1,320
587
11
7
8,668
– personal3,696
986
380
—
—
5,062
– corporate and commercial2,593
316
201
11
7
3,128
– financial454
18
6
—
—
478
Other financial instruments264
47
23
12
14
360
At 31 Dec 20167,007
1,367
610
23
21
9,028

119
HSBC Holdings plc Annual Report and Accounts 2016
125

Report of the Directors | Risk

Ageing analysis of days for past due but not impaired gross financial instruments
(Audited)

Up to 29 days
30-59
days
60-89
days
90-179
days
180 days
and over
Total

$m
$m
$m
$m
$m
$m
Loans and advances to customers and banks held at amortised cost6,743
1,320
587
11
7
8,668
– personal3,696
986
380
—
—
5,062
– corporate and commercial2,593
316
201
11
7
3,128
– financial454
18
6
—
—
478
Assets held for sale194
29
13
—
—
236
– disposal group11
3
3
—
—
17
– non-current assets held for sale183
26
10
—
—
219
Other financial instruments70
18
10
12
14
124
At 31 Dec 20167,007
1,367
610
23
21
9,028
       
Loans and advances to customers and banks held at amortised cost9,403
1,917
727
111
21
12,179
– personal5,665
1,401
502
—
—
7,568
– corporate and commercial3,432
505
225
93
19
4,274
– financial306
11
—
18
2
337
Assets held for sale476
137
90
—
—
703
– disposal group476
136
89
—
—
701
– non-current assets held for sale—
1
1
—
—
2
Other financial instruments80
35
14
10
9
148
At 31 Dec 20159,959
2,089
831
121
30
13,030
Impaired loans
(Audited)
Impaired loans and advances are those that meet any of the following criteria:
Wholesale loans and advances classified as customer risk rating (‘CRR’) 9 or CRR 10: these grades are assigned when HSBC considers that the customer is either unlikely to pay their credit obligations in full without recourse to security, or is more than 90 days past due on any material credit obligation to HSBC.
Retail loans and advances classified as expected loss (‘EL’)
9 or EL 10: these grades are typically assigned to retail loans and
 
and advances more than 90 days past due unless they have been individually assessed as not impaired.
Renegotiated loans and advances: loans where we have changed the contractual cash flows due to credit distress of the obligor. Renegotiated loans remain classified as impaired until there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment of future cash flows.
In personal lending, the continued repayments andcompletion of loan sales in theour US CML run-off portfolio reduced impaired loan balances by a further $4.2bn.$1.5bn. The reduction in corporate and commercial balances is a result of fewer significant current year impaired loans together with loan credit grade improvements, repayments and write-offs.

Movement in impaired loans by industry sector
2016201520172016
Personal
Corporate and commercial
Financial
Total
Personal
Corporate and commercial
Financial
Total
Personal
Corporate and commercial
Financial
Total
Personal
Corporate and commercial
Financial
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan11,507
11,949
322
23,778
15,160
13,795
375
29,330
6,490
11,362
376
18,228
11,507
11,949
322
23,778
Classified as impaired during the year3,521
6,032
133
9,686
5,995
5,469
96
11,560
2,671
3,691
17
6,379
3,521
6,032
133
9,686
Transferred from impaired to unimpaired during the year(1,210)(922)(7)(2,139)(2,346)(922)(38)(3,306)(677)(1,324)(8)(2,009)(1,210)(922)(7)(2,139)
Amounts written off(1,252)(1,720)(11)(2,983)(2,263)(1,424)(14)(3,701)(1,330)(1,257)(53)(2,640)(1,252)(1,720)(11)(2,983)
Net repayments and other(6,076)(3,977)(61)(10,114)(5,039)(4,969)(97)(10,105)(2,232)(2,218)(38)(4,488)(6,076)(3,977)(61)(10,114)
At 31 Dec6,490
11,362
376
18,228
11,507
11,949
322
23,778
4,922
10,254
294
15,470
6,490
11,362
376
18,228
Impaired loans by industry sector and geographical region
 Europe
Asia
MENA
North
America
Latin
America
Total
 $m
$m
$m
$m
$m
$m
Non-renegotiated impaired loans4,551
1,645
870
1,180
452
8,698
– personal1,648
475
227
665
280
3,295
– corporate and commercial2,895
1,146
639
508
172
5,360
– financial8
24
4
7
—
43
Renegotiated impaired loans3,491
604
1,079
1,426
172
6,772
– personal381
125
120
958
43
1,627
– corporate and commercial2,926
478
895
466
129
4,894
– financial184
1
64
2
—
251
At 31 Dec 20178,042
2,249
1,949
2,606
624
15,470
Impaired loans % of total gross loans and advances2.0%
0.5%
5.4%
2.2%
2.6%
1.5%
       
Non-renegotiated impaired loans4,354
1,771
1,042
1,913
399
9,479
– personal1,239
453
459
1,043
220
3,414
– corporate and commercial3,029
1,291
582
865
179
5,946
– financial86
27
1
5
—
119
Renegotiated impaired loans3,708
728
1,188
2,929
196
8,749
– personal648
113
72
2,213
30
3,076
– corporate and commercial2,868
614
1,052
716
166
5,416
– financial192
1
64
—
—
257
At 31 Dec 20168,062
2,499
2,230
4,842
595
18,228
Impaired loans % of total gross loans and advances2.3%
0.6%
5.5%
4.1%
2.9%
1.9%
       
Currency translation adjustment855
72
(25)37
20
959
31 Dec 2016 at 31 Dec 2017 exchange rates8,917
2,571
2,205
4,879
615
19,187
Movement – constant currency basis(875)(322)(256)(2,273)9
(3,717)
31 Dec 2017 as reported8,042
2,249
1,949
2,606
624
15,470

126
HSBC Holdings plc Annual Report and Accounts 2016120

Report of the Directors | Risk


Impaired loans by industry sector and geographical region
 Europe
Asia
MENA
North
America
Latin
America
Total
 $m
$m
$m
$m
$m
$m
Non-renegotiated impaired loans4,354
1,771
1,042
1,913
399
9,479
– personal1,239
453
459
1,043
220
3,414
– corporate and commercial3,029
1,291
582
865
179
5,946
– financial86
27
1
5
—
119
Renegotiated impaired loans3,708
728
1,188
2,929
196
8,749
– personal648
113
72
2,213
30
3,076
– corporate and commercial2,868
614
1,052
716
166
5,416
– financial192
1
64
—
—
257
At 31 Dec 20168,062
2,499
2,230
4,842
595
18,228
Impaired loans % of total gross loans and advances2.3%0.6%5.5%4.1%2.9%1.9%
       
Non-renegotiated impaired loans4,583
1,760
1,051
2,177
623
10,194
– personal1,361
385
475
1,786
211
4,218
– corporate and commercial3,135
1,368
552
389
411
5,855
– financial87
7
24
2
1
121
Renegotiated impaired loans4,682
615
1,127
6,753
407
13,584
– personal878
131
41
6,208
31
7,289
– corporate and commercial3,607
480
1,086
545
376
6,094
– financial197
4
—
—
—
201
At 31 Dec 20159,265
2,375
2,178
8,930
1,030
23,778
Impaired loans % of total gross loans and advances2.3%0.6%4.6%6.5%4.8%2.3%
       
Currency translation adjustment(1,170)(22)(194)12
(162)(1,536)
31 Dec 2015 at 31 Dec 2016 exchange rates8,095
2,353
1,984
8,942
868
22,242
Movement – constant currency basis(33)146
246
(4,100)(273)(4,014)
31 Dec 2016 as reported8,062
2,499
2,230
4,842
595
18,228
Renegotiated loans and forbearance
The most significant portfolio of renegotiated loans was in North America, substantially all of which were retail loans held by HSBC Finance Corporation (‘HSBC Finance’). The ongoing repayments and loan sales in the US CML run-off portfolio reduced renegotiated loans by $8.7bn during 2016.
The following tables show the gross carrying amounts of the Group’s holdings of renegotiated loans and advances to customers by industry sector, geography,geographical region, credit quality classification and arrangement type.
The completion of loan sales in our US CML run-off portfolio reduced renegotiated loans by $2.0bn during 2017.


Renegotiated loans and advances to customers by industry sector
First lien residential mortgages
Other personal lending
Corporate and commercial
Non-bank financial institutions
Total
First lien residential mortgages
Other personal lending
Corporate and commercial
Non-bank financial institutions
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Neither past due nor impaired976
282
1,848
260
3,366
476
268
2,082
257
3,083
Past due but not impaired346
78
301
—
725
58
49
120
—
227
Impaired2,751
325
5,416
257
8,749
1,329
298
4,894
251
6,772
At 31 Dec 20164,073
685
7,565
517
12,840
At 31 Dec 20171,863
615
7,096
508
10,082
Impairment allowances on renegotiated loans267
150
1,667
130
2,214
165
127
1,584
151
2,027
  
Neither past due nor impaired3,973
716
2,152
391
7,232
976
282
1,848
260
3,366
Past due but not impaired1,753
243
123
24
2,143
346
78
301
—
725
Impaired6,556
733
6,094
201
13,584
2,751
325
5,416
257
8,749
At 31 Dec 201512,282
1,692
8,369
616
22,959
At 31 Dec 20164,073
685
7,565
517
12,840
Impairment allowances on renegotiated loans870
252
2,098
119
3,339
267
150
1,667
130
2,214
Renegotiated loans and advances to customers by geographical region
Europe
Asia
MENA
North America
Latin America
Total
Europe
Asia
MENA
North America
Latin
America
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 31 Dec 20175,667
921
1,622
1,604
268
10,082
At 31 Dec 20165,855
1,046
1,871
3,736
332
12,840
5,855
1,046
1,871
3,736
332
12,840
At 31 Dec 20157,121
943
1,945
12,372
578
22,959
A range of forbearance strategies are employed in order to improve the management of customer relationships, maximise collection opportunities and, if possible, avoid default, foreclosure or repossession.
 
The following tables below show renegotiated loans by arrangement type as a percentage of the total value of arrangements offered. In personal lending, renegotiated loans have been allocated to the single most dominant arrangement type. The movements in personal lending arrangement types in 2017 are mainly driven by the loan sales in our US CML run-off portfolio.


121
HSBC Holdings plc Annual Report and Accounts 2016

Renegotiated loans by arrangement type: personal lending
%
Interest rate and terms modifications21.9
Payment concessions14.3
Collection re-age19.2
Modification re-age34.6
Other10.0
At 31 Dec 2016100.0
Renegotiated loans by arrangement type: personal lending
 20172016
 %%
Interest rate and terms modifications42.621.9
Payment concessions15.814.3
Collection re-age2.119.2
Modification re-age24.034.6
Other15.510.0
At 31 Dec 2017100.0100.0
Corporate renegotiated loans often require the granting of more than one arrangement type as part of an effective strategy. The percentages reported in the table below include the effect of loans being reported in more than one arrangement type.
Renegotiated loans by arrangement type: corporate and commercial, and financial
 20172016
 %%
Maturity term extensions35.837.3
Reductions in margin, principal forgiveness, debt equity swaps and interest, fees or penalty payment forgiveness23.821.4
Other changes to repayment profile17.719.4
Interest only conversion9.09.3
Other13.712.6
At 31 Dec 2017100.0100.0

Renegotiated loans by arrangement type: corporate and
commercial, and financialHSBC Holdings plc
%
Maturity term extensions37.3
Reductions in margin, principal forgiveness, debt equity swaps and interest, fees or penalty payment forgiveness21.4
Other changes to repayment profile19.4
Interest only conversion9.3
Other12.6
At 31 Dec 2016100.0127

Report of the Directors | Risk

Impairment of loans and advances
(Audited)
For an analysis of loan impairment charges and other credit risk provisionsLICs by global business, see page 38.40.
The tables below analyse the loan impairment charges for the year by industry sector for impaired loans and advances that are either
individually or collectively assessed, and for collective impairment allowances on loans and advances that are classified as not impaired.


Loan impairment charge to the income statement by industry sector
 Europe
Asia
MENA
North
America

Latin
America

Total
 $m
$m
$m
$m
$m
$m
Personal162
264
226
219
832
1,703
– first lien residential mortgages1
(1)10
149
7
166
– other personal161
265
216
70
825
1,537
Corporate and commercial337
388
53
500
330
1,608
– manufacturing and international trade and services38
306
105
81
195
725
– commercial real estate and other property-related(15)(28)(16)3
25
(31)
– other commercial314
110
(36)416
110
914
Financial34
2
13
(10)—
39
At 31 Dec 2016533
654
292
709
1,162
3,350
       
Personal109
309
276
157
983
1,834
– first lien residential mortgages(8)(1)50
70
41
152
– other personal117
310
226
87
942
1,682
Corporate and commercial415
372
212
319
451
1,769
– manufacturing and international trade and services138
250
127
26
305
846
– commercial real estate and other property-related33
18
49
24
47
171
– other commercial244
104
36
269
99
752
Financial14
—
(18)(7)—
(11)
At 31 Dec 2015538
681
470
469
1,434
3,592
Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region
 Europe
Asia
MENA
North
America

Latin
America

Total
 %
%
%
%
%
%
New allowances net of allowance releases0.23
0.23
0.93
0.62
7.02
0.46
Recoveries(0.08)(0.04)(0.13)(0.06)(0.56)(0.07)
At 31 Dec 20160.15
0.19
0.80
0.56
6.46
0.39
Amount written off net of recoveries0.26
0.14
0.84
0.48
2.99
0.32
       
New allowances net of allowance releases0.26
0.23
1.35
0.41
5.37
0.48
Recoveries(0.11)(0.05)(0.14)(0.06)(0.50)(0.09)
At 31 Dec 20150.15
0.18
1.21
0.35
4.87
0.39
Amount written off net of recoveries0.22
0.12
1.17
0.45
3.94
0.37
Loan impairment charge to the income statement by industry sector
  Europe
Asia
MENA
North
America

Latin
America

Total
 Footnote$m
$m
$m
$m
$m
$m
Personal 140
243
92
32
452
959
– first lien residential mortgages 6
(1)5
—
(27)(17)
– other personal 134
244
87
32
479
976
Corporate and commercial 619
298
83
(163)90
927
– manufacturing and international trade and services 314
236
95
18
59
722
– commercial real estate and other property-related 200
21
(4)9
—
226
– other commercial 105
41
(8)(190)31
(21)
Financial 66
17
22
1
—
106
At 31 Dec 2017 825
558
197
(130)542
1,992
        
Personal 162
264
226
219
832
1,703
– first lien residential mortgages 1
(1)10
149
7
166
– other personal 161
265
216
70
825
1,537
Corporate and commercial 337
388
53
500
330
1,608
– manufacturing and international trade and services 38
306
105
81
195
725
– commercial real estate and other property-related (15)(28)(16)3
25
(31)
– other commercial 314
110
(36)416
110
914
Financial 34
2
13
(10)—
39
At 31 Dec 201645533
654
292
709
1,162
3,350
For footnote, see page 161.
Charge for impairment losses as a percentage of average gross loans and advances to customers by geographical region

Europe
Asia
MENA
North
America
Latin
America
Total

%
%
%
%
%
%
New allowances net of allowance releases0.33
0.17
0.79
(0.05)3.20
0.29
Recoveries(0.09)(0.03)(0.14)(0.07)(0.41)(0.07)
At 31 Dec 20170.24
0.14
0.65
(0.12)2.79
0.22
Amount written off net of recoveries0.23
0.13
1.35
0.28
2.42
0.28
       
New allowances net of allowance releases0.23
0.23
0.93
0.62
7.02
0.46
Recoveries(0.08)(0.04)(0.13)(0.06)(0.56)(0.07)
At 31 Dec 20160.15
0.19
0.80
0.56
6.46
0.39
Amount written off net of recoveries0.26
0.14
0.84
0.48
2.99
0.32

128HSBC Holdings plc

Movement in impairment allowances by industry sector and by geographical region
 Europe
Asia
MENA
North
America
Latin
America
Total
 $m
$m
$m
$m
$m
$m
At 1 Jan 20172,789
1,635
1,681
1,272
473
7,850
Amounts written off











Personal(438)(366)(329)(100)(487)(1,720)
– first lien residential mortgages(8)(6)(42)(26)(9)(91)
– other personal(430)(360)(287)(74)(478)(1,629)
Corporate and commercial(648)(273)(119)(273)(63)(1,376)
– manufacturing and international trade and services(318)(250)(74)(44)(18)(704)
– commercial real estate and other property-related(121)(10)(37)(20)(4)(192)
– other commercial(209)(13)(8)(209)(41)(480)
Financial(74)(1)—
(2)—
(77)
Total amounts written off(1,160)(640)(448)(375)(550)(3,173)
Recoveries of amounts written off in previous years











Personal296
104
39
38
68
545
– first lien residential mortgages 9
4
—
17
25
55
– other personal287
100
39
21
43
490
Corporate and commercial35
10
2
37
13
97
– manufacturing and international trade and services10
9
1
11
3
34
– commercial real estate and other property-related 8
—
1
1
—
10
– other commercial17
1
—
25
10
53
Financial2
—
—
—
—
2
Total recoveries of amounts written off in previous years333
114
41
75
81
644
Charge to income statement825
558
197
(130)542
1,992
Exchange and other movements274
5
(10)(51)(47)171
At 31 Dec 20173,061
1,672
1,461
791
499
7,484
Impairment allowances against banks:











– individually assessed—
—
—
—
—
—
Impairment allowances against customers:











– individually assessed 2,296
1,056
1,104
383
121
4,960
– collectively assessed765
616
357
408
378
2,524
Impairment allowances at 31 Dec 20173,061
1,672
1,461
791
499
7,484
       
At 1 Jan 20163,477
1,525
1,810
2,041
720
9,573
Amounts written off











Personal(412)(358)(208)(284)(340)(1,602)
– first lien residential mortgages(10)(6)(3)(142)(12)(173)
– other personal(402)(352)(205)(142)(328)(1,429)
Corporate and commercial(730)(285)(137)(381)(297)(1,830)
– manufacturing and international trade and services(380)(172)(78)(125)(10)(765)
– commercial real estate and other property-related(109)(31)(54)(35)(223)(452)
– other commercial(241)(82)(5)(221)(64)(613)
Financial(1)(5)(18)—
—
(24)
Total amounts written off(1,143)(648)(363)(665)(637)(3,456)
Recoveries of amounts written off in previous years











Personal225
124
34
54
78
515
– first lien residential mortgages3
4
—
26
8
41
– other personal222
120
34
28
70
474
Corporate and commercial35
24
10
18
22
109
– manufacturing and international trade and services15
23
5
9
16
68
– commercial real estate and other property-related9
—
—
2
—
11
– other commercial11
1
5
7
6
30
Financial1
1
—
1
—
3
Total recoveries of amounts written off in previous years261
149
44
73
100
627
Charge to income statement533
654
292
709
1,162
3,350
Exchange and other movements(339)(45)(102)(886)(872)(2,244)
At 31 Dec 20162,789
1,635
1,681
1,272
473
7,850
Impairment allowances against banks:











– individually assessed—
—
—
—
—
—
Impairment allowances against customers:











– individually assessed2,060
1,038
1,137
540
157
4,932
– collectively assessed729
597
544
732
316
2,918
Impairment allowances at 31 Dec 20162,789
1,635
1,681
1,272
473
7,850


HSBC Holdings plc Annual Report and Accounts 2016
122129

Report of the Directors | Risk


Movement in impairment allowances by industry sector and by geographical region
 Europe
Asia
MENA
North
America
Latin
America
Total
 $m
$m
$m
$m
$m
$m
At 1 Jan 20163,477
1,525
1,810
2,041
720
9,573
Amounts written off











Personal(412)(358)(208)(284)(340)(1,602)
– first lien residential mortgages(10)(6)(3)(142)(12)(173)
– other personal(402)(352)(205)(142)(328)(1,429)
Corporate and commercial(730)(285)(137)(381)(297)(1,830)
– manufacturing and international trade and services(380)(172)(78)(125)(10)(765)
– commercial real estate and other property-related(109)(31)(54)(35)(223)(452)
– other commercial(241)(82)(5)(221)(64)(613)
Financial(1)(5)(18)—
—
(24)
Total amounts written off(1,143)(648)(363)(665)(637)(3,456)
Recoveries of amounts written off in previous years











Personal225
124
34
54
78
515
– first lien residential mortgages 3
4
—
26
8
41
– other personal222
120
34
28
70
474
Corporate and commercial35
24
10
18
22
109
– manufacturing and international trade and services15
23
5
9
16
68
– commercial real estate and other property-related 9
—
—
2
—
11
– other commercial11
1
5
7
6
30
Financial1
1
—
1
—
3
Total recoveries of amounts written off in previous years261
149
44
73
100
627
Charge to income statement533
654
292
709
1,162
3,350
Exchange and other movements(339)(45)(102)(886)(872)(2,244)
At 31 Dec 20162,789
1,635
1,681
1,272
473
7,850
Impairment allowances against banks:











– individually assessed—
—
—
—
—
—
Impairment allowances against customers:











– individually assessed 2,060
1,038
1,137
540
157
4,932
– collectively assessed729
597
544
732
316
2,918
Impairment allowances at 31 Dec 20162,789
1,635
1,681
1,272
473
7,850
       
At 1 Jan 20153,971
1,356
1,890
2,640
2,529
12,386
Amounts written off











Personal(468)(416)(273)(554)(996)(2,707)
– first lien residential mortgages(12)(6)(1)(344)(24)(387)
– other personal(456)(410)(272)(210)(972)(2,320)
Corporate and commercial(644)(179)(235)(106)(309)(1,473)
– manufacturing and international trade and services(233)(149)(215)(28)(213)(838)
– commercial real estate and other property-related(244)(5)(8)(57)(30)(344)
– other commercial(167)(25)(12)(21)(66)(291)
Financial(12)—
—
(2)—
(14)
Total amounts written off(1,124)(595)(508)(662)(1,305)(4,194)
Recoveries of amounts written off in previous years











Personal320
135
50
57
119
681
– first lien residential mortgages6
4
—
26
(17)19
– other personal314
131
50
31
136
662
Corporate and commercial46
30
3
18
27
124
– manufacturing and international trade and services16
20
2
8
15
61
– commercial real estate and other property-related24
5
—
5
2
36
– other commercial6
5
1
5
10
27
Financial2
—
—
1
—
3
Total recoveries of amounts written off in previous years368
165
53
76
146
808
Charge to income statement538
681
470
469
1,434
3,592
Exchange and other movements(276)(82)(95)(482)(2,084)(3,019)
At 31 Dec 20153,477
1,525
1,810
2,041
720
9,573
Impairment allowances against banks:











– individually assessed—
—
18
—
—
18
Impairment allowances against customers:











– individually assessed2,572
908
1,157
327
438
5,402
– collectively assessed905
617
635
1,714
282
4,153
Impairment allowances at 31 Dec 20153,477
1,525
1,810
2,041
720
9,573
Movement in impairment allowances on loans and advances to customers and banks
(Audited)
 20172016
 
Banks
individually
assessed

Customers 
Banks
individually
assessed

Customers 
 
Individually
assessed

Collectively
assessed

Total
Individually
assessed

Collectively
assessed

Total
 $m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan—
4,932
2,918
7,850
18
5,402
4,153
9,573
Amounts written off—
(1,468)(1,705)(3,173)(18)(1,831)(1,607)(3,456)
Recoveries of loans and advances previously written off—
119
525
644
—
107
520
627
Charge to income statement—
1,114
878
1,992
—
1,831
1,519
3,350
Exchange and other movements—
263
(92)171
—
(577)(1,667)(2,244)
At 31 Dec—
4,960
2,524
7,484
—
4,932
2,918
7,850
Impairment allowances % of loans and advances—
0.5%
0.3%
0.8%
—
0.6%
0.3%
0.8%

Wholesale lending
Total wholesale lending balances increased by $67bn with foreign exchange differences accounting for $30bn of the increase.
While the tables are presented on a reported basis, the commentary that follows is on a constant currency basis.
In Asia, particularly within Hong Kong, lending balances increased by $34bn. In this region, demand for lending increased across most industry sectors with notable growth in commercial real estate and property-related lending of $15bn and international trade services of $10bn.
In Europe, overall lending increased by $1.8bn owing to decreased lending in the UK of $2.8bn being offset by increased lending in the rest of Europe, mainly in France and Germany.
In North America, lending increased by $2.3bn in the US and Canada. The US bank loans increased by $5.8bn largely due to excess liquidity placement. This was mostly offset by decreased US corporate and commercial lending of $5.1bn as paydowns and maturities exceeded new loan originations owing to our continued efforts to improve returns.
In MENA, overall lending fell by $3.2bn, mainly within the UAE owing to a combination of large run-offs and repayments together with the exiting of some customer relationships.
In Latin America, lending increased by $2.3bn largely in Mexico.
Total wholesale lending gross loans

Europe
Asia
MENA
North
America
Latin
America
Total
Total as a % of total gross loans

$m
$m
$m
$m
$m
$m
%
Corporate and commercial182,501
250,950
21,533
54,915
12,349
522,248
49.2
– manufacturing29,098
32,275
2,836
14,503
3,145
81,857
7.7
– international trade and services65,149
84,340
10,130
10,272
3,336
173,227
16.3
– commercial real estate25,956
40,246
687
8,917
1,506
77,312
7.3
– other property-related7,982
46,164
1,821
7,999
369
64,335
6.1
– government3,619
5,767
1,366
406
570
11,728
1.1
– other commercial50,697
42,158
4,693
12,818
3,423
113,789
10.7
Financial46,274
81,730
7,609
21,746
4,753
162,112
15.3
– non-bank financial institutions32,093
26,311
1,107
10,926
1,282
71,719
6.8
– banks14,181
55,419
6,502
10,820
3,471
90,393
8.5
Gross loans at 31 Dec 2017228,775
332,680
29,142
76,661
17,102
684,360
64.5
Loan and other credit-related commitments143,015
195,396
17,935
123,267
11,666
491,279

– corporate and commercial123,972
179,302
17,390
102,666
10,795
434,125

– financial19,043
16,094
545
20,601
871
57,154















Corporate and commercial161,653
212,848
22,078
58,276
10,972
465,827
48.6
– manufacturing27,005
32,564
2,941
15,348
2,785
80,643
8.4
– international trade and services55,875
72,166
8,448
11,035
2,518
150,042
15.6
– commercial real estate21,460
32,798
724
7,849
1,340
64,171
6.7
– other property-related7,025
37,628
1,856
8,823
306
55,638
5.8
– government3,009
2,919
1,619
354
541
8,442
0.9
– other commercial47,279
34,773
6,490
14,867
3,482
106,891
11.2
Financial43,666
79,254
10,370
14,823
3,742
151,855
15.9
– non-bank financial institutions31,307
19,517
2,599
9,750
556
63,729
6.7
– banks12,359
59,737
7,771
5,073
3,186
88,126
9.2
Gross loans at 31 Dec 2016205,319
292,102
32,448
73,099
14,714
617,682
64.5














Currency translation adjustment21,696
6,604
(84)1,297
40
29,553

31 Dec 2016 at 31 Dec 2017 exchange rates227,015
298,706
32,364
74,396
14,754
647,235

Movement – constant currency basis1,760
33,974
(3,222)2,265
2,348
37,125

31 Dec 2017 as reported228,775
332,680
29,142
76,661
17,102
684,360

Loan and other credit-related commitments135,394
183,508
18,562
124,720
9,849
472,033

– corporate and commercial112,229
167,298
18,474
96,301
9,174
403,476

– financial23,165
16,210
88
28,419
675
68,557


123130
HSBC Holdings plc Annual Report and Accounts 2016

Movement in impairment allowances on loans and advances to customers and banks
(Audited)
 20162015
 
Banks
individually
assessed

Customers 
Banks
individually
assessed

Customers 
 
Individually
assessed

Collectively
assessed

Total
Individually
assessed

Collectively
assessed

Total
 $m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan18
5,402
4,153
9,573
49
6,195
6,142
12,386
Amounts written off(18)(1,831)(1,607)(3,456)—
(1,368)(2,826)(4,194)
Recoveries of loans and advances previously written off—
107
520
627
—
86
722
808
Charge to income statement—
1,831
1,519
3,350
(11)1,516
2,087
3,592
Exchange and other movements—
(577)(1,667)(2,244)(20)(1,027)(1,972)(3,019)
At 31 Dec—
4,932
2,918
7,850
18
5,402
4,153
9,573
Impairment allowances % of loans and advances—
0.6%0.3%0.8%—
0.6%0.4%0.9%
Total wholesale lending impairment allowances

Europe
Asia
MENA
North America
Latin
America
Total

$m
$m
$m
$m
$m
$m
Corporate and commercial2,286
1,375
1,092
557
184
5,494
– manufacturing332
372
188
114
70
1,076
– international trade and services671
612
480
101
35
1,899
– commercial real estate362
10
142
75
—
589
– other property-related347
44
161
41
42
635
– government3
—
6
—
—
9
– other commercial571
337
115
226
37
1,286
Financial183
27
39
22
—
271
– non-bank financial institutions183
27
39
22
—
271
– banks—
—
—
—
—
—
Impairment allowances at 31 Dec 20172,469
1,402
1,131
579
184
5,765
Impairment allowances % of impaired loans41.1%
85.0%
70.6%
58.9%
61.1%
54.7%













Corporate and commercial2,048
1,343
1,137
880
210
5,618
– manufacturing411
342
174
139
38
1,104
– international trade and services473
647
476
81
35
1,712
– commercial real estate402
11
144
67
36
660
– other property-related167
34
202
37
55
495
– government2
—
1
—
1
4
– other commercial593
309
140
556
45
1,643
Financial216
9
15
20
—
260
– non-bank financial institutions216
9
15
20
—
260
– banks—
—
—
—
—
—
Impairment allowances at 31 Dec 20162,264
1,352
1,152
900
210
5,878
Impairment allowances % of impaired loans36.7%
69.9%
67.8%
56.7%
60.9%
50.0%













Currency translation adjustment260
33
(5)19
9
316
31 Dec 2016 at 31 Dec 2017 exchange rates2,524
1,385
1,147
919
219
6,194
Movement – on constant currency basis(55)17
(16)(340)(35)(429)
31 Dec 2017 as reported2,469
1,402
1,131
579
184
5,765
Wholesale lending
Total wholesale lending balances declined by $33bn including foreign exchange movements of $41bn, of which $31bn related to the UK. In North America, lending decreased by $6.1bn, mainly in the US as paydowns and maturities exceeded new loan originations. This reflected our efforts to improve returns with more disciplined lending.
In Middle East and North Africa, overall lending fell by $5.8bn, including $3.4bn of foreign exchange movements. Other
causes of the decline were mainly in Turkey, where some portfolios are being reduced, and in the UAE, where we sold loans and exited certain customer relationships. These decreases were partly offset by loan growth mainly in Egypt and Oman.
In Asia, lending balances increased by $13bn. This reflected strong credit growth in the fourth quarter of 2016 across a range of industries, and principally in Hong Kong, partly offset by foreign exchange decreases of $3.8bn.


HSBC Holdings plc Annual Report and Accounts 2016
124

Report of the Directors | Risk


Total wholesale lending gross loans
 Europe
Asia
MENA
North America
Latin America
Total
As a % of total gross loans
 $m
$m
$m
$m
$m
$m
%
Corporate and commercial161,653
212,848
22,078
58,276
10,972
465,827
48.6
– manufacturing27,005
32,564
2,941
15,348
2,785
80,643
8.4
– international trade and services55,875
72,166
8,448
11,035
2,518
150,042
15.6
– commercial real estate21,460
32,798
724
7,849
1,340
64,171
6.7
– other property-related7,025
37,628
1,856
8,823
306
55,638
5.8
– government3,009
2,919
1,619
354
541
8,442
0.9
– other commercial47,279
34,773
6,490
14,867
3,482
106,891
11.2
Financial43,666
79,254
10,370
14,823
3,742
151,855
15.9
– non-bank financial institutions31,307
19,517
2,599
9,750
556
63,729
6.7
– banks12,359
59,737
7,771
5,073
3,186
88,126
9.2
Gross loans at 31 Dec 2016205,319
292,102
32,448
73,099
14,714
617,682
64.5
Loan and other credit-related commitments135,394
183,508
18,562
124,720
9,849
472,033
 
– corporate and commercial112,229
167,298
18,474
96,301
9,174
403,476
 
– financial23,165
16,210
88
28,419
675
68,557
 
        
Corporate and commercial187,508
211,224
26,525
62,882
11,374
499,513
48.8
– manufacturing36,623
34,272
4,884
17,507
2,572
95,858
9.4
– international trade and services61,598
72,199
10,621
11,505
3,096
159,019
15.5
– commercial real estate26,148
32,371
798
7,032
1,577
67,926
6.7
– other property-related7,129
35,206
2,102
8,982
45
53,464
5.2
– government3,653
1,132
1,695
203
772
7,455
0.7
– other commercial52,357
36,044
6,425
17,653
3,312
115,791
11.3
Financial50,447
68,321
11,761
16,308
3,996
150,833
14.7
– non-bank financial institutions33,345
13,969
2,597
9,822
681
60,414
5.9
– banks17,102
54,352
9,164
6,486
3,315
90,419
8.8
Gross loans at 31 Dec 2015237,955
279,545
38,286
79,190
15,370
650,346
63.5
        
Currency translation adjustment(32,287)(3,846)(3,446)557
(2,316)(41,338) 
31 Dec 2015 at 31 Dec 2016 exchange rates205,668
275,699
34,840
79,747
13,054
609,008
 
Movement – constant currency basis(349)16,403
(2,392)(6,648)1,660
8,674
 
31 Dec 2016 as reported205,319
292,102
32,448
73,099
14,714
617,682
 
Loan and other credit-related commitments125,029
171,566
20,829
126,912
19,151
463,487
 
– corporate and commercial104,832
159,947
20,610
102,369
18,155
405,913
 
– financial20,197
11,619
219
24,543
996
57,574
 

125
HSBC Holdings plc Annual Report and Accounts 2016

Total wholesale lending impairment allowances
 Europe
Asia
MENA
North America
Latin America
Total
 $m
$m
$m
$m
$m
$m
Corporate and commercial2,048
1,343
1,137
880
210
5,618
– manufacturing411
342
174
139
38
1,104
– international trade and services473
647
476
81
35
1,712
– commercial real estate402
11
144
67
36
660
– other property-related167
34
202
37
55
495
– government2
—
1
—
1
4
– other commercial593
309
140
556
45
1,643
Financial216
9
15
20
—
260
– non-bank financial institutions216
9
15
20
—
260
– banks—
—
—
—
—
—
Impairment allowances at 31 Dec 20162,264
1,352
1,152
900
210
5,878
Impairment allowances % of impaired loans36.7%69.9%67.8%56.7%60.9%50.0%
       
Corporate and commercial2,638
1,256
1,254
777
510
6,435
– manufacturing459
254
204
140
49
1,106
– international trade and services796
599
456
123
48
2,022
– commercial real estate613
35
145
76
343
1,212
– other property-related234
72
270
55
1
632
– government6
—
—
—
2
8
– other commercial530
296
179
383
67
1,455
Financial194
13
22
30
—
259
– non-bank financial institutions194
13
4
30
—
241
– banks—
—
18
—
—
18
Impairment allowances at 31 Dec 20152,832
1,269
1,276
807
510
6,694
Impairment allowances % of impaired loans40.3%68.3%77.7%86.2%64.7%54.6%
       
Currency translation adjustment(502)(21)(101)(21)(78)(723)
31 Dec 2015 at 31 Dec 2016 exchange rates2,330
1,248
1,175
786
432
5,971
Movement – on constant currency basis(66)104
(23)114
(222)(93)
31 Dec 2016 as reported2,264
1,352
1,152
900
210
5,878

Commercial real estate
Our commercial real estate lending disclosures focus on the regions containing the majority of our balances for loans and
advances. Europe, Asia and North America accounted for 97% of our total commercial real estate lending at 31 December 2016 (31 December 2015: 97%).

Commercial real estate lending
31 Dec
2016
Total
of which:31 Dec
2015
Total
of which:
Europe
Asia
   North America
Europe
Asia
   North America
Europe
Asia
MENA
   North America
Latin America
Total
UK
Hong Kong
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Gross loans and advances  















Neither past due nor impaired62,342
20,208
32,688
7,650
64,926
24,426
32,182
6,659
24,822
40,175
500
8,637
1,407
75,541
18,361
31,325
Past due but not impaired221
41
88
89
454
89
119
212
56
55
5
197
34
347
2
49
Impaired loans1,608
1,212
22
110
2,546
1,633
70
161
1,078
16
182
83
65
1,424
895
11
Total gross loans and advances64,171
21,461
32,798
7,849
67,926
26,148
32,371
7,032
At Dec 201725,956
40,246
687
8,917
1,506
77,312
19,258
31,385
– of which: renegotiated loans1,525
1,117
—
118
2,134
1,586
6
150
1,112
—
190
97
79
1,478
1,010
—
Impairment allowances660
403
11
67
1,212
613
35
76
362
10
142
75
—
589
302
7
 
Gross loans and advances 
Neither past due nor impaired20,208
32,688
541
7,650
1,255
62,342
15,143
25,561
Past due but not impaired41
88
—
89
3
221
1
29
Impaired loans1,212
22
183
110
81
1,608
1,027
15
At Dec 201621,461
32,798
724
7,849
1,339
64,171
16,171
25,605
– of which: renegotiated loans1,117
—
192
118
98
1,525
997
—
Impairment allowances403
11
144
67
35
660
330
8
Commercial real estate lending includes the financing of corporate, institutional and high net worth customers who are investing primarily in income-producing assets and, to a lesser extent, in their construction and development. The portfolio is globally diversified with larger concentrations in Hong Kong, the UK, the US and Canada.
Our global exposure is centred largely on cities with economic, political or cultural significance. In many less-developed markets, industry is moving from the development and rapid construction of recent years to an increasing focus on investment stock consistent with more developed markets.
 
In more developed markets, our exposure mainly comprises the financing of investment assets, the redevelopment of existing stock and the augmentation of both commercial and residential markets to support economic and population growth. In less-developed commercial real estate markets, our exposures comprise lending for development assets on relatively short tenors with a particular focus on supporting larger, better capitalised developers involved in residential construction or assets supporting economic expansion.
Commercial real estate lending was $3.8bn lower, largely because of a fall in the value of sterling contributing to a foreign exchange movement of $4.0bn. Total lending balances in Europe declined by $4.7bn,grew $13bn, including foreign exchange movements of $3.5bn, partly offset by increases$2.9bn, mainly in lending in AsiaHong Kong and, North America.to a lesser extent, within the UK and Canada.


HSBC Holdings plc Annual Report and Accounts 2016
126131

Report of the Directors | Risk


Refinance risk in commercial real estate
Commercial real estate lending tends to require the repayment of a significant proportion of the principal at maturity. Typically, a customer will arrange repayment through the acquisition of a new loan to settle the existing debt. Refinance risk is the risk that a
 
that a customer, being unable to repay the debt on maturity, fails to refinance it at commercial rates. We monitor our commercial real estate portfolio closely, assessing indicators for signs of potential issues with refinancing.

Commercial real estate loans and advances maturity analysis
31 Dec
2016
Total

of which:
31 Dec
2015
Total

of which:
Europe
Asia
North
America

Europe
Asia
North
America

Europe
Asia
MENA
North
America
Latin America
Total
UK
Hong Kong
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
On demand, overdrafts or revolving  








< 1 year17,636
5,687
7,773
3,568
19,579
6,757
8,811
2,992
6,192
10,559
268
4,678
260
21,957
4,651
8,531
1-2 years9,531
2,904
5,075
1,453
11,408
4,354
5,934
939
4,440
7,693
119
1,178
58
13,488
3,339
5,502
2-5 years26,829
10,846
13,691
1,733
25,268
11,442
11,399
2,037
13,109
15,856
117
2,199
734
32,015
10,716
11,723
> 5 years10,175
2,024
6,259
1,095
11,671
3,595
6,227
1,064
2,215
6,138
183
862
454
9,852
552
5,629
Gross loans and advances64,171
21,461
32,798
7,849
67,926
26,148
32,371
7,032
At Dec 201725,956
40,246
687
8,917
1,506
77,312
19,258
31,385
 
On demand, overdrafts or revolving 
< 1 year5,687
7,773
280
3,568
328
17,636
4,701
5,574
1-2 years2,904
5,075
72
1,453
27
9,531
1,930
3,365
2-5 years10,846
13,691
250
1,733
309
26,829
8,778
10,858
> 5 years2,024
6,259
122
1,095
675
10,175
762
5,808
At Dec 201621,461
32,798
724
7,849
1,339
64,171
16,171
25,605
Collateral on loans and advances
Collateral held is analysed separately for commercial real estate and for other corporate, commercial and financial (non-bank) lending. The following tables include off‑balanceoff-balance sheet loan commitments, primarily undrawn credit lines.
The collateral measured in the following tables consists of fixed first charges on real estate, and charges over cash and marketable financial instruments. The values in the tables represent the expected market value on an open market basis; no adjustment has been made to the collateral for any expected costs of recovery. Marketable securities are measured at their fair value.
Other types of collateral such as unsupported guarantees and floating charges over the assets of a customer’s business are not measured in the tables below. While such mitigants have value, often providing rights in insolvency, their assignable value is not sufficiently certain and they are therefore assigned no value for disclosure purposes.
For impaired loans, the collateral values cannot be directly compared with impairment allowances recognised. The loan-
to-valueloan-to-value (‘LTV’) figures use open market values with no adjustments. Impairment allowances are calculated on a different basis, by considering other cash flows and adjusting collateral values for costs of realising collateral as explained further on page 212.225.
Commercial real estate loans and advances
The value of commercial real estate collateral is determined by using a combination of external and internal valuations and physical inspections. For CRR 1-7,1–7, local valuation policies determine the frequency of review on the basis of local market conditions because of the complexity of valuing collateral for commercial real estate. For CRR 8 and 9-10,8–10, almost all collateral would have been revalued within the last three years.
In Hong Kong, market practice is typically for lending to major property companies to be either secured by guarantees or unsecured. In Europe, facilities of a working capital nature are generally not secured by a first fixed charge, and are therefore disclosed as not collateralised.



127
HSBC Holdings plc Annual Report and Accounts 2016

Commercial real estate loans and advances including loan commitments by level of collateral
(Audited)    
 31 Dec
2016
Total
of which:31 Dec
2015
Total
of which:
 Europe
Asia
North America
Europe
Asia
North America
 $m
$m
$m
$m
$m
$m
$m
$m
Rated CRR/EL 1 to 7















Not collateralised18,313
3,887
12,714
561
17,834
4,493
12,329
8
Fully collateralised60,330
21,815
27,296
10,618
62,618
25,735
26,270
9,997
Partially collateralised (A)3,917
1,360
1,106
1,388
6,265
2,961
1,924
1,264
– collateral value on A2,571
1,021
552
991
4,270
2,045
1,175
981
Total82,560
27,062
41,116
12,567
86,717
33,189
40,523
11,269
Rated CRR/EL 8















Not collateralised13
12
—
1
28
28
—
—
Fully collateralised196
190
—
6
682
668
4
9
– LTV ratio: less than 50%58
54
—
4
92
86
—
5
– 51% to 75%77
76
—
1
385
377
4
4
– 76% to 90%44
44
—
—
174
174
—
—
– 91% to 100%17
16
—
1
31
31
—
—
Partially collateralised (B)102
91
—
11
122
120
1
1
– collateral value on B71
70
—
1
87
87
—
—
Total311
293
—
18
832
816
5
10
Rated CRR/EL 9 to 10















Not collateralised75
62
3
4
422
65
51
2
Fully collateralised1,118
764
14
85
1,124
899
18
76
– LTV ratio: less than 50%141
79
7
5
221
174
10
15
– 51% to 75%624
571
5
34
513
425
2
27
– 76% to 90%88
64
1
7
156
139
2
10
– 91% to 100%265
50
1
39
234
161
4
24
Partially collateralised (C)412
384
5
21
1,032
716
5
66
– collateral value on C202
148
5
13
555
397
3
35
Total1,605
1,210
22
110
2,578
1,680
74
144
At 31 Dec84,476
28,565
41,138
12,695
90,127
35,685
40,602
11,423

132
HSBC Holdings plc Annual Report and Accounts 2016128

Report of the Directors | Risk


Commercial real estate loans and advances including loan commitments by level of collateral
(Audited)




Europe
Asia
MENA
North America
Latin America
Total
UK
Hong Kong

$m
$m
$m
$m
$m
$m
$m
$m
Rated CRR/EL 1 to 7















Not collateralised6,114
18,338
315
590
397
25,754
4,812
12,678
Fully collateralised25,958
30,289
192
11,201
931
68,571
20,709
24,708
Partially collateralised (A)1,631
1,623
—
1,797
149
5,200
968
1,229
– collateral value on A1,270
975
—
1,281
76
3,602
568
729
Total33,703
50,250
507
13,588
1,477
99,525
26,489
38,615
Rated CRR/EL 8















Not collateralised5
—
—
—
—
5
3
—
Fully collateralised145
—
—
77
—
222
129
—
– LTV ratio: less than 50%64
—
—
3
—
67
64
—
– 51% to 75%34
—
—
7
—
41
32
—
– 76% to 90%23
—
—
66
—
89
19
—
– 91% to 100%24
—
—
1
—
25
14
—
Partially collateralised (B)62
—
—
10
—
72
55
—
– collateral value on B42
—
—
1
—
43
40
—
Total212
—
—
87
—
299
187
—
Rated CRR/EL 9 to 10















Not collateralised56
—
2
2
3
63
46
—
Fully collateralised445
10
194
45
16
710
376
5
– LTV ratio: less than 50%82
6
19
26
15
148
60
—
– 51% to 75%165
2
—
6
1
174
149
2
– 76% to 90%127
2
—
13
—
142
122
2
– 91% to 100%71
—
175
—
—
246
45
1
Partially collateralised (C)441
6
—
36
10
493
351
6
– collateral value on C250
3
—
13
32
298
188
3
Total942
16
196
83
29
1,266
773
11
At 31 Dec 201734,857
50,266
703
13,758
1,506
101,090
27,449
38,626
         
Rated CRR/EL 1 to 7        
Not collateralised3,887
12,714
391
561
760
18,313
2,888
9,971
Fully collateralised21,815
27,296
152
10,618
449
60,330
18,009
21,821
Partially collateralised (A)1,360
1,106
—
1,388
63
3,917
1,004
644
– collateral value on A1,021
552
—
991
7
2,571
672
314
Total27,062
41,116
543
12,567
1,272
82,560
21,901
32,436
Rated CRR/EL 8        
Not collateralised12
—
—
1
—
13
11
—
Fully collateralised190
—
—
6
—
196
158
—
– LTV ratio: less than 50%54
—
—
4
—
58
39
—
– 51% to 75%76
—
—
1
—
77
70
—
– 76% to 90%44
—
—
—
—
44
39
—
– 91% to 100%16
—
—
1
—
17
10
—
Partially collateralised (B)91
—
—
11
—
102
82
—
– collateral value on B70
—
—
1
—
71
61
—
Total293
—
—
18
—
311
251
—
Rated CRR/EL 9 to 10        
Not collateralised62
3
4
4
2
75
16
—
Fully collateralised764
14
194
85
61
1,118
740
10
– LTV ratio: less than 50%79
7
19
5
31
141
62
4
– 51% to 75%571
5
—
34
14
624
569
4
– 76% to 90%64
1
—
7
16
88
64
1
– 91% to 100%50
1
175
39
—
265
45
1
Partially collateralised (C)384
5
—
21
2
412
361
5
– collateral value on C148
5
—
13
36
202
131
5
Total1,210
22
198
110
65
1,605
1,117
15
At 31 Dec 201628,565
41,138
741
12,695
1,337
84,476
23,269
32,451
Other corporate, commercial and financial (non-bank) loans are analysed separately in the table below, which focuses on the regions containing the majority of our loans and advances balances. For financing activities in other corporate and commercial lending, collateral value is not strongly correlated to principal repayment performance.
 
Collateral values are generally refreshed when an obligor’s general credit performance deteriorates and we have to assess the likely performance of secondary sources of repayment should it prove necessary to rely on them.
Accordingly, the table below reports values only for customers with CRR 8 to 10, recognising that these loans and advances generally have valuations that are comparatively recent.

HSBC Holdings plc
133

Report of the Directors | Risk
Other corporate, commercial and non-bank financial institutions loans and advances including loan commitments by level of
collateral rated CRR/EL 8 to 10 only
(Audited)
 31 Dec
2016
Total
of which:31 Dec
2015
Total
of which:
 Europe
Asia
North
America
Europe
Asia
North
America
 $m
$m
$m
$m
$m
$m
$m
$m
Rated CRR/EL 8        
Not collateralised5,283
1,766
405
2,976
2,529
1,611
164
609
Fully collateralised600
141
3
362
930
349
41
454
– LTV ratio: less than 50%249
86
2
151
174
58
13
95
– 51% to 75%168
34
1
118
430
267
8
85
– 76% to 90%96
10
—
79
214
20
18
168
– 91% to 100%87
11
—
14
112
4
2
106
Partially collateralised (A)465
191
12
242
336
99
47
179
– collateral value on A57
23
3
26
148
65
17
58
Total6,348
2,098
420
3,580
3,795
2,059
252
1,242
Rated CRR/EL 9 to 10        
Not collateralised3,508
1,439
848
154
4,877
2,805
889
80
Fully collateralised2,545
1,394
447
488
1,853
789
440
323
– LTV ratio: less than 50%838
570
126
59
514
270
94
47
– 51% to 75%615
412
104
85
553
336
149
47
– 76% to 90%414
180
86
53
231
87
74
27
– 91% to 100%678
232
131
291
555
96
123
202
Partially collateralised (B)2,368
478
642
771
3,079
1,667
506
423
– collateral value on B1,034
322
268
353
1,374
770
236
283
Total8,421
3,311
1,937
1,413
9,809
5,261
1,835
826
At 31 Dec14,769
5,409
2,357
4,993
13,604
7,320
2,087
2,068

Other corporate, commercial and non-bank financial institutions loans and advances including loan commitments by level of
collateral rated CRR/EL 8 to 10 only
(Audited)

Europe
Asia
MENA
North
America
Latin America
Total
UK
Hong Kong

$m
$m
$m
$m
$m
$m
$m
$m
Rated CRR/EL 8















Not collateralised1,730
42
109
1,721
121
3,723
320
15
Fully collateralised293
9
25
222
4
553
103
5
– LTV ratio: less than 50%72
7
9
96
4
188
25
3
– 51% to 75%73
2
12
69
—
156
65
2
– 76% to 90%16
—
4
19
—
39
11
—
– 91% to 100%132
—
—
38
—
170
2
—
Partially collateralised (A)94
140
34
224
—
492
91
135
– collateral value on A62
12
3
128
1
206
59
10
Total2,117
191
168
2,167
125
4,768
514
155
Rated CRR/EL 9 to 10















Not collateralised1,710
926
875
73
150
3,734
1,508
511
Fully collateralised1,520
365
180
460
54
2,579
1,223
105
– LTV ratio: less than 50%634
113
30
14
22
813
516
69
– 51% to 75%431
27
62
64
21
605
403
9
– 76% to 90%256
39
88
11
3
397
235
20
– 91% to 100%199
186
—
371
8
764
69
7
Partially collateralised (B)452
343
404
517
27
1,743
397
161
– collateral value on B243
208
68
337
18
874
210
119
Total3,682
1,634
1,459
1,050
231
8,056
3,128
777
At 31 Dec 20175,799
1,825
1,627
3,217
356
12,824
3,642
932
         
Rated CRR/EL 8        
Not collateralised1,766
405
51
2,976
85
5,283
172
287
Fully collateralised141
3
94
362
—
600
70
1
– LTV ratio: less than 50%86
2
10
151
—
249
30
1
– 51% to 75%34
1
15
118
—
168
28
—
– 76% to 90%10
—
7
79
—
96
5
—
– 91% to 100%11
—
62
14
—
87
7
—
Partially collateralised (A)191
12
20
242
—
465
187
12
– collateral value on A23
3
5
26
—
57
19
3
Total2,098
420
165
3,580
85
6,348
429
300
Rated CRR/EL 9 to 10        
Not collateralised1,439
848
900
154
167
3,508
1,347
377
Fully collateralised1,394
447
160
488
56
2,545
1,159
144
– LTV ratio: less than 50%570
126
54
59
29
838
449
54
– 51% to 75%412
104
6
85
8
615
367
32
– 76% to 90%180
86
87
53
8
414
144
44
– 91% to 100%232
131
13
291
11
678
199
14
Partially collateralised (B)478
642
442
771
35
2,368
454
305
– collateral value on B322
268
75
353
16
1,034
300
150
Total3,311
1,937
1,502
1,413
258
8,421
2,960
826
At 31 Dec 20165,409
2,357
1,667
4,993
343
14,769
3,389
1,126
During the year, a number of counterparties were downgraded to CRR 8, mainly in the US’ energy, commodities and Latin American portfolios. In the UK, a single large counterparty balance was settled which partly reduced the CRR 9 balance.
Other credit risk exposures
In addition to collateralised lending, other credit enhancements are employed and methods used to mitigate credit risk arising from financial assets. These are summarised below:
Some securities issued by governments, banks and other financial institutions benefit from additional credit enhancement provided by government guarantees that cover the assets.
Debt securities issued by banks and financial institutions include ABSs and similar instruments which are supported by underlying pools of financial assets. Credit risk associated with ABSs is reduced through the purchase of credit default swap (‘CDS’) protection.
Disclosure of the Group’s holdings of ABSs and associated CDS protection is provided on page 138.140.
Trading loans and advances mainly consist of cash collateral posted to satisfy margin requirements. There is limited credit risk on cash collateral posted since in the event of default of the counterparty these would be set-offset off against the related liability. Reverse repos and stock borrowing are by their nature collateralised.
Collateral accepted as security that the Group is permitted to sell or repledge under these arrangements is described on page 263256 of the Financial Statements.
 
•
The Group’s maximum exposure to credit risk includes financial guarantees and similar contracts granted, as well as loan and other credit-related commitments. Depending on the terms of the arrangement, we may use additional credit mitigation if a guarantee is called upon or a loan commitment is drawn and subsequently defaults.
For further information on these arrangements, see Note 3332 on the Financial Statements.
Derivatives
HSBC participates in transactions exposing us to counterparty credit risk. Counterparty credit risk is the risk of financial loss if the counterparty to a transaction defaults before satisfactorily settling it. It arises principally from over-the-counter (‘OTC’) derivatives and securities financing transactions and is calculated in both the trading and non-trading books. Transactions vary in value by reference to a market factor such as an interest rate, exchange rate or asset price.

134HSBC Holdings plc

The counterparty risk from derivative transactions is taken into account when reporting the fair value of derivative positions. The adjustment to the fair value is known as the credit value adjustment (‘CVA’).
For an analysis of CVAs, see Note 11 on the Financial Statements.
The table below reflects by risk type the fair values and gross notional contract amounts of derivatives cleared through an exchange, central counterparty and non-central counterparty.


129
HSBC Holdings plc Annual Report and Accounts 2016

Notional contract amounts and fair values of derivatives by product type
2016201520172016
Notional
Fair valueNotional
Fair valueNotional
Fair valueNotional
Fair value
amount
Assets
Liabilities
amount
Assets
Liabilities
amount
Assets
Liabilities
amount
Assets
Liabilities
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Foreign exchange5,846,095
127,413
119,781
5,690,354
96,341
95,598
6,244,286
78,517
75,768
5,846,095
127,413
119,781
– exchange traded12,657
209
65
195,612
167
76
13,520
37
105
12,657
209
65
– central counterparty cleared OTC66,209
698
748
29,263
406
443
70,719
1,312
1,394
66,209
698
748
– non-central counterparty cleared OTC5,767,229
126,506
118,968
5,465,479
95,768
95,079
6,160,047
77,168
74,269
5,767,229
126,506
118,968
Interest rate13,944,763
255,385
250,022
14,675,036
279,154
271,367
19,929,866
236,795
233,031
13,944,763
255,385
250,022
– exchange traded1,075,299
277
214
1,259,888
49
8
1,536,818
240
189
1,075,299
277
214
– central counterparty cleared OTC8,207,550
120,017
122,022
8,774,674
117,877
117,695
11,730,237
114,003
115,020
8,207,550
120,017
122,022
– non-central counterparty cleared OTC4,661,914
135,091
127,786
4,640,474
161,228
153,664
6,662,811
122,552
117,822
4,661,914
135,091
127,786
Equity472,169
7,410
9,240
501,834
8,732
10,383
590,156
9,353
11,845
472,169
7,410
9,240
– exchange traded250,810
919
2,173
265,129
1,888
2,601
313,483
1,104
2,463
250,810
919
2,173
– non-central counterparty cleared OTC221,359
6,491
7,067
236,705
6,844
7,782
276,673
8,249
9,382
221,359
6,491
7,067
Credit448,220
5,199
5,767
463,344
6,961
6,884
391,798
4,692
5,369
448,220
5,199
5,767
– central counterparty cleared OTC122,832
1,954
1,941
90,863
1,779
2,069
107,370
2,715
2,980
122,832
1,954
1,941
– non-central counterparty cleared OTC325,388
3,245
3,826
372,481
5,182
4,815
284,428
1,977
2,389
325,388
3,245
3,826
Commodity and other62,009
2,020
1,564
51,683
3,148
2,699
59,716
886
1,233
62,009
2,020
1,564
– exchange traded5,596
117
—
8,136
38
—
5,389
56
47
5,596
117
—
– non-central counterparty cleared OTC56,413
1,903
1,564
43,547
3,110
2,699
54,327
830
1,186
56,413
1,903
1,564
Total OTC derivatives19,428,894
395,905
383,922
19,653,486
392,194
384,246
25,346,612
328,806
324,442
19,428,894
395,905
383,922
– total OTC derivatives cleared by central counterparties8,396,591
122,669
124,711
8,894,800
120,062
120,207
11,908,326
118,030
119,394
8,396,591
122,669
124,711
– total OTC derivatives not cleared by central counterparties11,032,303
273,236
259,211
10,758,686
272,132
264,039
13,438,286
210,776
205,048
11,032,303
273,236
259,211
Total exchange traded derivatives1,344,362
1,522
2,452
1,728,765
2,142
2,685
1,869,210
1,437
2,804
1,344,362
1,522
2,452
Gross20,773,256
397,427
386,374
21,382,251
394,336
386,931
27,215,822
330,243
327,246
20,773,256
397,427
386,374
Offset

(106,555)(106,555)

(105,860)(105,860)

(110,425)(110,425)

(106,555)(106,555)
At 31 Dec

290,872
279,819


288,476
281,071


219,818
216,821


290,872
279,819
The purposes for which HSBC uses derivatives are described in Note 1614 on the Financial Statements.
The International Swaps and Derivatives Association (‘ISDA’) Master Agreement is our preferred agreement for documenting derivatives activity. It is common, and our preferred practice, for the parties to execute a Credit Support Annex (‘CSA’) in conjunction with the ISDA Master Agreement. Under a CSA, collateral is passed between the parties to mitigate the counterparty risk inherent in outstanding positions. The majority of our CSAs are with financial institutional clients.
We manage the counterparty exposure on our OTC derivative contracts by using collateral agreements with counterparties and netting agreements. Currently, we do not actively manage our general OTC derivative counterparty exposure in the credit markets, although we may manage individual exposures in certain circumstances.
We place strict policy restrictions on collateral types and as a consequence the types of collateral received and pledged are, by value, highly liquid and of a strong quality, being predominantly cash.
Where a collateral type is required to be approved outside the collateral policy, approval is required from a committee of senior representatives from Markets, Legal and Risk.
See page 283275 and Note 3029 on the Financial Statements for details regarding legally enforceable right of offset in the event of counterparty default and collateral received in respect of derivatives.

Personal lending
On a reported basis, total personal lending reducedincreased by $34bn, mainly due$37bn to$376bn. This increase included foreign exchange movements of $26bn$19bn. Excluding foreign exchange movements, lending balances increased by $13bn in Asia and $9.0bn in Europe. Growth was partly offset by a $3.7bn fall in North America, due to the ongoing repayments and loanfinal loans sales of$5.0bn in our US CML run-off portfolio, which were sold through 2017. Balances grew on an underlying basis by $0.7bn in NorthLatin America of $13bn.and reduced by $0.8bn in MENA.
Loan impairment allowances reduced by $0.9bn, largely due to the reduction in our US CML run-off portfolio.for personal lending were broadly unchanged at $1.7bn.
Loan impairment charges for personal lending remained flat at $1.7bnwere $1.0bn for 2016.2017, $0.7bn lower compared with 2016, mainly due to our sale of operations in Brazil in 2016 and the US CML run-off portfolio. For further analysis of loan impairment charges and other credit risk provisionsLICs by global business, see page 38.40.
While the tables are presented on a reported basis, the commentary that follows is on a constant currency basis and excludes the effect of the ongoing run-off and loan sales in the US CML run-off portfolio.
Overall, personal lending increased by $5.6bn compared with 31 December 2015. The growth was in$23bn, mainly driven by mortgage balances which increased by $7.5bn across the Group.grew $19bn. UK mortgage balances increased by $4.2bn as we grew our UK mortgage market share through increased sales across various channels$8.2bn reflecting stronger acquisition performance, including the expanded use of broker relationships. Mortgages in Asia grew by $9.3bn, mainly driven by Hong Kong, Australia and China, grew by $4.5bn as a result of successful marketing campaigns and business growth initiatives. Thisinitiatives and property market growth. Mortgages in Canada grew by $2.3bn, mainly due to business growth was offset by a $1.4bn reduction in Singapore, following a decision to continue to constrain the size of our mortgage portfolio.initiatives and competitive product offerings.
The quality of both our Hong Kong and UK mortgage books remained high, with negligible defaults and impairment allowances. The average LTV ratio on new mortgage lending in Hong Kong was 47%50% compared with an estimated 29%31% for the overall mortgage portfolio. The average LTV ratio on new lending in the UK was 59% compared with the average ofan estimated 40% for the totaloverall mortgage portfolio.
Group credit policy prescribes the range of acceptable residential property LTV thresholds, with the maximum upper limit for new loans set at between 75% and 95%. Specific LTV thresholds and debt-to-income ratios are managed at regional and country levels. TheyLTV thresholds must comply with the Group’s policies, strategy and risk appetite, but vary to reflect the local factors: economic and housing market conditions, regulations, portfolio performance, pricing and product features.
Other personal lending balances declined by $1.9bn, mainly due to reductions resulting from the continued repositioning of the Global Private Bank. This was offset by growth in RBWM, in other personal lending products including $0.7bn in the UK and $0.5bn in Mexico.


HSBC Holdings plc Annual Report and Accounts 2016
130135

Report of the Directors | Risk


Other personal lending balances increased by $3.7bn, mainly due to growth of $2.9bn in loans and overdrafts, and $1.0bn in credit cards, as a result of business growth initiatives and increased demand. Loans and overdrafts grew by $3.1bn in Hong Kong
Total personal lending gross loans
 Europe
Asia
MENA
North
America

Latin
America

Total
As a %
of total gross loans
 $m
$m
$m
$m
$m
$m
First lien residential mortgages108,008
98,072
2,535
39,239
1,924
249,778
26.1
– of which:












interest only (including offset)33,045
876
92
113
—
34,126
3.6
affordability including ARMs297
3,427
—
14,182
—
17,906
1.9
Other personal lending38,491
36,628
5,209
5,717
3,975
90,020
9.4
– other29,297
26,059
3,072
3,061
2,018
63,507
6.6
– credit cards9,096
10,438
1,816
993
1,595
23,938
2.5
– second lien residential mortgages97
24
2
1,631
—
1,754
0.2
– motor vehicle finance1
107
319
32
362
821
0.1
At 31 Dec 2016146,499
134,700
7,744
44,956
5,899
339,798
35.5
Loan and other credit-related commitments49,029
111,123
4,291
13,944
5,423
183,810
 
        
First lien residential mortgages125,098
94,606
2,704
50,117
1,986
274,511
26.8
– of which:












interest only (including offset)40,906
936
—
180
—
42,022
4.1
affordability including ARMs356
3,966
—
17,041
—
21,363
2.1
Other personal lending42,568
38,101
6,861
8,069
3,972
99,571
9.7
– other31,763
27,682
4,246
3,284
1,816
68,791
6.7
– credit cards10,803
10,189
2,241
996
1,780
26,009
2.5
– second lien residential mortgages—
33
2
3,762
—
3,797
0.4
– motor vehicle finance2
197
372
27
376
974
0.1
At 31 Dec 2015167,666
132,707
9,565
58,186
5,958
374,082
 
        
Currency translation adjustment(24,032)(1,145)(810)519
(950)(26,418)
31 Dec 2015 at 31 Dec 2016 exchange rates143,634
131,562
8,755
58,705
5,008
347,664

Movement - constant currency basis2,865
3,138
(1,011)(13,749)891
(7,866)
31 Dec 2016 as reported146,499
134,700
7,744
44,956
5,899
339,798

Loan and other credit-related commitments67,787
103,153
5,318
14,510
12,175
202,943

mainly due to Private Bank growth, and $1.0bn in France, partially offset by decreases in North America and MENA. Credit cards grew by $0.4bn in Hong Kong, $0.3bn in China and $0.3bn in the UK.
Total personal lending impairment allowances  
Total personal lending gross loansTotal personal lending gross loans
 Europe
Asia
MENA
North
America

Latin
America

Total
Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong Kong
Total as a %
of total gross loans
 $m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
 
First lien residential mortgages 225
34
81
289
14
643
126,685
109,502
2,375
37,330
2,281
278,173
119,770
70,279
26.2
– of which:
















interest only (including offset)35,242
873
65
92
—
36,272
33,468
—
3.4
affordability (including US adjustable rate mortgages)409
3,111
—
13,742
—
17,262
—
3
1.6
Other personal lending43,329
40,880
4,496
5,227
4,376
98,308
19,790
27,868
9.3
– other32,995
29,400
2,663
2,919
2,205
70,182
10,039
19,977
6.7
– credit cards10,235
11,435
1,531
1,037
1,642
25,880
9,751
7,891
2.4
– second lien residential mortgages99
21
2
1,233
—
1,355
—
—
0.1
– motor vehicle finance—
24
300
38
529
891
—
—
0.1
At 31 Dec 2017170,014
150,382
6,871
42,557
6,657
376,481
139,560
98,147
35.5
Loan and other credit-related commitments50,384
120,312
3,975
14,443
5,196
194,310
48,413
89,994



















First lien residential mortgages108,008
98,072
2,535
39,239
1,924
249,778
101,822
63,565
26.1
– of which:
















interest only (including offset)33,045
876
92
113
—
34,126
31,893
—
3.6
affordability (including US adjustable rate mortgages)297
3,427
—
14,182
—
17,906
—
5
1.9
Other personal lending 300
249
448
83
249
1,329
38,491
36,628
5,209
5,717
3,975
90,020
17,820
24,558
9.4
– other 224
122
226
23
128
723
29,297
26,059
3,072
3,061
2,018
63,507
9,189
17,042
6.6
– credit cards 76
127
217
34
117
571
9,096
10,438
1,816
993
1,595
23,938
8,631
7,516
2.5
– second lien residential mortgages —
—
—
26
—
26
97
24
2
1,631
—
1,754
—
—
0.2
– motor vehicle finance —
—
5
—
4
9
1
107
319
32
362
821
—
—
0.1
At 31 Dec 2016 525
283
529
372
263
1,972
146,499
134,700
7,744
44,956
5,899
339,798
119,642
88,123
35.5
Impairment allowances % of impaired loans 27.8%50.0%99.6%11.4%105.2%30.4%
  
First lien residential mortgages 276
29
26
991
22
1,344
Other personal lending 374
227
507
241
186
1,535
– other 296
104
285
31
80
796
– credit cards 78
122
216
30
102
548
– second lien residential mortgages —
—
—
180
—
180
– motor vehicle finance —
1
6
—
4
11
At 31 Dec 2015 650
256
533
1,232
208
2,879
Impairment allowances % of impaired loans 29.0%49.6%103.3%15.4%86.0%25.0%
  
















Currency translation adjustment (82)(4)(53)2
(35)(172)14,499
2,890
(120)1,337
53
18,659
11,406
(672)
31 Dec 2015 at 31 Dec 2016 exchange rates 568
252
480
1,234
173
2,707
31 Dec 2016 at 31 Dec 2017
exchange rates		160,998
137,590
7,624
46,293
5,952
358,457
131,048
87,451

Movement – constant currency basis (43)31
49
(862)90
(735)9,016
12,792
(753)(3,736)705
18,024
8,512
10,696

31 Dec 2016 as reported 525
283
529
372
263
1,972
31 Dec 2017 as reported170,014
150,382
6,871
42,557
6,657
376,481
139,560
98,147

Loan and other credit-related commitments49,029
111,123
4,291
13,944
5,423
183,810
47,250
85,208


Total personal lending impairment allowances


Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong Kong


$m
$m
$m
$m
$m
$m
$m
$m
First lien residential mortgages
262
30
68
148
16
524
145
—
Other personal lending
341
237
259
60
298
1,195
257
86
– other
230
109
132
17
151
639
147
36
– credit cards
111
128
122
30
140
531
110
50
– second lien residential mortgages
—
—
—
13
—
13
—
—
– motor vehicle finance
—
—
5
—
7
12
—
—
At 31 Dec 2017
603
267
327
208
314
1,719
402
86
Impairment allowances % of impaired loans
29.7%
44.5%
94.2%
12.8%
97.2%
34.9%
28.3%
62.3%


















First lien residential mortgages
225
34
81
289
14
643
123
—
Other personal lending
300
249
448
83
249
1,329
231
99
– other
224
122
226
23
128
723
155
42
– credit cards
76
127
217
34
117
571
76
57
– second lien residential mortgages
—
—
—
26
—
26
—
—
– motor vehicle finance
—
—
5
—
4
9
—
—
At 31 Dec 2016
525
283
529
372
263
1,972
354
99
Impairment allowances % of impaired loans
27.8%
50.0%
99.6%
11.4%
105.2%
30.4%
26.0%
67.8%


















Currency translation adjustment
58
12
(20)1
7
58
33
(1)
31 Dec 2016 at 31 Dec 2017 exchange rates
583
295
509
373
270
2,030
387
98
Movement – constant currency basis
20
(28)(182)(165)44
(311)15
(12)
31 Dec 2017 as reported
603
267
327
208
314
1,719
402
86

131136
HSBC Holdings plc Annual Report and Accounts 2016

Exposure to UK interest-only mortgage loans
Of total UK mortgage lending, interest-only mortgage products contributed $32bn,$33bn, including $12bn of offset mortgages in First Direct and $1.2bn$1.1bn of endowment mortgages.On a constant currency basis, total UK interest-only mortgage products declined by $1.6bn on prior year.
The following information is presented for HSBC Bank plcplc’s UK interest-only mortgage loans with balances of $15bn$16bn at the end of 2016.
2017. During the year, $0.17bn of interest-only mortgages matured. Of these, 1,4161,290 loans with total balances of $0.07bn$0.06bn were repaid in full, 106153 loans with balances of $0.01bn have agreed future repayment plans and 529438 loans with balances of $0.09bn$0.10bn are subject to ongoing individual assessment.
The profile of expiring HSBC Bank plc’s UK interest-only loans was as follows.
UK interest-only mortgage loans


$m
Expired interest-only mortgage loans
209216
Interest-only mortgage loans by maturity


– 2017
248
– 2018
517465
– 2019
567520
– 2020
570532
– 2021-20252021652
3,071– 2022-20263,185
– Post 20252026
9,34710,215
At 31 Dec 20162017
14,52915,785


HSBC Finance
Gross loan portfolio of HSBC Finance real estate secured balances
 Re-aged
Modified
and re-aged
Modified
Total
renegotiated
loans
Total non-
renegotiated
loans
Total
gross
loans
Total
impairment
allowances
Impairment
allowances/
gross loans
 $m
$m
$m
$m
$m
$m
$m
%
At 31 Dec 2016876
1,015
75
1,966
3,688
5,654
190
3.4
At 31 Dec 20154,858
5,257
519
10,634
8,612
19,246
986
5.1
Residential mortgages, including second lien mortgages, decreased by $14bn to $6bn at 31 December 2016. In addition to the continued loan sales in the US CML run-off portfolio, we transferred a further $12bn to ‘Assets held for sale’ during 2016, of which $1.6bn remained at the year end due to be sold in February 2017. The average gain on sale of foreclosed properties that arose after we took title to the property was 2%.
There was a decrease in impairment allowances from $1.0 bn at 31 December 2015 to $0.2bn at the end of 2016, reflecting reduced levels of delinquency, and lower levels of both new impaired loans and loan balances outstanding as a result of continued liquidation of the portfolio.
Across the first and second lien residential mortgages in our US CML run-off portfolio, two months and over delinquent balances halved to $1.0bn during 2016.
Renegotiated real estate secured accounts in HSBC Finance reduced by $8.7bn or 82% and represented 67% at 31 December 2016 (2015: 91%) of our total renegotiated loans in North America, of which $1.3bn were classified as impaired (2015: $5.1bn). During 2016, the aggregate number of renegotiated loans in HSBC Finance reduced due to the portfolio repayments and further loan sales in the US CML run‑off portfolio.

Collateral and other credit enhancements held
(Audited)
The following table shows the values of the fixed charges we hold over specific assets where we have previously enforced, and are able to enforce collateral in satisfying a debt because the borrower has failed to meet
contractual obligations, and where the collateral is cash or can be realised by sale in an established market.
The collateral valuation excludes any adjustments for obtaining and selling the collateral and, in particular, loans shown as not collateralised or partially collateralised may also benefit from other forms of credit mitigants.

Residential mortgage loans including loan commitments by level of collateral    
(Audited)        
 Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong
Kong
 $m
$m
$m
$m
$m
$m
$m
$m
Non-impaired loans and advances        
Fully collateralised131,205
115,928
2,194
35,597
2,164
287,088
124,736
72,073
– LTV ratio: less than 50%72,513
77,286
582
12,902
827
164,110
69,679
55,237
– 51% to 60%21,702
16,891
321
8,948
425
48,287
20,706
8,340
– 61% to 70%16,500
10,900
445
8,786
423
37,054
15,422
3,282
– 71% to 80%12,857
7,848
579
4,341
268
25,893
11,992
3,402
– 81% to 90%6,347
2,316
230
391
161
9,445
5,824
1,376
– 91% to 100%1,286
687
37
229
60
2,299
1,113
436
Partially collateralised:        
Greater than 100% (A)309
53
71
216
11
660
174
—
– 101% to 110%125
34
15
89
7
270
89
—
– 111% to 120%46
10
7
57
1
121
16
—
– greater than120%138
9
49
70
3
269
69
—
Collateral on A258
48
48
187
9
550
125
—
Non-impaired loans and advances131,514
115,981
2,265
35,813
2,175
287,748
124,910
72,073
Impaired loans and advances        
Fully collateralised1,241
284
46
1,306
127
3,004
1,008
46
– LTV ratio: less than 50%637
133
12
446
10
1,238
538
42
– 51% to 60%236
40
4
230
8
518
196
3
– 61% to 70%157
36
10
210
3
416
130
—
– 71% to 80%116
37
6
191
4
354
85
1
– 81% to 90%53
27
6
135
102
323
40
—
– 91% to 100%42
11
8
94
—
155
19
—
Partially collateralised:        
Greater than 100% (B)86
10
56
187
3
342
38
—
– 101% to 110%38
5
9
49
—
101
15
—
– 111% to 120%13
2
12
34
—
61
5
—
– greater than 120%35
3
35
104
3
180
18
—
Collateral on B67
9
48
143
2
269
31
—
Impaired loans and advances1,327
294
102
1,493
130
3,346
1,046
46
At 31 Dec 2017132,841
116,275
2,367
37,306
2,305
291,094
125,956
72,119
         

HSBC Holdings plc Annual Report and Accounts 2016
132137

Report of the Directors | Risk


Residential mortgage loans including loan commitments by level of collateral
 
Residential mortgage loans including loan commitments by level of collateral (continued)Residential mortgage loans including loan commitments by level of collateral (continued) 
(Audited)(Audited) 
Europe
Asia
MENA
North
America
Latin
America
Total
UK
Hong
Kong
Europe
Asia
MENA
North
America

Latin
America

Total
UK
Hong
Kong

$m
$m
$m
$m
$m
$m
$m
$m
Non-impaired loans and advances 
Fully collateralised111,799
104,122
2,333
35,773
1,813
255,840
106,006
65,480
– LTV ratio: less than 50%63,404
63,009
617
12,454
676
140,160
61,128
44,732
– 51% to 60%19,129
18,198
369
8,124
316
46,136
18,094
10,656
– 61% to 70%14,437
10,908
505
9,471
366
35,687
13,222
3,851
– 71% to 80%9,029
7,370
659
4,374
253
21,685
8,433
2,958
– 81% to 90%4,963
3,463
148
888
144
9,606
4,509
2,324
– 91% to 100%837
1,174
35
462
58
2,566
620
959
Partially collateralised: 
Greater than 100% (A)430
41
69
373
26
939
284
1
– 101% to 110%150
20
15
179
17
381
106
1
– 111% to 120%64
2
11
85
5
167
33
—
– greater than120%216
19
43
109
4
391
145
—
Collateral on A342
27
40
328
25
762
197
1
Non-impaired loans and advances112,229
104,163
2,402
36,146
1,839
256,779
106,290
65,481
Impaired loans and advances 
Fully collateralised1,213
247
59
2,905
85
4,509
1,059
42
– LTV ratio: less than 50%580
109
21
825
8
1,543
521
34
– 51% to 60%222
49
3
527
3
804
200
4
– 61% to 70%180
24
13
540
4
761
158
1
– 71% to 80%122
29
4
449
3
607
101
1
– 81% to 90%66
19
9
336
67
497
52
1
– 91% to 100%43
17
9
228
—
297
27
1
Partially collateralised: 
Greater than 100% (B)80
7
73
182
—
342
42
—
– 101% to 110%37
3
10
94
—
144
17
—
– 111% to120%12
2
12
38
—
64
7
—
– greater than 120%31
2
51
50
—
134
18
—
Collateral on B66
5
64
152
—
287
33
—
Impaired loans and advances1,293
254
132
3,087
85
4,851
1,101
42
At 31 Dec 2016113,522
104,417
2,534
39,233
1,924
261,630
107,391
65,523
 $m
$m
$m
$m
$m
$m
$m
$m
Non impaired loans and advances  
Fully collateralised127,697
100,102
2,560
41,567
1,869
273,795
122,221
61,784
111,799
104,122
2,333
35,773
1,813
255,840
106,006
65,480
– LTV ratio: less than 50%70,732
59,212
714
12,369
710
143,737
68,362
42,589
63,404
63,009
617
12,454
676
140,160
61,128
44,732
– 51% to 60%24,069
16,625
442
8,266
387
49,789
23,068
9,193
19,129
18,198
369
8,124
316
46,136
18,094
10,656
– 61% to 70%17,449
12,548
532
10,472
378
41,379
16,755
5,252
14,437
10,908
505
9,471
366
35,687
13,222
3,851
– 71% to 80%10,184
7,813
576
6,279
256
25,108
9,593
2,391
9,029
7,370
659
4,374
253
21,685
8,433
2,958
– 81% to 90%4,258
2,773
265
2,556
104
9,956
3,930
1,379
4,963
3,463
148
888
144
9,606
4,509
2,324
– 91% to 100%1,005
1,131
31
1,625
34
3,826
513
980
837
1,174
35
462
58
2,566
620
959
Partially collateralised:  
Greater than 100% (A)535
168
51
1,208
13
1,975
321
97
430
41
69
373
26
939
284
1
– 101% to110%212
154
16
709
7
1,098
126
97
150
20
15
179
17
381
106
1
– 111% to 120%76
5
5
288
2
376
29
—
64
2
11
85
5
167
33
—
– greater than 120%247
9
30
211
4
501
166
—
216
19
43
109
4
391
145
—
Collateral on A430
155
41
1,147
11
1,784
221
95
342
27
40
328
25
762
197
1
Non-impaired loans and advances128,232
100,270
2,611
42,775
1,882
275,770
122,542
61,881
112,229
104,163
2,402
36,146
1,839
256,779
106,290
65,481
Impaired loans and advances  
Fully collateralised1,392
222
59
6,713
109
8,495
1,191
46
1,213
247
59
2,905
85
4,509
1,059
42
– LTV ratio: less than 50%513
105
23
1,247
90
1,978
469
42
580
109
21
825
8
1,543
521
34
– 51% to 60%270
38
8
990
6
1,312
254
2
222
49
3
527
3
804
200
4
– 61% to 70%249
29
10
1,199
5
1,492
204
1
180
24
13
540
4
761
158
1
– 71% to 80%171
18
6
1,257
5
1,457
143
1
122
29
4
449
3
607
101
1
– 81% to 90%102
25
7
1,184
2
1,320
72
—
66
19
9
336
67
497
52
1
– 91% to 100%87
7
5
836
1
936
49
—
43
17
9
228
—
297
27
1
Partially collateralised:  
Greater than 100% (B)178
8
18
628
1
833
49
—
80
7
73
182
—
342
42
—
– 101% to110%130
3
1
375
1
510
15
—
37
3
10
94
—
144
17
—
– 111% to 120%11
2
3
147


163
5
—
12
2
12
38
—
64
7
—
– greater than 120%37
3
14
106


160
29
—
31
2
51
50
—
134
18
—
Collateral value on B160
6
13
547
—
726
36
—
66
5
64
152
—
287
33
—
Impaired loans1,570
230
77
7,341
110
9,328
1,240
46
1,293
254
132
3,087
85
4,851
1,101
42
At 31 Dec 2015129,802
100,500
2,688
50,116
1,992
285,098
123,782
61,927
At 31 Dec 2016113,522
104,417
2,534
39,233
1,924
261,630
107,391
65,523

133138
HSBC Holdings plc Annual Report and Accounts 2016

Supplementary information
Gross loans and advances to customers by country
 First lien residential mortgages
Other personal
Property-related
Commercial, international trade and other
Total
 $m
$m
$m
$m
$m
Europe108,008
38,491
28,485
164,465
339,449
– UK 
101,822
17,820
21,707
124,341
265,690
– France2,676
13,786
5,220
22,153
43,835
– Germany1
192
413
8,322
8,928
– Switzerland506
5,848
213
1,660
8,227
– other3,003
845
932
7,989
12,769
Asia98,072
36,628
70,426
161,940
367,066
– Hong Kong63,566
24,558
54,219
88,921
231,264
– Australia10,134
757
2,164
6,804
19,859
– India1,280
388
1,040
5,979
8,687
– Indonesia63
334
165
4,384
4,946
– Mainland China7,192
1,107
4,788
20,451
33,538
– Malaysia2,719
3,065
1,693
4,179
11,656
– Singapore6,194
4,502
2,920
11,832
25,448
– Taiwan4,036
671
55
5,074
9,836
– other2,888
1,246
3,382
14,316
21,832
Middle East and North Africa (excluding Saudi Arabia)2,535
5,209
2,580
22,107
32,431
– Egypt—
272
73
1,327
1,672
– Turkey301
1,554
247
2,214
4,316
– UAE1,981
1,867
1,883
13,037
18,768
– other253
1,516
377
5,529
7,675
North America39,239
5,717
16,672
51,355
112,983
– US22,756
2,676
11,835
38,199
75,466
– Canada15,220
2,831
4,586
12,515
35,152
– other1,263
210
251
641
2,365
Latin America1,924
3,975
1,646
9,880
17,425
– Mexico1,803
2,849
1,528
7,118
13,298
– other121
1,126
118
2,762
4,127
At 31 Dec 2016249,778
90,020
119,809
409,747
869,354
Europe125,098
42,568
33,277
187,576
388,519
– UK 
117,346
20,797
25,700
149,327
313,170
– France3,606
12,130
6,070
20,380
42,186
– Germany4
203
347
7,941
8,495
– Switzerland511
8,045
224
834
9,614
– other3,631
1,393
936
9,094
15,054
Asia94,606
38,101
67,577
157,616
357,900
– Hong Kong60,943
24,389
50,825
80,609
216,766
– Australia9,297
726
1,592
6,448
18,063
– India1,248
431
637
5,728
8,044
– Indonesia56
346
71
4,965
5,438
– Mainland China5,716
1,645
6,185
23,703
37,249
– Malaysia2,792
3,113
1,993
4,947
12,845
– Singapore7,743
5,392
3,334
11,021
27,490
– Taiwan3,866
629
126
5,291
9,912
– other2,945
1,430
2,814
14,904
22,093
Middle East and North Africa (excluding Saudi Arabia)2,704
6,861
2,900
26,222
38,687
– Egypt1
549
104
2,097
2,751
– Turkey446
2,414
302
4,231
7,393
– UAE1,854
2,286
1,833
14,199
20,172
– other403
1,612
661
5,695
8,371
North America50,117
8,069
16,014
56,690
130,890
– US34,382
4,813
11,435
42,439
93,069
– Canada14,418
3,029
4,315
13,490
35,252
– other1,317
227
264
761
2,569
Latin America1,986
3,972
1,622
10,433
18,013
– Mexico1,881
2,828
1,498
7,844
14,051
– other105
1,144
124
2,589
3,962
At 31 Dec 2015274,511
99,571
121,390
438,537
934,009
The above tables analyse loans and advances by industry sector and by the location of the principal operations of the lending subsidiary or, in the case of the operations of The Hongkong
Gross loans and advances to customers by country
 First lien residential mortgages
Other personal
Property-related
Commercial, international trade and other
Total
 $m
$m
$m
$m
$m
Europe126,685
43,329
33,938
180,656
384,608
– UK 
119,770
19,790
26,012
131,938
297,510
– France2,910
16,650
6,255
28,440
54,255
– Germany1
234
361
10,485
11,081
– Switzerland839
5,776
491
1,284
8,390
– other3,165
879
819
8,509
13,372
Asia109,502
40,880
86,410
190,851
427,643
– Hong Kong70,279
27,868
66,668
104,876
269,691
– Australia12,444
838
2,851
10,815
26,948
– India1,185
441
1,110
6,437
9,173
– Indonesia64
322
164
4,107
4,657
– mainland China8,877
1,170
5,674
25,202
40,923
– Malaysia3,003
3,385
2,144
5,676
14,208
– Singapore5,760
4,952
4,727
13,073
28,512
– Taiwan4,877
822
19
5,342
11,060
– other3,013
1,082
3,053
15,323
22,471
Middle East and North Africa (excluding Saudi Arabia)2,375
4,496
2,508
20,132
29,511
– Egypt—
283
39
1,342
1,664
– Turkey206
1,035
265
2,702
4,208
– UAE1,880
1,682
1,727
11,172
16,461
– other289
1,496
477
4,916
7,178
North America37,330
5,227
16,916
48,925
108,398
– US17,415
2,278
11,092
34,790
65,575
– Canada18,639
2,731
5,429
13,583
40,382
– other1,276
218
395
552
2,441
Latin America2,281
4,376
1,875
11,756
20,288
– Mexico2,129
3,044
1,702
8,735
15,610
– other152
1,332
173
3,021
4,678
At 31 Dec 2017278,173
98,308
141,647
452,320
970,448
Europe108,008
38,491
28,485
164,465
339,449
– UK 
101,822
17,820
21,707
124,341
265,690
– France2,676
13,786
5,220
22,153
43,835
– Germany1
192
413
8,322
8,928
– Switzerland506
5,848
213
1,660
8,227
– other3,003
845
932
7,989
12,769
Asia98,072
36,628
70,426
161,940
367,066
– Hong Kong63,566
24,558
54,219
88,921
231,264
– Australia10,134
757
2,164
6,804
19,859
– India1,280
388
1,040
5,979
8,687
– Indonesia63
334
165
4,384
4,946
– mainland China7,192
1,107
4,788
20,451
33,538
– Malaysia2,719
3,065
1,693
4,179
11,656
– Singapore6,194
4,502
2,920
11,832
25,448
– Taiwan4,036
671
55
5,074
9,836
– other2,888
1,246
3,382
14,316
21,832
Middle East and North Africa (excluding Saudi Arabia)2,535
5,209
2,580
22,107
32,431
– Egypt—
272
73
1,327
1,672
– Turkey301
1,554
247
2,214
4,316
– UAE1,981
1,867
1,883
13,037
18,768
– other253
1,516
377
5,529
7,675
North America39,239
5,717
16,672
51,355
112,983
– US22,756
2,676
11,835
38,199
75,466
– Canada15,220
2,831
4,586
12,515
35,152
– other1,263
210
251
641
2,365
Latin America1,924
3,975
1,646
9,880
17,425
– Mexico1,803
2,849
1,528
7,118
13,298
– other121
1,126
118
2,762
4,127
At 31 Dec 2016249,778
90,020
119,809
409,747
869,354
and Shanghai Banking Corporation, HSBC Bank plc, HSBC Bank Middle East and HSBC Bank USA, by the location of the lending branch.


HSBC Holdings plc Annual Report and Accounts 2016
134139

Report of the Directors | Risk


HSBC Holdings
(Audited)
Risk in HSBC Holdings is overseen by the HSBC Holdings Asset and Liability Management Committee (‘Holdings ALCO’). The major risks faced by HSBC Holdings are credit risk, liquidity risk and market risk (in the form of interest rate risk and foreign exchange risk), of which the most significant is credit risk..
Credit risk in HSBC Holdings primarily arises from transactions with Group subsidiaries and from guarantees issued in support of obligations assumed by certain Group operations in the normal conduct of their business. It principally represents claims on Group subsidiaries in Europe and North America.
In HSBC Holdings, all financial instruments carrying amount represents the maximum exposure to credit risk. Derivativesrisk arises from two components:
financial instruments on the balance sheet (see page 219); and
financial guarantees and similar contracts, where the maximum exposure is the maximum that we would have anto pay if the guarantees were called upon (see Note 32).
In the case of our derivative balances, we have amounts with a legally enforceable right of offset balancein the case of $1.8bncounterparty default that are not included in the carrying value. These offsets also include collateral received in cash and other financial assets. The total offset relating to our derivative balances is $2.1bn at 31 December 2016
(2015: $2.5bn)2017 (2016: $1.8bn).
The credit quality of loans and advances and financial investments, both of which consist of intra-Group lending, is assessed as ‘strong’ or ‘good’, with 100% of the exposure being neither past due nor impaired (2015:(2016: 100%). For further details of credit quality classification, see page 113.
Securitisation exposures and other structured products
The following table summarises the carrying amount of our ABS exposure by categories ofof collateral and includes assets held in the GB&M legacy credit portfolio (held within the Corporate Centre) with a carrying value of $11bn (2015: $15bn)$9bn (2016: $11bn).
At 31 December 2016,2017, the available-for-sale reserve in respect of ABSs was a deficit of $749m (2015:$466m (2016: deficit of $1,021m)$749m). For 2016,2017, the impairment write-back in respect of ABSs was
$121m (2015: $240m (2016: write-back of $85m)$121m).

Carrying amount of HSBC’s consolidated holdings of ABSs
 Trading
Available for sale
Held to maturity
Designated at fair value through profit or loss
Loans and receivables
Total
Of which
held through consolidated
SEs
 $m
$m
$m
$m
$m
$m
$m
Mortgage-related assets:       
Sub-prime residential63
1,544
—
—
104
1,711
618
US Alt-A residential—
1,453
5
—
39
1,497
1,382
US Government agency and sponsored enterprises:
MBSs		247
13,070
12,788
—
—
26,105
—
Other residential662
362
—
—
54
1,078
152
Commercial property348
1,146
—
—
141
1,635
707
Leveraged finance-related assets175
1,284
—
—
70
1,529
735
Student loan-related assets140
2,865
—
—
11
3,016
2,616
Other assets1,278
730
—
19
48
2,075
404
At 31 Dec 20162,913
22,454
12,793
19
467
38,646
6,614
        
Mortgage-related assets:       
Sub-prime residential73
2,247
—
1
132
2,453
1,075
US Alt-A residential—
1,989
7
—
55
2,051
1,796
US Government agency and sponsored enterprises:
MBSs
166
15,082
13,997
—
—
29,245
—
Other residential812
780
—
—
108
1,700
253
Commercial property590
2,308
—
—
201
3,099
1,656
Leveraged finance-related assets240
2,294
—
—
149
2,683
1,310
Student loan-related assets236
2,991
—
—
25
3,252
2,679
Other assets1,184
880
—
23
128
2,215
565
At 31 Dec 20153,301
28,571
14,004
24
798
46,698
9,334
Carrying amount of HSBC’s consolidated holdings of ABSs
 Trading
Available for sale
Held to maturity
Designated at fair value through profit or loss
Loans and receivables
Total
Of which
held through consolidated
SEs
 $m
$m
$m
$m
$m
$m
$m
Mortgage-related assets1,767
14,221
13,965
—
1,762
31,715
1,826
– sub-prime residential22
918
—
—
32
972
484
– US Alt-A residential—
1,102
3
—
—
1,105
1,041
– US Government agency and sponsored enterprises: MBSs
331
11,750
13,962
—
—
26,043
—
– other residential814
181
—
—
1,595
2,590
75
– commercial property600
270
—
—
135
1,005
226
Leveraged finance-related assets128
373
—
—
45
546
283
Student loan-related assets155
2,198
—
—
—
2,353
2,158
Other assets1,266
731
—
2
3,553
5,552
428
At 31 Dec 20173,316
17,523
13,965
2
5,360
40,166
4,695
        
Mortgage-related assets1,320
17,575
12,793
—
338
32,026
2,859
– sub-prime residential63
1,544
—
—
104
1,711
618
– US Alt-A residential—
1,453
5
—
39
1,497
1,382
– US Government agency and sponsored enterprises: MBSs
247
13,070
12,788
—
—
26,105
—
– other residential662
362
—
—
54
1,078
152
– commercial property348
1,146
—
—
141
1,635
707
Leveraged finance-related assets175
1,284
—
—
70
1,529
735
Student loan-related assets140
2,865
—
—
11
3,016
2,616
Other assets1,278
730
—
19
48
2,075
404
At 31 Dec 20162,913
22,454
12,793
19
467
38,646
6,614

135140
HSBC Holdings plc Annual Report and Accounts 2016

Risk elements in the loan portfolio
Unless otherwise stated, the disclosure of credit risk elements in this section reflects US accounting practice and classifications. The purpose of the disclosure is to present within the US disclosure framework those elements of the loan portfolios with a greater risk of loss. The three main classifications of credit risk elements presented are:
impaired loans;
unimpaired loans contractually more than 90 days past due as to interest or principal; and
troubled debt restructurings not included in the above.
Interest forgone on impaired and restructured loans
2016
2015
2017
2016
$m
$m
$m
$m
Europe189
276
154
189
Asia180
164
169
180
Middle East and North Africa155
138
153
155
North America387
1,097
147
387
Latin America267
409
33
267
Year ended 31 Dec1,178
2,084
656
1,178
Interest recognised on impaired and restructured loans
2016201520172016
$m
$m
$m
$m
Europe71
92
52
71
Asia62
57
53
62
Middle East and North Africa21
27
20
21
North America413
832
121
413
Latin America98
248
39
98
Year ended 31 Dec665
1,256
285
665
Impaired loans
A loan is impaired, and an impairment allowance is recognised, when there is objective evidence of a loss event that has an effect on the cash flows of the loan that can be reliably estimated. In accordance with IFRSs, we recognise interest income on assets after they have been written down as a result of an impairment loss.
The balance of impaired loans at 31 December 20162017 was $5.6bn$2.8bn lower than at 31 December 2015.2016. This reduction was largely due to the continuedcompletion of loan sales in our US CML run-off of the CML portfolio and reductionsa reduction in corporate individually assessedand commercial impaired balances as a result of fewer significant current year impaired loans in Europe.together with loan credit grade improvements, repayments and write-offs.
Unimpaired loans more than 90 days past due
Examples of unimpaired loans more than 90 days past due include individually assessed mortgages that are in arrears more than 90 days where there are no other indicators of impairment, but where the value of collateral is sufficient to repay both the principal debt and all potential interest for at least one year; and short-term trade facilities past due more than 90 days for technical reasons such as delays in documentation, but where there is no concern over the creditworthiness of the counterparty.
The amount of unimpaired loans contractually more than 90 days past due as to principal or interest at 31 December 20162017 was $18m, $114m lower$24m, $6m higher than at 31 December 2015.2016. The decreaseincrease was primarily in Middle East and North Africa.Africa, partially offset by a decrease in North America.
Troubled debt restructurings
Under US GAAP, a troubled debt restructuring (‘TDR’) is a loan, the terms of which have been modified for economic or legal reasons related to the borrower’s financial difficulties to grant a concession to the borrower that the lender would not otherwise consider. A modification that results in a delay in payment that is considered insignificant is not regarded as a concession for the purposes of
this disclosure. The SEC requires separate disclosure of any loans that meet the definition of a TDR that are not included in the previous two loan categories. These are classified as TDRs in the table on page 140.141. Loans that have been identified as a TDR under the US guidance retain this designation until maturity or derecognition. This treatment differs from the Group’s impaired loans disclosure convention under IFRSs under which a loan may return to unimpaired status after demonstrating a significant reduction in the risk of non-payment of future cash flows. As a result, reported TDRs include those loans that have returned to unimpaired status under the Group’s disclosure convention for renegotiated loans.
The balance of TDRs not included as impaired loans at 31 December 20162017 was $3.4bn, $2.9bn, $0.5bn lower than 20152016 mainly due to a reduction in North America.America due to the completion of loan sales in our US CML run-off portfolio.
Potential problem loans
Potential problem loans are loans where information on possible credit problems among borrowers causes management to seriously doubt their ability to comply with the loan repayment terms. The following concentrations of credit risk have a higher risk of containing potential problem loans.
‘Personal lending’ on page 133135 includes disclosure about certain homogeneous groups of loans that are collectively assessed for impairment, which may represent exposures to potential problem loans, including interest‐interest only mortgages and affordability mortgages, including adjustable rate mortgages. Collectively assessed loans and advances, although not classified as impaired until more than 90 days past due, are assessed collectively for losses that have been incurred but have not yet been individually identified. For details of our impairment policies on loans and advances and financial investments, see Note 1 to1.2(d) on the Financial Statements.
‘Renegotiated loans and forbearance’ on page 124127 includes disclosure about the credit quality of loans whose contractual terms have been changed at some point in the life of the loan because of significant concerns about the borrower’s ability to make contractual payments when due. Renegotiated loans are classified as impaired when:
there has been a change in contractual cash flow as a result of a concession that the lender would otherwise not consider; and
it is probable that without the concession, the borrower would be unable to meet contractual payment obligations in full.
This presentation applies unless the concession is insignificant and there are no other indicators of impairment. The renegotiated loan will continue to be disclosed as impaired until there is sufficient evidence to demonstrate a significant reduction in the risk of non-repayment of future cash flows, and there are no other indicators of impairment.
Renegotiated loans that are not classified as impaired may have a higher risk of becoming delinquent in the future, and may therefore be potential problem loans. Further information regarding the credit quality classification of renegotiated loans can be found on page 107.113.
‘Areas of special interest’ on page 100 includes information on oil and gas exposures. Refinancing risk in the commercial real estate sector is a separate area of focus and is covered on page 129.


HSBC Holdings plc Annual Report and Accounts 2016
136

Report of the Directors | Risk


Risk elements in the loan portfolio by geographical region.region
The following table below sets out the amount of risk elements in loan portfolios included within loans and advances to customers and banks in the consolidated balance sheet, trading loans classified
as in default and assets obtained by taking possession of security. The table excludes the amount of risk elements in loan portfolios classified as ‘Assets held for sale’ in the consolidated balance sheet.

HSBC Holdings plc
141

Report of the Directors | Risk

Risk elements in the loan portfolio by geographical region
  2016
2015
2014
2013
2012
 
$m
$m
$m
$m
$m
Impaired loans      
Europe 8,062
9,265
9,709
12,654
10,852
Asia 2,499
2,375
2,048
1,623
1,624
Middle East and North Africa 2,230
2,178
2,514
2,859
2,767
North America 4,842
8,930
11,694
15,123
20,345
Latin America 595
1,030
3,365
4,244
3,188
  18,228
23,778
29,330
36,503
38,776
Unimpaired loans contractually more than 90 days past due as to principal or interest      
Europe —
7
6
25
33
Asia —
2
1
33
14
Middle East and North Africa 15
96
59
56
108
North America 3
27
3
13
69
Latin America —
—
3
—
—
  18
132
72
127
224
Troubled debt restructurings (not included in the classifications above)      
Europe 1,900
1,495
1,652
1,427
1,306
Asia 269
284
267
277
236
Middle East and North Africa 549
584
778
406
593
North America 518
3,698
3,932
4,643
3,813
Latin America 130
164
353
482
1,001
  3,366
6,225
6,982
7,235
6,949
Trading loans classified as in default      
North America —
—
4
133
166
       
Risk elements on loans      
Europe 9,962
10,767
11,367
14,106
12,191
Asia 2,768
2,661
2,316
1,933
1,874
Middle East and North Africa 2,794
2,858
3,351
3,321
3,468
North America 5,363
12,655
15,633
19,912
24,393
Latin America 725
1,194
3,721
4,726
4,189
  21,612
30,135
36,388
43,998
46,115
Assets held for sale      
Europe 16
23
28
44
51
Asia 46
19
14
10
19
Middle East and North Africa 1
1
1
2
—
North America 57
116
186
370
319
Latin America 22
20
16
27
55
  142
179
245
453
444
Total risk elements      
Europe 9,978
10,790
11,395
14,150
12,242
Asia 2,814
2,680
2,330
1,943
1,893
Middle East and North Africa 2,795
2,859
3,352
3,323
3,468
North America 5,420
12,771
15,819
20,282
24,712
Latin America 747
1,214
3,737
4,753
4,244
At 31 Dec 21,754
30,314
36,633
44,451
46,559
  %
%
%
%
%
Loan impairment allowances as a percentage of risk elements on loans 36.3
31.8
34.0
34.7
35.2



 2017
2016
2015
2014
2013
 $m
$m
$m
$m
$m
Impaired loans     
Europe8,042
8,062
9,265
9,709
12,654
Asia2,249
2,499
2,375
2,048
1,623
Middle East and North Africa1,949
2,230
2,178
2,514
2,859
North America2,606
4,842
8,930
11,694
15,123
Latin America624
595
1,030
3,365
4,244
 15,470
18,228
23,778
29,330
36,503
Unimpaired loans contractually more than 90 days past due as to principal or interest     
Europe—
—
7
6
25
Asia—
—
2
1
33
Middle East and North Africa24
15
96
59
56
North America—
3
27
3
13
Latin America—
—
—
3
—
 24
18
132
72
127
Troubled debt restructurings (not included in the classifications above)  

  
Europe1,890
1,900
1,495
1,652
1,427
Asia273
269
284
267
277
Middle East and North Africa459
549
584
778
406
North America174
518
3,698
3,932
4,643
Latin America83
130
164
353
482
 2,879
3,366
6,225
6,982
7,235
Trading loans classified as in default  

  
North America—
—
—
4
133
Europe56
—
—
—
—
 56
—
—
4
133
Risk elements on loans     
Europe9,988
9,962
10,767
11,367
14,106
Asia2,522
2,768
2,661
2,316
1,933
Middle East and North Africa2,432
2,794
2,858
3,351
3,321
North America2,780
5,363
12,655
15,633
19,912
Latin America707
725
1,194
3,721
4,726
 18,429
21,612
30,135
36,388
43,998
Assets held for sale     
Europe14
16
23
28
44
Asia51
46
19
14
10
Middle East and North Africa—
1
1
1
2
North America11
57
116
186
370
Latin America18
22
20
16
27
 94
142
179
245
453
Total risk elements     
Europe10,002
9,978
10,790
11,395
14,150
Asia2,573
2,814
2,680
2,330
1,943
Middle East and North Africa2,432
2,795
2,859
3,352
3,323
North America2,791
5,420
12,771
15,819
20,282
Latin America725
747
1,214
3,737
4,753
At 31 Dec18,523
21,754
30,314
36,633
44,451
 %
%
%
%
%
Loan impairment allowances as a percentage of risk elements on loans40.6
36.3
31.8
34.0
34.7

137142
HSBC Holdings plc Annual Report and Accounts 2016

Supplementary information
Gross loans and advances by industry sector over five years
  2016
2015
2014
2013
2012
  $m
$m
$m
$m
$m
Personal 339,798
374,082
393,554
410,728
415,093
– first lien residential mortgages 249,778
274,511
286,524
299,875
301,862
– other personal 90,020
99,571
107,030
110,853
113,231
Corporate and commercial 465,827
499,513
542,625
545,981
517,120
– manufacturing 80,643
95,858
106,986
113,850
112,149
– international trade and services 150,042
159,019
180,791
184,668
169,389
– commercial real estate 64,171
67,926
73,293
74,846
76,760
– other property-related 55,638
53,464
52,387
44,832
40,532
– government 8,442
7,455
6,143
7,277
10,785
– other commercial 106,891
115,791
123,025
120,508
107,505
Financial 151,855
150,833
163,016
170,627
164,013
– non-bank financial institutions 63,729
60,414
50,818
50,523
46,871
– banks 88,126
90,419
112,198
120,104
117,142
Total gross loans and advances 957,480
1,024,428
1,099,195
1,127,336
1,096,226
Impaired loans and advances to customers 18,228
23,758
29,283
36,428
38,671
Impairment allowances on loans and advances to customers 7,850
9,555
12,337
15,143
16,112
Loan impairment charge 3,350
3,592
4,055
6,048
8,160
– new allowances net of allowance releases 3,977
4,400
5,010
7,344
9,306
– recoveries (627)(808)(955)(1,296)(1,146)
Loan impairment charges by industry sector over five years
Gross loans and advances by industry sector over five yearsGross loans and advances by industry sector over five years
 2016
2015
2014
2013
2012
 2017
2016
2015
2014
2013
 $m
$m
$m
$m
$m
 $m
$m
$m
$m
$m
Loan impairment charge/(release)   
Personal 1,703
1,834
1,803
3,196
5,362
 376,481
339,798
374,082
393,554
410,728
– first lien residential mortgages 278,173
249,778
274,511
286,524
299,875
– other personal 98,308
90,020
99,571
107,030
110,853
Corporate and commercial 1,608
1,769
2,256
2,974
2,802
 522,248
465,827
499,513
542,625
545,981
– manufacturing 81,857
80,643
95,858
106,986
113,850
– international trade and services 173,227
150,042
159,019
180,791
184,668
– commercial real estate 77,312
64,171
67,926
73,293
74,846
– other property-related 64,335
55,638
53,464
52,387
44,832
– government 11,728
8,442
7,455
6,143
7,277
– other commercial 113,789
106,891
115,791
123,025
120,508
Financial 39
(11)(4)(122)(4) 162,112
151,855
150,833
163,016
170,627
Year ended 31 Dec 3,350
3,592
4,055
6,048
8,160
– non-bank financial institutions 71,719
63,729
60,414
50,818
50,523
– banks 90,393
88,126
90,419
112,198
120,104
Total gross loans and advances 1,060,841
957,480
1,024,428
1,099,195
1,127,336
Impaired loans and advances to customers 15,470
18,228
23,758
29,283
36,428
Impairment allowances on loans and advances to customers 7,484
7,850
9,555
12,337
15,143
Loan impairment charge 1,992
3,350
3,592
4,055
6,048
– new allowances net of allowance releases 2,636
3,977
4,400
5,010
7,344
– recoveries (644)(627)(808)(955)(1,296)
Charge for impairment losses as a percentage of average gross loans and advances to customers
  2016
2015
2014
2013
2012
  %
%
%
%
%
New allowances net of allowance releases 0.46
0.48
0.53
0.81
1.00
Recoveries (0.07)(0.09)(0.10)(0.14)(0.12)
Total charge for impairment losses 0.39
0.39
0.43
0.67
0.88
Amount written off net of recoveries 0.32
0.37
0.58
0.59
0.93
Loan impairment charges by industry sector over five years
  2017
2016
2015
2014
2013
  $m
$m
$m
$m
$m
Loan impairment charge/(release)      
Personal 959
1,703
1,834
1,803
3,196
Corporate and commercial 927
1,608
1,769
2,256
2,974
Financial 106
39
(11)(4)(122)
Year ended 31 Dec 1,992
3,350
3,592
4,055
6,048
Charge for impairment losses as a percentage of average gross loans and advances to customers
  2017
2016
2015
2014
2013
  %
%
%
%
%
New allowances net of allowance releases 0.29
0.46
0.48
0.53
0.81
Recoveries (0.07)(0.07)(0.09)(0.10)(0.14)
Total charge for impairment losses 0.22
0.39
0.39
0.43
0.67
Amount written off net of recoveries 0.28
0.32
0.37
0.58
0.59

HSBC Holdings plc Annual Report and Accounts 2016
138143

Report of the Directors | Risk


Movement in impairment allowances over five years
 2016
2015
2014
2013
2012
 2017
2016
2015
2014
2013
 $m
$m
$m
$m
$m
 $m
$m
$m
$m
$m
Impairment allowances at 1 Jan 9,573
12,386
15,201
16,169
17,636
 7,850
9,573
12,386
15,201
16,169
Amounts written off (3,456)(4,194)(6,379)(6,655)(9,812) (3,173)(3,456)(4,194)(6,379)(6,655)
– personal (1,602)(2,707)(3,733)(4,367)(6,905) (1,720)(1,602)(2,707)(3,733)(4,367)
– corporate and commercial (1,830)(1,473)(2,425)(2,229)(2,677) (1,376)(1,830)(1,473)(2,425)(2,229)
– financial (24)(14)(221)(59)(230) (77)(24)(14)(221)(59)
Recoveries of amounts written off in previous years 627
808
955
1,296
1,146
 644
627
808
955
1,296
– personal 515
681
818
1,097
966
 545
515
681
818
1,097
– corporate and commercial 109
124
128
198
172
 97
109
124
128
198
– financial 3
3
9
1
8
 2
3
3
9
1
Loan impairment charge 3,350
3,592
4,055
6,048
8,160
 1,992
3,350
3,592
4,055
6,048
– exchange and other movements (2,244)(3,019)(1,446)(1,657)(961)
Exchange and other movements 171
(2,244)(3,019)(1,446)(1,657)
Impairment allowances at 31 Dec 7,850
9,573
12,386
15,201
16,169
 7,484
7,850
9,573
12,386
15,201
Impairment allowances 









 









– individually assessed 4,932
5,420
6,244
7,130
6,629
 4,960
4,932
5,420
6,244
7,130
– collectively assessed 2,918
4,153
6,142
8,071
9,540
 2,524
2,918
4,153
6,142
8,071
Impairment allowances at 31 Dec 7,850
9,573
12,386
15,201
16,169
 7,484
7,850
9,573
12,386
15,201

 %
%
%
%
%
Amount written off net of recoveries as a percentage of average gross loans and advances to customers 0.3
0.4
0.6
0.6
1.0
Movement in renegotiated loans and advances to customers
2016201520172016
Personal
Corporate and commercial
Financial
Total
Personal
Corporate and commercial
Financial
Total
Personal
Corporate and commercial
Financial
Total
Personal
Corporate and commercial
Financial
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Renegotiated loans as at 1 Jan13,974
8,369
616
22,959
17,593
9,160
742
27,495
4,758
7,565
517
12,840
13,974
8,369
616
22,959
Loans renegotiated in the year without derecognition1,076
2,947
1
4,024
1,440
2,594
24
4,058
688
1,700
7
2,395
1,076
2,947
1
4,024
Loans renegotiated in the year resulting in recognition of a new loan—
183
—
183
74
333
201
608
—
36
—
36
—
183
—
183
Net repayments and other(10,292)(3,934)(100)(14,326)(5,133)(3,718)(351)(9,202)(2,968)(2,205)(16)(5,189)(10,292)(3,934)(100)(14,326)
– Repayments(1,401)(2,644)(2)(4,047)(2,045)(1,896)(132)(4,073)
– Amounts written off(158)(614)(2)(774)(454)(445)(2)(901)
– Other(8,733)(676)(96)(9,505)(2,634)(1,377)(217)(4,228)
– repayments(644)(2,279)(32)(2,955)(1,401)(2,644)(2)(4,047)
– amounts written off(100)(338)(1)(439)(158)(614)(2)(774)
– other(2,224)412
17
(1,795)(8,733)(676)(96)(9,505)
Renegotiated loans at 31 Dec4,758
7,565
517
12,840
13,974
8,369
616
22,959
2,478
7,096
508
10,082
4,758
7,565
517
12,840

Country distribution of outstandings and
cross-border exposures
We control the risk associated with cross-border lending through a centralised structure of internal country limits. Exposures to individual countries and cross-border exposure in the aggregate are kept under continual review.
The following table summarises the aggregate of our in-country foreign currency and cross-border outstandings by type of borrower to countries which individually represent in
 

excess of 0.75% of our total assets. The classification is based on the country of residence of the borrower but also recognises the transfer of country risk in respect of third-party guarantees, eligible collateral held and residence of the head office when the borrower is a branch. In accordance with the Bank of England Country Exposure Report (Form CE) guidelines, outstandings comprise loans and advances (excluding settlement accounts), amounts receivable under finance leases, acceptances, commercial bills, certificates of deposit and debt and equity securities (net of short positions), and exclude accrued interest and intra-HSBC exposures.


139144
HSBC Holdings plc Annual Report and Accounts 2016

In-country foreign currency and cross-border amounts outstanding
 Banks
Government
and official
institutions

Other
Total

Banks
Government
and official
institutions
Other
Total
Footnotes$bn
$bn
$bn
$bn
Footnotes$bn
$bn
$bn
$bn
At 31 Dec 2017








US
5.8
29.5
37.6
72.9
Mainland China
25.5
10.3
30.3
66.1
UK
21.4
4.8
33.7
59.9
Japan
16.7
26.5
13.3
56.5
Hong Kong
4.3
0.3
39.3
43.9
Germany 10.8
8.8
10.7
30.3
France 6.9
4.7
14.1
25.7
Singapore12.9
5.7
11.9
20.5
Canada17.3
6.8
5.8
19.9










At 31 Dec 2016  








US 4.4
41.9
19.5
65.8

4.4
41.9
19.5
65.8
Mainland China 20.8
9.2
24.3
54.3

20.8
9.2
24.3
54.3
UK 21.0
9.3
24.0
54.3

21.0
9.3
24.0
54.3
Japan 10.5
22.6
9.9
43.0
Hong Kong
4.5
0.4
32.1
37.0
Germany 12.3
19.9
8.1
40.3

12.3
19.9
8.1
40.3
Hong Kong 4.5
0.4
32.1
37.0
Japan 10.5
22.6
9.9
43.0
France 6.4
8.1
12.1
26.6
 6.4
8.1
12.1
26.6
Singapore14.2
3.0
9.6
16.8
Canada725.9
8.0
6.7
20.6
15.9
8.0
6.7
20.6
  








At 31 Dec 2015  








US 4.7
51.3
24.7
80.7

4.7
51.3
24.7
80.7
Mainland China 21.2
6.8
26.0
54.0

21.2
6.8
26.0
54.0
UK 23.1
9.2
25.3
57.6

23.1
9.2
25.3
57.6
Japan 7.6
19.4
14.4
41.4
Hong Kong
3.1
0.5
30.0
33.6
Germany 7.0
23.1
6.9
37.0

7.0
23.1
6.9
37.0
Hong Kong 3.1
0.5
30.0
33.6
Japan 7.6
19.4
14.4
41.4
France724.2
7.1
13.0
24.3
14.2
7.1
13.0
24.3
Singapore16.4
0.8
9.4
16.6
Canada726.2
8.3
7.5
22.0
16.2
8.3
7.5
22.0
  
At 31 Dec 2014  
US 6.8
30.3
32.4
69.5
Mainland China 26.5
5.7
28.5
60.7
UK 24.0
8.3
41.8
74.2
Germany 7.7
26.6
6.7
41.0
Hong Kong 8.1
0.4
29.0
37.5
Japan 9.0
15.7
12.2
36.9
France 7.3
3.1
11.6
22.1
1These balances were between 0.75% and 1% of total assets. All other balances were above 1%. Singapore balances in 2016 and 2015 were below 0.75% and have been included for comparative purposes.
For footnote, see page 79.

Liquidity and funding risk profile
 Page
Liquidity and funding risk in 20162017143
145
Management of liquidity and funding risk143
145
Sources of funding145
Analysis of on-balance sheet encumbered and unencumbered assets and off-balance sheet collateral146
147
Contractual maturity of financial liabilities
149

HSBC Holdings150
149

Liquidity and funding risk in 20162017
AThis section provides a summary of our current policies and practices regarding the management of liquidity and funding risk is set out on page 143.risk.
The liquidity position of the Group remained strong in 2016.2017. The amount of our unencumbered liquid assets was $560bn.$600bn (2016: $560bn). We recognised $447bn$536bn (2016: $447bn) of these liquid assets for the purposes of the Group consolidated LCR,Liquidity Coverage Ratio (’LCR’), which was 142% (2016: 136%).


Management of liquidity and funding risk
Liquidity coverage ratio
The Liquidity Coverage Ratio (‘LCR’)LCR aims to ensure that a bank has sufficient unencumbered high-quality liquid assets (‘HQLA’) to meet its liquidity needs in a 30-calendar-day liquidity stress scenario. HQLA consist of cash or assets that can be converted into cash at little or no loss of value in markets. We reportedvalue. The Group’s LCR is calculated on a Group European Commission (‘EC’) LCRbasis and at 31 December 2016 of 136%2017 was 142% (31 December 2015: 116%2016: 136%) to the PRA..
We assume no transferability of liquidity from non-EU entities other than to the extent currently permitted. This results in $113bn$64bn of HQLA being excluded from the Group’s LCR.
The ratio If there were no exclusions on transferability of total consolidated HQLA toliquidity between entities, the ECGroup’s LCR denominator at 31 December 2016 was 171%would have been 160% (31 December 2015: 142%2016: 171%),
reflecting thethis additional $113bn$64bn (31 December 2015: $94bn)2016: $113bn) of HQLAs excluded fromHQLAs.

HSBC Holdings plc
145

Report of the Group LCR.Directors | Risk

At 31 December 2016,2017, all the Group’s principal operating entities were within the LCR risk tolerance level established by the Board and applicable under the Group’s internal liquidity and funding risk management framework (‘LFRF’).
The liquidity position of the Group can also be represented by the stand-alone ratios of each of our principal operating entities. The Board and RMM decide the criteria for categorising an operating entity as a principal entity. The main criterion is a material balance sheet size. The following table displays the individual LCR levels for our principal operating entities on an EC LCR basis. The ratios for operating entities in non-EU jurisdictions canbasis, a key element of our LFRF. This basis may vary from local LCR measures due to differences in the way non-EU regulators have implemented the Basel III recommendations.
Operating entities’ LCRs
 At
 At Dec 31 Dec31 Dec
 20162015 20172016
Footnotes%%Footnotes%%
HSBC UK liquidity group5112310746139123
The Hongkong and Shanghai Banking Corporation – Hong Kong Branch5218515047151185
The Hongkong and Shanghai Banking Corporation – Singapore Branch5215418947181154
HSBC Bank USA 130116 132130
HSBC France5312212748149122
Hang Seng Bank 218199 204218
HSBC Canada5314214248123142
HSBC Bank China 253183 162253
HSBC Middle East – UAE Branch 241  197241
HSBC Mexico 177  215177
HSBC Private Bank 178  220178
For footnotes, see page 164.161.
 
Net stable funding ratio


HSBC Holdings plc Annual Report and Accounts 2016
140

Report of the Directors | Risk


We are required to maintain sufficient stable funding. The Net Stable Funding Ratio (‘NSFR’) requires institutions to maintain sufficientmeasures stable funding relative to required stable funding, and reflects a bank’s long-term funding profile (funding with a term of more than a year). It is designed to complement the LCR.
At 31 December 2016,2017, the Group’s principal operating entities were within the NSFR risk tolerance level established by the Board and applicable under the LFRF.

The table below displays the NSFR levels for the principal HSBC operating entities.
Our NSFR levels were not disclosed at the last year-end, so there are no comparatives.
Operating entities’ NSFRs
  At
  31 Dec31 Dec
  20172016
 Footnotes%%
HSBC UK liquidity group46108116
The Hongkong and Shanghai Banking Corporation – Hong Kong Branch47144157
The Hongkong and Shanghai Banking Corporation – Singapore Branch47117112
HSBC Bank USA 129120
HSBC France48116120
Hang Seng Bank 155162
HSBC Canada48136139
HSBC Bank China 148149
HSBC Middle East – UAE Branch 143141
HSBC Mexico 123128
HSBC Private Bank 185155
Operating entities’ NSFRs
  
At
31 Dec 2016
 Footnotes%
HSBC UK liquidity group51116
The Hongkong and Shanghai Banking Corporation – Hong Kong Branch52157
The Hongkong and Shanghai Banking Corporation – Singapore Branch52112
HSBC Bank USA 120
HSBC France53120
Hang Seng Bank 162
HSBC Canada53139
HSBC Bank China 149
HSBC Middle East – UAE Branch 141
HSBC Mexico 128
HSBC Private Bank 155
Depositor concentration and term funding maturity concentration
The LCR and NSFR metrics assume a stressed outflow based on a portfolio of depositors within eachretail, corporate and financial deposit segment.segments. The validity of these assumptions is challenged if the portfolio of depositors is not large enough to avoid depositor concentration.
Operating entities are exposed to term re-financingrefinancing concentration risk if the current maturity profile results in future maturities being overly concentrated in any defined period.
At 31 December 2016,2017, all principal operating entities were within the risk tolerance levels set for depositor concentration and term funding maturity concentration. These risk tolerances were established by the Board and are applicable under the LFRF.

146HSBC Holdings plc

Liquid assets of HSBC’s principal operating entities
The table below shows the unweighted liquidity value of assets categorised as liquid, which is used for the purposes of calculating the LCR metric.
This reflects the stock of unencumbered liquid assets at the reporting date, using the regulatory definition of liquid assets. The
amount recognised by entity at the Group level is different from the amount recognised at a solo entity level, reflecting where liquidity that cannot be freely transferred up to Group.


141
HSBC Holdings plc Annual Report and Accounts 2016

Liquid assets of HSBC’s principal entities
 31 Dec 2016 31 Dec 201731 Dec 2016
 Recognised at Group and entity level
Recognised at entity level only
 Recognised at Group and entity level
Recognised at entity level only
Recognised at Group and entity level
Recognised at entity level only
Footnotes$m
$m
Footnotes$m
$m
$m
$m
HSBC UK liquidity group51



46



 
Level 1 143,884
143,884
 161,036
161,036
143,884
143,884
Level 2a 2,085
2,085
 2,914
2,914
2,085
2,085
Level 2b 7,663
7,663
 18,777
18,777
7,663
7,663
The Hongkong and Shanghai Banking Corporation – Hong Kong Branch 



 



 
Level 1 48,342
98,963
 68,335
77,217
48,342
98,963
Level 2a 23,790
23,790
 26,848
26,848
23,790
23,790
Level 2b 3,450
3,450
 5,528
5,528
3,450
3,450
HSBC Bank USA 



 



 
Level 1 53,409
72,931
 46,443
65,131
53,409
72,931
Level 2a 14,995
14,995
 13,690
13,690
14,995
14,995
Level 2b 10
10
 39
39
10
10
Hang Seng Bank 



 



 
Level 1 21,798
37,525
 20,804
31,091
21,798
37,525
Level 2a 1,474
1,474
 3,287
3,287
1,474
1,474
Level 2b 199
199
 197
197
199
199
Total of HSBC’s other principal entities54



49



 
Level 1 74,239
90,579
 77,958
88,281
74,239
90,579
Level 2a 6,240
6,240
 7,899
7,899
6,240
6,240
Level 2b 226
226
 1,003
1,003
226
226
For footnotes, see page 164.161.

Sources of funding
(Audited)
Our primary sources of funding are customer current accounts and customer savings deposits payable on demand or at short notice. We issue wholesale securities (secured and unsecured) to supplement our customer deposits and change the currency mix, maturity profile or location of our liabilities.
The followingadjacent ‘Funding sources and uses’ table provides a consolidated view of how our balance sheet is funded, and should be read in light of the LFRF, which requires operating entities to manage liquidity and funding risk on a stand-alone basis.
The table analyses our consolidated balance sheet according to the assets that primarily arise from operating activities and the sources of funding primarily supporting these activities. Assets and liabilities that do not arise from operating activities are presented as a net balancing source or deployment of funds.
In 2016,2017, the level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed in liquid assets (cash and balances with central banks and financial investments) as required by the LFRF.
Loans and advances to banks continued to exceed deposits by banks, meaning the Group remained a net unsecured lender to the banking sector.
For a summary of sources and utilisation of repos and stock lending, see the Risk Management section on page 101.

 
Funding sources and uses
 2016
2015
2017
2016
 $m
$m
$m
$m
Sources     
Customer accounts 1,272,386
1,289,586
1,364,462
1,272,386
Deposits by banks 59,939
54,371
69,922
59,939
Repurchase agreements – non-trading 88,958
80,400
130,002
88,958
Debt securities in issue 65,915
88,949
64,546
65,915
Liabilities of disposal groups held for sale 2,790
36,840
1,286
2,790
Subordinated liabilities 20,984
22,702
19,826
20,984
Financial liabilities designated at fair value 86,832
66,408
94,429
86,832
Liabilities under insurance contracts
 75,273
69,938
85,667
75,273
Trading liabilities 153,691
141,614
184,361
153,691
– repos 1,428
442
2,255
1,428
– stock lending 3,643
8,859
8,363
3,643
– settlement accounts 15,271
10,530
11,198
15,271
– other trading liabilities 133,349
121,783
162,545
133,349
Total equity 182,578
197,518
197,871
182,578
At 31 Dec 2,009,346
2,048,326
2,212,372
2,009,346
Uses     
Loans and advances to customers 861,504
924,454
962,964
861,504
Loans and advances to banks 88,126
90,401
90,393
88,126
Reverse repurchase agreements – non-trading 160,974
146,255
201,553
160,974
Assets held for sale 4,389
43,900
781
4,389
Trading assets 235,125
224,837
287,995
235,125
– reverse repos 4,780
438
10,224
4,780
– stock borrowing 5,427
7,118
6,895
5,427
– settlement accounts 17,850
12,127
15,258
17,850
– other trading assets 207,068
205,154
255,618
207,068
Financial investments 436,797
428,955
389,076
436,797
Cash and balances with central banks 128,009
98,934
180,624
128,009
Net deployment in other balance sheet assets and liabilities 94,422
90,590
98,986
94,422
At 31 Dec 2,009,346
2,048,326
2,212,372
2,009,346


HSBC Holdings plc Annual Report and Accounts 2016
142147

Report of the Directors | Risk


Wholesale term debt maturity profile
The maturity profile of our wholesale term debt obligations is set out in the following table ‘Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities’.table.
The balances in the table are not directly comparable with those in the consolidated balance sheet asbecause the table presents gross
cash flows relating to principal payments and not the balance sheet carrying value, which include debt securities and subordinated liabilities measured at fair value.

Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities
 
Due not
more than
1 month

Due over
1 month
but not more than
3 months

Due over
3 months
but not more than
6 months

Due over
6 months
but not more than
9 months

Due over
9 months
but not more
than
1 year

Due over
1 year
but not more than
2 years

Due over
2 years
but not more than
5 years

Due over
5 years

Total
 $m
$m
$m
$m
$m
$m
$m
$m
$m
Debt securities issued7,462
10,110
11,834
6,930
8,043
21,906
43,764
44,164
154,213
– unsecured CDs and CP691
5,906
5,530
3,152
2,384
242
133
12
18,050
– unsecured senior MTNs837
1,706
3,727
2,699
3,580
13,626
30,519
36,240
92,934
– unsecured senior structured notes1,088
1,675
1,389
882
2,066
5,940
8,344
3,885
25,269
– secured covered bonds1,584
—
295
71
—
207
1,357
2,559
6,073
– secured asset-backed commercial paper3,196
—
—
—
—
—
—
—
3,196
– secured ABS11
23
893
126
13
91
908
439
2,504
– others55
800
—
—
—
1,800
2,503
1,029
6,187
Subordinated liabilities13
63
145
—
500
1,775
7,292
32,179
41,967
– subordinated debt securities13
63
145
—
500
1,775
6,881
30,425
39,802
– preferred securities—
—
—
—
—
—
411
1,754
2,165
At 31 Dec 20167,475
10,173
11,979
6,930
8,543
23,681
51,056
76,343
196,180
          
Debt securities issued19,447
11,803
20,565
6,712
5,274
20,150
43,463
27,398
154,812
– unsecured CDs and CP5,830
8,426
11,250
2,944
1,224
955
108
10
30,747
– unsecured senior MTNs4,229
2,240
7,130
2,687
1,711
10,850
27,239
18,407
74,493
– unsecured senior structured notes883
964
1,544
875
2,166
4,158
9,741
5,262
25,593
– secured covered bonds—
—
—
—
—
2,074
1,619
2,577
6,270
– secured asset-backed commercial paper8,414
—
—
—
—
—
—
—
8,414
– secured ABS20
173
195
206
173
313
1,554
114
2,748
– others71
—
446
—
—
1,800
3,202
1,028
6,547
Subordinated liabilities—
816
—
—
34
648
6,826
34,423
42,747
– subordinated debt securities—
—
—
—
34
648
6,338
32,494
39,514
– preferred securities—
816
—
—
—
—
488
1,929
3,233
At 31 Dec 201519,447
12,619
20,565
6,712
5,308
20,798
50,289
61,821
197,559

Analysis of on-balance sheet encumbered and unencumbered assets and off-balance sheet collateral
On-balance sheet encumbered and unencumbered assets
The table on page 148, ‘Analysis of on-balance sheet encumbered and unencumbered assets’, summarises the total on-balance sheet assets capable of supporting future funding and collateral needs, and shows the extent to which they are currently pledged for this purpose. This disclosure aims to facilitate an understanding of available and unrestricted assets that could be used to support potential future funding and collateral needs.
During 2016 cash collateral given and reported within loans and advances to banks and customers, reflecting initial and variable cash margins, was reclassified from ‘unencumbered assets’ to ‘encumbered assets’ to align with our Pillar 3 disclosure. Furthermore a portfolio of mortgages, classified as ‘unencumbered assets’ in 2015 was reclassified to ‘Assets positioned at central banks’ (i.e. pre-positioned plus encumbered) in 2016. Comparative data have been restated.
Under ‘Off-balance sheet collateral’ below we discuss the off-balance sheet collateral received and re-pledged, and the level of available unencumbered off-balance sheet collateral.
For a summary of our policy on collateral management and definition of encumbrance, see the Risk Management section on page 101.
Off-balance sheet collateral
The fair value of assets accepted as collateral that we are permitted to sell or repledge in the absence of default was $269bn at 31 December 2016 (2015: $228bn). The fair value of any such collateral actually sold or re-pledged was $157bn (2015: $150bn). We are obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard reverse repo, stock borrowing and der
ivative transactions.
The fair value of collateral received and re-pledged in relation to reverse repos, stock borrowing and derivatives is reported on a gross basis. The related balance sheet receivables and payables are reported on a net basis where required under IFRS offset criteria. As a consequence of reverse repo, stock borrowing and derivative transactions where the collateral received could be sold or re-pledged but had not been, we held $112bn
(2015: $78bn) of unencumbered collateral available to
support potential future funding and collateral needs at 31 December 2016.
Under the terms of our current collateral obligations under derivative contracts (which are ISDA compliant CSA contracts and contracts entered into for pension obligations), and based on an estimate of the positions at 31 December 2016, we calculate that we could be required to post additional collateral of up to $0.3bn (2015: $0.4bn) in the event of a one-notch downgrade in third-party agencies’ credit rating of HSBC’s debt.
This would increase to $0.8 bn (2015: $0.7bn) in the event of a two-notch downgrade.


143
HSBC Holdings plc Annual Report and Accounts 2016

Encumbered and unencumbered assets
Definitions of the categories included in the table ‘Analysis of on-balance sheet encumbered and unencumbered assets’:
•
‘Assets encumbered as a result of transactions with counterparties other than central banks as a result of covered bonds’ are any assets on our balance sheet pledged against our covered bonds issuance with a counterparty which is not central bank and as a result the assets are unavailable to the bank to secure funding, satisfy collateral needs or be sold to reduce potential future funding requirements.
•
‘Assets encumbered as a result of transactions with counterparties other than central banks as a result of securitisation’ are any assets on our balance sheet pledged against securitisations with a counterparty which is not central bank including asset-backed commercial paper, collateralised debt obligations, residential mortgage-backed securities, or structured investment vehicles paper and as a result the assets are unavailable to the bank to secure funding, satisfy collateral needs or be sold to reduce potential future funding requirements.
•
‘Assets encumbered as a result of transactions with counterparties other than central banks – Other’ are assets on our balance sheet (other than covered bonds and securitisation above) which have been pledged with a counterparty which is not central bank as a collateral against an existing liability, and as a result are assets which are unavailable to the bank to secure funding, satisfy collateral needs or be sold to reduce potential future funding requirements. Examples include assets pledged for sale and repurchase and stock lending transactions and certain property assets.
•
‘Assets positioned at central banks (i.e. pre-positioned plus encumbered)’ are any assets that are eligible for emergency central bank liquidity/funding or under central bank pre-existing arrangements for funding without further due diligence work required. Any transferable customer loan that is central bank eligible such as pre-positioned central bank UK mortgages and US mortgages accepted by the Federal Reserve Bank and assets on our balance sheet which have been pledged with central bank as collateral against an existing liability, and as a result are assets which are unavailable to the bank to secure funding, satisfy collateral needs or be sold to reduce potential future funding requirements.
•
‘Unencumbered – readily available assets’ are assets considered by the bank to be readily available in the normal course of business to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements, and are not subject to any restrictions on their use for these purposes.
•
‘Unencumbered – other assets capable of being encumbered’ are assets where there are no restrictions on their use to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements, but they are not readily realisable in the normal course of business in their current form.
•
‘Unencumbered – reverse repo/stock borrowing receivables and derivative assets’ are assets related specifically to reverse repo, stock borrowing and derivative transactions. They are shown separately as these on-balance sheet assets cannot be pledged but often give rise to the receipt of non-cash assets which are not recognised on the balance sheet, and can additionally be used to raise secured funding, meet additional collateral requirements or be sold.
•
‘Unencumbered – cannot be encumbered’ are assets that have not been pledged and which we have assessed could not be pledged and therefore could not be used to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements. An example is assets held by the Group’s insurance subsidiaries that back liabilities to policyholders and support the solvency of these entities.
Historically, the Group has not recognised any contingent liquidity value for assets other than those assets defined under the LFRF as being liquid assets, and any other negotiable instruments that under stress are assumed to be realisable after three months, even though they may currently be realisable. This approach has generally been driven by our appetite not to place any reliance on central banks. In a few cases, we have recognised the contingent value of discrete pools of assets, but the amounts involved are insignificant. As a result, we have reported the majority of our loans and advances to customers and banks in the category ‘Other realisable assets’ as management would need to perform additional actions in order to make the assets transferable and readily realisable.
Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities
 
Due not
more than
1 month

Due over
1 month
but not more than
3 months

Due over
3 months
but not more than
6 months

Due over
6 months
but not more than
9 months

Due over
9 months
but not more
than
1 year

Due over
1 year
but not more than
2 years

Due over
2 years
but not more than
5 years

Due over
5 years

Total
 $m
$m
$m
$m
$m
$m
$m
$m
$m
Debt securities issued7,502
8,409
9,435
8,132
15,111
13,000
55,347
48,234
165,170
– unsecured CDs and CP1,085
3,636
4,334
3,064
6,132
137
386
277
19,051
– unsecured senior MTNs1,614
2,973
3,047
2,924
5,109
6,564
41,090
39,544
102,865
– unsecured senior structured notes1,298
1,796
2,054
1,935
2,870
4,586
10,156
5,328
30,023
– secured covered bonds—
—
—
209
—
212
2,494
1,655
4,570
– secured asset-backed commercial paper3,479
—
—
—
—
—
—
—
3,479
– secured ABS—
—
—
—
—
—
914
436
1,350
– others26
4
—
—
1,000
1,501
307
994
3,832
Subordinated liabilities3
1,918
74
—
170
2,371
4,077
32,000
40,612
– subordinated debt securities3
1,918
74
—
170
2,371
3,618
30,162
38,315
– preferred securities—
—
—
—
—
—
459
1,838
2,297
At 31 Dec 20177,505
10,327
9,509
8,132
15,281
15,371
59,424
80,234
205,782
          
Debt securities issued7,462
10,110
11,834
6,930
8,043
21,906
43,764
44,164
154,213
– unsecured CDs and CP691
5,906
5,530
3,152
2,384
242
133
12
18,050
– unsecured senior MTNs837
1,706
3,727
2,699
3,580
13,626
30,519
36,240
92,934
– unsecured senior structured notes1,088
1,675
1,389
882
2,066
5,940
8,344
3,885
25,269
– secured covered bonds1,584
—
295
71
—
207
1,357
2,559
6,073
– secured asset-backed commercial paper3,196
—
—
—
—
—
—
—
3,196
– secured ABS11
23
893
126
13
91
908
439
2,504
– others55
800
—
—
—
1,800
2,503
1,029
6,187
Subordinated liabilities13
63
145
—
500
1,775
7,292
32,179
41,967
– subordinated debt securities13
63
145
—
500
1,775
6,881
30,425
39,802
– preferred securities—
—
—
—
—
—
411
1,754
2,165
At 31 Dec 20167,475
10,173
11,979
6,930
8,543
23,681
51,056
76,343
196,180

148
HSBC Holdings plc Annual Report and Accounts 2016144

Report of the Directors | Risk


Analysis of on-balance sheet encumbered and unencumbered assets
 Assets encumbered as a result
of transactions with counterparties
other than central banks		Assets
positioned
at central
banks
(i.e. pre-positioned
plus
encumbered)
Unencumbered assets not
positioned at central banks		Total
 As a
result of
covered bonds
As a
result of
securitisations
Other
Assets readily
available for
encumbrance
Other assets
capable
of being
encumbered
Reverse
repos/stock
borrowing
receivables
and derivative
assets
Assets that
cannot be
encumbered
 $m
$m
$m
$m
$m
$m
$m
$m
$m
Cash and balances at central banks—
—
10
82
123,363
326
—
4,228
128,009
Items in the course of collection from other banks—
—
—
—
—
—
—
5,003
5,003
Hong Kong Government certificates of indebtedness—
—
—
—
—
—
—
31,228
31,228
Trading assets—
—
62,962
2,504
131,420
7,419
10,207
20,613
235,125
– treasury and other eligible bills—
—
981
2,150
11,309
11
—
—
14,451
– debt securities—
—
34,144
354
59,231
318
—
7
94,054
– equity securities—
—
2,645
—
59,394
1,565
—
—
63,604
– loans and advances to banks—
—
10,532
—
1,331
1,910
5,386
5,610
24,769
– loans and advances to customers—
—
14,660
—
155
3,615
4,821
14,996
38,247
Financial assets designated at fair value—
—
—
—
835
20
—
23,901
24,756
– treasury and other eligible bills—
—
—
—
150
—
—
54
204
– debt securities—
—
—
—
442
—
—
3,747
4,189
– equity securities—
—
—
—
243
20
—
20,021
20,284
– loans and advances to banks and customers—
—
—
—
—
—
—
79
79
Derivatives—
—
—
—
—
—
290,872
—
290,872
Loans and advances to banks—
1
3,903
6,719
2,051
50,824
2,045
22,583
88,126
Loans and advances to customers6,258
8,365
10,425
67,208
15,941
732,242
4,027
17,038
861,504
Reverse repurchase agreements – non-trading—
—
—
—
—
—
160,974
—
160,974
Financial investments—
—
16,537
17,983
331,154
10,765
—
60,358
436,797
– treasury and other eligible bills—
—
537
3,766
93,566
1,143
—
214
99,226
– debt securities—
—
16,000
14,217
236,003
7,904
—
58,780
332,904
– equity securities—
—
—
—
1,585
1,718
—
1,364
4,667
Prepayments, accrued income and other assets—
—
2,358
—
8,368
27,099
—
26,084
63,909
Current tax assets—
—
—
—
—
—
—
1,145
1,145
Interest in associates and joint ventures—
—
345
—
62
19,329
—
293
20,029
Goodwill and intangible assets—
—
—
—
—
—
—
21,346
21,346
Deferred tax—
—
—
—
—
—
—
6,163
6,163
At 31 Dec 20166,258
8,366
96,540
94,496
613,194
848,024
468,125
239,983
2,374,986

145
HSBC Holdings plc Annual Report and Accounts 2016

Analysis of on-balance sheet encumbered and unencumbered assets (continued)
 
Assets encumbered as a result
of transactions with counterparties
other than central banks
Assets positioned
at central banks
(i.e. pre- positioned plus encumbered)

Unencumbered assets not
positioned at central banks		Total
 
As a
result of
covered bonds

As a
result of
securitisations

Other
Assets readily
available for
encumbrance

Other assets
capable
of being
encumbered

Reverse
repos/stock
borrowing
receivables
and derivative
assets
Assets that
cannot be
encumbered

 $m
$m
$m
$m
$m
$m
$m
$m
$m
Cash and balances at central banks—
—
—
98
95,545
350
—
2,941
98,934
Items in the course of collection from other banks—
—
—
—
—
—
—
5,768
5,768
Hong Kong Government certificates of indebtedness—
—
—
—
—
—
—
28,410
28,410
Trading assets—
—
56,188
1,573
138,070
8,269
7,520
13,217
224,837
– treasury and other eligible bills—
—
1,099
984
5,618
128
—
—
7,829
– debt securities—
—
25,890
492
72,377
233
—
46
99,038
– equity securities—
—
4,616
—
59,430
2,445
—
—
66,491
– loans and advances to banks—
—
10,410
—
456
2,890
2,763
5,784
22,303
– loans and advances to customers—
—
14,173
97
189
2,573
4,757
7,387
29,176
Financial assets designated at fair value—
—
—
—
1,775
1,244
—
20,833
23,852
– treasury and other eligible bills—
—
—
—
258
—
—
138
396
– debt securities—
—
—
—
1,327
265
—
2,749
4,341
– equity securities—
—
—
—
178
979
—
17,838
18,995
– loans and advances to banks and customers—
—
—
—
12
—
—
108
120
Derivatives—
—
—
—
—
—
288,476
—
288,476
Loans and advances to banks—
1,329
2,900
1,702
2,054
61,602
815
19,999
90,401
Loans and advances to customers6,947
15,288
9,769
64,984
15,730
790,929
1,531
19,276
924,454
Reverse repurchase agreements – non-trading—
—
—
—
—
—
146,255
—
146,255
Financial investments—
—
25,078
8,150
325,101
14,753
—
55,873
428,955
– treasury and other eligible bills—
—
509
3,675
98,866
1,177
—
324
104,551
– debt securities—
—
24,561
4,475
224,355
11,124
—
54,054
318,569
– equity securities—
—
8
—
1,880
2,452
—
1,495
5,835
Prepayments, accrued income and other assets—
—
1,188
—
4,685
65,190
—
27,235
98,298
Current tax assets—
—
—
—
—
—
—
1,221
1,221
Interest in associates and joint ventures—
—
—
—
51
18,794
—
294
19,139
Goodwill and intangible assets—
—
—
—
—
—
—
24,605
24,605
Deferred tax—
—
—
—
—
—
—
6,051
6,051
At 31 Dec 20156,947
16,617
95,123
76,507
583,011
961,131
444,597
225,723
2,409,656
Contractual maturity of financial liabilities
The balances in the table below do not agree directly with those in our consolidated balance sheet as the table incorporates,shows, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for trading liabilities and derivatives not treated as hedging derivatives). For this reason, balances in the table below do not agree directly with those in our consolidated balance sheet. Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Trading liabilities and derivatives not treated as hedging derivatives are included in the ‘On demand’ time bucket and not by contractual maturity.
 
A maturity analysis of repos and debt securities in issue included in trading liabilities is presented in Note 2928 on the Financial Statements.
In addition, loans and other credit-related commitments, financial guarantees and similar contracts are generally not recognised on our balance sheet. The undiscounted cash flows potentially payable under loan and other credit-related commitments, and financial guarantees and similar contracts are classified on the basis of the earliest date they can be called. Application of this policy throughout the Group was improved in 2017, and therefore comparative information has been represented.


HSBC Holdings plc Annual Report and Accounts 2016
146

Report of the Directors | Risk


Cash flows payable by HSBC under financial liabilities by remaining contractual maturities
(Audited)

On
demand
Due within
3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years

$m
$m
$m
$m
$m
Deposits by banks48,247
10,596
1,877
7,814
1,508
Customer accounts1,159,962
153,018
44,348
7,238
675
Repurchase agreements – non-trading20,550
106,236
2,270
1,085
—
Trading liabilities184,361
—
—
—
—
Financial liabilities designated at fair value715
1,249
7,117
39,596
59,428
Derivatives212,797
219
1,221
3,170
1,506
Debt securities in issue11
12,624
21,066
25,654
11,092
Subordinated liabilities3
2,227
841
7,011
21,775
Other financial liabilities48,407
18,780
3,701
1,994
1,314

1,675,053
304,949
82,441
93,562
97,298
Loan and other credit-related commitments570,132
96,670
9,176
7,261
2,350
Financial guarantees and similar contracts16,712
4,029
10,410
5,856
1,321
At 31 Dec 20172,261,897
405,648
102,027
106,679
100,969
Proportion of cash flows payable in period76%
14%
3%
4%
3%
      
Deposits by banks40,277
10,222
3,284
5,233
1,033
Customer accounts1,079,866
145,932
38,273
8,676
559
Repurchase agreements – non-trading18,134
66,801
2,929
1,048
—
Trading liabilities153,691
—
—
—
—
Financial liabilities designated at fair value1,307
2,265
5,003
34,707
61,929
Derivatives274,283
287
1,129
2,472
1,727
Debt securities in issue9
13,118
19,492
29,487
8,089
Subordinated liabilities1
400
1,378
10,302
21,552
Other financial liabilities45,569
15,844
3,050
1,525
843

1,613,137
254,869
74,538
93,450
95,732
Loan and other credit-related commitments554,801
84,800
8,162
6,865
1,216
Financial guarantees and similar contracts12,608
4,647
10,301
8,138
1,378
At 31 Dec 20162,180,546
344,316
93,001
108,453
98,326
Proportion of cash flows payable in period78%
12%
3%
4%
3%
Cash flows payable by HSBC under financial liabilities by remaining contractual maturities
(Audited)

On
demand
Due within
3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years

$m
$m
$m
$m
$m
Deposits by banks40,277
10,222
3,284
5,233
1,033
Customer accounts1,079,866
145,932
38,273
8,676
559
Repurchase agreements – non-trading18,134
66,801
2,929
1,048
—
Trading liabilities153,691
—
—
—
—
Financial liabilities designated at fair value1,307
2,265
5,003
34,707
61,929
Derivatives274,283
287
1,129
2,472
1,727
Debt securities in issue9
13,118
19,492
29,487
8,089
Subordinated liabilities1
400
1,378
10,302
21,552
Other financial liabilities45,569
15,844
3,050
1,525
843

1,613,137
254,869
74,538
93,450
95,732
Loan and other credit-related commitments410,950
95,751
63,729
57,019
28,395
Financial guarantees and similar contracts12,608
4,647
10,301
8,138
1,378
At 31 Dec 20162,036,695
355,267
148,568
158,607
125,505
      
Deposits by banks42,182
6,643
1,452
4,029
107
Customer accounts1,076,595
160,368
43,289
10,964
263
Repurchase agreements – non-trading13,181
64,109
2,144
535
543
Trading liabilities141,614
—
—
—
—
Financial liabilities designated at fair value327
4,077
6,149
24,642
41,365
Derivatives276,141
255
970
1,721
1,652
Debt securities in issue377
25,910
23,886
35,499
6,993
Subordinated liabilities—
803
971
10,151
28,132
Other financial liabilities59,298
17,476
7,226
10,188
1,014

1,609,715
279,641
86,087
97,729
80,069
Loan and other credit-related commitments425,000
93,149
73,115
60,078
15,089
Financial guarantees and similar contracts12,579
5,727
15,091
9,915
2,805
At 31 Dec 20152,047,294
378,517
174,293
167,722
97,963
HSBC Holdings
Liquidity risk in HSBC Holdings is overseen by Holdings ALCO. This risk arises because of HSBC Holdings’ obligation to make payments to debt holders as they fall due.due and to pay its operating expenses. The liquidity risk related to these cash flows is managed by matching external debt obligations with internal loan cash flows and by maintaining an appropriate liquidity buffer that is monitored by Holdings ALCO.
The balances in the table below are not directly comparable with those on the balance sheet of HSBC Holdings as the table
incorporates, on an undiscounted basis, all cash flows relating
to principal and future coupon payments (except for derivatives not treated as hedging derivatives). Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Derivatives not treated as hedging derivatives are included in the ‘On demand’ time bucket.
In addition, loan commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The undiscounted cash flows potentially payable under financial guarantees and similar contracts are classified on the basis of the earliest date on which they can be called.


147
HSBC Holdings plc Annual Report and Accounts 2016

Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities
(Audited)
 
On
demand

Due within
3 months

Due between
3 and 12 months

Due between
1 and 5 years

Due after
5 years

 $m
$m
$m
$m
$m
Amounts owed to HSBC undertakings—
2,051
—
105
—
Financial liabilities designated at fair value—
314
960
11,964
25,665
Derivatives3,841
—
—
592
592
Debt securities in issue—
157
478
8,393
19,164
Subordinated liabilities—
196
598
4,461
20,899
Other financial liabilities—
1,343
164
—
—
 3,841
4,061
2,200
25,515
66,320
Loan commitments—
—
—
—
—
Financial guarantees and similar contracts7,619
—
—
—
—
At 31 Dec 201611,460
4,061
2,200
25,515
66,320
      
Amounts owed to HSBC undertakings257
1,375
424
110
—
Financial liabilities designated at fair value—
1,145
655
5,202
20,779
Derivatives2,065
—
—
213
—
Debt securities in issue—
15
47
250
1,176
Subordinated liabilities—
229
699
5,149
25,474
Other financial liabilities—
1,426
152
—
—
 2,322
4,190
1,977
10,924
47,429
Loan commitments—
—
—
—
—
Financial guarantees and similar contracts68,333
—
—
—
—
At 31 Dec 201570,655
4,190
1,977
10,924
47,429

HSBC Holdings plc Annual Report and Accounts 2016
148149

Report of the Directors | Risk


Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities
(Audited)
 On
demand
Due within
3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
 $m
$m
$m
$m
$m
Amounts owed to HSBC undertakings—
2,525
46
—
—
Financial liabilities designated at fair value—
286
875
16,554
19,465
Derivatives2,008
—
—
293
781
Debt securities in issue—
232
1,787
13,975
26,452
Subordinated liabilities—
2,113
537
2,852
20,944
Other financial liabilities—
849
200
—
—
 2,008
6,005
3,445
33,674
67,642
Loan commitments—
—
—
—
—
Financial guarantees and similar contracts7,778
—
—
—
—
At 31 Dec 20179,786
6,005
3,445
33,674
67,642
      
Amounts owed to HSBC undertakings—
2,051
—
105
—
Financial liabilities designated at fair value—
314
960
11,964
25,665
Derivatives3,841
—
—
592
592
Debt securities in issue—
157
478
8,393
19,164
Subordinated liabilities—
196
598
4,461
20,899
Other financial liabilities—
1,343
164
—
—
 3,841
4,061
2,200
25,515
66,320
Loan commitments—
—
—
—
—
Financial guarantees and similar contracts7,619
—
—
—
—
At 31 Dec 201611,460
4,061
2,200
25,515
66,320
Market risk profile
 Page
Market risk in 20162017152
150
Trading portfolios152
150
Non-trading portfolios153
151
Market risk balance sheet linkages154
152
Structural foreign exchange exposures154
153
Net interest income sensitivity155
153
Sensitivity of capital and reserves156
154
Third-party assets in BSMBalance Sheet Management156
154
Defined benefit pension schemes156
154
Additional market risk measures
applicable only to the parent company
156
154


Market risk in 20162017
Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices, will reduce our income or the value of our portfolios. Exposure to market risk is separated into two portfolios:
trading portfolios; and
non-trading portfolios.
Market risk exposures arising from our insurance manufacturing operations are discussed on page 115.118.
A summary of our current policies and practices regarding the management of market risk is set out on page 110.115.
Global markets were influenced by positive global growth forecasts and broadly accommodative monetary policies. Although bond yields have started to increase, yield curves remain low and flat by historical standards. Outside of the increase in US and UK, where central banks started to raise interest rates, other key central banks kept reference interest rates unchanged.
Realised and implied volatilities also remain low by historical standards, despite various geopolitical tensions that create uncertainty for markets. The impact of these risks on markets, in line withparticular China, where debt levels remain high, did not crystallise into significant market expectation. Bond yields continued to rise and global stockmoves or volatility during 2017.

Equity markets continued to bereach new highs into the year end, in both developed and emerging markets, supported by expectations of fiscal expansion inrobust earnings forecasts.
The EU and UK have agreed to move to the US in the wakenext phase of the new US presidential elections. The US monetary tightening contrasts with‘Brexit’ talks, however the ECB extending its quantitative easing programme, highlightingongoing uncertainty regarding the divergence in monetary policies
during the year.
In China, the prospect of a slowdown in the economy in the first half of 2016, and uncertainty around the trade relationship with the US, following the elections, led to further depreciationterms of the renminbi. Chinese policymakers will attempt to keep this process gradual in order to avoid disruptive capital outflows.
In the UK, following the decision to leaveexit from the EU concerns persist about the upcoming exit negotiations and the ultimate nature of the EU-UK relationship.
Capital flows to the emerging markets remained weak, with some central banks increasing local interest rates to reduce reserve outflows.remains.
Trading value at risk (‘VaR’) spiked in quarter one, dueended the year higher when compared to higher market volatility impacting the foreign exchangeprevious year. The trading VaR composition changed during the year, where equity and credit spread trading VaR increased relative to interest rate VaR. The increases in equity and credit spread trading VaR during 2H17 has resulted in these asset classes. Forclasses becoming major contributors to the remainder ofoverall trading VaR, in addition to interest rate risk trading VaR.
Non-trading interest rate VaR ended the year lower when compared to the previous year. In 1H17 non-trading interest rate VaR decreased as exposures in all asset classes were managed down. Non-trading VaR increaseddown and was largely range bound during the year as higher interest rates, especially in US dollars, caused the duration of non-trading assets to increase.2H17.

Trading portfolios
Value at risk of the trading portfolios
Trading VaR predominantly resides within Global Markets. ItMarkets wheretrading VaR was relatively stablehigher at 31 December 20162017 compared with 31 December 2015. During the year,2016. In 1H17, the trading VaR composition changedfrom the credit spread asset class increased reflecting larger exposures. This was partly offset by a reduction in thatthe interest rate asset class, from modelling enhancements, which led to an improved measure.
In 2H17, trading VaR increased but was offset by decreases in bothfrom two asset classes: credit spread and equity. The increase in the credit spread trading VaR was driven by increased exposures and changes to the calibration of benchmark curves used for lower rated trading portfolios. The change in equity trading VaR components.was from fluctuations in dividend and correlation exposures. These increases into year-end in the VaR measures for these asset classes were partially offset by a reduction in the interest rates asset class VaR.

150HSBC Holdings plc

The daily levels of total trading VaR over the last year are set out in the graph below.

Daily VaR (trading portfolios), 99% 1 day ($m)
a3arafinanci_chart-40909.jpg
a3arafinanci_chart-40909.jpg
Trading VaR
IR trading
Equity trading
CS trading
FX trading
Diversification


149
HSBC Holdings plc Annual Report and Accounts 2016

The Group trading VaR for the year is shown in the table below.
        
 Trading VaR, 99% 1 day55
 (Audited)      
  
Foreign
exchange (FX)
and commodity

Interest
rate (IR)

Equity (EQ)
Credit
spread (CS)

Portfolio diversification52

Total53

  $m
$m
$m
$m
$m
$m
 Balance at 31 Dec 20168.9
49.7
11.8
5.9
(23.5)52.8
 Average11.1
42.8
20.4
13.5
(30.3)57.5
 Maximum16.9
64.2
32.4
28.1


91.5
 Minimum5.4
31.8
11.8
5.0


42.1
        
 Balance at 31 Dec 20158.0
34.9
21.4
13.9
(24.9)53.3
 Average14.7
46.0
19.6
15.5
(35.7)60.1
 Maximum25.4
57.0
29.0
23.3


77.9
 Minimum6.3
32.6
11.9
9.8


47.5
Trading VaR, 99% 1 day50
(Audited)      
 
Foreign
exchange (FX)
and commodity

Interest
rate (IR)

Equity (EQ)
Credit
spread (CS)

Portfolio diversification51

Total52

 $m
$m
$m
$m
$m
$m
Balance at 31 Dec 20177.4
30.8
32.6
31.1
(38.2)63.7
Average10.4
38.2
16.7
15.4
(32.9)47.8
Maximum23.0
67.1
32.6
31.8


70.8
Minimum4.9
27.2
9.1
5.1


36.6
       
Balance at 31 Dec 20168.9
49.8
11.8
5.9
(23.5)52.8
Average11.1
42.8
20.4
13.5
(30.3)57.5
Maximum16.9
64.2
32.4
28.1


91.5
Minimum5.4
31.8
11.8
5.0


42.1
For footnotes, see page 164.161.
Back-testing
In 2016,2017, the Group experienced two back-testing exceptions against hypothetical profit and loss:loss in December: a loss exception, in February, driven by Libor against overnight index spread widening on long positions;a margin loan; and a profit exception, in June, driven by significant devaluationsgains on Japanese yen cross currency swaps, and gains in sterling and the euro against the US dollar resulting from the UK’s referendum on EU membership.strategic foreign exchange hedges.
There was no evidence of model errors or control failures.
The back-testing result excludes exceptions due to changes in fair value adjustments.

Non-trading portfolios
Value at risk of the non-trading portfolios
Non-trading VaR of the Group includes contributions from all global businesses. There is no commodity risk in the non-trading portfolios. The increase in non-trading VaR during 2016 was due primarily to the lengthening of the durationgradual reduction in the non-trading book from higher interest rates, especially US rates.
The increase in non-trading interest rate VaR was offset by a decreasedue to de-risking the banking book in the credit spread VaR component and an increase in portfolio diversification effects.2017.
Non-trading VaR includes the interest rate risk in the banking book transferred to and managed by Balance Sheet Management (‘BSM’) and the non-trading financial instruments held by BSM. The management of interest rate risk in the banking book and the role of BSM are described further in Interest rate risk in the banking book section below.
Non-trading VaR excludes the insurance operations which are discussed further on page 159156 and the interest rate risk in the banking book arising from HSBC Holdings.

HSBC Holdings plc
151

Report of the Directors | Risk

The daily levels of total non-trading VaR over the last year are set out in the graph below.

Daily VaR (non-trading portfolios), 99% 1 day ($m)
a3arafinanci_chart-46871.jpg
a3arafinanci_chart-46871.jpg
Non-trading VaR
IR non-trading
CS non-trading
Diversification


HSBC Holdings plc Annual Report and Accounts 2016
150

Report of the Directors | Risk


The Group non-trading VaR for the year is shown in the table below.
Non-trading VaR, 99% 1 day(Audited)
Interest
rate (IR)

Credit
spread (CS)

Portfolio
diversification52

Total53

Interest
rate (IR)

Credit
spread (CS)

Portfolio
diversification51

Total52

$m
$m
$m
$m
$m
$m
$m
$m
Balance at 31 Dec 201788.5
46.7
(38.9)96.3
Average119.0
46.1
(36.9)128.2
Maximum164.1
71.9


183.8
Minimum88.5
24.5


93.3
 
Balance at 31 Dec 2016157.0
46.5
(32.1)171.4
157.0
46.5
(32.1)171.4
Average131.6
52.8
(32.1)152.3
131.6
52.8
(32.1)152.2
Maximum171.9
82.8


182.1
171.9
82.8
 182.1
Minimum100.2
36.9


123.3
100.2
36.9
 123.3
 
Balance at 31 Dec 2015114.1
72.7
(54.0)132.8
Average97.5
65.7
(42.0)121.2
Maximum131.5
89.4
 156.8
Minimum70.5
52.1
 91.5
For footnotes, see page 164.161.
Non-trading VaR excludes equity risk on available-for-sale securities, structural foreign exchange risk and interest rate risk on fixed-rate securities issued by HSBC Holdings. This section and the sections below describe the scope of HSBC’s management of market risks in non-trading books.
Equity securities classified as available for sale
Fair value of equity securities(Audited)
 2016
2015
 2017
2016
Footnotes$bn
$bn
Footnotes$bn
$bn
Private equity holdings581.2
1.9
531.0
1.2
Investment to facilitate ongoing business591.5
1.9
541.6
1.5
Other strategic investments 2.0
2.1
 1.3
2.0
At 31 Dec 4.7
5.9
 3.9
4.7
For footnotes, see page 164.161.
The table above sets out the maximum possible loss on shareholders’ equity from available-for-sale equity securities. The fair value of equity securities classified as available for sale reduced from $5.9bn$4.7bn to $4.7bn.$3.9bn. The decrease in private equity holdings was largely due to fund distributions and the reclassification of the investment in certain funds as an associate investment. The decrease in business facilitation equities‘Other strategic investments’ was largely due to the sale of thetwo investments: Visa investment.and First Data.

Market risk balance sheet linkages
Below are the balance sheet lines in the Group’s consolidated position that are subject to market risk.
Trading assets and liabilities
The Group’s trading assets and liabilities are in almost all cases originated by GB&M. These assets and liabilities are treated as traded risk for the purposes of market risk management, other than a limited number of exceptions, primarily in Global Banking where the short-term acquisition and disposal of the assets are linked to other non-trading related activities such as loan origination.
Derivative assets and liabilities
We undertake derivative activity for three primary purposes: to create risk management solutions for clients, to manage the portfolio risks arising from client business, and to manage and hedge our own risks. Most of our derivative exposures arise from sales and trading activities within GB&M, and are treated as traded risk for market risk management purposes.
The assets and liabilities included in trading VaR give rise to a large proportion of the income included in net trading income. As set out on page 216,212, HSBC’s net trading income in 20162017 was $9,452m (2015: $8,723m)$7,719m (2016: $9,452m). Adjustments to trading income such as valuation adjustments do not feedaffect the trading VaR model.
For information on the accounting policies applied to financial instruments at fair value, see Note 13 on the Financial Statements.

152HSBC Holdings plc

Structural foreign exchange exposures
For our policies and procedures for managing structural foreign exchange exposures, see page 111115 of the Risk management section.
HSBC’s structuralStructural foreign exchange exposures are represented by therepresent net asset value of its foreign exchange equity and subordinated debt investments in subsidiaries, branches joint ventures and associates, with non-US dollarthe functional currencies. Gains or lossescurrencies of which are currencies other than the US dollar. Exchange differences on structural foreign exchange exposures are recognised in other‘Other comprehensive income.income’.
Net structural foreign exchange exposures
2016
2015
2017
2016
$m
$m
$m
$m
Currency of structural exposure

  
Pound sterling1
37,039
27,527
Hong Kong dollars32,472
28,270
33,992
32,472
Pound sterling1
27,527
32,701
Chinese renminbi24,504
24,117
27,968
24,504
Euros17,397
19,966
20,269
17,397
Indian rupees3,901
3,645
4,286
3,901
Mexican pesos3,826
4,228
4,270
3,826
Canadian dollars3,734
3,595
4,241
3,734
Saudi riyals3,690
3,109
3,971
3,690
Swiss francs2,226
2,642
Malaysian ringgit2,079
1,994
2,461
2,079
Singapore dollars2,433
1,995
UAE dirhams2,073
1,898
2,054
2,073
Singapore dollars1,995
1,454
Australian dollars1,892
1,667
Taiwanese dollars1,753
1,702
1,877
1,753
Australian dollars1,667
1,396
Indonesian rupiah1,439
1,303
1,845
1,439
Korean won1,260
1,296
1,423
1,260
Swiss francs950
2,226
Turkish lira778
734
Thai baht766
736
Argentine pesos860
875
753
860
Brazilian real755
2,865
745
755
Turkish lira734
1,006
Thai baht736
662
Others, each less than $700m5,728
6,038
5,623
5,728
At 31 Dec140,356
144,762
159,636
140,356
1During 2016,At 31 December, we entered into newmaintained forward foreign exchange contracts amounting to $1.5bn (2015: $2.6bn)of $5bn (2016: $5bn) in order to manage our sterling structural foreign exchange exposure.
Shareholders’ equity would decrease by $2,247m (2015: $2,633m)$2,659m (2016: $2,247m) if euro and sterling foreign currency exchange rates weakened by 5% relative to the US dollar.



151
HSBC Holdings plc Annual Report and Accounts 2016

Net interest income sensitivity
These disclosures have been enhanced in order to show sensitivity effects above one year. The following table setstables set out the assessed impact on ourto a hypothetical base case projectedprojection of our net interest income (‘NII’) for 2016(excluding insurance) under the following scenarios:
(excluding insurance) of a series of four quarterly parallel shocks of 25 basis points to the current market-implied path of interest rates worldwideacross all currencies at the beginning of each quarter from 1 January 2017.2018 (effect over 1 year);
an immediate shock of 25 basis points to the current market-implied path of interest rates across all currencies on 1 January 2018 (effects over 1 year and 5 years); and
an immediate shock of 100 basis points to the current market-implied path of interest rates across all currencies on 1 January 2018 (effects over 1 year and 5 years).
The sensitivities shown represent our assessment as toof the change in expectedto a hypothetical base case netNII, assuming a static balance sheet and no management actions from BSM. They incorporate the effect of interest incomerate behaviouralisation, managed rate product pricing assumptions and customer behaviour, for example, prepayment of mortgages or customer migration from non-interest bearing to interest bearing deposit accounts under the twospecific interest rate scenarios, assuming that all other non-interest rate risk variables remain constant, and there are no management actions. In deriving our base case net interest income projections, the repricing rates of assets and liabilities used are derived from current yield curves, thereby reflecting current market expectations of the future path of interest rates.scenarios. The scenarios therefore represent interest rate shocks to the current market implied path of rates.
The NII sensitivities shown are indicative and based on simplified scenarios, includingscenarios. A sequence of four quarterly 25 bps rises would increase projected net interest income for 2018 by $2,178m (2017: $1,709), while a sequence of four quarterly 25bps falls would decrease projected net interest income in 2018 by $2,492, (2017: $2,409). These figures reflect a reassessment of assumptions from those used in 2017.
The structural sensitivity arising from the assumptionfour global businesses, excluding Global Markets, is positive in a rising rate environment and negative in a falling rate environment. Both BSM and Global Markets have NII sensitivity profiles that offset this to some degree. The tables do not include BSM management actions or changes in Global Markets’ net trading income that may further limit the balance sheet size and structure remains static, other than instances where the size of the balances or repricing is deemed interest rate sensitive (non-interest bearing current account migration and fixed rate loan early prepayment) and where non-traded VaR is assumed to contractually run off. offset.
The limitations of this analysis are discussed within the ‘Risk management’ section on page 101.116.
Assuming no management response, a sequence of such rises (‘up-shock’) would increase expected net interest income for 2016 by $1,709m (2015: $1,251m), while a sequence of such falls (‘down-shock’) would decrease planned net interest income by $2,406m (2015: $2,258m).
The NII sensitivity of the Group can be split into three key components: the structural sensitivity arising from the four global businesses excluding BSM and Markets, the sensitivity of the funding of the trading book (Markets) and the sensitivity of BSM.
The structural sensitivity is positive in a rising rate environment and negative in a falling rate environment. The sensitivity of
the funding of the trading book is negative in a rising rate environment and positive in a falling rate environment, and in terms of the impact on profit the change in NII would be expected to be offset by a similar change in net trading income. The sensitivity of BSM will depend on its position. Typically, assuming no management response, the sensitivity of BSM is negative in a rising rate environment and positive in a falling rate environment.
The NII sensitivity figures also incorporate the effect of any interest rate behaviouralisation applied and the effect of any assumed repricing across products under the specific interest rate scenario. They do not incorporate the effect of any management decision to change the HSBC balance sheet composition.
The NII sensitivity in BSM arises from a combination of the techniques that BSM use to mitigate the transferred interest rate risk and the methods they use to optimise net revenues in line with their defined risk mandate. The figures in the table below do not incorporate the effect of any management decisions within BSM, but in reality it is likely that there would be some short-term adjustment in BSM positioning to offset the NII effects of the specific interest rate scenario where necessary.
The NII sensitivity arising from the funding of the trading book is comprised of the expense of funding trading assets, while the revenue from these trading assets is reported in net trading income. This leads to an asymmetry in the NII sensitivity figures which is cancelled out in our global business results, where we include both net interest income and net trading income. It is likely, therefore, that the overall effect on profit before tax of the funding of the trading book will be much less pronounced than the figures in the following table.

         
 Net interest income sensitivity60
 
 (Audited)
  
US dollar
bloc
$m

Rest of
Americas
bloc
$m

Hong Kong
dollar
bloc
$m

Rest of
Asia
bloc
$m

Sterling
bloc
$m

Euro
bloc
$m

Total
$m

 Change in 2016 net interest income arising from
a shift in yield curves of:













 +25 basis points at the beginning of each quarter605
47
504
280
61
212
1,709
 –25 basis points at the beginning of each quarter(1,024)(41)(797)(292)(261)9
(2,406)
 














 Change in 2015 net interest income arising from
a shift in yield curves of:













 +25 basis points at the beginning of each quarter410
72
217
369
135
49
1,251
 –25 basis points at the beginning of each quarter(691)(74)(645)(290)(528)(30)(2,258)
For footnote, see page 164.
Net interest income sensitivity (12 months)
(Audited)
 US dollar
HK dollar
Sterling
Euro
Other
Total
 $m
$m
$m
$m
$m
$m
Change in 2018 net interest income arising from a shift in yield curves of:











+25 basis points at the beginning of each quarter563
511
407
249
448
2,178
-25 basis points at the beginning of each quarter(821)(789)(494)17
(405)(2,492)













Change in 2017 net interest income arising from a shift in yield curves of:











+25 basis points at the beginning of each quarter577
504
61
153
414
1,709
-25 basis points at the beginning of each quarter(985)(797)(261)9
(372)(2,406)
We expect NII to rise
NII sensitivity to an instantaneous change in yield curves (12 months)
       
 Currency 
 US dollar
HK dollar
Sterling
Euro
Other
Total
 $m
$m
$m
$m
$m
$m
+25bps parallel227
179
147
50
203
806
-25bps parallel(287)(305)(181)8
(160)(925)
+100bps parallel845
711
600
412
731
3,299
-100bps parallel(1,444)(1,425)(631)31
(732)(4,201)
The net interest income sensitivities arising from the scenarios presented in the rising rate scenario and fall in the falling rate scenario.tables above are not directly comparable. This is due to a structural mismatch between ourtiming differences relating to interest rate changes and the repricing of assets and liabilities (on balance we would expect our assets to reprice more quickly, and to a greater extent, than our liabilities).liabilities.
Economic value of equity
The table below sets out the assessed impact on our base case economic value of equity (‘EVE’) of an immediate parallel
upward shock of 200 basis points (‘bps’) (up 200bps) and an immediate parallel downward shock of 200 basis points (down 200bps) to the market-implied path of interest rates worldwide on 1 January 2017.
The economic value of equity remains higher than the book value of equity under base case, up 200bps and down 200bps scenarios.


HSBC Holdings plc Annual Report and Accounts 2016
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Report of the Directors | Risk


Economic value of equity
 US dollar
bloc
Rest of
Americas
bloc
Hong Kong
dollar
bloc
Rest of
Asia
bloc
Sterling
bloc
Euro
bloc
Total
 $m
$m
$m
$m
$m
$m
$m
Change in economic value of equity as at 31 Dec 2016
arising from an immediate shift in yield curves of:






+200 basis points1,616
(596)1,492
(103)(684)(597)1,128
–200 basis points(7,455)531
(2,591)(159)(792)58
(10,408)
NII sensitivity to an instantaneous change in yield curves (5 years)
       
 Year 1
Year 2
Year 3
Year 4
Year 5
Total
 $m
$m
$m
$m
$m
$m
+25bps parallel806
1,153
1,326
1,439
1,507
6,231
-25bps parallel(925)(872)(1,154)(1,271)(1,381)(5,603)
+100bps parallel3,299
4,463
5,105
5,472
5,759
24,098
-100bps parallel(4,201)(4,538)(5,102)(5,498)(5,813)(25,152)
Sensitivity of capital and reserves
Under CRD IV, available-for-sale (‘AFS’) reserves are included as part of CET1 capital. We measure the potential downside risk to the CET1 ratio due to interest rate and credit spread risk in the AFS portfolio byusing the portfolio’s stressed VaR, usingwith a 99% confidence level and an assumed holding period of one quarter. At December 2016,2017, the stressed VaR of the portfolio was
$3.2bn. $2.6bn (2016: $3.2bn).
We monitor the sensitivity of reported cash flow hedging reserves to interest rate movements on a monthly basis by assessing the
 
assessing the expected reduction in valuation of cash flow hedges due to parallel movements of plus or minus 100bps in all yield curves. These particular exposures form only a part of our overall interest rate exposure.
The following table describes the sensitivity of our cash flow hedge reported reserves to the stipulated movements in yield curves and the maximum and minimum month-end figures during the year. The sensitivities are indicative and based on simplified scenarios.

Sensitivity of cash flow hedging reported reserves to interest rate movements
 
Maximum
impact

Minimum
impact

 
Maximum
impact

Minimum
impact

$m
$m
$m
$m
$m
$m
At 31 Dec 2017





+100 basis point parallel move in all yield curves(684)(839)(684)
As a percentage of total shareholders’ equity(0.36)%
(0.44)%
(0.36)%
-100 basis point parallel move in all yield curves720
860
720
As a percentage of total shareholders’ equity0.38%
0.45%
0.38%







At 31 Dec 2016











+100 basis point parallel move in all yield curves(1,051)(1,173)(1,051)(1,051)(1,173)(1,051)
As a percentage of total shareholders’ equity(0.6)%(0.7)%(0.6)%(0.6)%
(0.7)%
(0.60)%
–100 basis point parallel move in all yield curves1,080
1,080
1,145
-100 basis point parallel move in all yield curves1,080
1,145
1,080
As a percentage of total shareholders’ equity0.6%0.6%0.7%0.6%
0.7%
0.60%







At 31 Dec 2015





+100 basis point parallel move in all yield curves(1,235)(1,259)(1,137)
As a percentage of total shareholders’ equity(0.66)%(0.67)%(0.60)%
–100 basis point parallel move in all yield curves1,224
1,232
1,133
As a percentage of total shareholders’ equity0.65%0.65%0.60%
Third-party assets in Balance Sheet Management
For our BSM governance framework, see page 112116 of ‘Risk management’.
Third-party assets in BSM increased by 9%1% during 2016. Deposits with2017. Cash and balances at central banks increased by $28bn,$52bn, predominantly in North AmericaEurope as a result of Financial investment maturities and disposals.
Financial investments decreased by $50bn, predominantly in Europe, due to deployment of increased commercial surplus, partly offset byalong with a decrease in the UK due to foreign exchange movements as sterling depreciated against the US dollar.
Financial investments increased by $17bn due to increases in Europe and Asia, as commercial surplus waswhere funds were deployed into government bonds.other business lines.
Third-party assets in Balance Sheet Management
2016
2015
2017
2016
$m
$m
$m
$m
Cash and balances at central banks98,996
71,116
161,715
110,052
Trading assets414
639
637
414
Loans and advances:



– to banks37,287
42,059
36,047
38,188
– to customers2,564
2,773
3,202
2,564
Reverse repurchase agreements35,143
29,760
38,842
35,143
Financial investments352,419
335,543
309,908
360,315
Other4,555
4,277
4,648
4,839
At 31 Dec531,378
486,167
554,999
551,515

Defined benefit pension schemes
Market risk arises within our defined benefit pension schemes to the extent that the obligations of the schemes are not fully matched by assets with determinable cash flows.
For details of our defined benefit schemes, including asset allocation, see Note 5 on the Financial Statements, and for pension risk management see page 117.120.

Additional market risk measures applicable only to the parent company
The principal tools used in the management of market risk areHSBC Holdings uses VaR forto monitor and manage foreign exchange risk. In order to manage interest rate risk, andHSBC Holdings uses the projectedproject sensitivity of HSBC Holdings’its net interest income to future changes in yield curves and the interest rate gap repricing tables for interest rate risk.tables.

154HSBC Holdings plc

Foreign exchange risk
Total foreign exchange VaR arising within HSBC Holdings in 20162017 was as follows:follows.
HSBC Holdings – foreign exchange VaR
2016
2015
2017
2016
$m
$m
$m
$m
At 31 Dec32.1
45.6
78.9
32.1
Average44.4
42.3
86.1
44.4
Minimum32.1
32.9
74.9
32.1
Maximum58.2
47.1
101.2
58.2
The foreign exchange risk largely arises from loans to subsidiaries of a capital nature that are not denominated in the functional currency of either the provider or the recipient and which are accounted for as financial assets.assets, and from structural foreign exchange hedges. Changes in the carrying amount of these loans due to foreign exchange rate differences, and changes in the fair value of foreign
exchange hedges are taken directly to HSBC Holdings’ income


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HSBC Holdings plc Annual Report and Accounts 2016

statement. These loans, and most of the associated foreign exchange exposures, are eliminated on consolidation.
Sensitivity of net interest income
HSBC Holdings monitors NII sensitivity over a five-year time horizon reflecting the longer-term perspective on interest rate risk management appropriate to a financial services holding company. These sensitivities assume that any issuance where HSBC Holdings has an option to reimburse at a future call date is called at this date. The table below sets out the effect on
HSBC Holdings’ future NII over a five-year time horizon of incremental 25 basis point parallel falls or rises in all yield curves worldwide at the beginning of each quarter during the 12 months from 1 January 2016.2018.
Assuming no management actions, a sequence of such rises would increase plannedunder the scenarios outlined above, base case NII for the next five years would increase by $746m (2015:$981m (2017: increase of $247m), while a sequence of such falls would$746m) under rising rates, and decrease planned NII by $723m (2015:$904m (2017: decrease of $266m).$723m) under falling rates.

Sensitivity of HSBC Holdings’ net interest income to interest rate movements
 US dollar
Sterling
Euro
Total
 $m
$m
$m
$m
Change in projected net interest income as at 31 Dec arising from a shift in yield curves    
2018    
of +25 basis points at the beginning of each quarter







0-1 year86
9
(13)82
2-3 years362
39
41
442
4-5 years365
41
52
458
of -25 basis points at the beginning of each quarter







0-1 year(86)(7)24
(69)
2-3 years(362)(36)7
(391)
4-5 years(365)(41)(38)(444)
     
2017    
of +25 basis points at the beginning of each quarter    
0-1 year84
6
—
90
2-3 years299
20
6
325
4-5 years304
20
8
332
of -25 basis points at the beginning of each quarter







0-1 year(84)(4)—
(88)
2-3 years(299)(13)—
(312)
4-5 years(304)(19)(1)(324)
      
 Sensitivity of HSBC Holdings’ net interest income to interest rate movements60
 
  US dollar bloc
Sterling bloc
Euro bloc
Total
  $m
$m
$m
$m
 Change in projected net interest income as at 31 Dec
arising from a shift in yield curves		    
 2016    
 of +25 basis points at the beginning of each quarter







 0-1 year84
6
0
90
 2-3 years299
20
6
325
 4-5 years304
20
8
332
 of -25 basis points at the beginning of each quarter







 0-1 year(84)(4)—
(88)
 2-3 years(299)(13)—
(312)
 4-5 years(304)(19)(1)(324)
      
 2015    
 of +25 basis points at the beginning of each quarter    
 0-1 year57
15
—
72
 2-3 years118
43
7
168
 4-5 years(23)43
(12)8
 of -25 basis points at the beginning of each quarter







 0-1 year(57)(14)(6)(77)
 2-3 years(118)(43)(22)(183)
 4-5 years23
(43)15
(5)
NII sensitivity to an instantaneous change in yield curves (5 years)
 Year 1
Year 2
Year 3
Year 4
Year 5
Total
 $m
$m
$m
$m
$m
$m
+25bps parallel34
52
52
53
53
244
-25bps parallel(26)(47)(57)(53)(53)(236)
+100bps parallel135
208
210
210
210
973
-100bps parallel(97)(168)(189)(201)(205)(860)
For footnote, see page 164.161.
The interest rate sensitivities tabulated above are indicative and based on simplified scenarios. The figures represent hypothetical movements in NII based on our projected yield curve scenarios, HSBC Holdings’ current interest rate risk profile and assumed changes to that profile during the next five years.
ChangesThe sensitivities represent our assessment of the change to assumptions concerning the risk profile over the next five years can have a significant impacthypothetical base case based on the NII sensitivity for that period. However, the figuresa static balance sheet assumption and do not take into account the effect of actions that could be taken to mitigate this interest rate risk.


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154

Report of the Directors | Risk


Interest rate repricing gap table
The interest rate risk on the fixed-rate securities issued by HSBC Holdings is not included within the Group VaR but is managed
on a repricing gap basis. The interest rate repricing gap table below analyses the full-term structure of interest rate mismatches within HSBC Holdings’ balance sheet.sheet where debt issuances are reflected based on either the next reprice date if floating rate or the maturity/call date, whichever is first, if fixed rate.

Repricing gap analysis of HSBC Holdings
 Total
Up to
1 year

From over 1
to 5 years

From over 5
to 10 years

More than
10 years

Non-interest
 bearing

 $m
$m
$m
$m
$m
$m
Cash at bank and in hand:      
– balances with HSBC undertakings—
—
—
—
—
—
Derivatives2,184
—
—
—
—
2,184
Loans and advances to HSBC undertakings77,680
72,288
279
405
—
4,708
Financial investments in HSBC undertakings3,555
2,675
731
8
—
141
Investments in subsidiaries96,183
—
—
—
—
96,183
Other assets1,488
—
105
—
—
1,383
Total assets181,090
74,963
1,115
413
—
104,599
Amounts owed to HSBC undertakings(2,157)(105)   (2,052)
Financial liabilities designated at fair values(30,145)(1,109)(7,344)(12,588)(6,422)(2,682)
Derivatives(5,018)—
—
—
—
(5,018)
Debt securities in issue(21,824)(4,199)(2,997)(11,708)(3,916)996
Other liabilities(1,628)—
—
—
—
(1,628)
Subordinated liabilities(15,200)—
(3,267)(2,000)(9,445)(488)
Total equity(105,118)—
—
—
—
(105,118)
Total liabilities and equity(181,090)(5,413)(13,608)(26,296)(19,783)(115,990)
Off-balance sheet items attracting interest rate sensitivity (57,089)13,608
26,296
13,441
3,743
Net interest rate risk gap at 31 Dec 2016 12,461
1,115
413
(6,342)(7,647)
Cumulative interest rate gap 12,461
13,576
13,989
7,647
—
       
Cash at bank and in hand:      
– balances with HSBC undertakings242
242
—
—
—
—
Derivatives2,467
—
—
—
—
2,467
Loans and advances to HSBC undertakings44,350
42,661
279
405
—
1,005
Financial investments in HSBC undertakings4,285
2,985
—
731
—
569
Investments in subsidiaries97,770
—
—
—
—
97,770
Other assets1,080
—
109
—
—
971
Total assets150,194
45,888
388
1,136
 102,782
Amounts owed to HSBC undertakings(2,152)(781)—
—
—
(1,371)
Financial liabilities designated at fair values(19,853)(1,741)(3,239)(7,032)(4,312)(3,628)
Derivatives(2,278)—
—
—
—
(2,278)
Debt securities in issue(960)—
—
(963)—
3
Other liabilities(15,895)—
(3,374)(3,500)(9,119)98
Subordinated liabilities(1,642)—
—
—
—
(1,642)
Total equity(107,414)—
—
—
—
(107,414)
Total liabilities and equity(150,194)(2,522)(6,613)(11,495)(13,332)(116,232)
Off-balance sheet items attracting interest rate sensitivity—
(22,748)5,351
10,722
5,763
912
Net interest rate risk gap at 31 Dec 2015—
20,618
(874)363
(7,569)(12,538)
Cumulative interest rate gap—
20,618
19,744
20,107
12,538
—

155
HSBC Holdings plc Annual Report and Accounts 2016
155

Report of the Directors | Risk

Repricing gap analysis of HSBC Holdings
 Total
Up to
1 year

From over
1 to 5 years

From over
5 to 10 years

More than
10 years

Non-interest
 bearing

 $m
$m
$m
$m
$m
$m
Cash at bank and in hand:      
– balances with HSBC undertakings1,985
1,985
—
—
—
—
Derivatives2,388
—
—
—
—
2,388
Loans and advances to HSBC undertakings88,571
63,237
6,027
12,521
3,351
3,435
Financial investments in HSBC undertakings4,264
2,375
—
—
—
1,889
Investments in subsidiaries92,930
4,866
2,640
 —
85,424
Other assets1,596
—
—
—
—
1,596
Total assets191,734
72,463
8,667
12,521
3,351
94,732
Amounts owed to HSBC undertakings(2,571)—
   (2,571)
Financial liabilities designated at fair values(30,890)—
(12,895)(10,175)(4,453)(3,367)
Derivatives(3,082)—
—
—
—
(3,082)
Debt securities in issue(34,258)(8,433)(9,017)(14,517)(3,351)1,060
Other liabilities(1,269)—
—
—
—
(1,269)
Subordinated liabilities(15,877)(1,918)(1,798)(2,000)(9,713)(448)
Total equity(103,787)(7,450)(6,047)(8,899)(1,498)(79,893)
Total liabilities and equity(191,734)(17,801)(29,757)(35,591)(19,015)(89,570)
Off-balance sheet items attracting interest rate sensitivity (41,199)17,812
14,171
7,705
1,511
Net interest rate risk gap at 31 Dec 2017 13,463
(3,278)(8,899)(7,959)6,673
Cumulative interest rate gap 13,463
10,185
1,286
(6,673)—
       
Cash at bank and in hand:      
– balances with HSBC undertakings247
247
—
—
—
—
Derivatives2,148
—
—
—
—
2,148
Loans and advances to HSBC undertakings77,421
72,288
279
405
—
4,449
Financial investments in HSBC undertakings3,590
2,675
731
8
—
176
Investments in subsidiaries95,850
4,751
2,445
—
—
88,654
Other assets1,542
—
105
—
—
1,437
Total assets180,798
79,961
3,560
413
—
96,864
Amounts owed to HSBC undertakings(2,157)(105)   (2,052)
Financial liabilities designated at fair values(30,113)(1,109)(7,344)(12,588)(6,422)(2,650)
Derivatives(5,025)—
—
—
—
(5,025)
Debt securities in issue(21,805)(4,199)(2,997)(11,708)(3,916)1,015
Other liabilities(1,651)—
—
—
—
(1,651)
Subordinated liabilities(15,189)—
(3,267)(2,000)(9,445)(477)
Total equity(104,858)(7,450)(3,500)(7,502)—
(86,406)
Total liabilities and equity(180,798)(12,863)(17,108)(33,798)(19,783)(97,246)
Off-balance sheet items attracting interest rate sensitivity (57,089)13,608
26,296
13,441
3,744
Net interest rate risk gap at 31 Dec 2016 1
 10,009
60
(7,089)(6,342)3,362
Cumulative interest rate gap 10,009
10,069
2,980
(3,362)—
1Investments in subsidiaries and equity have been allocated based on call dates for any callable bonds. The prior year figures have been amended to reflect this.
Operational risk profile
Operational risk is the risk to achieving our strategy or objectives as a result of inadequate or failed internal processes, people and systems or from external events. It arises from day-to-day operations or external events, and is relevant to every aspect of our business.
Responsibility for minimising operational risk lies with HSBC’s staff. All staffemployees. They are required to manage the operational risks of the business and operational activities for which they are responsible.
A summary of our current policies and practices regarding the management of operational risk is set out on page 113.117.
Operational risk exposures in 20162017
HSBCIn 2017 we continued our ongoing work to strengthen those controls that manage our most material risks in 2016.risks. Among other measures, we:
further embedded Global Standards into the operational risk management frameworkdeveloped controls to help ensure that we know our customers, ask the right questions, monitor transactions and escalate concerns to detect, prevent and deter financial crime;crime risk;
implemented a number of initiatives to raise our standards in relation to the conduct of our business and other regulatory compliance-related initiatives, as described on page 114117 of the ‘Regulatory compliance risk management’ section;
increased monitoring and enhanced detective controls to manage those fraud risks which arise from new technologies and new ways of banking;
strengthened internal security controls to prevent cyber-attacks;
improved controls and security to protect customers when using digital channels; and
enhanced our third-party risk management capability to enable the consistent risk assessment of any third-party service.
Further information on the nature of these risks is provided in ‘Top and emerging risks’ on page 89.95 and in ‘Risk management’ from pages 106 to 121.
Operational risk losses in 20162017
Operational risk losses in 20162017 are lower than in 2015,2016, reflecting a reduction in losses incurred relating to large legacy conduct-related events. Conduct-relatedProvisions related to the civil money penalty order associated with the Federal Reserve Board agreed in September 2017 and the deferred prosecution agreement with the US Department of Justice in January 2018, in connection with investigations into HSBC’s historical foreign exchange activities, were recognised in prior periods. For further details see Note 34 on the Financial Statements and on conduct-related costs included in significant items are outlined on page 78. The profile of operational risk losses below shows the distribution of losses for 2015 and 2016 against event types.84.

Operational risk losses  
 2016
2015
 %
%
Business disruption and system failures—
—
Clients, products and business practices57
74
Damage to physical assets—
—
Employee practices and workplace safety1
1
Execution, delivery and process management34
13
External fraud8
11
Internal fraud—
1
Total100
100
156HSBC Holdings plc

Insurance manufacturing operations risk profile
 Page
Insurance manufacturing operations risk in 20162017159
157
HSBC’s bancassurance model159
157
Measurement159
157
Key risk types161
159
– Market risk161
159
– Credit risk162
160
– Liquidity risk162
160
– Insurance risk163
161

Insurance manufacturing operations risk in 20162017
The majority of the risk in our insurance business derives from manufacturing activities and can be categorised as financial risk or insurance risk. Financial risks include market risk, credit risk and liquidity risk. Insurance risk is the risk, other than financial risk, of loss transferred from the holder of the insurance contract to the issuer (HSBC).
A summary of our current policies and practices regarding the management of insurance risk is set out on page 115.118.
HSBC’s bancassurance model
We operate an integrated bancassurance model that provides insurance products principally for customers with whom we have a banking relationship.
The insurance contracts we sell relate to the underlying needs of our banking customers, which we can identify from our point-of-sale contacts and customer knowledge. TheFor the products we manufacture, the majority of sales are of savings, universal life and investment productscredit and term and credit life contracts.
By focusing largely on personal and SME lines of business, we are able to optimise volumes and diversify individual insurance risks. We choose to manufacture these insurance products in HSBC subsidiaries based on an assessment of operational scale and risk appetite. Manufacturing insurance allows us to retain the risks and rewards associated with writing insurance contracts by keeping part of the underwriting profit and investment income within the Group.
We have life insurance manufacturing subsidiaries in nine countries (Argentina, mainland China, France, Hong Kong, Malaysia, Malta, Mexico, Singapore and the UK). We also have a life insurance manufacturing associatesassociate in Saudi Arabia and India.
Where we do not have the risk appetite or operational scale to be an effective insurance manufacturer, we engage with a handful of leading external insurance companies in order to provide insurance products to our customers through our banking network and direct channels. These arrangements are generally structured with our exclusive strategic partners and earn the Group a combination of commissions, fees and a share of profits. We distribute insurance products in all of our geographical regions.
Insurance products are sold through all global businesses, butworldwide, predominantly by RBWM, CMB and CMBGPB through our branches and direct channels worldwide.channels.
The sale of our Brazilian insurance operations completed on 1 July 2016. These operations were reported as part of the disposal group held for sale at 31 December 2015.
Measurement
(Audited)
The risk profile of our insurance manufacturing businesses is measured using an economic capital approach. Assets and liabilities are measured on a market value basis, and a capital requirement is defined to ensure that there is a less than one in


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Report of the Directors | Risk


200one-in-200 chance of insolvency over a one-year time horizon, given the risks thatto which the businesses are exposed to.exposed. The methodology for the economic capital calculation is largely aligned to the pan-European Solvency II insurance capital regulations, which were applicable from January 2016.regulations. The economic capital coverage ratio (economic net asset value divided by the economic capital requirement) is a key risk appetite measure.
The business has a current appetite to remain above 140% with a tolerance of 110%. In addition to economic capital, the regulatory solvency ratio is also a metric used to manage risk appetite on an entity basis.
The following tables below show the composition of assets and liabilities by contract type and by geographical region. A portfolio of business in our Maltese insurance operations was reported as held for sale at 31 December 2017.

        
Balance sheet of insurance manufacturing subsidiaries by type of contract67
 (Audited)      
   
With
DPF

Unit-linked
Other contracts61

Shareholder
assets and liabilities62

Total
  Footnotes$m
$m
$m
$m
$m
 Financial assets 57,004
8,877
13,021
5,141
84,043
 – trading assets —
—
2
—
2
 – financial assets designated at fair value 12,134
8,592
2,889
684
24,299
 – derivatives 212
2
13
46
273
 – financial investments – HTM6325,867
—
5,329
2,919
34,115
 – financial investments – AFS6314,359
—
4,206
1,355
19,920
 – other financial assets644,432
283
582
137
5,434
 Reinsurance assets 498
322
1,048
—
1,868
 PVIF65—
—
—
6,502
6,502
 Other assets and investment properties 1,716
5
171
525
2,417
 Total assets 59,218
9,204
14,240
12,168
94,830
 Liabilities under investment contracts designated at fair value —
2,197
3,805
—
6,002
 Liabilities under insurance contracts 58,800
6,949
9,524
—
75,273
 Deferred tax6613
3
7
1,166
1,189
 Other liabilities —
—
—
1,805
1,805
 Total liabilities 58,813
9,149
13,336
2,971
84,269
 Total equity —
—
—
10,561
10,561
 Total liabilities and equity at 31 Dec 2016 58,813
9,149
13,336
13,532
94,830
Financial assets 53,521
8,840
11,691
5,531
79,583
– trading assets —
—
2
—
2
– financial assets designated at fair value 11,119
8,435
2,718
1,015
23,287
– derivatives 160
1
33
62
256
– financial investments – HTM6322,840
—
4,189
3,050
30,079
– financial investments – AFS6315,077
—
4,020
1,233
20,330
– other financial assets644,325
404
729
171
5,629
Reinsurance assets 202
264
951
—
1,417
PVIF65—
—
—
5,685
5,685
Other assets and investment properties 1,726
7
139
4,576
6,448
Total assets 55,449
9,111
12,781
15,792
93,133
Liabilities under investment contracts designated at fair value —
2,256
3,771
—
6,027
Liabilities under insurance contracts 55,023
6,791
8,124
—
69,938
Deferred tax6611
—
14
1,056
1,081
Other liabilities —
—
—
5,553
5,553
Total liabilities 55,034
9,047
11,909
6,609
82,599
Total equity —
—
—
10,534
10,534
Total liabilities and equity at 31 Dec 2015 55,034
9,047
11,909
17,143
93,133
For footnotes, see page 164.

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HSBC Holdings plc Annual Report and Accounts 2016
157

Report of the Directors | Risk

Balance sheet of insurance manufacturing subsidiaries by type of contract55
(Audited)      
  
With
DPF

Unit-linked
Other contracts64

Shareholder
assets and liabilities
Total
 Footnotes$m
$m
$m
$m
$m
Financial assets 65,112
9,081
14,849
6,662
95,704
– trading assets —
—
—
—
—
– financial assets designated at fair value 15,533
8,814
2,951
1,259
28,557
– derivatives 286
—
13
41
340
– financial investments – HTM5729,302
—
6,396
3,331
39,029
– financial investments – AFS5715,280
—
4,836
1,877
21,993
– other financial assets584,711
267
653
154
5,785
Reinsurance assets 1,108
274
1,154
—
2,536
PVIF59—
—
—
6,610
6,610
Other assets and investment properties 1,975
2
164
1,126
3,267
Total assets 68,195
9,357
16,167
14,398
108,117
Liabilities under investment contracts designated at fair value —
1,750
3,885
—
5,635
Liabilities under insurance contracts 67,137
7,548
10,982
—
85,667
Deferred tax6014
6
9
1,230
1,259
Other liabilities —
—
—
3,325
3,325
Total liabilities 67,151
9,304
14,876
4,555
95,886
Total equity —
—
—
12,231
12,231
Total liabilities and equity at 31 Dec 2017 67,151
9,304
14,876
16,786
108,117
       
 Balance sheet of insurance manufacturing subsidiaries by geographical region67, 68
 
 (Audited)
   Europe
Asia
Latin
America
Total
  Footnotes$m
$m
$m
$m
 Financial assets 26,238
56,371
1,434
84,043
 – trading assets —
—
2
2
 – financial assets designated at fair value 10,171
13,618
510
24,299
 – derivatives 187
86
—
273
 – financial investments – HTM63—
33,624
491
34,115
 – financial investments – AFS6313,812
5,735
373
19,920
 – other financial assets642,068
3,308
58
5,434
 Reinsurance assets 362
1,499
7
1,868
 PVIF65711
5,682
109
6,502
 Other assets and investment properties 871
1,493
53
2,417
 Total assets 28,182
65,045
1,603
94,830
 Liabilities under investment contracts designated at fair value 1,321
4,681
—
6,002
 Liabilities under insurance contracts 24,310
49,793
1,170
75,273
 Deferred tax66238
919
32
1,189
 Other liabilities 841
914
50
1,805
 Total liabilities 26,710
56,307
1,252
84,269
 Total equity 1,472
8,738
351
10,561
 Total liabilities and equity at 31 Dec 2016 28,182
65,045
1,603
94,830
       
 Financial assets 26,897
51,087
1,599
79,583
 – trading assets —
—
2
2
 – financial assets designated at fair value 9,987
12,668
632
23,287
 – derivatives 163
93
—
256
 – financial investments – HTM63—
29,496
583
30,079
 – financial investments – AFS6314,525
5,503
302
20,330
 – other financial assets642,222
3,327
80
5,629
 Reinsurance assets 287
1,122
8
1,417
 PVIF65807
4,761
117
5,685
 Other assets and investment properties 919
1,358
4,171
6,448
 Total assets 28,910
58,328
5,895
93,133
 Liabilities under investment contracts designated at fair value 1,376
4,651
—
6,027
 Liabilities under insurance contracts 24,699
43,975
1,264
69,938
 Deferred tax66274
767
40
1,081
 Other liabilities 832
974
3,747
5,553
 Total liabilities 27,181
50,367
5,051
82,599
 Total equity 1,729
7,961
844
10,534
 Total liabilities and equity at 31 Dec 2015 28,910
58,328
5,895
93,133
Financial assets 57,004
8,877
13,021
5,141
84,043
– trading assets —
—
2
—
2
– financial assets designated at fair value 12,134
8,592
2,889
684
24,299
– derivatives 212
2
13
46
273
– financial investments – HTM5725,867
—
5,329
2,919
34,115
– financial investments – AFS5714,359
—
4,206
1,355
19,920
– other financial assets584,432
283
582
137
5,434
Reinsurance assets 498
322
1,048
—
1,868
PVIF59—
—
—
6,502
6,502
Other assets and investment properties 1,716
5
171
525
2,417
Total assets 59,218
9,204
14,240
12,168
94,830
Liabilities under investment contracts designated at fair value —
2,197
3,805
—
6,002
Liabilities under insurance contracts 58,800
6,949
9,524
—
75,273
Deferred tax6013
3
7
1,166
1,189
Other liabilities —
—
—
1,805
1,805
Total liabilities 58,813
9,149
13,336
2,971
84,269
Total equity —
—
—
10,561
10,561
Total liabilities and equity at 31 Dec 2016 58,813
9,149
13,336
13,532
94,830
For footnotes, see page 164.161.

158HSBC Holdings plc

Balance sheet of insurance manufacturing subsidiaries by geographical region55, 61
(Audited)
  Europe
Asia
Latin
America
Total
 Footnotes$m
$m
$m
$m
Financial assets 30,231
63,973
1,500
95,704
– trading assets —
—
—
—
– financial assets designated at fair value 12,430
15,633
494
28,557
– derivatives 169
171
—
340
– financial investments – HTM57—
38,506
523
39,029
– financial investments – AFS5715,144
6,393
456
21,993
– other financial assets582,488
3,270
27
5,785
Reinsurance assets 469
2,063
4
2,536
PVIF59773
5,709
128
6,610
Other assets and investment properties 1,666
1,577
24
3,267
Total assets 33,139
73,322
1,656
108,117
Liabilities under investment contracts designated at fair value 739
4,896
—
5,635
Liabilities under insurance contracts 28,416
56,047
1,204
85,667
Deferred tax60217
1,033
9
1,259
Other liabilities 2,043
1,209
73
3,325
Total liabilities 31,415
63,185
1,286
95,886
Total equity 1,724
10,137
370
12,231
Total liabilities and equity at 31 Dec 2017 33,139
73,322
1,656
108,117
      
Financial assets 26,238
56,371
1,434
84,043
– trading assets —
—
2
2
– financial assets designated at fair value 10,171
13,618
510
24,299
– derivatives 187
86
—
273
– financial investments – HTM57—
33,624
491
34,115
– financial investments – AFS5713,812
5,735
373
19,920
– other financial assets582,068
3,308
58
5,434
Reinsurance assets 362
1,499
7
1,868
PVIF59711
5,682
109
6,502
Other assets and investment properties 871
1,493
53
2,417
Total assets 28,182
65,045
1,603
94,830
Liabilities under investment contracts designated at fair value 1,321
4,681
—
6,002
Liabilities under insurance contracts 24,310
49,793
1,170
75,273
Deferred tax60238
919
32
1,189
Other liabilities 841
914
50
1,805
Total liabilities 26,710
56,307
1,252
84,269
Total equity 1,472
8,738
351
10,561
Total liabilities and equity at 31 Dec 2016 28,182
65,045
1,603
94,830
For footnotes, see page 161.
Key risk types
The key riskrisks for the insurance operation isoperations are market risk,risks (in particular interest rate and equity) and credit risks, followed by insurance risk. Creditunderwriting risk and liquidityoperational risks. Liquidity risk, while significant for the bank, areis minor for our insurance operations.
Market risk
(Audited)
Description and exposure
Market risk is the risk of changes in market factors affecting HSBC’s capital or profit. Market factors include interest rates, equity and growth assets spread risk and foreign exchange rates.
Our exposure varies depending on the type of contract issued. Our most significant life insurance products are contracts with discretionary participating features (‘DPF’) issued in France and Hong Kong. These products typically include some form of capital guarantee or guaranteed return on the sums invested by the policyholders, to which discretionary bonuses are added if allowed by the overall performance of the funds. These funds are primarily invested in bonds, with a proportion allocated to other asset classes to provide customers with the potential for enhanced returns.
DPF products expose HSBC to the risk of variation in asset returns, which will impact our participation in the investment
performance.
performance. In addition, in some scenarios the asset returns can become insufficient to cover the policyholders’ financial guarantees, in which case the shortfall has to be met by HSBC. Reserves are held against the cost of such guarantees, calculated by stochastic modelling.
Where local rules require, these reserves are held as part of liabilities under insurance contracts. Any remainder is accounted for as a deduction from the present value of in-force (‘PVIF’) long-term insurance business on the relevant product. The following table below shows the total reserve held for the cost of guarantees, the range of investment returns on assets supporting these products and the implied investment return that would enable the business to meet the guarantees.
The cost of guarantees decreasedincreased to $625m (2015: $748m)$696m (2016: $625m) primarily due to changes to the profit-sharing mechanism on DPF contracts with guarantees in Hong Kong, which primarily reduced the costimpact of guarantees on portfolios reported in the 2.1% to 4.0% category. In addition, there was a movement in cost of guarantees from the 2.1% to 4.0% category, to the 0.1% to 2.0% category due to reducing average guarantees on certain portfolios. The real annual return guarantees reported in 2015 relate to insurance operations in Brazil, which were sold on 1 July 2016.modelling changes.


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Report of the Directors | Risk


For unit-linked contracts, market risk is substantially borne by the policyholder, but some market risk exposure typically
remains, as fees earned are related to the market value of the linked assets.

HSBC Holdings plc
159

         
 Financial return guarantees67
 (Audited)
   20162015
   
Investment
returns
implied by
guarantee
Current
yields
Cost of
guarantees
Investment
returns
implied by
guarantee
Current
yields
Cost of guarantees
  Footnotes%%$m
%%$m
 Capital 0.00.0 – 3.059
0.00.0 – 3.885
 Nominal annual return 0.1 – 2.03.7 – 3.864
0.1 – 1.93.9 – 3.94
 Nominal annual return692.1 – 4.03.0 – 4.4426
2.0 – 4.03.8 – 4.0603
 Nominal annual return 4.1 – 5.03.0 – 4.176
4.1 – 5.03.8 – 4.128
 Real annual return70n/an/an/a
0.0 – 6.05.9 – 6.128
 At 31 Dec 

625


748
Financial return guarantees55
(Audited)
  20172016
  Investment returns implied by guaranteeLong-term investment returns on relevant portfoliosCost of guarantees
Investment returns implied by guaranteeLong-term investment returns on relevant portfoliosCost of guarantees
 Footnote%%$m
%%$m
Capital 0.00.0–3.2103
0.00.0–3.059
Nominal annual return 0.1–2.03.2–3.764
0.1–2.03.7–3.864
Nominal annual return622.1–4.03.2–4.4459
2.1–4.03.0–4.4426
Nominal annual return 4.1–5.03.2–4.170
4.1–5.03.0–4.176
At 31 Dec 

696


625
For footnotes, see page 164.161.
Sensitivities
Changes in financial market factors, from the economic assumptions in place at the start of the year, had a negativepositive impact on reported profit before tax of $296m (2016: $386m (2015: $13m negative). The following table illustrates the effects of selected interest rate, equity price and foreign exchange rate scenarios on our profit for the year and the total equity of our insurance manufacturing subsidiaries.
Where appropriate, the effects of the sensitivity tests on profit after tax and equity incorporate the impact of the stress on the PVIF. The relationship between the profit and total equity and
the risk factors is non-linear, therefore the results disclosed should not be extrapolated to measure sensitivities to different levels of stress. For the same reason, the impact of the stress is
not symmetrical on the upside and downside. The sensitivities are stated before allowance for management actions which may mitigate the effect of changes in the market environment. The sensitivities presented allow for adverse changes in policyholder behaviour that may arise in response to changes in market rates.
Interest rate movements have a greater impact on total equity as changes in market value of available-for-sale bonds are not recognised in profit after tax.
Changes in sensitivity compared to 2015 were primarily driven by the impact of decreasing yields in France on the projected cost of options and guarantees and by the adoption of a more market-aligned PVIF methodology in Singapore.

Sensitivity of HSBC’s insurance manufacturing subsidiaries to market risk factors(Audited)
 20162015 20172016
 
Effect on
profit after tax

Effect on
total equity

Effect on profit
after tax

Effect on
total equity

 
Effect on
profit after tax

Effect on
total equity

Effect on
profit after tax

Effect on
total equity

Footnote$m
$m
$m
$m
Footnote$m
$m
$m
$m
+100 basis point parallel shift in yield curves 63
(494)39
(474) 42
(583)63
(494)
–100 basis point parallel shift in yield curves
71(182)490
(213)404
-100 basis point parallel shift in yield curves63(140)617
(182)490
10% increase in equity prices 189
190
176
176
 223
237
189
190
10% decrease in equity prices (191)(191)(158)(158) (225)(239)(191)(191)
10% increase in US dollar exchange rate compared with all currencies 19
19
16
16
 24
24
19
19
10% decrease in US dollar exchange rate compared with all currencies (19)(19)(16)(16) (24)(24)(19)(19)
For footnote, see page 164.161.
Credit risk
(Audited)
Description and exposure
Credit risk is the risk of financial loss if a customer or counterparty fails to meet their obligation under a contract. It arises in two main areas for our insurance manufacturers:
risk ofassociated with credit spread volatility and default by debt security counterparties after investing premiums to generate a return for policyholders and shareholders; and
risk of default by reinsurance counterparties and non-reimbursement for claims made after ceding insurance risk.
The amounts outstanding at the balance sheet date in respect of these items are shown in the table on page 160.158.
The credit quality of the reinsurers’ share of liabilities under insurance contracts is assessed as ‘satisfactory’ or higher (as defined on page 107)112), with 100% of the exposure being neither past due nor impaired (2015:(2016: 100%).
Credit risk on assets supporting unit-linked liabilities is predominantly borne by the policyholder; therefore, our
exposure is primarily related to liabilities under non-linked insurance and investment contracts and shareholders’ funds. The credit quality of insurance financial assets is included in the table on page 121.124.

Liquidity risk
(Audited)
Description and exposure
Liquidity risk is the risk that an insurance operation, though solvent, either does not have sufficient financial resources available to meet its obligations when they fall due, or can secure them only at excessive cost.
The following table shows the expected undiscounted cash flows for insurance liabilities at 31 December 2016.2017. The liquidity risk exposure is wholly borne by the policyholder in the case of unit-linked business and is shared with the policyholder for non-linked insurance.


159
HSBC Holdings plc Annual Report and Accounts 2016

The profile of the expected maturity of insurance contracts at 31 December 20162017 remained comparable with 2015.2016.
The remaining contractual maturity of investment contract liabilities is included in Note 29.28.


160HSBC Holdings plc

       
Expected maturity of insurance contract liabilities67
 (Audited)
  Expected cash flows (undiscounted)
  Within 1 year
1-5 years
5-15 years
Over 15 years
Total
  $m
$m
$m
$m
$m
 Unit-linked630
2,468
5,101
9,513
17,712
 With DPF and Other contracts5,582
23,136
40,621
40,447
109,786
 At 31 Dec 20166,212
25,604
45,722
49,960
127,498
       
 Unit-linked549
2,164
5,945
11,080
19,738
 With DPF and Other contracts5,356
22,796
37,585
38,649
104,386
 At 31 Dec 20155,905
24,960
43,530
49,729
124,124
Expected maturity of insurance contract liabilities55
(Audited)
 Expected cash flows (undiscounted)
 Within 1 year
1-5 years
5-15 years
Over 15 years
Total
 $m
$m
$m
$m
$m
Unit-linked969
3,041
4,695
6,814
15,519
With DPF and Other contracts6,916
26,453
43,784
45,334
122,487
At 31 Dec 20177,885
29,494
48,479
52,148
138,006
      
Unit-linked630
2,468
5,101
9,513
17,712
With DPF and Other contracts5,582
23,136
40,621
40,447
109,786
At 31 Dec 20166,212
25,604
45,722
49,960
127,498
For footnotes, see page 164.161.
Insurance risk
Description and exposure
Insurance risk is the risk of loss through adverse experience, in either timing or amount, of insurance underwriting parameters (non-economic assumptions). These parameters include mortality, morbidity, longevity, lapses and unit costs.
The principal risk we face is that, over time, the cost of the contract, including claims and benefits, may exceed the total amount of premiums and investment income received.
The tables on pages 160158 and 161159 analyse our life insurance risk exposures by type of contract and by geographical region.
The insurance risk profile and related exposures remain largely consistent with those observed at 31 December 2015.2016.
Sensitivities
(Audited)
The following table below shows the sensitivity of profit and total equity to reasonably possible changes in non-economic assumptions across all our insurance manufacturing subsidiaries.
Mortality and morbidity risk is typically associated with life insurance contracts. The effect on profit of an increase in mortality or morbidity depends on the type of business being written. Our largest exposures to mortality and morbidity risk exist in Hong Kong and Singapore.
Sensitivity to lapse rates depends on the type of contracts being written. For a portfolio of term assurance, an increase in lapse rates typically has a negative effect on profit due to the loss of future income on the lapsed policies. However, some contract lapses have a positive effect on profit due to the existence of policy surrender charges. We are most sensitive to a change in lapse rates on unit-linked and universal life contracts in Hong Kong and Singapore, and DPF contracts in France.
Expense rate risk is the exposure to a change in the cost of administering insurance contracts. To the extent that increased expenses cannot be passed on to policyholders, an increase in expense rates will have a negative effect on our profits.
Sensitivity analysis
(Audited)
 2016
2015
 $m
$m
Effect on profit after tax and total equity
at 31 Dec		  
10% increase in mortality and/or morbidity rates(71)(70)
10% decrease in mortality and/or morbidity rates75
75
10% increase in lapse rates(80)(90)
10% decrease in lapse rates93
102
10% increase in expense rates(89)(85)
10% decrease in expense rates87
83
Sensitivity analysis
(Audited)
 2017
2016
 $m
$m
Effect on profit after tax and total equity
at 31 Dec		  
10% increase in mortality and/or morbidity rates(77)(71)
10% decrease in mortality and/or morbidity rates82
75
10% increase in lapse rates(93)(80)
10% decrease in lapse rates106
93
10% increase in expense rates(92)(89)
10% decrease in expense rates91
87



Footnotes to Risk
HSBC Holdings plc Annual Report and Accounts 2016
45		160

Report of the Directors | Risk / Capital

2016 includes loan impairment charges from the operations in Brazil that we sold on 1 July 2016.
Footnotes to Risk
Liquidity and funding
51
46		The HSBC UK Liquidity Group shown comprises four legal entities: HSBC Bank plc (including all overseas branches, and SPEs consolidated by HSBC Bank plc for Financial Statement purposes), Marks and Spencer Financial Services plc, HSBC Private Bank (UK) Ltd and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the application of UK liquidity regulation as agreed with the UK PRA.
52
47		The Hongkong and Shanghai Banking Corporation – Hong Kong branch and The Hongkong and Shanghai Banking Corporation – Singapore branch represent the material activities of theThe Hongkong and Shanghai Banking Corporation. Each branch is monitored and controlled for liquidity and funding risk purposes as a stand-alone operating entity.
53
48		HSBC France and HSBC Canada represent the consolidated banking operations of the Group in France and Canada, respectively. HSBC France and HSBC Canada are each managed as single distinct operating entities for liquidity purposes.
54
49		The total shown for other principal HSBC operating entities represents the combined position of all the other operating entities overseen directly by the Risk Management Meeting of the GMB.
Market risk
55
50		Trading portfolios comprise positions arising from the market-making and warehousing of customer-derived positions.
56
51		Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in unsystematic market risk that occurs when combining a number of different risk types; for example, interest rate, equity and foreign exchange, together in one portfolio. It is measured as the difference between the sum of the VaR by individual risk type and the combined total VaR. A negative number represents the benefit of portfolio diversification. As the maximum and minimum occurs on different days for different risk types, it is not meaningful to calculate a portfolio diversification benefit for these measures.
57
52		The total VaR is non-additive across risk types due to diversification effects.
58
53		Investments in private equity are primarily made through managed funds that are subject to limits on the amount of investment. Potential new commitments are subject to risk appraisal to ensure that industry and geographical concentrations remain within acceptable levels for the portfolio as a whole. Regular reviews are performed to substantiate the valuation of the investments within the portfolio.
59
54		Investments held to facilitate ongoing business include holdings in government-sponsored enterprises and local stock exchanges.
60
Instead of assuming that all interest rates move together, we group our interest rate exposures into currency blocs whose rates are considered likely to move together. See page 281, ‘Cautionary statement regarding forward-looking statements’.
Risk management of insurance operations
61
‘Other Contracts’ includes term assurance, credit life insurance, universal life insurance and investment contracts not included in the ‘Unit-linked’ or ‘With DPF’ columns.
62
At 31 December 2015, ‘Shareholder assets and liabilities’ included assets and liabilities classified as held for sale in respect of the disposal of operations in Brazil, which was completed on 1 July 2016. The assets, comprising mainly debt and equity securities and PVIF, were reported within ‘Other assets and investment properties’ and totalled $4.1bn. The liabilities classified as held for sale, comprising mainly liabilities under insurance contracts and liabilities under investment contracts, were reported within ‘Other liabilities’ and totalled $3.7bn. No assets and liabilities relating to insurance businesses were held for sale at 31 December 2016.
63
Financial investments held to maturity (‘HTM’) and available for sale (‘AFS’).
64
Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.
65
Present value of in-force long-term insurance business.
66
‘Deferred tax’ includes the deferred tax liabilities arising on recognition of PVIF.
67
55		Does not include associated insurance companies SABB Takaful Company and Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited.
6856
‘Other Contracts’ includes term insurance, credit life insurance, universal life insurance and investment contracts not included in the ‘Unit-linked’ or ‘With DPF’ columns.
57Financial investments held to maturity (‘HTM’) and available for sale (‘AFS’).
58Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.
59Present value of in-force long-term insurance business.
60‘Deferred tax’ includes the deferred tax liabilities arising on recognition of PVIF.
61HSBC has no insurance manufacturing subsidiaries in Middle East and North Africa or North America.
69
62		A block of contracts in France with guaranteed nominal annual returns in the range 1.25%-3.72% is reported entirely in the 2.1%-4.0% category in line with the average guaranteed return of 2.6% offered to policyholders by these contracts.
7063
Real annual return guarantees provide the policyholder a guaranteed return in excess of the rate of inflation, and are supported by inflation-linked debt securities with yields that are also expressed in real terms.
71
WhereFor 2016, where a -100 basis point parallel shift in the yield curve would result in a negative interest rate, the effects on profit after tax and total equity have been calculated using a minimum rate of 0%.

Country distribution of outstandings and cross-border exposures
72These balances were between 0.75% and 1% of total assets. All other balances were above 1%.




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161
 

Report of the Directors | Capital

Capital
 Page
Capital overview165
162
Capital management165
162
Capital166
163
Risk-weighted assets167
164
Leverage ratio169
165
Capital highlights
•Our common equity tier 1 (‘CET1’) ratio of 13.6% was up from 11.9% at the end of 2015, mainly due to a change in the regulatory treatment of Bank of Communications Co., Limited ('BoCom').
•Our CET1 capital base reduced during the year by $14.3bn, driven by unfavourable foreign currency movements of $7.7bn, a $5.6bn reduction due to the BoCom change, and the $2.5bn share buy-back.
•A decrease in RWAs in 2016 of $245.8bn from continued implementation of RWA-reduction initiatives, the BoCom change and favourable foreign currency movements, supported the increase in capital ratios.
Capital overview
Capital ratios   
  At 31 Dec
  20162015
 Footnote%%
CRD IV end point   
Common equity tier 1 ratio113.611.9
CRD IV transitional   
Common equity tier 1 ratio113.611.9
Tier 1 ratio 16.113.9
Total capital ratio 20.117.2
Total regulatory capital and risk-weighted assets
  At 31 Dec
  20162015
 Footnote$m
$m
CRD IV end point   
Common equity tier 1 capital1115,984
130,863
CRD IV transitional   
Common equity tier 1 capital1116,552
130,863
Additional tier 1 capital 21,470
22,440
Tier 2 capital 34,336
36,530
Total regulatory capital 172,358
189,833
Transitional risk-weighted assets1857,181
1,102,995
Capital ratios
 At
 31 Dec
31 Dec
 2017
2016
 %
%
CRD IV transitional  
Common equity tier 1 ratio14.5
13.6
Tier 1 ratio17.3
16.1
Total capital ratio20.9
20.1
   
CRD IV end point  
Common equity tier 1 ratio14.5
13.6
Tier 1 ratio16.4
14.9
Total capital ratio18.3
16.8
1Due to transitional provisions in the threshold deduction our CET1 and RWAs are different for transitional and end point. At 31 December 2016, end point RWAs were $855.8bn.
RWAs by risk types  
 RWAs
Capital required 1

 $bn
$bn
Credit risk655.7
52.5
Counterparty credit risk62.0
5.0
Market risk41.5
3.3
Operational risk98.0
7.8
At 31 Dec 2016857.2
68.6
Total regulatory capital and risk-weighted assets
 At
 31 Dec
31 Dec
 2017
2016
 $m
$m
CRD IV transitional  
Common equity tier 1 capital126,144
116,552
Additional tier 1 capital24,810
21,470
Tier 2 capital31,429
34,336
Total regulatory capital182,383
172,358
Risk-weighted assets871,337
857,181
   
CRD IV end point  
Common equity tier 1 capital126,144
115,984
Additional tier 1 capital16,531
11,351
Tier 2 capital16,413
16,289
Total regulatory capital159,088
143,624
Risk-weighted assets871,337
855,762
RWAs by risk types
 RWAs
Capital required 1

 $bn
$bn
Credit risk685.2
54.8
Counterparty credit risk54.5
4.4
Market risk38.9
3.1
Operational risk92.7
7.4
At 31 Dec 2017871.3
69.7
1‘Capital required’ represents the Pillar 1 capital charge at 8% of RWAs.


Capital management
(Audited)
Our objective in the management of Group capital is to maintain appropriate levels of capital to support our business strategy, and meet our regulatory and stress testing related requirements.
Approach and policy
Our approach to capital management is driven by our strategic and organisational requirements, taking into account the regulatory, economic and commercial environment. It is our objectiveWe aim to maintain a strong capital base to support the risks inherent in our business and invest in accordance with our strategy, meeting both consolidated and local regulatory capital requirements at all times. Our policy on capital management is underpinned by a capital management framework and our internal capital adequacy assessment process (‘ICAAP’), which enables us to manage our capital in a consistent manner. The framework incorporates a number of different capital measures calculated on an economic capital and regulatory capital basis. The internalICAAP is an assessment of the bank’s capital adequacy assessment process brings togetherposition, outlining both regulatory and internal capital resources and requirements with HSBC’s business model, strategy, performance and planning, risks to capital, and the implications of stress testing to assess the bank’s capital position.capital.
Our assessment of capital adequacy is aligned to our assessment of risks. These include credit, market, operational, pensions, insurance, structural foreign exchange risk, residual risks and interest rate risk in the banking book.
Planning and performance
Capital plans and RWA plans form part of the Annual Operating Plan that is approved by the Board. Revised RWA forecasts are submitted to the GMB on a monthly basis, and reported RWAs are monitored against the plan.
The responsibility for global capital allocation principles and decisions rests with the Group Finance Director. Through our internal governance processes, we seek to maintain discipline over our investment and capital allocation decisions, and seek to ensure that returns on investment meet the Group’s management objectives. Our strategy is to allocate capital to businesses and entities to support growth objectives where above hurdle returns have been identified and in order to meet their regulatory and economic capital needs.
We manage business returns by use ofusing a return on risk-weighted assets (‘RoRWA’) measure. In 2016, we augmented this through the introduction of financial informationmeasure and metricsa return on the consumption of, and returns on, capital by global business to support management’s assessment of business performance and the allocation of capital resources. We plan to further embed this in 2017.tangible equity (‘RoTE’) measure.
Risks to capital
Outside the stress testing framework, other risks may be identified that have the potential to affect our RWAs and/or capital position. The downside or upside scenarios are assessed against our capital management objectives and mitigating actions are assigned as necessary.
There are a number of regulatory changes on the horizon. The impacts of these are included in the Annual Operating Plan where the rules are sufficiently certain to estimate a reliable impact.  Foremost among these changes are the final reforms to the Basel III package, which were published in December 2017. Due to the number of national discretions, the recalibration of the market risk framework and the need to transpose the requirements into national law, it remains too early to assess reliably the impact.
Stress testing
In addition to an annual internal stress test,tests, the Group is subject to supervisory stress testing in many jurisdictions. Supervisory stress testing requirements are increasing in frequency and in the granularity with which the results are required. These exercises include the programmes of the PRA,Prudential Regulatory Authority (‘PRA’), the FRB,Federal Reserve Board (‘FRB’), the EBA,European Banking Authority (‘EBA’), the ECBEuropean Central Bank (‘ECB’) and the HKMA,Hong Kong Monetary Authority (‘HKMA’), as well as stress tests undertaken in other jurisdictions. We take into account the results of all such regulatory stress testing and our internal stress testtests when assessing our internal capital requirements. The outcome of stress testing exercises carried out by the PRA will also feedfeeds into a PRA buffer under Pillar 2 requirements, where required.


162
HSBC Holdings plc Annual Report and Accounts 2016165

Report of the Directors | Capital

into a PRA buffer under the Pillar 2 requirements, where required.
Capital generation
HSBC Holdings is the provider of equity capital to its subsidiaries and also provides them with non-equity capital
where necessary. These investments are substantially funded by HSBC Holdings’
own capital issuance and profit retention. As part of its capital management process, HSBC Holdings seeks to maintain a prudent balance between the composition of its capital and its investment in subsidiaries.

Capital
Transitional own funds disclosureTransitional own funds disclosureTransitional own funds disclosure  
(Audited)(Audited)(Audited)  
 At
 At 31 Dec 31 Dec
31 Dec
 2016
2015
 2017
2016
Ref*

 $m
$m
 Footnotes$m
$m
Common equity tier 1 (‘CET1’) capital: instruments and reserves  Common equity tier 1 (‘CET1’) capital: instruments and reserves   
1
Capital instruments and the related share premium accounts21,310
20,858
Capital instruments and the related share premium accounts 18,932
21,310
– ordinary shares21,310
20,858
– ordinary shares 18,932
21,310
2
Retained earnings1
125,442
122,304
Retained earnings1124,679
129,552
3
Accumulated other comprehensive income (and other reserves)1
560
8,832
Accumulated other comprehensive income (and other reserves) 9,433
560
5
Minority interests (amount allowed in consolidated CET1)3,878
3,519
Minority interests (amount allowed in consolidated CET1) 4,905
3,878
5a
Independently reviewed interim net profits net of any foreseeable charge or dividend1
(1,899)8,670
Independently reviewed interim net profits net of any foreseeable charge or dividend1608
(6,009)
6
Common equity tier 1 capital before regulatory adjustments149,291
164,183
Common equity tier 1 capital before regulatory adjustments 158,557
149,291
Common equity tier 1 capital: regulatory adjustments  Common equity tier 1 capital: regulatory adjustments   
7
Additional value adjustments(1,358)(1,151)Additional value adjustments (1,146)(1,358)
8
Intangible assets (net of related deferred tax liability)(15,037)(20,650)Intangible assets (net of related deferred tax liability) (16,872)(15,037)
10
Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability)(1,696)(1,204)Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) (1,181)(1,696)
11
Fair value reserves related to gains or losses on cash flow hedges(52)(52)Fair value reserves related to gains or losses on cash flow hedges 208
(52)
12
Negative amounts resulting from the calculation of expected loss amounts(4,025)(4,920)Negative amounts resulting from the calculation of expected loss amounts (2,820)(4,025)
14
Gains or losses on liabilities at fair value resulting from changes in own credit standing1,052
(495)Gains or losses on liabilities at fair value resulting from changes in own credit standing 3,731
1,052
15
Defined-benefit pension fund assets(3,680)(4,009)Defined-benefit pension fund assets (6,740)(3,680)
16
Direct and indirect holdings of own CET1 instruments(1,573)(839)Direct and indirect holdings of own CET1 instruments (40)(1,573)
19
Direct, indirect and synthetic holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions)

(6,370)—
Direct, indirect and synthetic holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) (7,553)(6,370)
28
Total regulatory adjustments to common equity tier 1(32,739)(33,320)Total regulatory adjustments to common equity tier 1 (32,413)(32,739)
29
Common equity tier 1 capital116,552
130,863
Common equity tier 1 capital 126,144
116,552
Additional tier 1 (‘AT1’) capital: instruments  Additional tier 1 (‘AT1’) capital: instruments   
30
Capital instruments and the related share premium accounts11,259
9,261
Capital instruments and the related share premium accounts 16,399
11,259
31
– classified as equity under IFRSs11,259
9,261
– classified as equity under IFRSs 16,399
11,259
33
Amount of qualifying items and the related share premium accounts subject to phase out from AT17,946
8,972
Amount of qualifying items and the related share premium accounts subject to phase out from AT1 6,622
7,946
34
Qualifying tier 1 capital included in consolidated AT1 capital (including minority interests not included in CET1) issued by subsidiaries and held by third parties2,419
4,388
Qualifying tier 1 capital included in consolidated AT1 capital (including minority interests not included in CET1) issued by subsidiaries and held by third parties 1,901
2,419
35
– of which: instruments issued by subsidiaries subject to phase out1,522
2,842
– of which: instruments issued by subsidiaries subject to phase out 1,374
1,522
36
Additional tier 1 capital before regulatory adjustments21,624
22,621
Additional tier 1 capital before regulatory adjustments 24,922
21,624
Additional tier 1 capital: regulatory adjustments  Additional tier 1 capital: regulatory adjustments   
37
Direct and indirect holdings of own AT1 instruments(60)(60)Direct and indirect holdings of own AT1 instruments (60)(60)
41b
Residual amounts deducted from AT1 capital with regard to deduction from tier 2 (‘T2’) capital during the transitional period(94)(121)Residual amounts deducted from AT1 capital with regard to deduction from tier 2 (‘T2’) capital during the transitional period (52)(94)
– direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities(94)(121)– direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (52)(94)
43
Total regulatory adjustments to additional tier 1 capital(154)(181)Total regulatory adjustments to additional tier 1 capital (112)(154)
44
Additional tier 1 capital21,470
22,440
Additional tier 1 capital 24,810
21,470
45
Tier 1 capital (T1 = CET1 + AT1)138,022
153,303
Tier 1 capital (T1 = CET1 + AT1) 150,954
138,022
Tier 2 capital: instruments and provisions  Tier 2 capital: instruments and provisions   
46
Capital instruments and the related share premium accounts16,732
15,863
Capital instruments and the related share premium accounts 16,880
16,732
47
Amount of qualifying items and the related share premium accounts subject to phase out from T25,695
6,645
Amount of qualifying items and the related share premium accounts subject to phase out from T2 4,746
5,695
48
Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in CET1 or AT1) issued by subsidiaries and held by third parties12,323
14,344
Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in CET1 or AT1) issued by subsidiaries and held by third parties 10,306
12,323
49
– of which: instruments issued by subsidiaries subject to phase out12,283
14,330
– of which: instruments issued by subsidiaries subject to phase out 10,236
12,283
51
Tier 2 capital before regulatory adjustments34,750
36,852
Tier 2 capital before regulatory adjustments 31,932
34,750
Tier 2 capital: regulatory adjustments  Tier 2 capital: regulatory adjustments   
52
Direct and indirect holdings of own T2 instruments(40)(40)Direct and indirect holdings of own T2 instruments (40)(40)
55
Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions)(374)(282)Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions) (463)(374)
57
Total regulatory adjustments to tier 2 capital(414)(322)Total regulatory adjustments to tier 2 capital (503)(414)
58
Tier 2 capital34,336
36,530
Tier 2 capital 31,429
34,336
59
Total capital (TC = T1 + T2)172,358
189,833
Total capital (TC = T1 + T2) 182,383
172,358
*The references identify the lines prescribed in the EBA template, which are applicable and where there is a value.
1In the comparative period, profits and other comprehensive income havedividend paid has been reallocated from row 2 into rows 5a and 3 respectively. In addition, retained earnings and profits pertaining to the deconsolidation of insurance and other entities have been reallocated from row 3 to rows 2 and 5a.

166
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163

Report of the Directors | Capital

Throughout 2016, we complied with the Prudential Regulation Authority’s (‘PRA’) regulatory capital adequacy requirements, including those relating to stress testing.
Following a clarification of policy by the PRA, at 30 September 2016 the regulatory treatment of our investment in BoCom changed from proportional consolidation of RWAs to a deduction from capital (subject to regulatory thresholds). The revised regulatory treatment is more consistent with our financial reporting treatment, aligning with the equity method of accounting, and better reflects our relationship with BoCom, including the nature of our obligations and financial commitments.
CET1 capital decreasedincreased during the year by $14.3bn, primarily because of:$9.5bn, due to:
unfavourable$3.7bn of capital generation through profits, net of dividends and scrip;
$6.3bn of favourable foreign currency translation differencesdifferences;
regulatory netting of
$7.81.5bn;
a decrease of $5.61.3bn reduction fromin the change in treatment of BoCom;deduction for excess expected loss; and
an increase of $1.0bn in the $2.5bn share buy-back.value of minority interests allowed in CET1.
These decreasesincreases were partly offset by:
$2.4bn from
the sale$3.0bn share buy-back; and
a $1.2bn decrease as a result of our operationsthe change in Brazil.US tax legislation; this change also reduces RWAs by $3.1bn.

Risk-weighted assets
RWAs
RWAs decreased in 2016increased by $245.8bn,$14.1bn during the year, including an increase of which $38.1bn was$27.7bn due to foreign currency translation differences. The resulting decrease of $13.6bn (excluding foreign currency translation differences) was primarily due to RWA initiatives reduced RWAs by $143.2bn, partly offset by bookof $70.8bn and asset quality improvement of $4.6bn, less increases from asset size movements increasing RWAs by $38.7bn. The changegrowth of regulatory treatment$48.4bn, changes in methodology and policy of our investment in BoCom reduced RWAs by $120.9bn.$8.2bn and model updates of $6.2bn.
The following comments describe RWA movements in 2016,2017, excluding foreign currency translation differences.
RWA initiatives
The main drivers of these reductions were:
$69.8bnas a result of reduced exposures, refined calculations and process improvements;
$41.8bn from the sale of our activities in Brazil; and
$31.6bn through the continuedContinued reduction in Legacy Creditlegacy credit and US run-off portfolios.portfolios reduced RWAs by $21.3bn. Further savings mainly came from process improvements $13.7bn, exposure reductions $9.9bn, trade actions $9.7bn and refined calculations $8.3bn.
BookAsset size
BookAsset size movements increased RWAs by $38.7bn, principally from:
increased corporaterepresent $40.4bn of lending growth, mainly in GB&M and CMB increasing RWAs by $32bn in Asia and Europe;
Europe, and new transactions and movements in market parameters increasing counterparty credit risk and market risk by $11.7bn;$9.0bn.
Methodology and policy
Methodology and policy movements increased credit risk RWAs by $11.3bn, mainly as a result of changes to:
the treatment of non-performing exposures of $5.0bn;
the netting of current accounts of $2.1bn;
non-recourse purchased receivables of $1.6bn; and
offset by a decrease in operational
risk-weight floors for HK residential mortgages of $0.6bn.
Market risk RWAs decreased by $3.7bn as a result of $3.4bn reflecting the decrease of average income over three years.increased diversification following regulatory approval to consolidate additional companies.

RWAs by global business
 

RBWM

CMB
GB&M
GPB
Corporate Centre
Total
 $bn
$bn
$bn
$bn
$bn
$bn
Credit risk84.6
250.6
170.8
12.2
137.5
655.7
Counterparty credit risk—
—
59.1
0.2
2.7
62.0
Market risk—
—
38.5
—
3.0
41.5
Operational risk30.5
25.3
32.0
2.9
7.3
98.0
At 31 Dec 2016115.1
275.9
300.4
15.3
150.5
857.2
       
Credit risk99.7
278.1
189.6
14.4
294.1
875.9
Counterparty credit risk—
—
64.3
0.3
4.6
69.2
Market risk—
—
40.7
—
1.8
42.5
Operational risk31.0
24.1
35.7
3.3
21.3
115.4
At 31 Dec 2015130.7
302.2
330.3
18.0
321.8
1,103.0
RWAs by geographical region
RWAs by global businessRWAs by global business
Europe
Asia
MENA
North
America

Latin
America

Total

RBWM

CMB
GB&M
GPB
Corporate Centre
Total
$bn
$bn
$bn
$bn
$bn
$bn
Credit risk205.8
260.0
49.0
118.5
22.4
655.7
Counterparty credit risk30.9
16.1
1.2
12.6
1.2
62.0
Market risk1
30.8
21.3
1.4
6.8
0.5
41.5
Operational risk30.9
36.6
7.5
12.8
10.2
98.0
At 31 Dec 2016298.4
334.0
59.1
150.7
34.3
857.2
 $bn
$bn
$bn
$bn
$bn
$bn
Credit risk231.6
373.6
59.2
156.4
55.1
875.9
94.2
277.3
180.2
13.0
120.5
685.2
Counterparty credit risk31.9
17.1
2.0
14.6
3.6
69.2
—
—
52.4
0.2
1.9
54.5
Market risk30.5
21.9
1.5
6.5
1.6
42.5
—
—
35.9
—
3.0
38.9
Operational risk33.2
47.1
7.9
14.1
13.1
115.4
27.3
23.7
30.8
2.8
8.1
92.7
At 31 Dec 2015327.2
459.7
70.6
191.6
73.4
1,103.0
At 31 Dec 2017121.5
301.0
299.3
16.0
133.5
871.3
 
Credit risk84.6
250.6
170.8
12.2
137.5
655.7
Counterparty credit risk—
—
59.1
0.2
2.7
62.0
Market risk—
—
38.5
—
3.0
41.5
Operational risk30.5
25.3
32.0
2.9
7.3
98.0
At 31 Dec 2016115.1
275.9
300.4
15.3
150.5
857.2
RWAs by geographical region
 Europe
Asia
MENA
North
America

Latin
America

Total
 $bn
$bn
$bn
$bn
$bn
$bn
Credit risk225.9
284.2
47.7
101.2
26.2
685.2
Counterparty credit risk27.8
13.0
1.1
10.9
1.7
54.5
Market risk1
29.0
23.5
3.3
7.1
1.0
38.9
Operational risk28.9
37.1
7.1
12.1
7.5
92.7
At 31 Dec 2017311.6
357.8
59.2
131.3
36.4
871.3
       
Credit risk205.8
260.0
49.0
118.5
22.4
655.7
Counterparty credit risk30.9
16.1
1.2
12.6
1.2
62.0
Market risk1
30.8
21.3
1.4
6.8
0.5
41.5
Operational risk30.9
36.6
7.5
12.8
10.2
98.0
At 31 Dec 2016298.4
334.0
59.1
150.7
34.3
857.2
1RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.

164
HSBC Holdings plc Annual Report and Accounts 2016167

Report of the Directors | Capital

RWA movement by global business by key driver
Credit risk, counterparty credit risk and operational risk Credit risk, counterparty credit risk and operational risk 

RBWM

CMB
GB&M
GPB
Corporate Centre
Market
risk

Total
RWAs


RBWM

CMB
GB&M
GPB
Corporate Centre
Market
risk

Total
RWAs

$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
RWAs at 1 Jan 2016130.8
302.1
289.6
18.0
320.0
42.5
1,103.0
RWA movements













RWAs at 1 Jan 2017115.1
275.9
261.9
15.3
147.5
41.5
857.2
RWA initiatives(10.1)(39.0)(48.1)(0.3)(39.8)(5.9)(143.2)(0.4)(13.8)(27.6)(0.2)(24.8)(4.0)(70.8)
Foreign exchange movement(4.1)(15.7)(10.1)(0.7)(7.5)—
(38.1)
Acquisitions and disposals—
—
—
—
—
—
—
Book size0.7
16.6
22.9
(1.5)(4.9)4.9
38.7
Book quality(1.5)7.7
8.5
—
0.3
—
15.0
Asset size4.4
16.7
21.9
0.8
(0.6)5.2
48.4
Asset quality0.2
1.5
(6.1)0.2
(0.4)—
(4.6)
Model updates(0.9)—
(0.1)—
—
—
(1.0)1.1
5.0
0.3
(0.1)—
(0.1)6.2
– portfolios moving onto IRB1 approach
—
—
(0.1)—
—
—
(0.1)
– portfolios moving onto IRB approach0.2
—
—
(0.1)—
(0.1)—
– new/updated models(0.9)—
—
—
—
—
(0.9)0.9
5.0
0.3
—
—
—
6.2
Methodology and policy0.2
4.2
(0.8)(0.2)(120.6)—
(117.2)(1.8)3.6
4.8
(0.5)5.8
(3.7)8.2
– internal updates1.0
4.2
(0.8)(0.2)(1.0)—
3.2
(2.5)3.6
4.8
(0.5)5.8
(3.7)7.5
– external updates – regulatory(0.8)—
—
—
(119.6)—
(120.4)0.7
—
—
—
—
—
0.7
Acquisitions and disposals(0.1)(0.4)—
—
(0.5)—
(1.0)
Foreign exchange movements3.0
12.5
8.2
0.5
3.5
—
27.7
Total RWA movement(15.7)(26.2)(27.7)(2.7)(172.5)(1.0)(245.8)6.4
25.1
1.5
0.7
(17.0)(2.6)14.1
RWAs at 31 Dec 2016115.1
275.9
261.9
15.3
147.5
41.5
857.2
RWAs at 31 Dec 2017121.5
301.0
263.4
16.0
130.5
38.9
871.3
1Internal ratings based.
RWA movement by geographical region by key driver
Credit risk, counterparty credit risk and operational risk Credit risk, counterparty credit risk and operational risk 
Europe
Asia
MENA
North
America

Latin
America

Market risk
Total RWAs
Europe
Asia
MENA
North
America

Latin
America

Market
 risk

Total
 RWAs

$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
RWAs at 1 Jan 2016296.7
437.8
69.1
185.0
71.9
42.5
1,103.0
RWA movements













RWAs at 1 Jan 2017267.6
312.7
57.7
143.9
33.8
41.5
857.2
RWA initiatives(28.4)(19.1)(3.6)(43.6)(42.6)(5.9)(143.2)(26.6)(14.0)(1.4)(22.2)(2.6)(4.0)(70.8)
Foreign exchange movement(26.9)(7.8)(6.5)0.9
2.2
—
(38.1)
Acquisitions and disposals—
—
—
—
—
—
—
Book size20.4
12.6
(1.4)0.2
2.0
4.9
38.7
Book quality4.1
7.6
0.2
2.8
0.3
—
15.0
Asset size11.1
27.8
(0.2)1.0
3.5
5.2
48.4
Asset quality1.4
(5.7)1.1
(2.3)0.9
—
(4.6)
Model updates0.2
—
—
(1.2)—
—
(1.0)6.4
0.1
—
(0.2)—
(0.1)6.2
– portfolios moving onto IRB1 approach
(0.1)—
—
—
—
—
(0.1)
– portfolios moving onto IRB approach—
0.1
—
—
—
(0.1)—
– new/updated models0.3
—
—
(1.2)—
—
(0.9)6.4
—
—
(0.2)—
—
6.2
Methodology and policy1.5
(118.4)(0.1)(0.2)—
—
(117.2)3.7
6.2
(0.1)2.1
—
(3.7)8.2
– internal updates2.6
0.6
(0.1)(0.2)0.3
—
3.2
3.6
5.7
(0.1)2.0
—
(3.7)7.5
– external updates – regulatory(1.1)(119.0)—
—
(0.3)—
(120.4)0.1
0.5
—
0.1
—
—
0.7
Acquisitions and disposals—
—
(1.0)—
—
—
(1.0)
Foreign exchange movements19.0
7.2
(0.2)1.9
(0.2)—
27.7
Total RWA movement(29.1)(125.1)(11.4)(41.1)(38.1)(1.0)(245.8)15.0
21.6
(1.8)(19.7)1.6
(2.6)14.1
RWAs at 31 Dec 2016267.6
312.7
57.7
143.9
33.8
41.5
857.2
RWAs at 31 Dec 2017282.6
334.3
55.9
124.2
35.4
38.9
871.3
1Internal ratings based.




168
HSBC Holdings plc Annual Report and Accounts 2016

Leverage ratio
Leverage ratio
 At
 At 31 Dec 31 Dec
31 Dec
 2016
2015
 2017
2016
Ref*

 $bn
$bn
 $bn
$bn
20Tier 1 capital142.7
127.3
21
Total leverage ratio exposure2,354.4
2,794.4
Total leverage ratio exposure2,557.1
2,354.4
20
Tier 1 capital (end point)127.3
140.2
 %
%
22
Leverage ratio5.4%5.0%
Leverage ratio5.6
5.4
EU-23
Choice on transitional arrangements for the definition of the capital measureFully phased in
Fully phased in
Choice of transitional arrangements for the definition of the capital measureFully phased-in
Fully phased-in
Total leverage ratio exposure – quarterly average2,438.7
2,869.4
UK leverage ratio exposure – quarterly average2,351.4
n/a
Leverage ratio – quarterly average5.4%5.0%
 %
%
UK leverage ratio – quarterly average6.1
n/a
UK leverage ratio – quarter end6.1
5.7
*The references identify the lines prescribed in the EBA template.

Our leverage ratio calculated on CRR basisin accordance with CRD IV was 5.6% at 31 December 2017, up from 5.4% at 31 December 2016, up from 5.0% at 31 December 2015. This2016. Growth in tier 1 capital was mainlypartly offset by a rise in exposure, primarily due to a reductiongrowth in customer advances, balances at central banks and trading assets.
In October 2017, following the exposure measure resulting fromFPC recommendation, the change in regulatory treatment of our investment in BoCom.
The Group’sPRA increased the minimum requirement for the UK leverage ratio onfrom 3% to 3.25%, following a modified basis, excluding qualifyingchange in its guidance to exclude central bank balances was 5.7%. This modification tofrom the leverage ratio exposure measure was made following recommendations by the Bank of England’s Financial Policy Committee.measure.
The Financial Policy Committee has stated that it intends to recalibrate the leverage ratio in 2017 to take account of this modification. HSBC’s UK leverage ratio on a modified basis should be considered in this context.
At 31 December 2016,2017, our UK minimum leverage ratio requirement of 3%3.25% was supplemented by an additional leverage ratio buffer of 0.2%. This additional buffer translates to0.4% and a value of $5bn. The countercyclical leverage ratio
buffer results in noof 0.1%. These additional buffers translate into capital impact.values of $10.3bn and $1.8bn respectively. We comfortably exceeded these leverage requirements.
Pillar 3 disclosure requirements
Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make firms more transparent by requiring publication, at least annually, of wide-ranging information on their risks, capital and management. Our Pillar 3 Disclosures 2016at December 2017 is published on our website, www.hsbc.com, under Investor Relations.


HSBC Holdings plc Annual Report and Accounts 2016
169165
 

Report of the Directors | Corporate Governance

Corporate Governance Report
 Page
Statement of compliance170
The Board170
166
Operation of the Board
166
Director and Group Managing Director biographies171
167
Appointment and inductionBoard of Directors176
Operation of the Board176
Conflicts of interest and indemnification176
Board performance evaluation176
Shareholder engagement and the AGM177
171
Board committees178
172
Internal control183
178
Internal audit
179
Going concern184
179
Share capital and other disclosures184
179
Employees188
183
Statement of compliance
The statement of corporate governance practices set out on pages 170 to 212 and the information referred to therein constitutes the Corporate Governance Report of HSBC Holdings. The websites referred to do not form part of
this Report.
Relevant corporate governance codes
UK Corporate Governance Codewww.frc.org.uk
Hong Kong Corporate Governance Code (set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited)www.hkex.com.hk
Descriptions of the roles and responsibilities of the:185
– Group Chairman
– Group Chief Executive
– Senior Independent Director
www.hsbc.com/about-hsbc/corporate-governance/board-committees
Board and senior managementwww.hsbc.com/about-hsbc/leadership
Roles and responsibilities of the Board and its committeeswww.hsbc.com/about-hsbc/corporate-governance/board-committees
Board’s policies on:
– Diversity
– Shareholder communication
www.hsbc.com/investor-relations/governance/corporate-governance-codes
Global Internal Audit Charterwww.hsbc.com/investor-relations/governance/internal-control
HSBC is subject to corporate governance requirements in both the UK and Hong Kong. During 2016, HSBC complied with the applicable provisions of the UK Corporate Governance Code, and also the requirements of the Hong Kong Corporate Governance Code.
Under the Hong Kong Code the Audit Committee should be responsible for the oversight of all risk management and internal control systems. HSBC’s Group Risk Committee is responsible for oversight of internal control, other than internal control over financial reporting, and risk management systems. This is permitted under the UK Corporate Governance Code.
The Board has codified obligations for transactions in HSBC Group securities in accordance with the requirements of the Market Abuse Regulation and the rules governing the listing of securities on The Stock Exchange of Hong Kong Limited (‘HKEx’), save that the HKEx has granted waivers from strict compliance with the rules that take into account accepted practices in the UK, particularly in respect of employee share plans. HSBC is in discussion with the HKEx to update these waivers to take account of the Market Abuse Regulation. Following specific enquiry, each Director has confirmed that he or she has complied with their obligations in respect of transacting in Group securities during the year.
The Board
The Board aims to promote the Group’s long-term success, deliver sustainable value to shareholders and promote a culture of openness and debate.
Led by the Group Chairman, the Board sets the Group’s strategy and risk appetite. It also approves capital and operating plans for achieving strategic objectives on the recommendation of management.
Powers ofGroup Chairman
Douglas Flint retired as Group Chairman on 30 September 2017. Mark Tucker was appointed to the Board
The Board is responsible for overseeing the management of HSBC globally and, in so doing, may exercise its powers, subject to any relevant laws, regulations and HSBC Holdings’ Articles of Association (the ‘Articles of Association’).
Although the Board delegates day-to-day management of the business and implementation of strategy to the as an independent non-executive Director on 1 September 2017. He became non-executive Group Chief Executive, certain matters, including annual operating plans, risk appetite and performance targets, procedures for monitoring and control of operations, approval of credit or market risk limits, acquisitions, disposals, investments, capital expenditure or realisation or creation of a new venture, specified senior appointments and any substantial change in balance sheet management policy are reserved by the Board for approval.Chairman on 1 October 2017.
Executive Directors
The Group Chairman, the Group Chief Executive, the Group Finance Director and the Group Chief Risk Officer are HSBC employees.
Non-executiveIndependent non-executive Directors
The Board comprises a majority of independent non-executive Directors. Their role is to constructively challenge and scrutinise the performance of management and to help develop proposals on strategy. They also review the performance of management in meeting agreed goals and objectives and monitor the Group’s risk profile.
The Board considers all non-executive Directors to be independent of HSBC. The BoardHSBC and has concluded that there are no relationships or circumstances likely to affect any individual non-executive Director’s judgement. To satisfy the Rules Governing the Listing of Securities on the HKEx, all non-executive Directors have provided confirmation of their independence during the year. Sam Laidlaw has served on the Board for more than nine years and, in that respect only, does not meet the usual criteria for independence set out in the UK Corporate Governance Code and the Hong Kong Corporate Governance Code. The Board has determined Sam Laidlawnon-executive Group Chairman was considered to be independent in characterupon appointment.
Board and judgement, notwithstanding his length of service, taking into account his continuing level of constructive challenge of management and strong contribution to Board discussions. He will, however, be retiring from the Board at the conclusion of the forthcoming AGM.
Role and support of Directorsexecutive responsibilities
The roles of Group Chairman and Group Chief Executive are separate, with a clear division of responsibilities between the running of the Board and executive responsibility for running HSBC’s business. Their respective
Jonathan Symonds was appointed as Senior Independent Director (‘SID’) in April 2017 following the retirement of Rachel Lomax.
The roles of the Group Chairman, Group Chief Executive and SID are set out in writing and are available on the website at www.hsbc.com/about-hsbc/corporate-governance/board-committees, alongboard-committees.
The Board delegates day-to-day management of the business and implementation of strategy to the Group Chief Executive. To assist the Group Chief Executive in his day-to-day management of the Group, as delegated by the Board, he is supported with recommendations and advice from the Group Management Board (‘GMB’), an executive forum which he chairs.
There are special meetings of the GMB that provide oversight of risk matters (the Risk Management Meeting (‘RMM’), chaired by the Group Chief Risk Officer) and of financial crime risk (the
Financial Crime Risk Management Meeting, chaired by the Group Head of Financial Crime Risk).
Powers of the Board
In exercising its duty to promote the success of the Company, the Board is responsible for overseeing the management of HSBC globally and, in so doing, may exercise its powers, subject to any relevant laws, regulations and HSBC Holdings’ Articles of Association (the ‘Articles of Association’).
However, certain matters, including the review and approval of annual operating plans, risk appetite, performance targets, credit or market risk limits, acquisitions, disposals, investments, capital expenditure or realisation or creation of a new venture, specified senior appointments and any substantial change in balance sheet management policy, are reserved to the Board for its approval.
Operation of the Board
The Board regularly reviews reports on performance against financial and other strategic objectives, key business challenges, risk, business developments, and investor and external relations. During 2017, it also considered presentations on strategy and performance by each of the global businesses and across the principal geographical areas.
All of HSBC’s activities involve the measurement, evaluation, acceptance and management of risk or combinations of risks. The Board, advised by the Group Risk Committee (‘GRC’), the Conduct & Values Committee (‘CVC’) and the Financial System Vulnerabilities Committee (‘FSVC’), promotes a strong risk governance culture which shapes the Group’s attitude to risk.The Board and these committees support the maintenance of a strong risk management framework.
Under the direction of the Group Chairman, the Group Company Secretary is responsible for ensuring good information flows within the Board and its committees and between senior management and non-executive Directors, as well as facilitating induction and assisting with professional development as required.
The Group Chairman meets with the role descriptionindependent non-executive Directors without the executive Directors in attendance after each Board meeting and otherwise, as necessary.
The Directors are encouraged to have free and open contact with management at all levels and full access to all relevant information. When attending off-site Board meetings and when travelling for other reasons, non-executive Directors are encouraged to visit local business operations and meet local management.
Directors may take independent professional advice, if necessary, at HSBC Holdings’ expense.
Board performance evaluation
The Board is committed to regular, independent evaluation of its own effectiveness and that of its committees. Following on from the review of the Senior Independent Board undertaken by JCA Group in 2016, the actions identified and agreed were addressed during 2017. These actions included a stronger focus for the Board on individual business unit strategy and performance, as well as opportunities to address particular business themes, such as digital and IT innovation. The actions that have not already been closed out from this review form part of an ongoing assessment of the Group's governance framework being led by the Group Chairman.
Director (‘SID’).performance evaluation
For non-executive Directors, individual performance evaluation is undertaken by the Group Chairman. In 2017, this involved a discussion about each Director’s individual contribution, their individual training and development needs, and the time commitment that is required to continue to deliver the role effectively.
Executive Directors’ individual performance evaluation is undertaken as part of the performance management process for all employees. The results are considered by the Group Remuneration Committee when determining variable pay awards


170166
HSBC Holdings plc Annual Report and Accounts 2016

each year, as set out in the Directors' Remuneration Report contained in this Annual Report.
The Group Chairman’s performance is evaluated by the non-executive Directors, led by the SID.
Non-executive Group Chairman
Mark E Tucker, 60
Non-executive Group Chairman
Appointed to the Board: September 2017
Group Chairman since October 2017
marktucker98edit2.jpg
Chairman of the Nomination Committee
Skills and experience: Mark has extensive experience in the financial services industry in Asia and the UK. Most recently he was Group Chief Executive and President of AIA Group Limited (‘AIA’). Before joining AIA, Mark was Group Chief Executive of Prudential plc and the founding Chief Executive of Prudential Corporation Asia Limited. Mark also previously served as a non-executive director of the Court of The Bank of England, as an independent non-executive director of the Goldman Sachs Group and as Group Finance Director of HBOS plc.
Current appointments include: Serves on the Asia Business Council and the Advisory Board of the Asia Global Institute.
Executive Directors
Douglas Flint, CBE, 61
Group Chairman
Appointed to the Board: December 1995
Group Chairman since December 2010
image6a01.jpg
Skills and experience: Douglas has extensive board-level experience and knowledge of governance primarily having served on the boards of HSBC and BP plc, and as a partner of KPMG. He has expertise in finance and risk management in banking, multinational financial reporting, treasury and securities trading operations. He joined HSBC as Group Finance Director in 1995 and, prior to becoming Chairman in 2010, his responsibilities broadened to Chief Financial Officer, and Executive Director for Risk and Regulation.
He is a member of the Institute of Chartered Accountants of Scotland and a Fellow of the Chartered Institute of Management Accountants.
Current appointments include: Board member of the Institute of International Finance, member of the International Business Leaders Advisory Councils of the mayors of both Beijing and Shanghai, a UK Business Ambassador at the invitation of the UK Prime Minister, non-executive Chairman of the Just Finance Foundation, trustee of the Royal Marsden Cancer Charity Board and a member of its Investment Committee.
Stuart Gulliver, 5758
Group Chief Executive
Appointed to the Board: May 2008
Group Chief Executive since January 2011
Retiring from Board: 21 February 2018
 
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Skills and experience: Stuart has more than 3637 years’ international banking experience, having joined HSBC in 1980. He played a leading role in developing and expanding Global Banking and Markets, and has held key roles in the Group’s operations worldwide, working in London, Hong Kong, Tokyo, Kuala Lumpur and the United Arab Emirates. Former appointments include Chairman of HSBC Bank plc, HSBC Bank Middle East Limited, HSBC Private Banking Holdings (Suisse) SA and HSBC France. He was also Deputy Chairman of HSBC Trinkaus & Burkhardt AG and a member of its supervisory board.
Current appointments include: Chairman of the Group Management Board, and The Hongkong and Shanghai Banking Corporation Limited.
Iain Mackay, 5556
Group Finance Director
Appointed to the Board: December 2010
 
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Skills and experience: Iain has extensive financial and international experience, having worked in London, Paris, the US, Africa and Asia. He joined HSBC in 2007 as Chief Financial Officer of HSBC North America Holdings Inc. Other former
appointments include director of Hang Seng Bank Limited; Chief Financial Officer, HSBC Asia-Pacific. Before joining HSBC, Iain worked at General Electric (‘GE’), serving as Controller of its Global
Consumer Finance Unit, Chief Financial Officer of GE Consumer Finance Americas, and Chief Financial Officer of GE Healthcare – Global Diagnostic Imaging. Iain is a member of the Institute of Chartered Accountants of Scotland.
Current appointments include: Member of the Board of Trustees of the British Heart Foundation and chairman of its audit and risk committee. Iain is also an Independent Member of the Court of the University of Aberdeen.
Marc Moses, 5960
Group Chief Risk Officer
Appointed to the Board: January 2014
 
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Skills and experience:Marc joined HSBC in 2005 as Chief Financial and Risk Officer for Global Banking and Markets, and in December 2010 became Group Chief Risk Officer. He has extensive risk management and financial experience. Marc is a Fellow of the Institute of Chartered Accountants in England and Wales. He was European chief financial officer at J.P. Morgan and an audit partner at PricewaterhouseCoopers.Price Waterhouse.
Independent non-executive Directors
Phillip Ameen, 6869
Independent non-executive Director
Appointed to the Board: January 2015

 
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Member of the Group Audit Committee.
Skills and experience: As a Certified Public Accountant withPhillip has extensive financial and accounting experience, Phillipexperience. He served as Vice President, Comptroller, and Principal Accounting Officer of GE.General Electric. Prior to joining General Electric,that, he was a partner of KPMG. He also served on the International Financial Reporting Interpretations Committee of the International Accounting Standards Board, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board Emerging Issues Task Force. He was also Chairman of the Committee on Corporate Reporting of Financial Executives International, Chairman of Skyonic Corporation and a trustee of the Financial Accounting Foundation.
Current appointments include: A non-executive director of HSBC North America Holdings Inc., HSBC Bank USA N.A., HSBC Finance Corporation and HSBC USA Inc.
Kathleen Casey, 5051
Independent non-executive Director
Appointed to the Board: March 2014
 
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Member of the Group Audit Committee and the Financial System Vulnerabilities Committee.


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Skills and experience:Kathleen has extensive financial regulatory policy experience. She is a former Commissioner of the US Securities and Exchange Commission, and acted as its principal representative in multilateral and bilateral regulatory dialogues with the G-20 Financial Stability Board and the International Organisation of Securities Commissions. Other former appointments include Staff Director and Counsel to the United States Senate Committee on Banking, Housing, and Urban Affairs; Chair of the Alternative Investment Management

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Association; and Legislative Director and Chief of Staff for a US Senator.
Current appointments include: Senior adviser to Patomak Global Partners and to a number of public bodies in the US.US, and a member of the Board of Trustees of the Financial Accounting Foundation.
Laura Cha, GBS, 67GBM, 68
Independent non-executive Director
Appointed to the Board: March 2011
 
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ChairChairman of the Philanthropic & Community Investment Oversight Committee and a member of the Conduct & Values Committee and the Nomination Committee.
Skills and experience: Laura has extensive regulatory and policy making experience in the finance and securities sector in Hong Kong and mainland China. She is the former Vice Chairman of the China Securities Regulatory Commission. Other former appointments include serving as a non-executive director of Bank of Communications Co., Limited; Hong Kong Exchanges and Clearing Limited; and Tata Consultancy Services Limited. She also served as chair of the University Grants Committee in Hong Kong, and was Deputy Chairman of the Securities and Futures Commission in Hong Kong.
Current appointments include: A non-executive Deputy Chairman of The Hongkong and Shanghai Banking Corporation Limited, Chairman of Hong Kong’s Financial Services Development Council and a non-executive director of China Telecom Corporation Limited, Unilever PLC and Unilever N.V.
Henri de Castries, 6263
Independent non-executive Director
Appointed to the Board: March 2016
 
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Member of the Group Remuneration Committee
Skills and experience: Henri has more than 25 years’ international experience in the financial services industry. He joined AXA in 1989 and hisholding a number of senior roles, included responsibility for the group’s asset management, financial and real-estate businesses, the oversight of North American and UK operations, and the preparation and execution of all the group’s major mergers and acquisitions undertaken in the 1990s. Henri retiredultimately as Chairman and Chief Executive Officer of AXA SA onuntil 1 September 2016. Other former appointments include serving as a director of AllianceBernstein Corporation.
Current appointments include:Chairman of Europe and Special Advisor of General Atlantic, Chairman of Institut Montaigne, a French think-tank; non-executivethe lead independent director of Nestlé S.A. and a non-executive director of the French National Foundation for Political Science.
Lord Evans of Weardale, 5960
Independent non-executive Director
Appointed to the Board: August 2013
 
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Chairman of the Financial System Vulnerabilities Committee, and a member of the Conduct & Values Committee and the Philanthropic & Community Investment Oversight Committee.
Skills and experience: Jonathan has extensive30 years of experience in national security policy and operations. He was formerly Director General of the UK’sUK‘s Security Service (MI5) with responsibility for its leadership, policy and strategy, and areas including international and domestic counter-terrorism, counter-espionage and counter-proliferation activities, and cybersecurity. Jonathan held various positions during a 30-year career in the Security Service, which included responsibility for thehad oversight of the Joint Terrorist Analysis Centre and the Centre for the
Protection of National Infrastructure, and attendingattended the National Security Council.
Current appointments include: A non-executive director of Ark Data Centres and an adviser to various cybersecurity and technology companies.
Joachim Faber,6667
Independent non-executive Director
Appointed to the Board: March 2012
 
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Chairman of the Group Risk Committee.
Skills and experience: Joachim has extensive international experience in banking and asset management. He is a former Chief Executive Officer of Allianz Global Investors AG and is a former member of the management board of Allianz SE. He spent 14 years with Citicorp, holding positions in Trading and Project Finance, and as Head of Capital Markets for Europe, North America and Japan. He was also chairmanChairman of various Allianz subsidiaries. He was previously a member of the supervisory board and chairmanChairman of the audit and risk committee of OSRAM Licht AG. He was also a member of the German Council for Sustainable Development and a member of the advisory board of the Siemens Group Pension Board.
Current appointments include: Chairman of the supervisory board of Deutsche Börse AG and the Shareholder Committee of Joh. A. Benckiser SARL, and a director of Coty Inc. and Allianz France S.A.
Sam Laidlaw, 61
Independent non-executive Director
Appointed to the Board: January 2008
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Chairman of the Group Remuneration Committee and the Nomination Committee.
Skills and experience: Sam has had responsibility for businesses in four continents and has particular experience in the energy sector. He was Chief Executive Officer of Centrica plc and lead non-executive board member of the UK


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Department for Transport. He was also an Executive Vice President of Chevron Corporation and a member of the UK Prime Minister’s Business Advisory Group. He is a qualified solicitor with a Master’s in business administration.
Current appointments include: Chair of the National Centre for Universities and Business, Chair of the Global Leadership Council for the Saïd Business School and Executive Chairman of Neptune Oil & Gas Limited. Sam was also appointed as a non-executive director of Rio Tinto plc and Rio Tinto Limited on 10 February 2017.
Irene Lee, 6364
Independent non-executive Director
Appointed to the Board: July 2015
 
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Skills and experience: Irene has more than 3040 years’ finance industry experience, having held senior investment banking and fund management positions in the UK, the US and Australia, including positions at Citibank and the Commonwealth Bank of Australia. Other former appointments include serving as a member of the Advisory Council of J.P. Morgan Australia and the Australian Takeovers Panel.
Current appointments include: Executive Chairman of Hysan Development Company Limited and a non-executive director of The Hongkong and Shanghai Banking Corporation Limited, Hang Seng Bank Limited, Cathay Pacific Airways Limited and CLP Holdings Limited and Noble Group Limited.
John Lipsky, 7071
Independent non-executive Director
Appointed to the Board: March 2012
 
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Member of the Group Risk Committee, the Nomination Committee and the Group Remuneration Committee.
Skills and experience: John worked for J.P. Morgan in Chile, New York, Washington and London, and interacted with financial institutions, central banks and governments in many countries. He served at the International Monetary Fund (IMF) in Washington and Chile, for Salomon Brothers in New York and London, and for JP Morgan in New York. At JP Morgan, he was Vice Chair of the Investment Bank, and at the IMF he served as the First Deputy Managing Director – also serving pro tem as the Acting Managing Director and Special Adviser.Director. Other former appointments include serving as a trusteeTrustee of the Economic Club of New York, a Global Policy Adviser for Anderson Global Macro, LLC and Chairman of the World Economic Forum’s Global Agenda Council on the International Monetary System.
Current appointments include: Senior appointments and advisory positions in international economic research organisations.
Rachel Lomax, 71
Senior Independent Director
Appointed to the Board: December 2008
Senior Independent Director since April 2015
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Chair of

Council on the Conduct & Values Committee, and a member of the Group Risk Committee and the Nomination Committee.
Skills and experience: Rachel was Deputy Governor of the Bank of England, and Permanent Secretary at the UK Government Departments for Transport and Work and Pensions, and the Welsh Office. She was a non-executive director of Reinsurance Group of America Inc. and The Scottish American Investment Company P.L.C.International Monetary System.
Current appointments include: A non‑executive directorPeterson Distinguished Scholar at the Kissinger Centre for Global Affairs of Arcus European Infrastructure Fund GP LLP, Heathrow Airport Holdings Limited, SETL Development Limited and Serco Group plc,Johns Hopkins University‘s School of Advanced International Studies. He also serves as well as Chairmanthe Vice Chair of the latter’s corporate responsibility committee.National Bureau of Economic Research (NBER), and of the Centre for Global Development.
Heidi Miller, 6364
Independent non-executive Director
Appointed to the Board: September 2014
 
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Member of the Group Risk Committee.
Skills and experience: Heidi is a former President of International at JP Morgan Chase, and was responsible for leading the global expansion and the international business strategy across its investment bank, asset management, and treasury and securities services divisions. She was also a non-executive director of Merck & Co., Inc. and Progressive Corp.; Executive Vice President and Chief Financial Officer of Bank One Corporation; Senior Executive Vice President of Priceline.com Inc.; and Executive Vice President and Chief Financial Officer of Citigroup Inc.
Current appointments include: ChairChairman of HSBC North American Holdings Inc., a non-executive director of First Data Corporation and General Mills Inc., and an advisory director of SRS Acquiom LLC.
David Nish, 5657
Independent non-executive Director
Appointed to the Board: May 2016
 
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Member of the Group Audit Committee and Group Remuneration Committee.
Skills and experience: David served as Chief Executive Officer of Standard Life plc between 2010 and 2015, having joined as Finance Director in 2006. David led its investment in technology, complementary acquisitions and the disposal of the group’s Canadian operations. Other former appointments include non-executive director of the UK Green Investment Bank plc, Group Finance Director of Scottish Power plc, non-executive director of HDFC Life (India) and partner of Price Waterhouse. He is a qualified chartered accountant.
Current appointments include: A non-executive director of Vodafone plc, London Stock Exchange Group plc UK Green Investment Bank plc and Zurich Insurance Group.
Jonathan Symonds,CBE, 5758
Independent non-executive Director
Appointed to the Board: April 2014
Senior Independent Director since April 2017
 
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Chairman of the Group Audit Committee and a member of the Nomination Committee and the Conduct & Values Committee.


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Skills and experience: Jonathan is a former Chief Financial Officer of Novartis AG and AstraZeneca plc. He was also a partner and Managing Director of Goldman Sachs, a partner of KPMG, and a non-executive director and chair of the Audit Committee of Diageo plc. He is a fellow of the Institute of Chartered Accountants in England and Wales.
Current appointments include: Chairman of HSBC Bank plc Innocoll AG and Proteus Digital Health Inc., and a non-executive director of Genomics England Limited.
Jackson Tai, 6667
Independent non-executive Director
Appointed to the Board: September 2016
 
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MemberChairman of the Group Risk Committee and member of the Financial System Vulnerabilities Committee.
Skills and experience: Jackson was formerly Vice Chairman and Chief Executive of DBS Group and DBS Bank Ltd, having served the group as Chief Financial Officer and then as President and Chief Operating Officer. He previously worked at JPJ.P. Morgan & Co. Incorporated as an investment banker in New York, Tokyo and San Francisco. Other former appointments include non-executive director of Bank of China Limited, Singapore Airlines, NYSE Euronext, ING Groep N.V., CapitaLand Ltd, SingTel Ltd. and Jones Lang LaSalle Inc. Jackson also served as Vice-ChairmanVice Chairman of Islamic Bank of Asia.
Current appointments include: Non-executive director of Eli Lilly and Company, Koninklijke Philips Electronics N.V., MasterCardMastercard Incorporated and the Canada Pension Plan Investment Board.
Pauline van der Meer Mohr, 57
Independent non-executive Director
Appointed to the Board: September 2015
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MemberChairman of the Group Remuneration Committee the Group Nomination Committee and the Conduct & Values Committee and member of the Group Nomination Committee.
Skills and experience: Pauline has extensive legal and human resources experience across a number of different sectors, and contributed to the Dutch Banking Code Monitoring Commission. Former appointments include President of Erasmus University Rotterdam; Senior Executive Vice President and Head of Group Human Resources at ABN AMRO Bank NV; Group Human Resources Director at TNT NV; HR Director, Information Technology, Royal Dutch Shell Group; and Senior Legal Counsel, Shell International.
Current appointments include: PresidentChair of the supervisory board of EY Netherlands and member of the supervisory boards of ASML Holding N.V. and Royal DSM N.V.
Paul Walsh, 61
Independent non-executive Director
Appointed to the Board: January 2016
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Member of the Group Remuneration Committee and the Group Nomination Committee.
Skills and experience: Paul was Group Chief Executive of Diageo plc for 12 years, having originally joined the Board of its predecessor, Grand Metropolitan plc, in 1995. He was also a non-executive director of Unilever PLC, United Spirits Limited and Centrica plc. Paul is a Fellow of the Chartered Institute of Management Accountants.
Current appointments include: Non-executive Chairman of Compass Group PLC, Avanti Communications Group Plc and Chime Communications Limited, and a non-executive director of FedEx Corporation and RM2 International S.A.
Group Company Secretary
Ben Mathews, 4950
Group Company Secretary
 
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Ben joined HSBC in June 2013 and became Group Company Secretary in July 2013. He is a Fellow of the Institute of Chartered Secretaries and Administrators. Former appointments include Group Company Secretary of Rio Tinto plc and of BG Group plc.
Role of the Group Company Secretary
All Directors have access to the advice and services of the Group Company Secretary, who is responsible to the Board for ensuring that Board procedures and all applicable rules and regulations are complied with, and for advising the Board on corporate governance matters.
Under the direction of the Group Chairman, the Group Company Secretary is responsible for ensuring good information flows within the Board and its committees and between senior management and non-executive Directors, as well as facilitating induction and assisting with professional development as required.


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Group Chief Executive Designate
John Flint,49
Group Chief Executive Designate
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John joined HSBC in 1989 and became a Group Managing Director in 2013. Former appointments include: a director of HSBC Private Banking Holdings (Suisse) SA, a director of HSBC Bank Canada, Chief of Staff to the Group Chief Executive and Group Head of Strategy and Planning, Chief Executive Officer HSBC Global Asset Management, Group Treasurer and Deputy Head of Global Markets. John was CEO, Retail Banking and Wealth Management until January 2018. John was appointed as a director of The HongKong and Shanghai Banking Corporation Limited on 16 January 2018 and will take over from Stuart Gulliver as Group Chief Executive on 21 February 2018.
Group Managing Directors
Elaine Arden, 49
Group Head of Human Resources
Elaine joined HSBC in June 2017 as Group Head of Human Resources. She has previously held senior human resources and employee relations roles in a number of other financial institutions. Elaine is a fellow of the Chartered Institute of Banking in Scotland and a member of the Chartered Institute of Personnel & Development.
Samir Assaf, 5657
Chief Executive, Global Banking and Markets
Samir joined HSBC in 1994 and became a Group Managing Director in 2011. He is Chairman and a non-executive director of HSBC France; a director of HSBC Trinkaus & Burkhardt AG and The Saudi British Bank. Former appointments include: a director of HSBC Bank plc; HSBC Global Asset Management Limited and HSBC Bank Egypt S.A.E.; and Head of Global Markets for Europe, Middle East and Africa.
Colin Bell, 50
Group Head of Financial Crime Risk
Colin Bell joined HSBC in July 2016 and was appointed a Group Managing Director in March 2017. Colin previously worked at UBS, where he was Head of Compliance and Operational Risk Control. He has 10 years of experience in managing risk and financial crime, following 16 years in the British Army.
Peter Boyles, 6162
Chief Executive Officer of Global Private Banking
Peter joined HSBC in 1975 and became a Group Managing Director in 2013. He is Chairman of HSBC Private Bank (Monaco) SA and a director of HSBC Global Asset Management Limited and HSBC Private Bank (UK) Limited. Former appointments include: Chief Executive of HSBC France; a director of HSBC Bank plc, HSBC Bank Malta p.l.c.plc and HSBC Trinkaus & Burkhardt AG.
Patrick Burke, 5556
President and Chief Executive Officer of HSBC USA
Patrick joined HSBC in 1989 and became a Group Managing Director in 2015. He is also an Executive Director, President and
CEO of HSBC North America Holdings Inc. and Chairman of HSBC Bank USA, N.A., HSBC Finance Corporation, HSBC USA Inc. and HSBC Global Asset Management (USA) Inc.
John Flint, 48
Chief Executive Officer, Retail Banking and
Wealth Management
John joined HSBC in 1989 and became a Group Managing Director in 2013. Former appointments include: a director of HSBC Private Banking Holdings (Suisse) SA, a director of HSBC Bank Canada, Chief of Staff to the Group Chief Executive and Group Head of Strategy and Planning, Chief Executive Officer HSBC Global Asset Management, Group Treasurer and Deputy Head of Global Markets.
Pierre Goad, 5556
Group Head of Employee Insight andGlobal Communications
Pierre first joined HSBC in 2001. In 2010 he left and joined Zurich Insurance Group as Head of Communications. He rejoined HSBC in 2011 and became a Group Managing Director in 2015. He is a director of HSBC Bank Canada. Former appointments include: Global HeadCo-Head of Communications; and Head of Corporate Development, Europe, Middle East and Global Businesses.
Pam Kaur, 5354
Group Head of Internal Audit
Pam joined HSBC and became a Group Managing Director in 2013. She is a co-opted Council member of The Institute of Chartered Accountants in England and Wales. Former appointments include: Global Head of Group Audit for Deutsche Bank AG; Chief Financial Officer and Chief Operating Officer of the Restructuring and Risk Division, Royal Bank of Scotland Group plc; Group Head of Compliance and AML, Lloyds TSB; and Global Director of Compliance, Global Consumer Group, Citigroup.Citigroup.
Stuart Levey, 5354
Chief Legal Officer
Stuart joined HSBC and became a Group Managing Director in 2012. Former appointments include: Under Secretary for Terrorism and Financial Intelligence in the US Department of the Treasury; Senior Fellow for National Security and Financial Integrity at the Council on Foreign Relations; Principal Associate Deputy Attorney General at the US Department of Justice; and a Partner at Miller, Cassidy, Larroca & Lewin LLP and at Baker Botts LLP.
Andy Maguire, 5051
Group Chief Operating Officer
Andy joined HSBC in 2014 as Group Chief Operating Officer and became a Group Managing Director in 2015. He is Chairman of HSBC Global Services (UK) Limited;Limited and a director of HSBC Global Services Limited and HSBC Group Management Services Limited. He wasis formerly a Managing Partner (UK and Ireland) of the Boston Consulting Group.
Paulo Maia, 5859
Chief Executive, Latin America
Paulo joined HSBC in 1993 and became a Group Managing Director on 1 February 2016. He is Chairman of Grupo Financiero HSBC Mexico S.A. de C.V., HSBC Argentina Holdings S.A. and a Director of HSBC North America Holdings Inc. Former appointments include: Chief Executive of HSBC Bank Canada and HSBC Bank Australia Limited.
Charlie Nunn, 46
Chief Executive Officer, Retail Banking and Wealth Management
Charlie joined HSBC in 2011 and became a Group Managing Director and CEO, Retail Banking and Wealth Management in January 2018. Charlie was previously Head of Group Retail Banking and Wealth Management, leading the teams supporting HSBC’s Retail and Wealth businesses globally. Prior to this, he was Group Head of Wealth Management and before that Global Chief Operating Officer for Retail Banking and Wealth Management. Charlie has extensive financial services experience and was formerly a Partner at Accenture and a Senior Partner at McKinsey & Co.

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Noel Quinn, 5556
Chief Executive, Global Commercial Banking
Noel joined HSBC in 1992 when the Group acquired Midland Bank and became a Group Managing Director on 1 September 2016. Former appointments include: Head of Specialised and Equity Finance, Director of Strategy & Development for Commercial Banking, Head of Commercial Finance Europe, Head of Commercial Banking UK and Head of Commercial Banking Asia.
Antonio Simoes, 4142
Chief Executive, HSBC Bank plc
Antonio joined HSBC in 2007 and became a Group Managing Director on 1 February 2016. He is a director of HSBC Bank plc and HSBC France. Former appointments include: Chief Executive of HSBC UK; Head of Retail Banking and Wealth Management, Europe; and Chief of Staff to the Group Chief Executive and Group Head of Strategy and Planning‎.‎ He is Antonio was also formerly the Chairman of the Practitioner Panel of the FCA. He was formerlyFCA, a Partner of McKinsey & Company.Company and an Associate at Goldman Sachs.
Peter Wong, 6566
Deputy Chairman and Chief Executive,
The Hongkong and Shanghai Banking Corporation Limited
Peter joined HSBC in 2005 and became a Group Managing Director in 2010. He is Chairman and non-executive Director of HSBC Bank (China) Company Limited and HSBC Bank Malaysia Berhad, and a non-executive director of Hang Seng Bank Limited.Limited and HSBC Bank Malaysia Berhad. He is also non-executive Vice Chairman of Bank of Communications Co LtdCo., Limited and an independent non-executive Director of Cathay Pacific Airways Limited. FormerOther appointments include:include President of the Hong Kong Institute of Bankers, Vice Chairman of HSBC Bank (Vietnam) Ltd; a directorthe Hong Kong General Chamber of HSBC Bank Australia Limited;Commerce and a director of Ping An Insurance (Group) Company of China, Ltd.


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ReportFirst Vice President, Board Member and Chairman of the Directors | Corporate Governance
Executive Committee and Nominating Committee of The Community Chest of Hong Kong.

Board of Directors
Appointment, retirement and re-election of Directors
Appointments to the Board are made on merit and candidates are considered against objective criteria, having due regard to the benefits of the diversity onof the Board. A rigorous selection process overseen by the Nomination Committee and based upon agreed requirements using an external search consultancy, is followed in relation to the appointment of non-executive Directors.
DuringDirectors and certain specified senior appointments. For further details on the year Henri de Castries, David Nish, Jackson Tai and Paul Walsh were appointedappointments made in 2017 please refer to the Board. Their biographies can be found on pages171to174.report of the Nomination Committee.
The number of Directors must not be less than five nor exceed 25. The Board may at any time appoint any person as a Director, either to fill a vacancy or as an addition to the existing Board. The Board may appoint any Director to hold any employment or executive office and may revoke or terminate any such appointment. Shareholders may, by ordinary resolution, appoint a person as a Director or remove any Director before the expiration of his or her period of office.
Newly appointed Directors retire at the Annual General Meeting (‘AGM’) following appointment and are eligible for election. All Directors are nominated for annual re-election by shareholders subject to continued satisfactory performance based upon an assessment by the Group Chairman and the Nomination Committee.
Non-executive Directors are appointed for an initial three-year term and, subject to re-election by shareholders at AGMs,each AGM, are typically expected to serve two three-year terms. The Board may invite a Director to serve additional periods. Any term beyond six years is subject to particularly rigorous review.
The terms and conditions of appointment of non-executive Directors are set out in a letter of appointment, which includes the expectations of them and the time estimated for them to meet their
commitment to the Group. The current anticipated minimum time commitment, which is subject to periodic review, and adjustment by the Board, is around 30 days per year. Non-executive Directors are also advised that the time they need to devote to the Group may be considerably more if they serve on Board Committees or as other matters require. All non-executive Directors have confirmed they can meet this requirement, taking into account any other commitments they have at the time of appointment, and, in practice, most devote considerably more time.
During their term of appointment, non-executive Directors are expected to consult the Group Chairman or the Group Company Secretary if they are considering whether to accept or vary any commitments outside the Group. The agreement of the Group Chairman is required if any additional or changed commitment might affect the time that a Director is able to devote to his or her role with the Group.
Letters setting out the terms of appointment of each non-executive Director are available for inspection at the registered office of HSBC Holdings.
The Board diversity policy is available at www.hsbc.com/investor-relations/governance/corporate-governance-codes.
Induction
Formal induction programmes are arranged for newly appointed Directors, based on the individual’s needs, skills and experience. Typically, these consist of a series of meetings with other Directors and senior executives, as well as local site visits, to provide familiarity with the business. Directors also receive comprehensive guidance from the Group Company Secretary on the Group’s governance framework and associated policies, as well as their duties as Directors on the Board. During the year Henri de Castries, David Nish, Paul Walsh and Jackson Tai completed a formal induction programme.
Operation of the Board
The Board regularly reviews reports on performance against financial and other strategic objectives, key business challenges, risk, business developments, and investor and external relations. During 2016, it also considered presentations on strategy and performance by each of the global businesses and across the principal geographical areas.
All of HSBC’s activities involve the measurement, evaluation, acceptance and management of risk or combinations of risks. The Board, advised by the Group Risk Committee (‘GRC’), Conduct & Values Committee (‘CVC’) and the Financial System Vulnerabilities Committee (‘FSVC’), promotes a strong risk governance culture which shapes the Group’s attitude to risk. The Board and these committees oversee the development and maintenance of a strong risk management framework.
The Group Company Secretary will ensure that agenda and supporting papers are distributed in advance of Board and Board committee meetings to allow reasonable time for review and to facilitate full discussion at the meetings.
The Chairman met with the non-executive Directors without the other executive Directors in attendance. The SID also facilitated meetings of the non-executive Directors without the attendance of executive Directors, including that of the Group Chairman.
The Directors are encouraged to have free and open contact with management at all levels and full access to all relevant information. When attending off-site Board meetings and when travelling for other reasons, non-executive Directors are encouraged to visit local business operations and meet local management.
Directors may take independent professional advice, if necessary, at HSBC Holdings’ expense.
Conflicts of interest, indemnification of Directors and contracts of significance
The Board has established a policy and procedures relating to Directors’ conflicts of interest. Where conflicts of interest arise, the Board has the power to authorise them. A review of those conflicts which have been authorised, and the terms of those authorisations, is undertaken by the Board annually.
The Articles of Association state thatcontain a qualifying third-party indemnity provision which entitles Directors are entitledand other Officers to be indemnified out of the assets of HSBC Holdings against claims from third parties in respect of certain liabilities. All Directors have the benefit of directors’ and officers’ liability insurance.
None of the Directors had, during the year, a material interest, directly or indirectly, in any contract of significance with any HSBC company. Each Director is routinely reminded of their obligations in respect of transacting in HSBC Group securities and has confirmed that he or she has complied with regulatory requirements.
Board performance evaluation
The Board is committed to regular, independent evaluation of its own effectiveness and that of its committees. For 2015/16, an independent review was undertaken by Heidrick & Struggles/JCA Group, an independent third-party firm that has no other connection with HSBC Holdings. The process involved an extensive series of interviews and meetings with the non-executive Directors, together with input from members of the Group Management Board. Actions arising from the review were presented and discussed in detail with the Board in February 2016 and then tracked throughout the remainder of the year and reported to the Board.
Given the ongoing nature of these actions, a follow-up review is to be conducted during the first half of 2017, the outcome of which will be published in the 2017 Annual Report. In the interim period, the performance evaluation of the individual Directors was conducted internally, as provided for under the UK Corporate Governance Code, by the Group Chairman and the SID.


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Set out below are areas of particular focus from the 2015/16 review that the Board has addressed during the year:
ThemeAction taken
Agenda management
Board agendas were revised to allow for a greater focus on business strategy and financial and operational performance.
A rolling cycle of annual deep dives across each of the four global businesses and the Group’s principal geographical regions was established. A detailed presentation of the technology and digital opportunities facing the Group was also arranged with an explanation of how the Group is currently responding to them and the Group’s longer-term strategic response.
Improvements were made to the process for the preparation, submission and distribution of management information and Board and Committee papers.
Committee efficiencyThe operation of the Committees was reviewed to improve efficiency and address overlaps and any gaps in their responsibilities.
Continued development of the cohesive relationship between non-executive Directors and senior managementMore opportunities were created for senior management to interact with non-executive Directors both inside and outside formal Board meetings, and to increase Board exposure to other high potential managers in the Group.
Succession planningThere has been a continued focus by the Board, through the Nomination Committee, on executive and non-executive succession planning. A committee has been established to oversee succession planning for the Group Chairman.
Director performance evaluation
Non-executive Directors’ individual performance evaluation is undertaken annually by the Group Chairman. This involves a discussion about a Director’s individual contribution, explores individual training and development needs, and the time commitment that is required to continue to deliver the role effectively. The Group Chairman has confirmed that all non-executive Directors continue to perform effectively, contribute positively to the governance of HSBC and are able to fully commit the time required for their roles.
Executive Directors’ individual performance evaluation is undertaken as part of the performance management process for all employees. The results are considered by the Group Remuneration Committee when determining variable pay awards each year.
The Group Chairman’s performance is evaluated by the non-executive Directors, led by the SID.
Training and development
Training and development is provided for each Director and is regularly reviewed by the Group Chairman supported by the Group Company Secretary. All executiveNon-executive Directors develop and refresh their skills and knowledge through day-to-day interactions and briefings with senior management of the Group’s businesses and functions. During the year, all Directors were provided with training on MiFID 2, anti-money laundering, anti-bribery and corruption, embedding good conduct, protecting information and sanctions.
A two-day forum for all of the Group’s non-executive Directors was held during the year. Awareness and discussion sessions were conducted by senior executives and subject matter experts on emerging technologies, financial crime compliance, regulatory initiativesculture and otherconduct and business developments. The following Directors attended these sessions: David Nish, Joachim Faber, John Lipsky,
Jonathan Symonds, Kathleen CaseyChair of the Group Audit Committee (‘GAC’), and Paul Walsh. Jonathan Symonds and Joachim FaberJackson Tai, Chair of the GRC, hosted a separate forum for the Chairschairs of the Group’sGroup's subsidiary audit and risk committees globally.committees.
In addition, all members ofnon-executive Directors sitting on risk and audit committees across the Group Audit Committee (‘GAC’) received refresher training in IFRS 9 and the Committee Chairs received training in the requirements of the Senior Managers Regime. As part of their induction programme, David Nish, Henri de Castries and Paul Walsh received training on IFRS 9.

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Shareholder engagement
Communication with shareholders is given high priority by the Board and a copy of its policy is available at www.hsbc.com.Board. Extensive information about HSBC and its activities is provided to shareholders in theits Annual Report and Accounts, the Strategic Report and theInterim Report as well as at www.hsbc.com.
To complimentcomplement these publications, there is regular dialogue with institutional investors. Enquiries from individuals on matters relating to their shareholdings and HSBC’s business are welcomed.
Directors are encouraged to develop an understanding of the views of major shareholders. Non-executive Directors are invited to attend analyst presentations and other meetings with institutional investors and their representative bodies. An annual governance breakfast is also held, which gives institutional investors an opportunity to engage with the non-executive Directors and senior management on governance matters. All executive Directors hold regular meetings with institutional investors and feedback from these meetings is routinely provided to the Board.
As SID, Rachel LomaxJonathan Symonds is available to shareholders if they have concerns that cannot be resolved or for which the normal channels would be inappropriate. SheHe may be contacted via the Group Company Secretary at 8 Canada Square, London E14 5HQ.
The AGM and other general meetings
The 20172018 AGM will be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on Friday 2820 April at 11.00am and a live webcast will be available on www.hsbc.com. A recording of the proceedings will be available on www.hsbc.com shortly after the conclusion of the AGM until 2820 May 2017. An informal meeting of shareholders will be held at 1 Queen’s Road Central, Hong Kong on Monday 24 April at 4.30pm.2018. Shareholders are encouraged to attend these meetings.the meeting. Shareholders may send enquiries to the Board in writing via the Group Company Secretary, HSBC Holdings plc, 8 Canada Square, London E14 5HQ or by sending an email to shareholderquestions@hsbc.com.
Shareholders may require the Directors to call a general meeting other than an AGM as provided by the UK Companies Act 2006. Requests to call a general meeting may be made by members representing at least 5% of the paid-up capital of HSBC Holdings that carries the right of voting at its general meetings (excluding any paid-up capital held as treasury shares). A request must state the general nature of the business to be dealt with at the meeting and may include the text of a resolution that may properly be moved and is intended to be moved at the meeting. A request may be in hard copy form or in electronic form and must be authenticated by the person or persons making it. A request may be made in writing to HSBC Holdings at its UK address, referred to in the paragraph above or by sending an email to shareholderquestions@hsbc.com. At any general meeting convened on such request, no business shall be transacted except that stated by the requisition or proposed by the Board.


HSBC Holdings plc Annual Report and Accounts 2016
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Report of the Directors | Corporate Governance

Board Committees
The Board has seven standing committees and a Chairman’s Committee. In the case of the FSVC and the Philanthropic & Community Investment Oversight Committee, membership includes co-opted non-Director members as well as non-executive Directors.
The Chairs of each Committee report matters of significance to the Board after each meeting and the minutes of the meetings are made available to all Board members.
The detailed roles and responsibilities of each Committee are set out in its terms of reference, which can be found on the website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.
Committee interaction
The Board places significant reliance on its Committees and delegates a broad range of responsibilities to them. It is therefore important that, while unnecessary duplications between each remit of the Committees should be avoided, effective links should exist between Committees and the
Board where required.
PrincipalInteraction with principal subsidiaries
The GRC works closelyBoard manages relationships with the regions through seven principal subsidiary companies. There are close interactions between the subsidiary boards and the Group Board and their respective committees, including the sharing of minutes and a requirement for certain appointments to subsidiary boards to be approved by the Group Board.
As explained in more detail in the reports of the GAC and the GRC on pages 173 and 175, this interaction is reinforced through an Audit and Risk Committee Chairs' Forum. The Chairs of the subsidiary audit and risk committees globally are invited to strengthen alignment withattend the major regionalforum to raise and discuss current and future global business risk and audit committees.issues.
Board members are encouraged to, and do, make visits to the regions and attend principal subsidiary meetings as guests. Similarly, directors from the regions regularly are invited to attend committee meetings at a Group level.
The GAC and GRC make a number of recommendations to the Board in relation to the preparation of the financial statements which are supported by certificates from the principal subsidiaries.
Whistleblowing
The GAC and the CVC are responsible for reviewing the Group’s whistleblowing procedures and receivedreceive regular updates on relevant concerns raised under these procedures, together with management actions taken in response.
Committee effectiveness
The effectiveness of the Committees is evaluated as part of the overall performance evaluation of the Board as referred to above.and through annual effectiveness reviews at a Committee level. In addition, the Committees review the papers and the effectiveness of each meeting as a standing agenda item to ensure that they continue to be effective, challenging and well-managed, and review a rolling planner of proposed committee business.

2016 Board and Committee attendance
 AGM
Board
Group Audit
Committee

Group Risk
Committee

Group
Remuneration
Committee

Nomination
Committee

Financial
System
Vulnerabilities
Committee

Conduct &
Values
Committee

Philanthropic &
Community Investment
Oversight Committee

Number of meetings held*1
88
9
9
7
7
6
3
Group Chairman         
Douglas Flint1
8—
—
—
—
—
—
—
Executive Directors         
Stuart Gulliver1
8—
—
—
—
—
—
—
Iain Mackay1
8—
—
—
—
—
—
—
Marc Moses1
8—
—
—
—
—
—
—
Non-executive Directors         
Phillip Ameen1
87
—
—
—
—
—
—
Kathleen Casey1
88
—
—
—
7
—
—
Laura Cha1
8—
—
—
7
—
6
3
Henri de Castries1
1
5/5—
—
—
—
—
—
—
Lord Evans of Weardale1
8—
—
—
—
7
6
3
Joachim Faber1
8—
9
—
—
—
—
—
Rona Fairhead2
1
4/4—
—
—
3/4
1/2
—
—
Sam Laidlaw1
8—
—
9
7
—
—
—
Irene Lee1
8—
—
—
—
—
—
—
John Lipsky1
8—
9
8
7
—
—
—
Rachel Lomax3
1
82/2
8
—
7
—
6
—
Heidi Miller1
8—
9
—
—
—
—
—
David Nish4
1
4/43/4
—
—
—
—
—
—
Sir Simon Robertson2
1
4/4—
—
4/4
—
—
—
—
Jonathan Symonds1
88
—
—
—
—
5
—
Jackson Tai5
—
2/2—
2/2
—
—
1/2
—
—
Pauline van der Meer Mohr6
1
7—
—
9
3/3
—
6
—
Paul Walsh7
1
7—
—
8
3/3
—
—
—
*172Board meetings in 2016 were held in London and Hong Kong. In addition to the Board meetings listed there were also 11 Chairman’s Committee meetings held in 2016.HSBC Holdings plc

2017 Board and Committee attendance
 AGM
Board*
Group Audit
Committee

Group Risk
Committee

Group
Remuneration
Committee

Nomination
Committee

Financial
System
Vulnerabilities
Committee

Conduct &
Values
Committee

Philanthropic & Community Investment
Oversight Committee

Number of meetings held*1
8
8
7
7
7
7
6
3
Group Chairman         
Mark Tucker1
n/a
3/3
—
—
—
2/2
—
—
—
Douglas Flint2
1
6/6
—
—
—
—
—
—
—
Executive Directors         
Stuart Gulliver1
8
—
—
—
—
—
—
—
Iain Mackay1
8
—
—
—
—
—
—
—
Marc Moses1
8
—
—
—
—
—
—
—
Non-executive Directors         
Phillip Ameen1
8
8
—
—
—
—
—
—
Kathleen Casey1
8
8
—
—
—
7
—
—
Laura Cha1
7
—
—
—
7
—
6
3
Henri de Castries3
1
6
—
—
4/4
—
—
—
—
Lord Evans of Weardale1
7
—
—
—
—
7
6
3
Joachim Faber4
1
8
—
6
—
—
—
—
—
Sam Laidlaw5
1
3/3
—
—
2/2
2/2
—
—
—
Irene Lee1
8
—
—
—
—
—
—
—
John Lipsky1
8
—
7
7
7
—
—
—
Rachel Lomax6
1
3/3
—
3/3
—
2/2
—
2/2
—
Heidi Miller1
8
—
7
—
—
—
—
—
David Nish7
1
6
8
—
4/4
—
—
—
—
Jonathan Symonds8
1
8
8
—
—
5/5
—
5
—
Jackson Tai1
7
—
7
—
—
7
—
—
Pauline van der Meer Mohr1
8
—
—
7
6
—
6
—
Paul Walsh9
—
2/2
—
—
0/1
0/1
—
—
—
*Board meetings in 2017 were held in London, New York and Hong Kong. In addition to the Board meetings listed there were also Chairman’s Committee meetings held in 2017.
1Appointed to the Board and as Chair of the Nomination Committee on 1 March 2016.September 2017. Appointed as Group Chairman on 1 October 2017.
2Resigned from the Board 22 April 2016.30 September 2017.
3Resigned fromAppointed to the Group AuditRemuneration Committee 20 April 2016.26 May 2017
4Appointed toStepped down from the Board 1 May 2016. Attended AGM as part of his induction.Group Risk Committee 30 November 2017.
5Appointed toResigned from the Board 12 September 2016.28 April 2017.
6Appointed toResigned from the Group Nomination Committee 22Board 28 April 2016.2017.
7Appointed to the Board 1 January 2016 and to the Group NominationRemuneration Committee 126 May 2016.2017.


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HSBC Holdings plc Annual Report and Accounts 2016
Appointed as interim Chair of the Nomination Committee from 28 April 2017 to 1 September 2017. Appointed as Senior Independent Director on 28 April 2017.
9Resigned from the Board 21 April 2017.

Group Audit Committee
Members
Jonathan Symonds (Chairman)
Phillip Ameen
Kathleen Casey
David Nish (appointed on 1 May 2016)
Rachel Lomax (resigned on 20 April 2016)
Role and responsibilities
The GAC has non-executive responsibility for reviewing matters relating to financial reporting, including Pillar 3 disclosures, and the effectiveness of internal financial control over financial reporting.systems. The Committee also safeguards the independence of the Group Internal Audit function and oversees its performance.
Governance
The Group Finance Director, Group Chief Accounting Officer, Group Head of Internal Audit, Group Financial Controller and other members of senior management routinely attend meetings of the GAC. The external auditor PwC, also attended all meetings. The Chairman of the GAC had regular meetings with management to discuss agenda planning and specific issues as they arose during the year.
How the Committee discharges its responsibilities
Financial reporting
The GAC reviews HSBC’s financial and reporting judgements and their application to the Group’s financial reporting, including Pillar 3 disclosures.disclosures, Costs to Achieve and significant items. It also

reviews presentations to external analysts including the key financial metrics relating to HSBC’s strategic actions.
The GAC assesses the adequacy of resources of the accounting and financial reporting function. It also monitors the legal and regulatory environment.environment relevant to its responsibilities.
Linkages with principal subsidiary audit committees
The GAC maintains links with the audit committees of The Hong Kong and Shanghai Banking Corporation, HSBC North America Holdings Inc., HSBC Bank Canada, HSBC Bank plc, HSBC Latin America Holdings (UK) Limited, HSBC Bank Middle East Limited and HSBC Private Banking Holdings (Suisse) SA (‘the Principal Subsidiaries’).
During the year, in addition to the annual Audit and Risk Committee Chairs‘ Forum, the Chairman attended an audit committee meeting of The Hongkong and Shanghai Banking Corporation to discuss key judgements made in the Bank of Communications impairment assessment.
Any new appointments to the audit committees of the Principal Subsidiaries are also reviewed by the GAC. The GAC Chairman meets with any proposed new chairs of the Principal Subsidiary audit committees.
Internal controls
The GAC assesses the effectiveness of the internal control system for financial reporting and any developments affecting it in support of the Board’s assessment of internal control over financial reporting in accordance with section 404 of the Sarbanes-Oxley Act.

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The GAC has received confirmation that executive management has taken or is taking the necessary actions to remedy any failings or weaknesses identified through the operation of the GroupsGroup's framework of controls.
Further detail of how the Board reviews the effectiveness of key aspects of internal control can be found on page 183.178.
External audit
The GAC meets privately with the external auditor at every Committee meeting and the GAC Chairman maintains regular contact with the audit partner throughout the year.
The GAC reviews the external auditor’s approach, and strategy for the annual audit.audit and audit findings.
All non-audit services provided by PwCthe external auditor are pre-approved by the GAC in accordance with the auditor independence policy to ensure that services do not create a conflict. The auditor independence policy has been revised with effect from 1 January 2017 to take account of the UK implementation of new EU audit rules. Details of the significant engagements for non-audit services are contained in Note 6.
A policy is in place and monitored by the GAC on hiring employees or former employees of the external auditor.
The GAC regularly meets privately with the external auditor and the GAC Chairman maintains regular contact with the audit partner throughout the year.
Fees payable to PwC for the year ended 31 December 2017 totalled $129.7m, of which $44.9m or 34.6% was payable in respect of non-audit services. A further breakdown of the fees paid to the auditors for each of the last three financial years can be found in Note 6 on the Financial Statements.
The GAC reviewed the findings of the Financial Reporting Council's audit quality review carried out on the 2016 audit and endorsed PwC's proposed action plan in response.
The GAC considered PwC to be independent and PwC, in accordance with professional ethical standards, provided the GAC with written confirmation of its independence for the duration of 2017.
The GAC has therefore recommended to the Board that PwC be reappointed as auditor. Resolutions concerning the reappointment of PwC and their audit fee for 2018 will be proposed to shareholders at the 2018 AGM.
Internal Audit
The GAC approves Internal Audit’s annual plan, resource and budget, and reviews the performance and effectiveness of the Group Head of Internal Audit and the performance and effectiveness of its head.Audit. The Group Head of Internal Audit reports to the Chairman of the GAC and administratively to the Group Chief Executive. The Committee regularly meets with the Group Head of Internal Audit without other management present.
Compliance with Regulatory Requirements
The Board is satisfied that each member of the GAC is independent according to SEC criteria, may be regarded as audit committee financial experts for the purposes of section 407 of the Sarbanes-Oxley Act and has recent and relevant financial experience for the purposes of the UK and Hong Kong Corporate Governance Codes.
The Committee has complied with the relevant parts of the Competition and Markets Authority Final Order on the statutory audit market for the year ended 31 December 2016.2017.
Principal activities and significant issues considered during 2016
External auditor
The Committee assessed the effectiveness of PwC as the Group’s external auditor, using a questionnaire which focused on the overall audit process, its effectiveness and the quality of output. It concluded that PwC had performed a high-quality and effective audit in 2016.
Fees payable to PwC for the year ended 31 December 2016 totalled $111.1m, of which $39.8m or 35.8% was payable in respect of non-audit services. A further breakdown of the fees paid to the auditors for each of the last three financial years can be found in Note 6 on the Financial Statements.
The GAC considered PwC to be independent and PwC, in accordance with professional ethical standards, provided the GAC with written confirmation of its independence for the duration of 2016.
The GAC has therefore recommended to the Board that PwC be reappointed as auditor. Resolutions concerning the reappointment of PwC and their audit fee for 2017 will be proposed to shareholders at the 2017 AGM.
Internal Audit
The GAC concluded that the Internal Audit function remained effective.
Finance transformation project
The Finance function has embarked on a large scale three-year transformation project to respond to the future needs of a changing industry facing increased regulatory demands.
The project also included embedding internal controls and improving the consistency of critical financial processes across the Group.
Internal control framework
The GAC continued to monitor the progress being made to upgrade entity level controls and remediate issuescontrols. During 2017, the GAC undertook a series of deep dives to monitor the remediation of identified in 2015.
In particular,control deficiencies, noting that good progress was made during the year. The GAC continued to monitor the remediation of controls over access management in IT and the next phase in terms of the enhancement of strategic controls. The GAC was encouraged by the progress being made.IT.
Changing regulatory landscapeIFRS 9 implementation
Given the changing legal and regulatory landscape, theThe GAC continued to receive detailed presentations and updates from management on the Group’s readiness to implement IFRS 9 Financial Instrumentsand considered the possible commercial impact of IFRS 9 on the global businesses.
Bank of Communications (‘BoCom’)
The GAC received regular updates on the assumptions underpinning the valuation of BoCom. It monitored indicators
of impairment, both macro and BoCom specific, and reviewed
the results of the impairment assessments carried out by management.
Resolution planning
The Group is required to have in place a Group Recovery Plan that sets out recovery options to be initiated in the event of the Group coming under severe financial stress. During 2017, the GAC received updates on the structure of the Group Recovery Plan. The GAC considered the Group Recovery Plan and its integration with the Group’s Risk Management Framework.
Establishment of the ring-fenced bank
Progress on the establishment of HSBC UK, the ring-fenced bank, was monitored by the GAC during 2017. The GAC considered the accounting judgements in relation to the creation of HSBC UK.
Internal Audit
The GAC concluded that the Internal Audit function remained effective.
External auditor
During the year, the Committee assesses the effectiveness of PwC as the Group’s external auditor, using a questionnaire which focuses on the overall audit process, its effectiveness and the revised Basel framework’s Pillar 3 disclosure requirements.quality of output.
Changing regulatory landscape
The GAC received briefings on the significant forthcoming changes in the regulatory landscape. Plans around the implementation of IFRS 9were reviewed.


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Significant accounting judgements considered during 20162017 included:
Key areaAction taken
Expected impact of IFRS 9Since 2014, the GAC has considered the progress of the project to implement IFRS 9 and the key judgements related to its implementation, including the expected impacts disclosed and the approach to transition disclosures. Topics addressed include: the approach to the incorporation of forward economic guidance for expected credit losses (ECL) and the economic scenarios to be applied at 1 January 2018, the operating model and approach to governance of ECL, impact assessments and dry runs including key learnings and how these issues are being addressed, expected commercial impacts of ECL and status updates on implementation challenges to systems and governance processes.
Bank of Communications Co., Limited (‘BoCom’) impairment testing

During the year, the GAC considered the regular impairment reviews of HSBC’s investment in BoCom. The GAC reviewed a number of aspects of management’s work in this area, including the sensitivity of the result of the impairment review to estimates and assumptions of projected future cash flows. The audit committee considered the model’s sensitivity to long-term assumptions including the continued appropriateness of the discount rate.

Appropriateness of provisioning for legal proceedings and regulatory matters
The GAC received reports from management on the recognition and amounts of provisions, as well as the existence of contingent liabilities, and the disclosures relating to provisions and contingent liabilities for legal proceedings and regulatory matters. Specific areasmatters addressed included provisioning arising from investigations by US regulators and law enforcement agencies relatingaccounting judgements in relation to trading activities in the foreign exchange market and competition law investigations relating to foreign exchange activities in a number of jurisdictions; and management’s judgement regarding provisions and contingent liabilities in connection witharising out of: (a) investigations by regulators and competition and law enforcement authorities around the world into trading on the foreign exchange markets; (b) investigations of HSBC’s Swiss Private Bank by a number of tax administration, regulatory and law enforcement authorities. The GAC also considered management’s assumptionsauthorities; and judgements relating to the disclosure of a contingent liability in respect of(c) investigations into historical sales of US mortgage securitisations by The United States Attorney for the District of Colorado for potential violations of The Financial Industry Reform, Recovery and Enforcement Act of 1989, 12 U.S.C. § 1833a.

Quarterly and annual reporting
The GAC considered key judgements in relation to quarterly and annual reporting. In addition, it consideredIt reviewed draft presentations to external analysts’ presentationsanalysts and key financial metrics included in HSBC’s strategic actions.

Loan impairment,
allowances and charges
The GAC considered loan impairment allowances for personal and wholesale lending. Significant judgements and estimates forFor personal lending this included a review of loss emergence periods across the retail loan portfoliosadequacy of and the potential impactmovement in collective impairment allowances, and consideration of the UK electorate's vote to leave the EU.portfolio-specific characteristics. For wholesale lending, the GAC considered management’s key judgements used to establish the appropriate level of individual allowances on material individually assessed cases and assumptionswhether management overlays were appropriate on collective allowances. Specific attention was applied to credit risk in respect of the recognition of judgemental collective impairment allowances for oil and gas exposures, and judgements relating to impairment allowances recognised for individual identified cases, as at 31 December 2016, and noted the ongoing monitoring for signs of credit deterioration that could result from the UK electorate's vote to leaveand the EU.implications of Brexit from a credit perspective.

Valuation of financial instrumentsThe GAC considered the key valuation metrics and judgements involved in the determination of the fair value of financial instruments. The GAC considered the valuation control framework, valuation metrics, significant year-end judgements and emerging valuation topics.
Viability statementUnder the obligations of the UK Corporate Governance Code the Directors have carried out a robust assessment of the principal risks for the Group and parent company. The GAC has considered the Directors'Directors‘ judgement in concluding that the Group and parent company will be able to continue in operation and meet liabilities as they fall due, and that it is appropriate that the viability statement covers a period of three years.
Goodwill impairment testingThe GAC noted that no impairment was identified as a result of the annual goodwill impairment test and subsequent review for any impairment indicators. Following the full impairment of GPB Europe goodwill in 2016 along with an improved performance outlook for RBWM Europe, there are no longer any CGUs considered sensitive to key assumptions.
Tax-related judgementsThe GAC considered the recoverability of deferred tax assets, in particular in the US. The committee also considered management’s judgements relating to the tax indemnity agreed to by HSBC as part of the sale of its Brazilian operations in 2016. This includes consideration of the key inputs and assumptions used to estimate any obligation under the indemnity.
UK customer remediation
The GAC considered the provisions for redress for mis-selling of payment protection insurance (‘PPI’) policies in the UK and the associated redress on PPI commissions earned under certain criteria, including management’s judgements regarding the effect of the proposed time-bar for claims ending JuneAugust 2019. The GAC also considered provisions in relation to the implications of a 2014 UK court case (‘Plevin’) for the non-disclosure of levels of commission regarding the historical sales of PPI products, pending finalised guidance from the Financial Conduct Authority (‘FCA’).
Bank of Communications Co., Limited (‘BoCom’) impairment testingDuring the year,In addition, the GAC consideredmonitored progress on the regular impairment reviewsremediation of HSBC’s investment in BoCom. When testing investments in associates for impairment, IFRS requires the carrying amount to be compared with the higher of fair valueoperational processes and value in use. The GAC reviewed a number of aspects of management’s work in this area, including the sensitivity of the result of the impairment review to estimates and assumptions of projected future cash flows and the discount rate. It was concluded that the investment was not impaired.
Goodwill impairment testing
The GAC noted the process and results of the 1 July 2016 annual goodwill impairment test and the review of impairment indicators at 30 June 2016 and 31 December 2016. During the year, impairment indicators were noted for GPB Europe and GBM Europe. No impairment was recognised for GBM Europe.
The GAC considered management’s judgements in respect of the impairment charge of $0.8bn relating to GPB Europe goodwill in H1 2016, and the further impairment charge of $2.4bn in Q4 2016, resulting in the impairment of the entire balance of goodwill for GPB Europe in 2016. There were two main factors which led to indicators of impairment being identified:
•
during the year, revised forecast cash flows became available; and
•
management adjusted the discount rates used in the goodwill tests due to the results of the UK EU Referendum decision.
Hedge accounting
The GAC considered management’s judgements relating to the partial discontinuation of a hedging relationship in France in December 2016. The GAC discussed the control weaknesses, which were limited to France, and noted management’s actions to address them.

Recognition of deferred tax assetsIn considering the recoverability of the Group’s deferred tax assets, the GAC reviewed the recognition of deferred tax assets in the US and, in the first half of 2016, in the Brazil operations which were sold in July 2016, and the associated projections of future taxable income.
Operating segments
The GAC considered the change in reportable segments during the year under IFRS 8, from regions to global businesses, and the introduction of a Corporate Centre segment.customer redress.

Group Risk Committee
Members
Jackson Tai (appointed Chairman effective from 25 April 2017)
Joachim Faber (Chairman)(stepped down as Chairman effective 25 April 2017 and resigned on 30 November 2017)
John Lipsky
Rachel Lomax
Heidi Miller
Jackson Tai (appointedRachel Lomax (resigned on 12 September 2016)28 April 2017)
Role and responsibilities
The GRC has non-executive responsibility for the oversight of risk-related matters and the principal risks impacting the Group,enterprise risk management, risk governance and internal control systems (other than internal financial control systems)systems, which are overseen by the GAC). TheIn forming a holistic view of risk, the GRC is updated on, but is not directlysupported by the FSVC and CVC, which are the Board committees responsible for overseeing risks relating to

financial crime, cyber-crime and information security, anti-briberyanti-bribery and corruption, and for culture and conduct.conduct respectively. These two committees escalate and report second order risks to the GRC. Appropriate linkages and information flows between these three committees are overseenfurther enhanced by cross membership and close engagement of the FSVCmembers and the CVC.committee attendees.
Governance
TheIn carrying out its responsibilities, the GRC is closely supported by the Group Chief Risk Officer, Group Finance Director, Chief Legal Officer, Group Head of Internal Audit, Group Financial Controller, Global Head of Regulatory Compliance and Global Head of Financial Crime Compliance, Group Head of Financial Crime Risk and other members of senior management attendedStrategy, who all

regularly attend GRC meetings of the GRC by invitationin order to contribute to discussions relating to their areas of expertise.
The GRC works closely with the GAC to ensure there are no gaps, that any areas of significant overlap are appropriately addressed and to improve inter-committee communication. The chairmen of both these committees engage on the agendas of each other’s committee meetings and attend as guests as appropriate. This further enhances the linkages and the flows of information between the GRC and GAC.


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The GRC holds meetingsmeets with the Group Chief Risk Officer and, separately, with the Group Head of Internal Audit and external auditors without management present.present at the majority of its meetings.
How the Committee discharges its responsibilities
As a standing item on the rolling plannerAt each meeting, the GRC reviews the Group Risk Appetite Statement (‘RAS’),Profile report which identifies the key issues and common themes arising from the Group’s enterprise risk map (which describesreports. This report includes a synthesised view of the Group’s risk profile by risk type across the global businesses) and a report on theappetite statement, top and emerging risks (together with mitigating actionsand the Group risk map. It clearly sets out which Board committee has accountability for the identified risks). This alsomonitoring and oversight of each risk and issue and identifies any areas where management neededis required to assess vulnerabilities via stress testing.
Page 8995 provides further information on the top and emerging risks, the risk map and the risk appetite for the Group.
The GRC receives presentations on a range of topics, including stress testing and briefings on developments in the regulatory environment.its principal markets. In addition, the GRC requests reports and updates from management on risk-related issues for in-depth consideration and receives regular reports on matters discussed at the Risk Management Meeting of the Group Management Board (‘GMB’). It has continued to invite senior management from the global businesses and functions to present their risk control frameworks, which has led to enhanced discussionsBoard.

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Any
The GRC reviews any revisions to the RAS are reviewedGroup risk appetite statement (‘RAS’) bi-annually by GRC and any proposed changes are recommended to the Board. The GRC regularly reviews the Group’s risk profile against the key performance metrics set out in the RAS. It reviews management’s assessment of risk and provides scrutiny of management’s proposed mitigating actions.
Regular reportsThe GRC programmes forward-looking and thematic agendas which are received on legalsupported by input from all three lines of defence within the global businesses and regulatory risks. Management actions to mitigate these risks are reviewed and the potential impact of future developments in this arearegions. The Committee also conducts deep dives on the Grouprisk implications of strategic matters, risks specific to regions, significant projects and key topical risks that are considered.
Principal activitiesidentified during the GRC’s deliberations and significant issues considered during 2016
The Group Risk Appetite Statement (‘RAS’) and monitoring of the Group risk profile against the RAS
There were no significant changesdiscussion. By extending invitations to the RASchairmen of principal subsidiary risk
committees to participate in 2016.GRC meetings and thematic reviews, receiving regional updates and conducting holistic deep dives and sharing GRC highlights with the subsidiaries, the GRC has further enhanced its connectivity and linkages with the principal subsidiary risk committees.
Stress testing
The PRADuring 2017, the GRC has provided challenge and EBA stress testing exercisesreview to the Group’s regulatory submissions relating to capital management and the results of stress testing were closely monitored and reviewed priorliquidity adequacy assessments. It has continued to submission. Reports were received over the course of the stress testing exercise and the Committee met an additional four times during the year solely to consider stress testing related matters, including additional stress tests specific to oil and gas exposures and the UK electorate's vote to leave the EU.
Execution risk
Regular reports were received from the Group Chief Operating Officer, who updated each meeting on the progress and statusmaintain oversight of the Group’s highest-priorityregulatory and internal stress testing programmes with specific review and mitigating measures being introduced to manage the identified risks appropriately.
Monitoring of this risk and challenging management’s assessment of execution risk and corresponding mitigating actions remains a priority for the GRC.
Internal control and risk management
The GRC reviewed the Group’s risk management framework and system of internal control (other than internal financial control systems, which were covered by the GAC) and the developments affecting them over the course of 2016, as partchallenge of the Board’s assessment of internal control.
In 2016 the Group Risk Committee appointed an external independent expert to assess the effectivenessdesign, key assumptions and outcomes of the committee.principal tests conducted.
Principal activities and significant issues considered during 2017

The Group risk appetite statement (‘RAS’) and monitoring of the Group risk profile against the RAS

Following its bi-annual reviews, the GRC did not recommend any material changes to the overall level of Risk Appetite in 2017. The GRC expanded its focus on non-financial risk and significant work was undertaken to define forward-looking exposure based on metrics taking into account the inherent level of risk as well as the performance of our control environment.

Capital and liquidityThe GRC has fully engaged management in evaluating and challenging the Group’s liquidity and funding risk appetite and the effectiveness of the liquidity and funding risk framework. The GRC continued to review the Group’s approach to capital planning to ensure it is comprehensive, rigorous and forward looking. The GRC reviewed and challenged both the Group Individual Liquidity Adequacy Assessment Process and Internal Capital Adequacy Assessment.
Stress testingThe GRC conducted a comprehensive review and challenge of the scenarios and approach to the PRA stress tests and reviewed the results of both the Annual Cyclical Scenario and Biennial Exploratory Scenario stress tests. The GRC continued to review and oversee the regulatory and internal global stress testing programmes throughout the year.
Execution risk
Regular reports were received from the Group Chief Operating Officer, who updated each meeting on the progress and status of the Group’s highest-priority change and transformation programmes and mitigating measures being introduced to manage the identified risks appropriately.
The GRC placed priority on monitoring and challenging management’s assessment of execution risk and corresponding mitigating actions, as evidenced by thematic reviews on the execution risks at launch of our required ringfencing in the UK, on the progress of remediating high residual risks in non-financial risks, and the implications of economic growth rates for our China strategy.


Internal control and risk managementThe GRC reviewed the Group’s risk management framework and system of internal control (other than internal financial control systems, which were covered by the GAC) and the developments affecting them over the course of 2017, as part of the Board’s assessment of internal control.
Deep dive reviews
The GRC conducted in-depth reviews of the risk implications relating to the Group’s approach to model risk, to changes in economic growth rate assumptions for the Group’s China strategy as well as execution risks arising from required ringfencing in the UK. The GRC also examined the Group’s management of its non-financial risks, including its ability to remediate high residual risks.

Connectivity between the GRC and Subsidiary Risk Committees
The GRC has enhanced the connectivity and flow of information both to and from the Subsidiary Risk Committees during 2017. There has been more focused participation by the principal Subsidiary Risk Committee chairmen at GRC meetings. In addition, the GRC Chairman has attended risk committee meetings in Latin America, Europe, Middle East and Asia Pacific regions. The linkages with the Group and subsidiaries was further strengthened at the annual Non-Executive Director and Subsidiary Audit and Risk Committee Chairmen’s Forum held in Hong Kong.

Committee effectiveness
The GRC Chairman has addressed the actions agreed at the beginning of the year arising from an external independent effectiveness review conducted at the end of 2016.

Further detail of how the Board reviews the effectiveness of key aspects of internal control can be found on page 183.
Financial System Vulnerabilities Committee
Members
Lord Evans of Weardale (Chairman)
Kathleen Casey
Jackson Tai
Michael Burgess (non-Director member) (appointed on 12
1 September 2016)
Rona Fairhead (resigned2017 and resigned on 22 April 2016)11 December 2017)
Nick Fishwick, CMG (non-Director member)
Dave Hartnett, CB (non-Director member)
Lord Hogan-Howe (non-Director member) (appointed on
1 September 2017)
William Hughes, CBE QPM (non-Director member) (resigned on
30 June 2017)
David Irvine (non-Director member)
Clovis Meath Baker (non-Director member) (appointed on
1 September 2017)
Nehchal Sandhu (non-Director member)


Leonard Schrank (non-Director member) (resigned on 30 June 2017)
Sir William Patey (non-Director member) (resigned on 30 June 2017)
John Raine (non-Director member) (appointed on 1 September 2017)
The Honourable Juan Zarate (non-Director member)
Sir William Patey (non-Director member appointed
1 November 2016)
David Irvine (non-Director member appointed
1 November 2016)
The eight non-Director members support the Committee’s work and between them have extensive experience in geopolitical risk, financial crime risk, international security, cybersecurity and law enforcement matters.
Role and responsibilities
The Committee has non-executive responsibility for the oversight of matters related to financial crime and system abuse, in particular anti-money laundering; sanctions;laundering, sanctions, terrorist financing and proliferation financing;financing, anti-bribery and corruption;corruption and cybersecurity. It is also responsible for monitoring, reviewing and advising the Board on the effectiveness of the policies and procedures established by Managementmanagement to ensure that HSBC meets its obligations to regulatory and law enforcement agencies.

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Principal activities and significant issues considered during 20162017
Financial crime
During the year, theThe Committee monitored the Group’s progress on the implementation of its Global Standards programme, and reviewed and discussed findings from country visits conducted by the Monitor.
Anti-bribery and corruption
The Committee reviewed the activities underway to address key bribery and corruption risks and management’s progress with the implementation of a more robust anti-bribery and corruption compliance framework.
Engaging with the Monitor
The Committee was responsible for liaising with the Monitor to ensure his recommendations were acted on.
The information security environment and cybersecurity risk
During the year, theThe Committee reviewed HSBC’s progress towards improving the Group’s cybersecurity and the actions being taken to mitigate exposure to cyber risk.cyber-risk. It also monitored significant developments in the information security environment and progress delivering strategic financial crime risk management IT solutions.
Further information on key activities of the Committee can be found in the ’Financial crime risk management’section on page 114.


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Conduct & Values Committee
Members
Rachel LomaxPauline van der Meer Mohr (Chair)
Laura Cha
Lord Evans of Weardale
Rachel Lomax (resigned on 28 April 2017)
Jonathan Symonds
Pauline van der Meer Mohr
Role and responsibilities
The CVCCommittee has non-executive responsibility for oversight of culture and conduct risk. It is responsible for HSBC’sthe Group’s policies, procedures and standards and ensuring that the Group conducts business responsibly and consistently adheres to the HSBC Values. The CVC is also responsible for Group policies and procedures for capturing and responding to whistleblowing reports. ReportingThe CVC reports to the GAC where necessary in relation to allegations relating to accounting, internal controls over financial reporting or audit matters.
Principal activities and significant issues considered during 20162017
Conduct
During the year theThe Committee reviewed the implementation of the Group’s conduct approach and in particular,
how effectively global programmes were being cascaded throughimplemented throughout the organisation. Deep dives were undertaken on the Singapore, China and Middle East operations and the Global Businesses to determine how effectively the conduct programme was embedding.
Sustainability
The Committee was responsible for reviewing how effectively the Group sought to satisfy itself that it was meeting its sustainability commitments.
Modern Slavery ActDiversity
The Committee and Board reviewed and approvedmonitored the Group’s Human Rightsrefreshed approach to Diversity and Inclusion and the updating of the Group Diversity and Inclusion Policy.
Further information, including the Group's Statements on Conduct, the Group Diversity and Inclusion Policy and the Statement on Modern Slavery Act statement.
Further information on conductand Human Trafficking can be found in the ‘How we do business’ section of the Strategic Report and in the Financial Review.at www.hsbc.com/our-approach/measuring-our-impact.

Group Remuneration Committee
Members
Sam Laidlaw (Chairman)
John Lipsky
Pauline van der Meer Mohr (Chair)
Henri de Castries (appointed on 26 May 2017)
Sam Laidlaw (resigned on 28 April 2017)
John Lipsky
David Nish (appointed on 26 May 2017)
Paul Walsh
Sir Simon Robertson (resigned on 2221 April 2016)2017)
Role and responsibilities
The Committee is responsible for setting the over-archingoverarching principles, parameters and governance framework of the Group’s remuneration policy, and the remuneration of executive Directors and other senior Group employees. The Committee regularly reviews the Group’s remuneration policy in the context of consistent and effective risk management, and the regulatory requirements of multiple jurisdictions. No Directors are involved in deciding their own remuneration.
A full report on the role and activities of the Committee is set out on pages 191186 to 211.209.

Nomination Committee
Members
Sam Laidlaw (Chairman)Mark Tucker (Chairman – appointed on 1 September 2017)
Laura Cha
Sam Laidlaw (resigned on 28 April 2017)
John Lipsky
Rachel Lomax (resigned on 28 April 2017)
Pauline van der Meer Mohr
Jonathan Symonds (appointed on 22as interim Chair from 28 April 2016)2017 to 1 September 2017)
Paul Walsh (appointed on 1 May 2016)
Rona Fairhead (resigned on 2221 April 2016)2017)
Role and responsibilities
The Nomination Committee has non-executive responsibility for leadingleads the Board appointment process, agrees the criteria for any appointments and for identifying and nominatingengages independent external search consultants, as required. At the conclusion of this process, the Committee will nominate potential candidates for appointment to the Board. The CommitteeIt is also responsible for succession planning for both senior executive roles, as well as executive and non-executive Directors, and for determining the membership of Board committees.
The NominationIn the exercise of its responsibilities, the Committee regularly reviews the Board’s structure, size and composition, (includingincluding skills, knowledge, experience, independence and diversity). It recommends any changes to the Board.
An external search consultancy is used in relation to the appointment of non-executive Directors. It has no additional connection with HSBC. A separate external search consultancy is primarily used for certain senior executive hires.diversity.
Principal activities and significant issues considered during 20162017
Succession planning
AIn 2016, a committee was established with specific responsibility for succession planning for the Group Chairman. The process was led by the Chairman comprising allof the Nomination Committee at the time, Sam Laidlaw, and the Senior Independent Director, Rachel Lomax. The committee, comprising all members plus Jonathan Symonds, Jonathan Evans and Joachim Faber, beingof the Nomination Committee, including the chairs of the GAC, FSVCother principal Board committees, was assisted and GRC respectively.advised by independent external search consultants. This process culminated on 12 March 2017 following a recommendation from the committee, and unanimous endorsement by the Board, with the announcement that Mark Tucker would be appointed as the new Group Chairman, with effect from 1 October 2017.
During 2017, the Nomination Committee led the succession process for the Group Chief Executive Officer. The Committee, chaired by Jonathan Symonds on an interim basis from April 2017

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(pending the appointment of Mark Tucker as Chair of this Committee on 1 September) included Jonathan Evans, Jackson Tai, Heidi Miller, David Nish and Joachim Faber, and led the succession process for the Group Chief Executive Officer. The process involved the engagement of independent external search consultants to advise on, and support, the Committee. It culminated in a recommendation from the Committee and unanimous support from the Board with an announcement made on 12 October 2017 that John Flint would be appointed as successor to Stuart Gulliver, to take effect from 21 February 2018.
Diversity
The Committee took responsibility for the implementation of the Board’s diversity policy against two objectives: at least 30%of candidates being women, and only using external search consultants signed up to the Voluntary Code of Conduct for Executive Search Firms.
Philanthropic & Community Investment Oversight
Oversight Committee
Members
Laura Cha (Chair)
Lord Evans of Weardale
Sir Malcolm Grant (non-Director member)
Stephen Moss (non-Director member)
Lord Janvrin (non-Director member)
Role and responsibilities
The Philanthropic & Community Investment Oversight Committee has non-executive responsibility for HSBC’s philanthropic and community investment activities in support of the Group’s corporate sustainability objectives. The Committee was established as a committee of the Board in 2014 to overseeoversees activity which includesincluding both the Group’s monetary contributions and also employee volunteering.
Principal activities and significant issues considered during 20162017
Charitable giving
The Committee was responsible for reviewing the Group’s risk appetite for charitable donations, and the budgetbudgets for future years and long-term committed funds.


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Community investment
During the year, the Committee reviewed and endorsed the Group’s annual community investment budget and the proposed allocation of this budget across agreed sustainability themes.
Chairman’s Committee
The Chairman’s Committee acts on behalf of the Board between scheduled Board meetings to facilitate ad hoc and other business requiring Board approval. It meets when necessary, with the required number of attendees determined by the nature of the proposed business to be discussed, as set out in its terms of reference.
Group Management Board
The GMB is a forum chaired by the Group Chief Executive to provide him with recommendations and advice, and assist him in his day-to-day management of HSBC and its subsidiaries as delegated by the Board.
There are special meetings of the GMB that provide oversight of risk matters (the Risk Management Meeting, chaired by the Group Chief Risk Officer) and of Global Standards (the Global Standards Steering Meeting, chaired by the Group Head of Financial Crime Risk).
Internal control
The Board is responsible for maintaining and reviewing the effectiveness of risk management and internal control systems, and for determining the aggregate level and types of risks the Group is willing to take in achieving its strategic objectives.
To meet this requirement and to discharge its obligations under the FCA Handbook and the PRA Handbook, procedures have been designed for safeguarding assets against unauthorised use or disposal; for maintaining proper accounting records; and for ensuring the reliability and usefulness of financial information used within the business or for publication.
These procedures can only provide reasonable assurance against material mis-statement, errors, losses or fraud. They are designed to provide effective internal control within the Group and accord
with the Financial Reporting Council'sCouncil‘s guidance for directors issued in 2014, internal control and related financial and business reporting. The procedures have been in place throughout the year and up to 2120 February 2017,2018, the date of approval of this Annual Report and Accounts 20162017.
In 2014, the GAC endorsed the adoption of the COSO 2013 framework for the monitoring of risk management and internal control systems to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
The key risk management and internal control procedures include the following:
The Group’s Global Standards Manual (‘GSM’) outlines the core principles within which the Group must operate wherever we conduct business. The GSM overlays all other policies and procedures throughout the Group. The requirements of the GSM are mandatory, apply to and must be observed by all businesses within the Group, regardless of the nature or location of their activities.
Delegation of authority within limits set by the Board: subject to certain matters reserved for the Board, the Group Chief Executive has been delegated authority limits and powers within which to manage the day-to-day affairs of the Group, including the right to sub-delegate those limits and powers. Each relevant group managing director or executive Director has delegated authority within which to manage the day-to-day affairs of the business or function for which he or she is accountable. Delegation of authority from the
Board requires those individuals to maintain a clear and appropriate apportionment of significant responsibilities and to oversee the establishment and maintenance of systems of control that are appropriate to their business or function. Authorities to enter into credit and market risk exposures are delegated with limits to line management of Group companies. The concurrence of the appropriate global function is required, however, to credit proposals with specified higher risk characteristics. Credit and market risks are measured and reported at subsidiary company level and aggregated for risk concentration analysis on a Group-wide basis.
Risk identification and monitoring: Systemssystems and procedures are in place to identify, assess, control and monitor the material risk types facing HSBC. OurThe Group‘s risk measurement and reporting systems are designed to help ensure that risks are comprehensively captured with all the attributes necessary to support well-founded decisions, that those attributes are accurately assessed and that information is delivered in a timely manner for those risks to be successfully managed and mitigated.
Changes in market conditions/practices: processes are in place to identify new risks arising from changes in market conditions/practices or customer behaviours, which could expose HSBCthe Group to heightened risk of loss or reputational damage. The Group employs a top and emerging risks framework at all levels of the organisation, which enables it to identify current and forward-looking risks and to take action which either prevents them materialising or limits their impact.
Responsibility for risk management: Allall employees are responsible for identifying and managing risk within the scope of their role as part of the three lines of defence model, which is an activity-based model to delineate management accountabilities and responsibilities for risk management and the control environment. The second line of defence sets the policy and guidelines for managing specific risk areas, provides advice and guidance in relation to the risk, and challenges the first line of defence (the risk owners) on effective risk management.
Strategic plans: strategic plans are prepared for global businesses, global functions and geographical regions within the framework of the Group’s overall strategy. Annual Operating Plans, informed by detailed analysis of risk appetite describing the types and quantum of risk that the Group is prepared to take in executing its strategy, are prepared and

178HSBC Holdings plc

adopted by all major HSBCGroup operating companies and set out the key business initiatives and the likely financial effects of those initiatives.
IT operations: centralised control is exercised over all IT developments and operations. Common systems are employed for similar business processes wherever practicable.
Subsidiary certifications to the GRC: half-yearly confirmations are provided to the GRC from the risk committees of principal subsidiary companies confirming that the committees have challenged management on the quality of the information provided, reviewed the actions proposed by management to address any emerging issues or trends indicating material divergence from the Group’s risk appetite and that the risk management and internal control systems in place are operating effectively.
The key risk management and internal control procedures over financial reporting include the following:
Disclosure Committee: the Disclosure Committee, which is chaired by the Group Company Secretary, this Committee supports the discharge of the Group’s obligations under relevant legislation and regulation including the UK and Hong Kong Listing Rules, the Market Abuse Regulation and SEC rules.


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In so doing the Committee is empowered to (i) determine whether a new event or circumstances should be disclosed, including the form and timing of such disclosure, and (ii) review all material disclosures made or to be made by the Group. The membership of the Disclosure Committee includes the Group Finance Director, Group Chief Risk Officer, Chief Legal Officer, Group Chief Accounting Officer, GlobalGroup Head of Public Affairs,Communications, Global Head of Investor Relations, Group Head of Strategy and Planning and Group Financial Controller. The integrity of disclosures is underpinned by structures and processes within the Global Finance and Global Risk functions that support rigorous analytical review of financial reporting and the maintenance of proper accounting records.
Financial reporting: the Group’s financial reporting process is controlled using documented accounting policies and reporting formats, supported by detailed instructions and guidance on reporting requirements, issued to all reporting entities within HSBCthe Group in advance of each reporting period end. The submission of financial information from each reporting entity is subject to certification by the responsible financial officer, and analytical review procedures at reporting entity and Group levels.
Subsidiary certifications to the GAC: half-yearly confirmations are provided to the GAC from the audit committees of principal subsidiary companies regarding whether their financial statements have been prepared in accordance with Group policies, present fairly the state of affairs of the relevant principal subsidiary and are prepared on a going concern basis.
The internal control responsibilities of the GRC and GAC were complemented by the activities of the CVC and the FSVC which, respectively, oversaw internal control over conduct-related risk matters and financial crime compliance. Collectively, these controls are designed to provide effective internal control within the Group.
The GRC and the GAC have received confirmation that executive management has taken or is taking the necessary actions to remedy any failings or weaknesses identified through the operation of the Group's framework of controls. In 2015,2017, deficiencies in the design and operational effectiveness of a number of controls associated with IT privileged access were identified. Significant improvement in the control environment has been observed as a result of management’s progress on the execution of the IT privileged access remediation programme. Management has assessed the effectiveness of relevant IT, business, monitoring and period-end mitigating controls for 2016.
The Directors, through the GRC and the GAC, have conducted an annual review of the effectiveness of the Group's system of risk management and internal control covering all material controls, including financial, operational and compliance controls, risk management systems, the adequacy of resources, qualifications and experience of staff of the accounting and financial reporting function and the Global Risk function, and their training
programmes and budget. The annual review of the effectiveness of the Group’s system of risk management and internal control over financial reporting was conducted with reference to the COSO framework. The annual review of other controls was undertaken using the Group’s risk management framework, further details of which can be found on pages 101106 to 104.109. Based on the assessment performed, the Directors concluded that for the year ended 31 December 2016,2017, the Group’s internal controls were effective.
Internal audit
The Global Internal Audit function, which is centrally controlled, provides independent and objective assurance of the design and operating effectiveness of the Group’s framework of risk management, control and governance processes, focusing on
the areas of greatest risk. As mentioned previously, the Group Head of Internal Audit reports to the Chairman of the GAC and frequent meetings are held between them during the year. Administratively the Group Head of Internal Audit reports to the Group Chief Executive. Executive management is responsible for ensuring that issues raised by the Global Internal Audit function are addressed within an appropriate and agreed timetable. Confirmation to this effect must be provided to Global Internal Audit.
Going concern
The Directors considered it appropriate to prepare the financial statements on the going concern basis.
In making theirthe going concern assessment, the Directors have considered a wide range of detailed information relating to present and potential conditions, including projections for profitability, cash flows, capital requirements and capital resources.
In carrying out their assessment of the principal risks, the Directors considered a wide range of information including:
Details of the Group’s business and operating models, and strategy.
Details of the Group’s approach to managing risk and allocating capital.
A summary of the Group’s financial performance, and its capital position and annual operating plan.
Enterprise-wide risk management reports, including the Group’s risk appetite profile (see page 10195), top and emerging risks (see page 8995) and risk map (see page 103109).
Reports and updates regarding regulatory and internal stress testing exercises (see page 103109). In 2016,2017, the published Bank of England ('BoE') stress test results for HSBC showed that our capital ratios after taking account of CRD IV restrictions and strategic management actions exceeded the BoE’s requirements. The results for HSBC included an assumed no dividend paymentpayments in the first yeartwo years of the severe stress projection period.
Reports and updates from management on risk-related issues selected for in-depth consideration.
Reports and updates on the Group’s compliance-related initiatives connected to the resolution of the investigations by US and UK regulatory and law enforcement authorities in December 2012,2012.
Reports and alsoupdates on regulatory developments more generally.developments.
Legal reports.

Share capital and other disclosures
Share buy-back programme
On 4 August 2016,22 February 2017, HSBC Holdings commenced a share buy-back ofprogramme to purchase its ordinary shares of $0.50 each for
up to a maximum consideration of $2.5bn which$1.0bn. This programme concluded on 19 December 2016. The purpose of the buy-back was to reduce HSBC’s number of outstanding12 April 2017. 122,599,324 ordinary shares were purchased and was funded from a portion of the proceeds received from the sale of the Group’s operations in Brazil in July 2016. Further information on this disposal can be found on page 273.
The nominal value of shares purchased during 2016 was $162,636,704 and the aggregate consideration paid bycancelled. On 1 August 2017, HSBC was £1,970,091,769.Holdings


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announced a further share buy-back programme for the purchase of up to a maximum of $2.0bn of its ordinary shares of $0.50. This programme concluded on 20 November 2017 and 205,624,077 ordinary shares were purchased and cancelled. The purpose of both buy-back programmes was to reduce HSBC’s number of outstanding ordinary shares.
The nominal value of shares purchased during 2017 was $164,111,701 and the aggregate consideration paid by HSBC was £2,326,610,093.
The table that follows outlines details of the shares purchased on a monthly basis during 2016.2017. At 31 December 2016,2017, the total number of shares purchased was 325,273,407,328,223,401, representing
1.61% 1.62% of the shares in issue and 1.64% of the shares in issue (excludingexcluding treasury shares).shares.

Month
Number
of shares

Highest price
paid per share

Lowest price
paid per share

Average price paid per share
Aggregate
price paid

Maximum value of shares that may yet be purchased
  £
£
£
£
$
Aug-1637,287,407
5.6950
5.1140
5.4551
203,408,308
2,233,620,166
Sep-1679,160,560
5.9420
5.5650
5.7336
453,876,095
1,636,117,416
Oct-1672,211,730
6.3210
5.7850
6.1503
444,125,860
1,085,362,266
Nov-1682,231,879
6.4560
5.8840
6.2433
513,399,612
448,362,392
Dec-1654,381,831
6.7530
6.2010
6.5331
355,281,894
58
Month
Number
of shares

Highest price
paid per share
Lowest price
paid per share
Average price paid per share
Aggregate
price paid
  ££££
First share buy-back of 2017     
Feb-1720,682,000
6.80806.45006.5677135,833,224
Mar-1777,853,860
6.78006.40706.5977513,656,572
Apr-1724,063,464
6.63606.46106.5390157,350,841
 122,599,324
   806,840,637
Second share buy-back of 2017     
Aug-1749,649,445
7.70907.30107.4789371,323,631
Sep-1755,482,328
7.52607.05307.2806403,943,040
Oct-1753,192,769
7.68807.34007.4595396,791,032
Nov-1747,299,535
7.46507.27307.3513347,711,753
 205,624,077
   1,519,769,456
Dividends
Dividends for 20162017
First, second and third interim dividends for 2016,2017, each of $0.10 per ordinary share, were paid on 65 July 2016, 282017, 20 September 20162017 and 6 December 2016,22 November 2017, respectively. Note 8 on the Financial Statements gives more information on the dividends declared in 2016.2017. On 2120 February 2017,2018, the Directors declared a fourth interim dividend for 20162017 of $0.21 per ordinary share in lieu of a final dividend, which will be payable on 6 April 20172018 in cash in US dollars, or in sterling or Hong Kong dollars at exchange rates to be determined on 2726 March 2017,2018, with a scrip dividend alternative. As the fourth interim dividend for 20162017 was declared after
31 December 20162017 it has not been included in the balance sheet of HSBC as a liability. The reserves available for distribution at
31 December 20162017 were $42bn.$38.0bn.
A quarterly dividend of $15.50 per 6.20% non-cumulative US dollar preference share, Series A (‘Series A dollar preference share’), (equivalent to a dividend of $0.3875 per Series A American Depositary Share (‘ADS’), each of which represents one-fortieth of a Series A dollar preference share), and £0.01 per Series A sterling preference share was paid on 15 March, 15 June, 15 September and 15 December 2016.2017.
Dividends for 20172018
Quarterly dividends of $15.50 per Series A dollar preference share (equivalent to a dividend of $0.3875 per Series A American Depositary Share, each of which represents one-fortieth of a Series A dollar preference share) and £0.01 per Series A sterling preference share was declared on 86 February 20172018 for payment on 15 March 2017.2018.
Share capital
Issued share capital
The nominal value of HSBC Holdings’ issued share capital paid up at 31 December 20162017 was $10,095,807,607$10,160,372,629 divided into 20,191,586,21420,320,716,258 ordinary shares of $0.50 each, 1,450,000 non-cumulative preference shares of $0.01 each and one non-cumulative preference share of £0.01, representing approximately 99.9999%, 0.0001%, and 0%, respectively
of the nominal value of HSBC Holdings’ total issued share capital paid up at 31 December 2016.2017.
Rights, obligations and restrictions attaching to shares
The rights and obligations attaching to each class of ordinary and non-cumulative preference shares in our share capital are set out in full in our Articles of Association. The Articles of Association
may be amended by special resolution of the shareholders and can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/corporate-governance-codes.board-responsibilities.
Ordinary shares
HSBC Holdings has one class of ordinary share, which carries no right to fixed income. There are no voting restrictions on the issued ordinary shares, all of which are fully paid. On a show of hands, each member present has the right to one vote at general meetings. On a poll, each member present or voting by proxy is entitled to one vote for every $0.50 nominal value
of share capital held. There are no specific restrictions on transfers of ordinary shares, which are governed by the general provisions of the Articles of Association and prevailing legislation.
At the 2016 AGM, shareholders gave authority to the Directors to offer a scrip dividend alternative on any dividend (including interim dividends) declared up to the conclusion of the AGM in 2019.
Information on the policy adopted by the Board for paying interim dividends on the ordinary shares may be found on page 307,298, under the heading ‘Shareholder Information’.
Dividend waivers
HSBC Holdings employee benefit trusts, holding shares in HSBC Holdings in connection with the operation of its share plans, have lodged standing instructions to waive dividends on shares held by them that have not been allocated to employees. The total amount of dividends waived during 20162017 was $2.9m.$3.6m.
Preference shares
The preference shares, which have preferential rights to income and capital, do not, in general, confer a right to attend and vote at general meetings.
There are three classes of preference shares in the share capital of HSBC Holdings: non-cumulative preference shares of $0.01 each (‘dollar preference shares’); non-cumulative preference
shares of £0.01 each (‘sterling preference shares’); and non-cumulative preference shares of €0.01 (‘euro preference shares’). The dollar preference shares in issue are Series A dollar preference shares and the sterling preference share in issue is a Series A sterling preference share. There are no euro preference shares in issue.
Information on dividends declared for 20162017 and 20172018 may be found on page 247,242, under the heading ‘Dividends’ and in Note 8 on the Financial Statements.
Further details of the rights and obligations attaching to the HSBC Holdings’ issued share capital may be found in Note 3231 on the Financial Statements.




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Share capital changes in 20162017

The following events occurred during the year in relation to the ordinary share capital of HSBC Holdings:
Scrip dividends
 
HSBC Holdings
ordinary shares issued
Aggregate
nominal value

Market value per share
 onnumber
$
$
£
Issued in lieu of     
Fourth interim dividend for 201520 Apr 201663,677,983
31,838,992
6.4120
4.5069
First interim dividend for 20166 Jul 2016111,088,990
55,544,495
6.3288
4.3274
Second interim dividend for 201628 Sep 2016139,914,936
69,957,468
7.1015
5.4468
Third interim dividend for 20166 Dec 2016122,620,319
61,310,160
7.6227
6.2420
Scrip dividends
 
HSBC Holdings
ordinary shares issued
Aggregate
nominal value

Market value per share
 onnumber
$
$£
Issued in lieu of     
Fourth interim dividend for 20166 Apr 2017241,151,585
120,575,793
8.06366.5160
First interim dividend for 20175 Jul 201795,501,245
47,750,623
8.65006.6610
Second interim dividend for 201720 Sep 201719,315,343
9,657,672
9.96807.6606
Third interim dividend for 201722 Nov 201724,684,023
12,342,012
9.80007.4434
All-employee share plans
Number
Aggregate
nominal
value

 Exercise priceNumber
Aggregate
nominal
value

 Exercise price
from
to
from
to
 $
 £
£
 $
   
HSBC Holdings savings-related share option plans      
HSBC ordinary shares issued in £4,230,999
2,115,500
£4.0472
5.4738
8,935,312
4,467,656
£4.0472
5.964
HSBC ordinary shares issued in HK$63,091
31,546
HK$55.4701
63.9864
377,804
188,902
HK$55.4701
63.9864
HSBC ordinary shares issued in $17,053
8,527
$7.1456
8.2094
125,058
62,529
$7.1456
8.2094
HSBC ordinary shares issued in €42,880
21,440
€5.3532
6.0657
64,712
32,356
€5.3532
5.7974
Options over HSBC ordinary shares lapsed15,437,427
7,718,714
  6,301,579
3,150,790
  
Options over HSBC ordinary shares granted in response to approximately 15,500 applications from HSBC employees in the UK on 21 Sep 201615,043,601
   
Options over HSBC ordinary shares granted in response to approximately 14,932 applications from HSBC employees in the UK on 21 Sep 2017
10,447,272
   
HSBC International Employee Share Purchase Plan102,252
51,126
£4.1750
6.6010
693,152
346,576
£6.2620
7.6950
HSBC share plans
HSBC Holdings
ordinary shares issued

Aggregate
nominal
value

Market value per share
HSBC Holdings
ordinary shares issued

Aggregate
nominal
value

Market value per share
from
to
from
to
 $
£
£
 $
£
£
Vesting of awards under the HSBC Share Plan and HSBC Share Plan 201164,730,777
32,365,389
4.3000
6.7380
66,505,211
33,252,606
6.4600
7.6880
Compliance with Hong Kong Listing Rule 13.25A(2)
HSBC Holdings has been granted a waiver from strict compliance with Rule 13.25A(2) of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong.
Under this waiver, HSBC’s obligation to file a Next Day Return following the issue of new shares pursuant to the vesting of share awards granted under its share plans to persons who are not Directors, would only be triggered where it falls within one of the circumstances set out under Rule 13.25A(3).
Authorities to allot and to purchase shares and pre‑emption
pre-emption rights
At the AGM in 2016,2017, shareholders renewed the general authority for the Directors to allot new shares up to 13,138,649,23613,244,610,940 ordinary shares, 15,000,000 non-cumulative preference shares of £0.01 each, 15,000,000 non-cumulative preference shares of $0.01 each and 15,000,000 non-cumulative preference shares of €0.01 each. Within this, the Directors have authority to allot up to a maximum of 1,970,797,386 ordinary shares wholly for cash to persons other than existing shareholders. Shareholders also renewed the authority for the Directors to make market purchases of up to 1,970,797,3861,986,691,641 ordinary shares. The Directors exercised this authority during the year and purchased 325,273,407328,223,401 ordinary shares.
In addition, shareholders gave authority for the Directors to grant rights to subscribe for, or to convert any security into, no more than 3,941,594,7723,973,383,282 ordinary shares in relation to any issue by HSBC Holdings or any member of the Group of contingent convertible securities that automatically convert into or are exchanged for ordinary shares in HSBC Holdings in prescribed circumstances. Further details about the issue of contingent convertible securities may be found in Note 3231 on the Financial Statements.
Other than as disclosed in the tables above headed ‘Share capital changes in 2016’2017’, the Directors did not allot any shares during 2016.2017.
Debt securities
In 2016,2017, following its capital plan, HSBC Holdings issued the equivalent of $36.0bn$16.8bn of debt securities in the public capital markets in a range of currencies and maturities, including $2.0bn$5.1bn of contingent convertible $2.6bn of subordinated and $31.4bn$11.7bn of senior securities to ensure it meets the current and proposed regulatory rules, including those relating to the availability of adequate total loss-absorbing capacity. For additional information on capital instruments and bail-inable debt, refer to Notes 2827 and 3231 on pages 276268 and 285 and to the Fixed Income Securities section in the HSBC Investor Relations website.277.
Treasury shares
In accordance with the terms of a waiver granted by the Hong Kong Stock Exchange on 19 December 2005, HSBC Holdings will comply with the applicable law and regulation in the UK in relation to the holding of any shares in treasury and with the conditions of the waiver in connection with any shares it may hold in treasury. Pursuant to Chapter 6 of the UK Companies Act 2006, 325,273,407ordinary shares are currently held in treasury. This was the maximum number of shares held at any time during 2016;2017; representing 1.61%1.60% of the shares in issue. The nominal value of shares purchased during 2016 was $162,636,704.


186
HSBC Holdings plc Annual Report and Accounts 2016held in treasury is $162,636,704.

Notifiable interests in share capital
At 31 December 2016,2017, HSBC Holdings had received the following notification of major holdings of voting rights pursuant to the requirements of Rule 5 of the Disclosure, Guidance and Transparency Rules:
BlackRock, Inc. gave notice on 2518 October 20162017 that on 2416 October 20162017 it had the following: an indirect interest in HSBC Holdings ordinary shares of 1,172,083,824;1,214,807,412; qualifying financial instruments with 1,794,67752,830,499 voting rights that may be acquired if the instruments are exercised or converted; and financial instruments with a similar economic effect to qualifying financial instruments which refer to 4,861,1746,978,758 voting rights, each representing 5.89%6.06%, 0.00%0.26% and 0.02%0.03%, respectively, of

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the total voting rights at that date.
Ping An Asset Management Co., Ltd. gave notice on 6 December 2017 that on 4 December 2017 it had an indirect interest in HSBC Holdings ordinary shares of 1,007,946,172, representing 5.04% of the total voting rights at that date.
At 31 December 2016,2017, according to the register maintained by HSBC Holdings pursuant to section 336 of the Securities and Futures Ordinance of Hong Kong:
JPMorgan Chase & Co.BlackRock, Inc. gave notice on 27 October 201630 December 2017 that on 24 October 201628 December 2017 it had the following interests in HSBC Holdings ordinary shares: a long position of 924,250,502 shares;1,424,882,481 shares and a short position of 162,867,748 shares;6,642,872 shares, representing 7.01% and a lending pool of 437,566,359 shares, each representing 4.60%, 0.81% and 2.18%0.03%, respectively, of the ordinary shares in issue at that date;date. Since 31 December 2017 and
following interim notifications on 6 January and 15 January, BlackRock Inc. gave notice on 25 October 20162 February 2018 that on 21 October 201630 January 2018 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,305,933,0891,434,324,764 shares and a short position of 14,892,7935,356,892 shares, each representing 6.51%7.06% and 0.07%0.03%, respectively, of the ordinary shares in issue at that date.date; and
Ping An Asset Management Co., Ltd. gave notice on 6 December 2017 that on 5 December 2017 it had a long position of 1,017,946,172 in HSBC Holdings ordinary shares, representing 5.01% of the ordinary shares in issue at that date. Since 31 December 2016 to date, no further such notifications2017, Ping An Asset Management Co., Ltd. gave notice on 13 February 2018 that on 9 February 2018 it had been received.a long position of 1,253,254,972 in HSBC Holdings ordinary shares, representing 6.17% of the ordinary shares in issue at that date.
 
Sufficiency of float
In compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited at least 25% of the total issued share capital has been held by the public at all times during 20162017 and up to the date of this report.
Dealings in HSBC Holdings listed securities
HSBC Group has policies and procedures that, except where permitted by statute and regulation, prohibit specified transactions in respect of its securities listed on The Stock Exchange of Hong Kong Limited. Except for dealings as intermediaries or as trustees by subsidiaries of HSBC Holdings, neither HSBC Holdings nor any of its subsidiaries has purchased, sold or redeemed any of its securities listed on The Stock Exchange of Hong Kong Limited during the year ended 31 December 2016.2017.
Directors’ interests
Pursuant to the requirements of the UK Listing Rules and according to the register of Directors’ interests maintained by HSBC Holdings pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong, the Directors of HSBC Holdings at 31 December 20162017 had certain interests, all beneficial unless otherwise stated, in the shares or debentures of HSBC Holdings and its associated corporations as shown below.corporations. Save as stated in the below table, no further interests were held by Directors, and no Directors or their connected persons were awarded or exercised any right to subscribe for any shares or debentures in any HSBC corporation during the year.
No Directors held any short position as defined in the Securities and Futures Ordinance of Hong Kong in the shares or debentures of HSBC Holdings and its associated corporations.


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Directors’ Remuneration Report

Directors’ interests – shares and debentures
  At 31 Dec 2016  At 31 Dec 2017
Footnotes
At 1 Jan
2016

Beneficial
owner

Child
under 18
or spouse

Jointly with another person
Trustee
Total
interests1

Footnotes
At 1 Jan
2017

Beneficial
owner

Child
under 18
or spouse

Jointly with another person
Trustee
Total
interests

HSBC Holdings ordinary shares    
Phillip Ameen25,000
5,000
—
—
—
5,000
15,000
5,000
—
—
—
5,000
Kathleen Casey23,540
8,620
—
—
—
8,620
18,620
9,125
—
—
—
9,125
Laura Cha 5,200
5,200
—
—
—
5,200
213,200
10,200
8,000
—
—
18,200
Henri de Castries —
16,165
—
—
—
16,165
 16,165
17,116
—
—
—
17,116
Lord Evans of Weardale 7,416
9,170
—
—
—
9,170
 9,170
12,892
—
—
—
12,892
Joachim Faber 45,778
66,605
—
—
—
66,605
 66,605
66,605
—
—
—
66,605
Douglas Flint3401,450
402,158
—
—
—
402,158
Stuart Gulliver 2,861,265
3,167,323
176,885
—
—
3,344,208
33,344,208
3,534,284
176,885
—
—
3,711,169
Sam Laidlaw438,012
39,444
—
—
1,416
40,860
Irene Lee —
10,000
—
—
—
10,000
 10,000
10,588
—
—
—
10,588
John Lipsky216,165
16,165
—
—
—
16,165
116,165
16,165
—
—
—
16,165
Rachel Lomax 18,900
18,900
—
—
—
18,900
Iain Mackay 223,872
345,469
—
—
—
345,469
3345,469
442,118
—
—
—
442,118
Heidi Miller23,695
3,975
—
—
—
3,975
13,975
4,200
—
—
—
4,200
Marc Moses 624,643
824,241
—
—
—
824,241
3824,241
1,207,068
—
—
—
1,207,068
David Nish —
—
50,000
—
—
50,000
 50,000
—
50,000
—
—
50,000
Jonathan Symonds 21,771
16,886
4,885
—
—
21,771
 21,771
37,936
4,885
—
—
42,821
Jackson Tai2—
10,160
—
21,445
—
31,605
1, 431,605
12,900
10,350
21,575
—
44,825
Mark Tucker —
276,000
—
—
—
276,000
Pauline van der Meer Mohr —
15,000
—
—
—
15,000
 15,000
15,000
—
—
—
15,000
Paul Walsh —
5,079
—
—
—
5,079
1Phillip Ameen has an interest in 1,000, Kathleen Casey has an interest in 1,825, John Lipsky has an interest in 3,233, Heidi Miller has an interest in 840 and Jackson Tai has an interest in 8,965 listed ADS, which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.
2HSBC Holdings was advised on 23 January 2018 that Laura Cha's spouse acquired 8,000 shares on 24 August 2015.
3Executive Directors’ other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings savings-related share option plans and the HSBC Share Plan 2011 are set out in the Scheme interests in the Directors’ Remuneration Report on page 191.186. At 31 December 2016,2017, the aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee share plans and the interests above were: Douglas Flint – 405,077; Stuart Gulliver – 6,576,482;6,742,739; Iain Mackay – 1,842,063;2,140,600; and Marc Moses – 2,626,463.2,920,384. Each Director’s total interests represents less than 0.04% of the shares in issue and 0.04% of the shares in issue (excludingexcluding treasury shares).
2Phillip Ameen has an interest in 1,000, Kathleen Casey has an interest in 1,724, John Lipsky has an interest in 3,233, Heidi Miller has an interest in 795 and Jackson Tai has an interest in 6,321 listed ADS, which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.
3Since the end of the year, the number of HSBC Holdings ordinary shares held by Douglas Flint has increased by 22, following an acquisition, through regular monthly contributions in the HSBC Holdings UK Share Incentive Plan.
4Sam LaidlawJackson Tai has a non-beneficial interest in 1,41610,350 shares thatof which he holds as a trustee.is custodian.
There have been no changes in the shares or debentures of the Directors from 31 December 20162017 to the date of this report excluding those disclosed in footnote 3 of the above table.report.
Listing Rule 9.8.4
The information to be disclosed in theAnnual Report and Accounts pursuant to UK Listing Rule 9.8.4 is contained within the Corporate Governance Report.
Employees
At 31 December 2016,2017, HSBC had a total workforce of 241,000 full229,000 full- and part-time employees compared with 241,000 at the end of 2016 and 264,000 at the end of 2015 and 266,000 at the end of 2014.2015. Our main centres of employment were the UK with approximately 45,00040,000 employees, India 37,000,36,000, Hong Kong 29,000,30,000, mainland China 24,000, Mexico 16,000, the US 13,00011,000 and France 9,000.8,000.
We encourage employees to perform at their best, and create an environment to make that possible. We also encourage employees to speak up, and reflect our purpose and values in the decisions we make and how we make them, as these decisions shape the future of our customers and colleagues.
Employee relations
We consult with and, where appropriate, negotiate with employee representative bodies. It is our policy to maintain well‑developedwell-developed communications and consultation programmes with all employee representative bodies and there have been no material disruptions to our operations from labour disputes during the past five years.

Diversity and inclusion
HSBC isWe are committed to buildingenabling a culturethriving environment where individualspeople are valued, respected and supported; where different ideas, backgrounds, styles and perspectives are actively sought out to create business value; and where career advancement is based on objective criteria. Focus continuesWe are focusing on the diversity profile of our workforce to help ensuremake it ismore reflective of the communities in which we operate in and the customers we serve.
BuildingEveryone has a morerole to play in building our inclusive workplace is part of everyone’s role at HSBC.workplace. Our Global Diversity and Inclusion Policy makesis clear the responsibility ofthat all employees and workers to treatare responsible for treating colleagues with dignity and respect, and to createfor creating an inclusive environment free from
discrimination, bullying, harassment or victimisation, irrespective of their age, colour, disability, ethnic or national origin, gender, gender identity/expression, gender identity, marital status, pregnancy, race, religion or belief, or sexual orientation. Our employees are expected to demonstrate openness toby listening and valuing different ideasbackgrounds, perspectives and cultures, and their performance in this respect is reviewed in our year-end review process.cultures.
Diversity and inclusionInclusion carries the highest level of executive supportsupport. It was governed by the Conduct and Values Committee in 2017, and will be governed by the Group People Committee from 2018.
Gender diversity statistics
chart-c85c0dca4f02c98cd1f.jpg
MaleFemale
*Combined Executive Committee and Direct Reports was reported as at HSBC,30 June 2017 to the UK's Hampton Alexander Review and oversight ofincludes HSBC's Executive Directors, Group Managing Directors and their direct reports (excluding administrative staff).
**Senior employees refers to employees performing roles classified as 0, 1, 2 or 3 in our diversity agenda and related activities resides with the Global Diversity and Inclusion sub-function. We also operate governance forums covering diversity and inclusion at global line, regional and country levels.Career Band structure.

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Employee development
The development of our employees is essential to the future strength of our business. We continue to develop and implement practices that build employee capability, andcapability. We identify, develop and deploy talented employees to ensure an appropriate supply of high calibre individuals with the values, skills and experience for current and future senior management positions.


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HSBC Holdings plc Annual Report and Accounts 2016

In 2016,2017, we focusedintroduced HSBC University, the new home of learning at HSBC. HSBC University brings new programmes, training facilities, and technologies with a particular focus on developingLeadership, Risk Management, Strategy and Performance, as well as business-specific technical skills, experiencestraining. Its new leadership programmes are designed to support our leaders at all levels, encouraging collaboration and behaviours necessaryfuture thinking across HSBC's businesses, functions and geographies. In 2018 HSBC University will bring colleagues together to deliver againstlearn, develop and connect through new dedicated classroom space at our Global Standards commitments, along with several Group-wide cultural programmes for employeesoffices in Dubai, Mexico City, and managers as part of our ‘At Our Best’ initiative.the new HSBC UK Head Office in Birmingham.
Employment of people with a disability
We believe in providing equal opportunities for all employees.
The employment of people with a disability is included in this commitment and thecommitment. The recruitment, training, career development and promotion of people with a disability isare based on the aptitudes and abilities of the individual. Should employees become disabled during their employment with us, efforts are made to continue their employment and, if necessary, appropriate training and reasonable equipment and facilities are provided.
Health and safety
HSBCThe Group is committed to providing a healthy and safe physicalworking environment for our employees, contractors, customers and employees, as well as those who work with us.visitors on HSBC premises and where impacted by our operations. We aim always to meet the minimumbe compliant with all applicable health and safety legal requirements, and to ensure that best practice health and safety management standards required by law wherever we operateare implemented and where reasonably practical, to exceed them.maintained across the HSBC Group.
Everyone at HSBC has a responsibility for helping to create a healthy and safe working environment. Employees are expected to take ownership of their safety and are encouraged and empowered to report any concerns.
Chief operating officersOperating Officers have overall responsibility for ensuring that the correct policies, procedures and safeguards are put into practice. This includes making sure that everyone in HSBC has access to appropriate information, instruction, training and supervision.
In 2016, we completed three major global projectsPutting our commitment into practice, in 2017 the Group delivered a health and safety education and information training programme to every one of our employees, and the Group implemented a range of programmes to help us understand the risks we face educate and inform our staff, and improve the buildings in which we operate. operate:
We have:
Concluded a survey of earthquake resilience in more than 1,500 HSBC buildings located in countries at medium to high risk of earthquakes;
Conducted more than 250 asbestos surveys in countries without bans or controls on the use of the potentially harmful material; and
Completed more than 1,800completed fire risk assessments in over 2,000 properties worldwide, and addressed areas of concern.
We completed a health and safety inspection and remediation programme in 97% of our buildings aroundpremises across the world.globe.
The application of our health and safety policies and procedures continues to be integrated throughout our supply chain, particularly in developing markets, with audit and inspection programmes demonstrating continued improvements in health and safety performance.
We developed and implemented an improved risk assurance and oversight function to ensure our health and safety management system was performing appropriately, including conducting full reviews of health and safety management in
12 countries.

Employee health and safety
 Footnote2016
2015
2014
Number of employee workplace fatalities11
—
2
Accidents involving more than three days’ absence 75
110
96
All accident rate per 100,000 employees 241
274
388
Employee health and safety
 Footnotes2017
2016
2015
Number of workplace fatalities12
1
0
Number of major injuries to employees231
44
n/a
All injury rate per 100,000 employees 205
246
n/a
1Non-HSBC staff workingCustomer death on HSBC-related activity.branch premises; contractor involved in road traffic accident on bank business.
2Fractures, dislocation, concussion.
n/aComparable data not available at global level for 2015 following change in reporting procedure for 2016.
Remuneration policy
The quality and commitment of our employees is fundamental to our success and accordingly the Board aims to attract, retain and motivate the very best people. As trust and relationships are vital in our business our goal is to recruit those who are committed to making a long-term career with the Group.
HSBC’s reward strategy supports this objective through balancing both short-term and sustainable performance. Our remuneration strategy is designed to reward competitively the achievement of long-term sustainable performance and attract and motivate the very best people who are committed to maintaining a long-term career with the Group while performing their role in the long-term interests of our stakeholders.
In order to ensure alignment between remuneration and our business strategy, individual remuneration is determined through assessment of performance delivered against both annual and long-term objectives summarised in performance scorecards, and adherence to the HSBC Values of being ’open, connected and dependable‘ and acting with ’courageous integrity’. Altogether, performance is judged, not only on what is achieved over the short and long term, but also on how it is achieved, as the latter contributes to the sustainability of the Group.
The financial and non-financial measures incorporated in the annual and long-term scorecards are carefully considered to ensure alignment with the long-term strategy of the Group.
Further information on the Group’s approach to remuneration is given on page 191.186.
Employee share plans
Share options and discretionary awards of shares granted under HSBC share plans align the interests of employees with the creation of shareholder value. The following table below sets out the particulars of outstanding options, including those held by employees working under employment contracts that are regarded as ‘continuous contracts’ for the purposes of the Hong Kong Employment Ordinance. The options were granted at nil consideration. No options have been granted to substantial shareholders and suppliers of goods or services, nor in excess of the individual limit for each share plan. No options were cancelled by HSBC during the year.
A summary for each plan of the total number of the options which were granted, exercised or lapsed during 20162017 is shown in the table below.following table. Further details required to be disclosed pursuant to Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited are available on our website at http://www.hsbc.com/about-hsbc/corporate-governance/employee-share-plans and on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk, or can be obtained upon request from the Group Company Secretary,
8 Canada Square, London E14 5HQ.
Particulars of options held by Directors of HSBC Holdings are set out on
page 203.198.
Note 5 on the Financial Statements gives details of share-based payments, including discretionary awards of shares granted under HSBC share plans.

184HSBC Holdings plc

All-employee share plans
HSBC operates all-employee share option plans under which options are granted over HSBC ordinary shares. Subject to leaver provisions, options are normally exercisable after three to five years. During 2016,2017, options were granted at the mid- marketmid-market closing price for HSBC Holdings ordinary shares quoted on the London Stock Exchange which, as derived from the Daily Official List on 20 September 2016, 2017, the day prior to grant,before the options were granted, was £5.83.£7.23.
The UK Sharesave will terminate on 23 May 2025 unless the Directors resolve to terminate the plans at an earlier date. There will be no further grants under the HSBC Holdings Savings-Related Share Option Plan: International.
The HSBC International Employee Share Purchase Plan was introduced in 2013 and now includes employees based in 2627 jurisdictions.


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HSBC Holdings All-employee Share Option Plans
   HSBC Holdings ordinary shares    HSBC Holdings ordinary shares
Dates of awardsDates of awardsExercise price Exercisable At
Granted
Exercised
Lapsed
At
Dates of awardsExercise price Exercisable At
Granted
Exercised
Lapsed
At
fromtofrom
to
fromtoFootnotes1 Jan 2016
during year
during year
during year
31 Dec 2016
tofrom
to
fromtoFootnotes1 Jan 2017
during year
during year
during year
31 Dec 2017
Savings-Related Share Option PlanSavings-Related Share Option Plan1 Savings-Related Share Option Plan1 
21 Apr
2010
21 Sep
2016
(£)
(£)
1 Aug 201530 Apr 2022  
4.0472
5.4738
 71,709,819
15,043,601
3,834,045
14,141,959
68,777,416
21 Apr
2011
21 Sep
2017
(£)
(£)
1 Aug 201630 Apr 2023  
4.0472
5.9640
 68,777,416
10,447,272
8,580,981
6,077,604
64,566,103
Savings-Related Share Option Plan: InternationalSavings-Related Share Option Plan: International2 Savings-Related Share Option Plan: International2 
21 Apr
2010
24 Apr
2012
(£)
(£)
1 Aug 2014
31 Jan
2018
  
4.4621
5.4573
 1,130,991
—
396,954
293,728
440,309
21 Apr
2010
24 Apr
2012
($)
($)
1 Aug 2014
31 Jan
2018
  
7.1456
8.2094
 665,445
—
17,053
430,654
217,738
21 Apr
2010
24 Apr
2012
(€)
(€)
1 Aug 2015
31 Jan
2018
  
5.3532
6.0657
 153,610
—
42,880
23,814
86,916
21 Apr
2010
24 Apr
2012
(HK$)
(HK$)
1 Aug 2015
31 Jan
2018
  
55.4701
63.9864
 1,114,830
—
63,091
547,272
504,467
21 Apr
2011
24 Apr
2012
(£)
(£)
1 Aug 2016
31 Jan
2018
  
4.4621
5.0971
 440,309
—
354,331
47,149
38,829
21 Apr
2011
24 Apr
2012
($)
($)
1 Aug 2016
31 Jan
2018
  
7.1456
8.2094
 217,738
—
125,058
74,807
17,873
21 Apr
2011
24 Apr
2012
(€)
(€)
1 Aug 2016
31 Jan
2018
  
5.3532
5.7974
 86,916
—
64,712
11,665
10,539
21 Apr
2011
24 Apr
2012
(HK$)
(HK$)
1 Aug 2016
31 Jan
2018
  
55.4701
63.9864
 504,467
—
377,804
90,354
36,309
1The weighted average closing price of the shares immediately before the dates on which options were exercised was £5.75.£7.32.
2The weighted average closing price of the shares immediately before the dates on which options were exercised was £5.10.£7.48.
Statement of compliance
The statement of corporate governance practices set out on pages 166 to 210 and the information referred to therein constitutes the Corporate Governance Report of HSBC Holdings. The websites referred to do not form part of this Report.
Relevant corporate governance codes
UK Corporate Governance Codewww.frc.org.uk
Hong Kong Corporate Governance Code (set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited)www.hkex.com.hk
Descriptions of the roles and responsibilities of the:
– Group Chairman
– Group Chief Executive
– Senior Independent Director
www.hsbc.com/about-hsbc/corporate-governance/board-committees
Board and senior managementwww.hsbc.com/about-hsbc/leadership
Roles and responsibilities of the Board and its committeeswww.hsbc.com/about-hsbc/corporate-governance/board-committees
Board’s policies on:
– Diversity
– Shareholder communication
www.hsbc.com/investor-relations/governance/corporate-governance-codes
Global Internal Audit Charterwww.hsbc.com/investor-relations/governance/internal-control
HSBC is subject to corporate governance requirements in both the UK and Hong Kong. During 2017, HSBC complied with the applicable provisions of the UK Corporate Governance Code, and also the requirements of the Hong Kong Corporate Governance Code.
Under the Hong Kong Code the audit committee should be responsible for the oversight of all risk management and internal control systems. HSBC’s Group Risk Committee is responsible for oversight of internal control, other than internal control over financial reporting, and risk management systems. This is permitted under the UK Corporate Governance Code.

The Board has codified obligations for transactions in HSBC Group securities in accordance with the requirements of the Market Abuse Regulation and the rules governing the listing of securities on The Stock Exchange of Hong Kong Limited (‘HKEx’), save that the HKEx has granted waivers from strict compliance with the rules that take into account accepted practices in the UK, particularly in respect of employee share plans. HSBC is in discussion with the HKEx to update these waivers. Following specific enquiry, all Directors have confirmed that they have complied with their obligations in respect of transacting in Group securities during the year.


arasection44image3a01.jpgv4350pxl72dpimt5a02.jpg
On behalf of the Board
Douglas FlintMark E Tucker
Group Chairman
HSBC Holdings plc
Registered number 617987
2120 February 20172018



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Directors’ Remuneration Report

Directors’ Remuneration Report
 Page
Annual Statement from the Group Remuneration Committee ChairmanChair191186
Directors’ remuneration policy193
Remuneration policy for all employees194188
Annual report on remuneration197189
Additional remuneration disclosures208201
Pillar 3 remuneration disclosures203
All disclosures in the Directors’ Remuneration Report are unaudited unless otherwise stated.
Disclosures marked as audited should be considered audited in the context of financial statements taken as a whole.
Annual Statement from the Group
Remuneration Committee ChairmanChair
Dear Shareholder,
The GroupI am delighted to present our 2017 Directors’ Remuneration Report. I have been a member of the Committee (‘the Committee’) is guided by a series of principles. These are set out in the Strategic Report on page 28, but it is worth mentioning a few here to help explain our work.
To attractsince 1 January 2016 and retain talent, remuneration at HSBC must be competitive. However, we place a strong emphasis on linking pay to performance. We particularly emphasise the need for performance that benefits the Grouptook over the long-term, and reflects HSBC Values androle of Chair from 28 April 2017.
2017 was the highest standards of conduct.
In 2016, we introduced a newsecond year under our current remuneration policy, for our executive Directors. It reflected feedback from shareholders, especially in its introduction of a long-term incentiveand I was pleased to note that at the last Annual General Meeting (‘LTI’AGM’) award with a three-year forward-looking performance period, a seven-year deferral period, and a reduction in the cash in lieu of pension allowance for the executive Directors. I believe the new policy achieves strong alignment between the interests of our executive Directors and shareholders, and the performance measures for the new LTI award will reward long-term sustainable performance.
We were pleased that the new policywe received strong support at our Annual General Meeting ('AGM') in April 2016,for how the policy was implemented, with over 96% of shareholders voting in favour.favour of the 2016 remuneration report.
This year’s Remuneration Report shows how the Committee has applied the new policy, aligning executive pay with the Group’sI have set out below a summary of our 2017 performance, both forkey decisions made during the year and against its long-term strategic objectives.the areas of focus envisaged for 2018.
Performance achieved during 20162017
Reported profit before tax forDuring 2017, the year fell 62% to $7.1bn. However, on an adjusted basis, excluding significant itemsGroup made good financial and currency translation differences,strategic progress. The Group 2017 reported profit before tax was $19.3bn, broadly$17.2bn, up 141% from $7.1bn in line2016. On an adjusted basis, profit before tax was $21.0bn, up 11% from $18.9bn in 2016.
2017 was the final year to implement the Group's planned strategic actions and to achieve the targets we had set out to our investors in 2015. The scorecards of our executive Directors incorporated measures that were aligned to the delivery of these strategic actions.
We exceeded our risk-weighted assets (‘RWA’) reduction target, extracting a total of $338bn of RWA's from the business since the start of 2015, in excess of the $290bn target we had set out in our strategic actions. We achieved annualised run-rate savings of $6.1bn and delivered positive adjusted jaws for 2017.
We missed our targets for NAFTA profitability and RMB internationalisation although we made good progress on actions to deploy capital and deliver revenue growth. The set-up of the UK ring-fenced bank is nearly complete, with prior-year. The Group's cost91% of head office roles resourced, and we expect to have a fully functioning team by the end of the first quarter of 2018. Details of performance improved as prior-year initiatives gained traction and substantially offset higher loan impairment charges and marginally lower revenues.
The Group is now more than a year into implementingagainst each of the strategic actions is set out on page 13 of the Strategic Report.
In December we launched HSBC Qianhai Securities, the first securities joint venture in its Investor Updatemainland China to be majority-owned by an international bank. We will be offering a range of services to our customers, including equity research and brokerage, equity and debt underwriting and cross-border M&A advisory, and emphasising our commitment in June 2015. These aimpivoting our business to improve returns, deliver cost savings, reduce RWAs, rebuild profitabilityAsia.
The Group announced a dividend of $0.51 per ordinary share and in Mexico2017, we returned a total of $3bn to shareholders through share buy-backs. A total shareholder return of 24% was achieved in 2017, which outperformed the FTSE 100 index over the year. We remain a well-funded business with a strong capital generation and a diversified balance sheet. We received the US, optimise‘World’s Best Bank’ award at the Euromoney Awards for Excellence 2017 in July, showcasing our devotion to customers and capture value from our international network, and completestrong market position.
Over the implementation ofpast five years, we significantly strengthened our ability to combat financial crime through our Global Standards programme to help combat financial crime.and the five-year deferred prosecution agreement ('AML DPA') with, among others, the US Department of Justice ('DoJ'), has expired.
Measures were incorporatedIn January 2018, HSBC Holdings entered into a three-year deferred prosecution agreement with the 2016 annual incentive scorecardsDoJ (‘FX DPA’), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. This concluded the DoJ’s investigation into HSBC’s historical foreign exchange activities. Under the terms of the executive Directors to align their pay with progress against achievement of these objectives.
The Group made strong progress inFX DPA, HSBC has a number of areas. It reduced RWAs by $143bnongoing obligations, including continuing to cooperate with authorities and implementing enhancements to its internal controls and procedures in 2016, taking it more than 97%its Global Markets business which will be the subject of annual reports to the DoJ. In addition, HSBC agreed to pay a financial penalty and restitution.
This agreement acts as a reminder of the way towards its target fornecessity of pursuing the endhighest standards of 2017. It achieved cost savings of $2.25bn, despite continued investmentconduct in
compliance, regulatory programmes and growth. Furthermore, it is on its way to restoring profitability in Mexico. In the second half of 2016, it executed a share buy-back worth approximately $2.5bn as a way of distributing capital to shareholders. In 2016, in sterling terms, our share price increased by 23% and the total shareholder return was 32%.business.
Group variable pay pool and risk adjustments
The Committee’s decision on the Group variable pay pool is used to fund performance-related pay acrosstook into consideration our performance against metrics set out in the Group. In determining the size of the poolGroup risk appetite statement and an assessment against our global conduct outcomes for 2016, theour global businesses. The Committee also took into consideration the Group’s financial performance, and fines, penalties and customer redress costs, as well as progress implementing and embedding Global Standards.costs.
The total value ofvariable pay pool for 2017 was $3,303m, representing a 8.8% increase on the 2016 variable pay pool.
In setting the pool, for 2016 was $3,035m, which was 12.3% lower than the $3,462m figure for 2015.
In particular, the 2016 pool includedCommittee used its discretion to apply the following reductions of:reductions:
$19484m for the fines, penalties and cost of customer redress faced by the Group; and
$309383m for:
–financial performance inbased on certain key areas,metrics, in particular, profit before tax, return on risk-weighted assets and adjusted jaws;equity;
–performance against certain metrics in our Group risk appetite profile; and
–continued work required to address financial crime compliance issues and the embedding of Global Standards within our businesses.issues.
In additionThe Committee also strongly believes that individual performance should be judged not only on what is achieved over the period but more importantly on how it is achieved, as we believe the latter contributes to the pool adjustments,long-term sustainability of the business. To further reinforce this in our culture, we reduced continue our workstream on incentivising compliance through:
the use of behaviour and performance ratings for all employees, which directly influence pay outcomes;
variable pay awards to certain individuals by $12.1madjustments:
–
positive adjustments to variable pay outcomes for individuals who have exhibited positive behaviour and consistent adherence to the HSBC Values and go the extra mile to courageously do the right thing. During 2017, we made positive adjustments totalling $14.9m of variable pay awards; and
–
we reduced variable pay awards to certain individuals by $2.9m in aggregate to reflect individual conduct and behaviours; and
the global recognition programme where our employees can recognise peers and reward positive behaviours in aggregate to reflect their involvement in certain notable events and individual transgressions.a real-time, visible way.
Executive Directors’ remuneration for 2016
In line with the policy approved by shareholders, we have reduced the cash in lieu of pension from 50% of base salary to 30%Fixed pay for executive Directors. This has resultedDirectors
No fixed pay increases were made in 2017 for executive Directors and no increase in fixed pay including allowances, reducing by 7% in 2016. No increases in fixed pay areis proposed for 2017.
The 2016 annual incentive scorecard outcome for financial measures was 35.3% for Stuart Gulliver, 30.0% for Iain Mackay and 15.0% for Marc Moses, reflecting their individual scorecards and the performance achieved in cost savings, reductions in RWAs and achievements against our strategic objectives.
Since establishing the new Financial Crime Risk function in
July 2016, there has been a significant focus on transition from a programme of change to business-as-usual financial crime management across all countries, regions and global businesses. But there is more to be done. The Committee exercised its discretion to reduce the Global Standards assessments for executive Directors down to 65%. Thisfor 2018. Across the UK employee population the average base salary increase in 2017 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.
Details of the annual incentive scorecard outcome are provided on page 199.
In line with the new policy, no Group Performance Share Plan (‘GPSP’) awards were made in respect of the year ended
31 December 2016. This has resulted in a significant decrease in the total single figure of remuneration for executive Directors when compared with the year ending 31 December 2015.
The new LTI award for our executives, awarded while taking into account performance in the financial year ended 31 December 2016, is subject to a forward-looking three-year performance period (1 January 2017 to 31 December 2019) and a seven-year5%.


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Executive Directors’ 2017 variable pay awards
The 2017 annual incentive scorecard outcome was 80.0% for Stuart Gulliver, 89.5% for Iain Mackay and 91.2% for Marc Moses, reflecting the performance achieved against their individual scorecards. Details of the annual incentive scorecard outcome are provided on page 191.
Iain Mackay and Marc Moses will be awarded a long-term incentive award (‘LTI’) in respect of 2017 performance. In granting these awards, the Committee took into consideration the performance achieved for the financial year ended 31 December 2017 and the achievements against the strategic actions announced in June 2015. These awards will also be subject to a three-year forward-looking performance period ending on
31 December 2020. Details of the performance measures are set out on page 196. At the end of the three-year performance period, subject to the outcome of the performance conditions, awards will vest in five equal annual instalments commencing from the third anniversary of the award date. This gives a total deferral period. This ensuresperiod of seven years and links a significant proportionportion of our executive Directors’ pay continues to be deferred. This, together with the fact that the majority of compensation is awarded in shares, helps ensure it is aligned with the achievement of our long-term strategic objectives, and the long-term interests of shareholders and other stakeholders. Details
Following Stuart Gulliver’s announcement of his retirement, the Committee considered that it would not be appropriate for him to receive a LTI award for 2017. To meet regulatory deferral requirements for 2017, 60% of his 2017 annual incentive award will be deferred over a period of seven years, vesting in five equal annual tranches commencing from the third anniversary of the performance measuresgrant date.
In accordance with regulatory requirements, the post-vesting retention period for all shares awarded to executive Directors has been increased from six months to one year.
Director changes and implementation of policy
for 2018
Mark Tucker joined the LTI award to be granted inBoard on 1 September 2017 as a non-executive Director and Group Chairman designate, and succeeded Douglas Flint as Group Chairman with effect from 1 October 2017. He will receive a fee of £1,500,000 per annum in respect of 2016,his chairmanship and the relevant targets for each measure,was paid a one-time relocation benefit of £300,000.
In line with our remuneration policy, Douglas Flint was paid his salary and pension allowance and received contractual benefits in respect of his contractual notice period. Full details are provided on page 202.196.
ImplementationStuart Gulliver will step down as executive Director and Group Chief Executive on 20 February 2018 and John Flint will succeed Stuart Gulliver as Group Chief Executive from 21 February 2018. Stuart Gulliver will remain as an employee until 11 October 2018, working on key strategic projects and supporting the smooth transition of the Group Chief Executive role to John Flint. Up until retirement, Stuart Gulliver will continue to receive his current
fixed pay and benefits. In accordance with the terms of our remuneration policy, the Committee has agreed that Stuart Gulliver will remain eligible to be considered for 2017
This year will be the final one for implementing the strategic actions set out in the Investor Update. The 2017an annual incentive scorecardsaward for the executive Directors are designedperiod up to drive delivery against these objectives.
Details of the11 October 2018, based on his contribution during 2018. Further details on Stuart Gulliver’s annual incentive opportunity and performance measures for 2018 can be found on page 201.
John Flint’s salary as Group Chief Executive is set at £1,200,000 and will be reviewed on an annual basis. He will also receive a fixed pay allowance of £1,700,000 per annum and a cash in lieu of pension at 30% of salary, consistent with the 2017approved policy. His maximum annual incentive scorecards are on page 207. However, for reasonsand LTI opportunity will be set at 215% and 320% of commercial sensitivity, the specific targets for each measure will not be disclosed until the end of the 2017 performance period, when performance against the targets will also be disclosed.
Fees for non-executive Directors were reviewed by the Committee in 2016. Recognising the growing regulatory responsibilities and time commitment required fromsalary, respectively, as per our non‑executive Directors, their fees have been increased with effect from 1 January 2017. A travel allowance has also been introduced for non-UK based non-executive Directors to reflect the additional time commitment required for travel. The details of the increases are provided on page 194.
The Committee will continue to monitor the remuneration arrangements for executive Directors, and meet with our majorapproved policy.
 
shareholders on implementationEmployee remuneration policy
Our wider employee remuneration policy is driven by the Group reward strategy, which has evolved over time to reflect changes in our operating environment, including ongoing regulatory and governance changes. The Committee reviewed and agreed updates to the Group reward strategy during 2017 to ensure that it continues to support HSBC’s overall employment proposition to attract, retain and motivate the best people, who are aligned to HSBC’s values and committed to maintaining a long-term career within the Group.
Our 2017 employee survey feedback indicated that employees needed more support in understanding the objectives of the different components of total compensation. To address this, the Committee reviewed and supported management’s proposals to streamline the parameters and principles which managers are asked to consider and apply when making fixed and variable pay recommendations, with a view to ensuring employees have more visibility and clarity on the factors that influence their total remuneration. Details of the Group's remuneration policy for all employees are set out on page 203.
Gender pay
Gender pay is an area of focus in the UK with the introduction of the Gender Pay Gap Reporting regulations. We will be complying with those regulations and reporting accordingly.
Our global pay strategy is designed to attract and motivate the very best people regardless of any factor unrelated to their performance or experience.
Pay recommendations consider internal and external market comparisons and reflect the employee’s performance during the year. Recommendations are reviewed during a robust annual process, involving business and function heads, senior management and Human Resources.
Review of our policy
The Group's remuneration policy is due to expire at the 2019 AGM. During the course of this year, we will be reviewing our current approach to Directors' remuneration and will consult with our large shareholders and proxy advisory bodies with the aim of introducing a policy in 2017. The Committee will also continue to monitor any reform proposed for corporate governance and executive pay, and will consider any changes that may be required to our approach on remuneration in this regard.2019.
Our annual report on remuneration
The following sections of this Remuneration Report providenext section provides an overview of theour remuneration policy for executive Directors, which was approved by shareholders at the 2016 AGM, andAGM. In the annual report section, we provide details of remuneration decisions made for executive Directors in 2016. The2017. In the additional remuneration disclosure section of this report, also covers the applicationwe provide additional remuneration-related disclosures, including an overview of the 2016 policy that applies to other Groupour employees.
As ChairmanChair of the Committee, I hope you will support the report.
Finally, I will be retiring as a non-executive Director of the Group and as chairman of this Committee at the conclusion of the 2017 AGM. I am delighted that


Pauline van der Meer Mohr who is already a member of the Committee, has agreed to succeed me as chairman at that time.

Chair

Sam Laidlaw
Chairman
Group Remuneration Committee
2120 February 20172018


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Directors’ Remunerationremuneration policy
The tables below summarise our remuneration policy for executive and non-executive Directors. The policy was approved at the AGM on 22 April 2016 and is intended to apply for three performance
years until the AGM in 2019. The full remuneration
policy can be found on pages 288 to 299 of our Annual Report and Accounts 2015 and in the Directors'Directors‘ Remuneration Policy Supplement 2016 of this Annual Report and Accounts 2016, which is available under group results and reporting in the Investor Relations section of www.hsbc.com.

Remuneration policy summary – executive Directors
ElementsOperation
Implementation in 201720181
Base salary
To attract and retain key talent by being market competitive and rewarding ongoing contribution to role.
•
Paid in cash on a monthly basis.
•
Base salary increases will not exceed 15% in total during the three-year term of the policy.
No change from 2016.
•
Douglas Flint: £1,500,0002017.
•
Stuart Gulliver: £1,250,000
•
John Flint: £1,200,000
•
Iain Mackay: £700,000
•
Marc Moses: £700,000
Fixed pay allowance
To deliver fixed pay required to reflect the role, skills and experience of the Directors and to maintain a competitive total remuneration package for retention of key talent.
•
Non-pensionable and paid in shares.
•
Released annually on a pro ratapro-rata basis over five years, starting from the March immediately following the end of the financial year in which the shares were granted.
•
Dividends paid on the vested shares held during the retention period.
No change from 2016.
•
Douglas Flint: Nil2017.
•
Stuart Gulliver: £1,700,000
•
John Flint: £1,700,000
•
Iain Mackay: £950,000
•
Marc Moses: £950,000
Pension
To attract and retain key talent by being market competitive.
•
Directors receive cash in lieu of a pension equal to 30% of base salary.
No change from 2016.2017.
Benefits
To provide benefits in accordance with local market practice.
•
Include, for example, the provision of medical insurance, income protection insurance, health assessment, life assurance, club membership, tax return assistance, car benefit and travel assistance, including any tax due on the benefit.
•
Additional benefits may also be provided where an executive Director is relocated or spends a substantial proportion of their time in more than one jurisdiction for business purposes.
No change from 2016.2017.
Annual incentive
To drive and reward performance against annual financial non-financial and personalnon-financial objectives which are consistent with the strategy and align to shareholder interests.
•
Maximum opportunity for annual incentive award is 215% of base salary.
•
Performance is measured against an annual scorecard, andwhich varies by individual.
•
On vesting, shares are subject to a minimum retention period of at least six months.
•
Number of shares to be awarded can be determined taking into consideration a share price discounted for expected dividend yield.
•
See page 207201 for details of performance measures.
•
Shares issued are subject to a retention period of up to one year after vesting.vesting in accordance with new regulatory requirements.
Long-term incentive (‘LTI’)
To incentivise sustainable long-term alignment with shareholder interests.
•
Maximum opportunity for LTI award is 320% of base salary.
•
Award is subject to a three-year forward-looking performance period.
•
Performance is measured against a long-term scorecard. 60% is based on financial outcomes and 40% is based on non-financial outcome,outcomes, including risk and strategy-related measures.
•
Awards vest in five equal instalments with the first vesting on or around the third anniversary of the grant date, and the last vesting on or around the seventh anniversary of the grant date.
•
On vesting, shares are subject to a retention period of at least six months.
•
Awards are discretionary and subject to malus during the vesting period and claw-backclawback for a period of seven to
10 years from the date of award.
•
Number of shares to be awarded can be determined taking into consideration a share price discounted for expected dividend yield.
•
Details of the performance measures and targets for awards to be made in 20172018 (in respect of 2016)2017) are set out on page 202.196.
•
For awards to be made in respect of 2017,2018, the measures and targets will be determined at the end of 20172018 for the performance period commencing on
1 January 2018.2019.
•
On vesting, awards are subject to a retention period of up to one year.year in accordance with new regulatory requirements.
•
Number of sharesAwards are not entitled to be awarded can be determined using a share price discounted for dividend yield.equivalents during the performance and deferral period in accordance with new regulatory requirements.
Shareholding guideline
To ensure appropriate alignment with the interest of our shareholders.
The shareholding guidelines as a percentage of base salary are:
•
Group Chairman: 100%
•
Group Chief Executive: 400%
•
Group Finance Director and Group Chief Risk Officer: 300%

No change from 2016.2017.
1John Flint will succeed Stuart Gulliver as executive Director and Group Chief Executive with effect from 21 February 2018. Stuart Gulliver will step down as executive Director and Group Chief Executive on 20 February 2018.
Executive Directors are also entitled to participate in all employee share plans, such as HSBC Sharesave, on the same basis as all other employees. The policy on payment for loss of
office is detailed online in the Directors’ Remuneration Policy Supplement 2016.Supplement.


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Remuneration policy summary – non-executive Directors
Non-executive Directors are not employees and receive a fee for their services. The policy for non-executive Directors is to pay:services, as follows:
base fees;fee; and
further fees for the role of Senior Independent Director (‘SID’) and additional Board duties such as chairmanship or membership of a committee.committee.
Expenses incurred in performing their roles and any related tax due are also reimbursed.
All non-executive Directors have a shareholding guideline of 15,000 shares, which has to be
achieved by 2019 or within five years from 2014 orof their appointment if later.
The Committee has reviewed the fee levels payable to non-executive Directors and decided an increase will be applied to reflect growing regulatory responsibilities and time commitment. A travel allowance of £4,000 will also be introduced foris provided to non-UK based non-executive Directors to reflect the additional time commitment required for travel. The increases in fees is within the 20% maximum increase during the three-year term of the remuneration policy. Fees for 2017 are detailed below.

  2016 fees2017 fees
  ££
Category   
Base fee 95,000110,000
SID 45,00054,000
Audit, Risk, Remuneration, Financial System Vulnerabilities and Conduct & Values CommitteesChairman50,00060,000
 Member30,00030,000
Nomination Committee
Chairman

40,00040,000
 Member25,00025,000
Philanthropic & Community Investment Oversight CommitteeChairman25,00025,000
 Member15,00015,000
2018 fees
£
Category
Non-executive Group Chairman1
1,500,000
Base fee110,000
SID54,000
Audit, Risk, Remuneration, Financial System Vulnerabilities and Conduct & Values CommitteesChairman60,000
Member30,000
Nomination Committee
Chairman

40,000
Member25,000
Philanthropic & Community Investment Oversight CommitteeChairman25,000
Member15,000
1Group Chairman does not receive a base fee or any other fees in respect of chairmanship of any other committee. The Committee has exercised its discretion to provide Mark Tucker with life assurance and healthcare insurance with effect from 1 February 2018, taking into consideration that he is performing the role with a time commitment of not less than four days per week, and holds no other offices outside of HSBC Holdings plc.
Service contracts
Executive Directors
 
Douglas Flint1
John
Flint
Stuart Gulliver
Iain
Mackay
Marc Moses
Contract date (rolling)14 Feb 201121 Feb 201810 Feb 2011
4 Feb
2011
27 Nov 2014
Notice period
(Director & HSBC)
12 months12 months12 months12 months12 months
1Douglas Flint stepped down from the Board on 30 September 2017.
Letters setting out the terms of appointment of each executive Director are available for inspection at HSBC Holdings’ registered office. Consistent with the best interests of the Group, the
Committee will seek to minimise termination payments. Directors may be eligible for a payment in relation to statutory rights.
The Directors’ biographies are set out on pages 171167 to 174,170, and include those directorships provided for under Capital Requirement Directive IV (‘CRD IV’).
Non-executive Directors
Non-executive Directors are appointed for fixed terms not exceeding three years, which may be renewed subject to their re-election by shareholders at AGMs. Non-executive Directors do not have service contracts, but are bound by letters of appointment issued for and on behalf of HSBC Holdings. There are no obligations in the non-executive Director’sDirectors' letters of appointment whichthat could give rise to remuneration payments or payments for loss of office.
Non-executive Directors’ current terms of appointment will expire as follows:

2017 AGM2018 AGM2019 AGM2020 AGM2021 AGM
Kathleen CaseyPhillip AmeenHenri de CastriesDavid NishKathleen CaseyMark Tucker
Laura ChaJoachim FaberIrene LeeJackson TaiLaura Cha
Lord Evans of WeardaleJohn LipskyPauline van der Meer Mohr
Sam LaidlawRachel LomaxPaul WalshDavid Nish 
Jonathan SymondsHeidi Miller Jonathan Symonds
Jackson Tai
Lord Evans of Weardale 
Remuneration policy for all employees
The Committee oversees the Group’s remuneration policy and its application to the wider employee population. The Committee periodically reviews the adequacy and effectiveness of the policy and ensures that it:
meets the commercial requirement to remain competitive;
is affordable;
allows flexibility in response to prevailing circumstances;
is compliant with regulatory requirements;
aligns with the long-term interests of our stakeholders; and
is consistent with effective risk management.

The mix of fixed and variable pay granted to an employee corresponds to the individual’s role, local market factors and regulatory requirements. The variable pay for all material risk takers (‘MRTs’) is restricted to a maximum of 200% of their fixed pay. Individuals are identified as MRTs based on the qualitative and quantitative criteria set out in the Regulatory Technical Standard EU 604/2014 and additional criteria determined by the Committee. The table provides an overview of the different remuneration elements for our employees.


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Component of remunerationApplication
Fixed pay
•
Attract and retain employees by paying market-competitive pay for the role, skills and experience required by the business.
•
This may include salary, fixed pay allowance, cash in lieu of pension and other cash allowances in accordance with local market practices.
•
These payments are fixed and do not vary with performance.
Pension and benefits
•
Provided in accordance with local market practice. They include, but are not limited to, the provision of pensions, medical coverage, life insurance, health assessment, tax return preparation, legal fees and relocation allowances.
Annual incentive
•
Awards to drive and reward performance based on annual financial and non-financial measures consistent with the medium-to-long-term strategy, shareholder interests and adherence to HSBC Values.
•
For MRTs, awards are normally subject to a 40% or 60% deferral, delivered in cash and/or shares, subject to a minimum six-month retention period. From 2016 onwards, the deferral period could be three, five or seven years, depending on the regulatory status of the employee. Deferred awards are subject to malus. All awards are subject to claw-back and compliance with local laws.
•
For all other employees, awards can be in the form of cash and/or shares. Awards above a specified threshold are subject to deferral based on a deferral table. All deferred awards are subject to malus.
•
HSBC operates an anti-hedging policy for all employees who are required to certify each year that they have not entered into any personal hedging strategies.
Link between performance and reward
Under our remuneration framework, pay decisions are based on a number of factors: business results, individual performance against scorecard objectives and adherence to HSBC Values, business principles, policies, procedures and Global Standards.
At the end of each performance year, assessment of performance against scorecard objectives, including non-financial and risk objectives, forms the basis of remuneration decisions. This helps ensure risk management is embedded and forms an integral part of all our activities.
The performance and remuneration of individuals in control functions is assessed according to a balanced scorecard of objectives specific to the functional role they undertake, to ensure their remuneration is determined independent of the performance of the business areas they control.
HSBC Values play a key role in ensuring the Group remains sound and sustainable. All employees are given a separate values-aligned behavioural rating, which informs their eligibility for variable pay and influences their variable pay determinations.
Regular reviews are undertaken to assess instances of non-compliance with risk procedures and expected behaviours. Instances of non-compliance are escalated for consideration in variable pay decisions, using our adjustment, malus and claw-back policies (see the next section).
The key features of our remuneration framework that enable us to achieve alignment between risk, reward and performance are set out below.

Key featureApplication
Scorecards
•
Assessment of performance with reference to clear and relevant objectives set within a performance scorecard framework.
•
Global Standards including risk and compliance measures and conduct, set at a minimum of 25% of the scorecard for Group Management Board members.
Group variable pay pool calculation
•
Fines and penalties are automatically included in the Committee’s definition of profit.
•
Performance against metrics in the Group Risk Appetite Statement and Conduct Framework is taken into consideration.
Deferral of variable pay
•
Deferral of a significant proportion of variable pay into HSBC shares and/or other instruments to tie recipients to the future performance of the Group and business units.
Malus/adjustment policy
•
Allows cancellation/reduction of unvested deferred variable pay awards. Longer deferral period under PRA Remuneration Rules increases the time period over which malus can be applied.
•
This is in addition to our in-year variable pay adjustments and other disciplinary actions that can be taken under our global consequence management policy.

Claw-back policy
•
Subject to compliance with local labour laws, allows us to recoup/reclaim paid awards in certain circumstances as defined by the PRA for a period of up to seven-years from grant (can be extended to 10 years for individuals in PRA designated Senior Management Function roles).

Retail/wealth compensation
•
We removed commission based sales plans globally for Wealth in 2013 and Retail in 2014.

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The following policies help embed values in our remuneration structure while ensuring greater global consistency in our
approach to achieving alignment between risk and reward.

ProgrammesApplication
Values rating for all employees
•
To ensure performance is judged not only on what is achieved in the short and long term but also on how it is achieved, which contributes to the sustainability of the Group.
Performance management
•
Strong correlation is expected between performance and values.
•
No discretionary variable pay for an unacceptable behaviour rating.
•
2016 focus on moving away from traditional cycle-based performance management towards a culture of everyday performance and development.

Global consequence management policy
•
Introduced to increase consistency in approach and actions taken.
•
Clear messaging to employees on impact of breaches as part of reward communications (through pay statements, manager guidelines, etc.).

Positive adjustments
•
To focus on positive behaviours in the context of Global Standards through in-year positive variable pay adjustments.

Global recognition programme
•
Circa 80% of the global employee population can now access a single HSBC recognition platform to perform values-based peer-to-peer recognition.
•
Includes communication of positive stories on our intranet (HSBC Now).
Variable pay adjustment, malus and claw-back
Where there are instances of conduct breaches, the actions below can be taken. The Committee has discretion to apply malus and claw-back under the policies it has adopted, taking into consideration an individual’s proximity to, and responsibility
for, the issue in question. Where possible, an adjustment will be made to current-year variable pay, before the application of malus, then claw-back. This is in line with regulatory requirements.

Type of actionType of variable pay award affectedCircumstances where it may apply (including, but not limited to)
Adjustment
•
Current-year variable pay.
•
Detrimental conduct, including conduct which brings the business into disrepute.
•
Involvement in events resulting in significant operational losses, or events which have caused or have the potential to cause significant harm to HSBC.
•
Non-compliance with HSBC Values and other mandatory requirements or policies.
Adjustment under the downward override policy
•
Current-year variable pay for executive Directors and certain other senior executives.
•
Downward override policy was introduced in 2014, based on the recommendations received from the independent Monitor as appointed by the US Deferred Prosecution Agreement (‘DPA’).
•
A downward adjustment can be applied where there is:
– insufficient yearly progress in developing an effective AML and sanctions compliance programme; or
– non-compliance with the DPA and other relevant orders.
•
In deciding the application and degree of any such downward override to reduce variable pay awards, the Committee considers feedback from the Financial System Vulnerabilities Committee, the Monitor in relation to cooperation with their review and Legal.
Malus
•
Unvested deferred awards granted in prior years.
•
Detrimental conduct, including conduct which brings the business into disrepute.
•
Past performance being materially worse than originally reported.
•
Restatement, correction or amendment of any financial statements.
•
Improper or inadequate risk management.
Claw-back
•
Vested or paid awards granted to MRTs on or after 1 January 2015 for seven years.
•
From 2016 onwards, this period may be extended to 10 years for employees under the PRA’s Senior Manager Regime in the event of ongoing internal/regulatory investigation at the end of the seven-year period.
•
Participation in, or responsibility for, conduct which results in significant losses.
•
Failing to meet appropriate standards and propriety.
•
Reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract of employment.
•
HSBC or a business unit suffers a material failure of risk management in the context of Group risk-management standards, policies and procedures.

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HSBC Holdings plc Annual Report and Accounts 2016

Annual report on remuneration
Remuneration Committee
Details of the roles, responsibilityresponsibilities and membership of the Committee are set out on page 182. No executive Directors are involved in deciding their own remuneration.177. During 2017, members ofthe Committee included Pauline van der Meer Mohr (Chair from
28 April 2017), Henri de Castries (appointed on 26 May 2017), John Lipsky, David Nish (appointed on 26 May 2017), Sam Laidlaw (Chairman and member until 28 April 2017) and Paul Walsh (until 21 April 2017).
 

Activities
The Committee met nineseven times during 2016.2017. The following is a summary of the Committee’s key activities during 2016.2017. A copy of the Committee’s terms of reference can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.

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Details of the Committee’s key activities
MonthActivitiesMonthActivities
JanExecutive DirectorsAll employees
•
Approved Directors' Remuneration Report and Strategic Report.
•
Considered executive Director remuneration policy matters for shareholder consultation.
•
Consulted with key shareholders and proxy advisory bodies on executive Director remuneration matters.
•
Reviewed and approved executive Director remuneration matters.
•
Reviewed and approved executive Directors’ scorecards and pay proposals.
•
Approved 2016/2017 performance year pay review matters and regulatory filings.high-priority programmes progress.
•
Reviewed remuneration policy effectiveness.
•
Considered progress update on Monitor recommendations.
•
Received updates on notable events.events and regulatory and corporate governance matters.
•
Received updates on regulatory changes.
Jul
•
Reviewed and approved regulatory filling for 2016.
•
Received updates on notable events.

Feb
•
Approved 2015 performance year pay review matters.
•
Considered progress update on 2015 Monitor recommendations.
•
Approved 2015 Directors’ Remuneration Report2017 Material Risk Taker ('MRT') identification approach and Strategic Report including new policy for Directors.
•
Received updates on notable events.
•
Received updates on regulatory changes.
Sept
•
Updated on high-priority programmes progress.
•
Reviewed 2016 performance year pay review matters.
•
Received updates on notable events.
•
Noted progress updates from 2016 Monitor recommendations.
•
Reviewed fixed pay framework.
•
Reviewed executive Directors’ scorecards.
•
Approved Group-wide variable pay deferral policy.
Apr
•
Met with Monitor to discuss incentivisation workstream.
•
Considered matters discussed with regulators and reviewed regulatory filings.
Oct and Nov
•
Committee Chairman met with shareholders.
•
Reviewed 2016 performance year pay review matters.
•
Reviewed 2016 regulatory submissions.
•
Received updates on notable events.
•
Reviewed long-term incentive scorecard.
•
Received updates on investor guidelines.
May
•
Approved 2016 MRT list.
•
Received updates on notable events.
•
Considered shareholder feedback received on executive remuneration policy matters.
Dec
•
Approved 2016 performance year pay matters.
•
Approved 20162017 regulatory submissions.
•
Reviewed executive Directors’ scorecards and pay proposals.
•
Approved long-term incentive scorecard measures.
Advisers
The Committee received input and advice from different advisers on specific topics during 2016.2017. Deloitte LLP (‘Deloitte’) was appointed by the Committee in 2015 as an objective, independent adviser to support the Committee on specific remuneration matters for executive Directors. The Committee made the appointment in 2015 after considering invited proposals from a number of consultancy firms. In 2016,2017, the Committee agreed to extend Deloitte’s appointment for a further period of one year. Deloitte provided benchmarking data on remuneration policy matters and independent advice to the Committee. The Committee may request ad-hoc assistance from Deloitte.
Deloitte also provided services to the Group, comprising tax compliance and other advisory services.services to the Group. To ensure the advice from Deloitte was objective, the Committee required the advice to be independent and distinct from any internal review and analysis on remuneration policy matters. The Committee was satisfied the advice provided by Deloitte was objective and independent in 2016.2017. Deloitte is a founding member of the Remuneration Consultants Group, and voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK.
For 2016,2017, total fees of £168,150£109,350 were incurred in relation to its remuneration advice provided by Deloitte. This was based on pre-agreed fees and a time and materialstime-and-materials basis.
During the year, the Group Chief Executive provided regular briefings to the Committee. No executive Directors are involved in deciding their own remuneration. In addition, the Committee engaged with and received updates from the following employees as part of their roles with HSBC:employees:
 
Iain Mackay, Group Finance Director;
Pierre Goad,Marc Moses, Group Chief Risk Officer;
Stuart Levey, Chief Legal Officer;
John Flint, Chief Executive, Retail Banking and Wealth Management;
Elaine Arden, Group Head of Human Resources
(until August 2016)(from June 2017);
Donna Wong, Acting Group Head of Human Resources (from September 2016)(until May 2017);
Alexander Lowen, Group Head of Performance and Reward;
Marc Moses, Group Chief Risk Officer;
Iain Mackay, Group Finance Director;
Colin Bell, Group Head of Financial Crime Risk;
Robert Werner, FormerRalph Nash, Global Head of Financial Crime Compliance and Group Money Laundering Reporting Officer;
Ralph Nash, Global Head of Financial Crime Compliance;
John Flint, Chief Executive Retail Banking and Wealth Management;
Stuart Levey, Chief Legal Officer; and
Andy Maguire, Group Chief Operating Officer.Officer; and
Ben Mathews, Group Company Secretary.
The Committee also received feedback and input from the Group Risk Committee, the Financial System Vulnerabilities Committee and the Conduct & Values Committee on risk, conduct and compliance-related matters relevant to remuneration. This included input from the Financial System Vulnerabilities Committee on the implementation and annual assessment ofin relation to progress on enhancing the AMLanti-money laundering (‘AML’) and sanctions compliance programmeprogrammes, for the purposes of the Committee’s determination on any adjustments to be made under the downward override policy.


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Directors’ Remuneration Report

Single figure of remuneration
(Audited)
The following table shows the single figure total remuneration of each executive Director for 2016,2017, together with comparative figures
for 2015.2016.

(Audited)
(£000)
 Base
salary
Fixed pay allowance
Pension
Annual incentive
GPSP/LTI
Sub-total
Taxable benefits
Non-taxable benefits
Notional returns
Total
Douglas Flint20161,500
—
450
—
—
1,950
100
86
—
2,136
20151,500
—
750
—
—
2,250
151
95
—
2,496
Stuart Gulliver20161,250
1,700
375
1,695
—
5,020
557
71
27
5,675
20151,250
1,700
625
1,072
1,969
6,616
662
53
9
7,340
Iain Mackay2016700
950
210
987
—
2,847
52
37
17
2,953
2015700
950
350
1,068
1,101
4,169
54
28
5
4,256
Marc Moses2016700
950
210
1,005
—
2,865
15
38
18
2,936
2015700
950
350
827
1,101
3,928
6
29
5
3,968
Single figure of remuneration
  Base
salary
Fixed pay allowance
Cash in lieu of pension
Annual incentive
LTI1

Sub-total
Taxable benefits
Non-taxable benefits
Notional returns
Total
  
(£000)


(£000)


(£000)


(£000)


(£000)


(£000)


(£000)


(£000)


(£000)


(£000)


Douglas Flint2
20171,125
—
338
—
—
1,463
83
64
—
1,610
20161,500
—
450
—
—
1,950
100
86
—
2,136
Stuart Gulliver3
20171,250
1,700
375
2,127
—
5,452
500
71
63
6,086
20161,250
1,700
375
1,695
—
5,020
557
71
27
5,675
Iain Mackay2017700
950
210
1,334
—
3,194
64
37
42
3,337
2016700
950
210
987
—
2,847
52
37
17
2,953
Marc Moses2017700
950
210
1,358
—
3,218
16
38
42
3,314
2016700
950
210
1,005
—
2,865
15
38
18
2,936
1The first LTI award was made in February 2017, with a performance period ending in 2019. Vesting of the first LTI award will be included in the single figure table for the financial year ending on 31 December 2019.
2Douglas Flint stepped down from the Board on 30 September 2017 and his remuneration reflects time served as an executive Director. Details on retirement arrangements are provided on page 196.
3To meet regulatory deferral requirements for 2017, 60% of the annual incentive award of Stuart Gulliver has been deferred in shares and will vest in five equal instalments between the third and seventh anniversary of the grant date.

Year-on-year single figure comparison
(Unaudited)
The GPSP was replaced by the LTI in 2016. As such, no GPSP award was made for 2016 and the value for 2016 is nil.
The first LTI award will be made in March 2017, with a performance period ending in 2019. Vesting of the first LTI award will be included in the single figure table for the financial year ending on 31 December 2019. For year-on-year
190HSBC Holdings plc

comparison purposes, if target performance is achieved over the three-year performance period, LTI payout for the 2016 award would be 50% of grant value. In this case, the 2016 single figure total remuneration of the executive Directors for year-on-year comparison would be (in £000) £7,670 for Stuart Gulliver, £4,069 for Iain Mackay and £4,052 for Marc Moses.
Illustration of release profile
The following chart provides an illustrative release profile for executive Directors.

Illustration of release profile                                           
   2017201820192020202120222023202420252026 u
Fixed pay allowance
•
Released in five equal annual instalments starting from March 2018.
                                          
      u   u   u   u   u                    
                                     
                                           
Annual incentive
•
Paid in immediately vested shares subject to a retention period of one year.
•
Subject to clawback provisions for seven years from grant, which may be extended to 10 years in the event of an ongoing internal/regulatory investigation.1
                                           
 Perform-ance period                                      
 u  u u  u                                 
                                       
                                           
              
Malus/Clawback provisions1
             
                                  u        
                                          
Long-term incentive
•
Award subject to a three-year forward-looking performance period.
•
Subject to performance outcome, awards will vest in five equal annual instalments starting from the third anniversary of the grant date.
•
On vesting, shares are subject to a retention period of one year.
                                           
       Performance period       Vesting period             
     u          u u   u   u   u   u        
                                    
                                           
                 Retention periodu   u   u   u   u    
                                 
                                           
                                           
Illustration of release profile
1
ltivestingchart01022017a02.jpg
Fixed pay allowance
•
Released in five equalApplies to both annual instalments starting from March 2017.
Annual incentive
•
Paid in immediately vested shares subject to minimum six-month retention period.
•
Subject to claw-back provisions for seven-years, which may be extended in the event of an ongoing internal/regulatory investigation.
Long-term incentive
•
Award subject to three-year forward-looking performance period.
•
Subject to satisfaction of performance conditions, awards will vest in five equal annual instalments starting from the third anniversary of the grant date.
•
On vesting, shares are subject to a minimum six-month retention period.
and long-term incentive.
Notes to the single figure of remuneration
(Audited)
Benefits
In the single figure of remuneration table, above, ‘Benefits’‘benefits’
refers to:
all taxable benefits (gross value before payment of tax) including provision of medical insurance, accommodation and
 
and car, club membership, including any tax gross-up for accommodationgross-up; and car benefit; and
non-taxable benefits including the provision of life assurance and other insurance cover.coverage.
The values of the significant benefits in the abovesingle figure table are set out below.in the following table.

(Audited)     
(£000) 
Car benefit
(UK and Hong Kong)1

Hong Kong bank-owned
accommodation2

Tax expense on car benefit and Hong Kong bank-owned accommodation
Insurance benefit
(non-taxable)1

Douglas Flint2016—
—
—
75
201569
—
57
80
Stuart Gulliver201664
263
211
63
201587
281
275
—
Iain Mackay2016—
—
—
—
2015—
—
—
—
Marc Moses2016—
—
—
—
2015—
—
—
—
(Audited)     
  
Car benefit
(UK and Hong Kong)1

Hong Kong bank-owned
accommodation2

Tax expense on car benefit and Hong Kong bank-owned accommodation
Insurance benefit
(non-taxable)1

  
(£000)


(£000)


(£000)


(£000)


Douglas Flint2017—
—
—
56
2016—
—
—
75
Stuart Gulliver2017—
282
164
63
201664
263
211
63
1The car benefits,benefit, tax on car benefitsbenefit and insurance benefits for Iain Mackay and Marc Moses are not included in the above table as they were not significant.
2BasedTaxable value determined based on the current market rental value of the bank-owned property in Hong Kong, as estimated by an external lease service provider, plus utility costs, rates, the taxable value of furniture and taking into account the business use of the property. The taxable value of the accommodation is considered to be 70% of the total of these amounts.

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HSBC Holdings plc Annual Report and Accounts 2016

Notional returns
In the single figure of remuneration table above, ‘Notional‘notional returns’ refers to the notional return on deferred cash.cash for awards made prior to 2017.
The deferred cash portion of the annual incentive alsogranted prior to 2017 includes a right to receive notional returns for the period between grant date and vesting date, which is determined by reference to the dividend yield on HSBC shares, calculated annually.
A payment of notional return is made annually in the same proportion as the vesting of the deferred awards on each vesting date. The amount is disclosed on a paid basis in the year in which the payment is made. No deferred cash awards have been made to executive Directors under the current policy that has been operated from the 2016 financial year.

Determining executive Directors’ annual performance
(Audited)
Awards made to executive DirectorsExecutive Director’s awards reflected the Committee’s assessment of their performance against the extent to which they had achieved personal and corporate objectives set withinin their performance scorecard asscorecards, which were agreed at the beginningstart of the year which had been set toand reflect the Group’s strategic priorities and risk appetite and strategic priorities.appetite. In accordance with the downward override policy, the Committee also
consulted the Financial System Vulnerabilities Committee and took into consideration theirits feedback in relation to progress on enhancing AML and sanctions compliance, along with progress in meeting the Group’s obligations under the USAML DPA and other relevant orders. The Committee also took into consideration the report of the independent Monitor in determining the scorecard outcomes.
In order for any annual incentive award to be made, each executive Director must meetachieve a required behaviouralbehaviour rating,
which is assessed withby reference to the HSBC Values. For 2016, 2017,
all executive Directors metachieved the required behaviouralbehaviour rating.
For 2016, the Committee exercised its discretion and reduced the Global Standards assessments from 75% to 65% for Stuart Gulliver, from 86% to 65% for Iain Mackay and from 74% to 65% for Marc Moses. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering AML and sanctions-related issues.
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Directors’ Remuneration Report


The performance achieved by executive Directors in the year is shown in the table below.

Annual assessment
Stuart GulliverIain MackayMarc MosesStuart GulliverIain MackayMarc Moses
Weighting (%)Assessment (%)Outcome (%)Weighting (%)Assessment (%)Outcome (%)Weighting (%)Assessment (%)Outcome (%)Weighting (%)Assessment (%)Outcome (%)Weighting (%)Assessment (%)Outcome (%)Weighting (%)Assessment (%)Outcome (%)
Profit before tax1
20.000.0020.000.0010.000.0020.00100.0020.0010.00100.0010.00100.0010.00
Capital management——25.00100.0025.00—
Deliver cost savings20.00100.0020.00100.0020.00–20.0025.005.0010.0025.002.50——
Reduce Group RWAs10.00100.0010.00100.0010.0015.00100.0015.0010.00100.0010.00100.0010.0015.00100.0015.00
Strategic growth10.0052.705.27–10.0090.199.02————
Global Standards including
risk and compliance
25.0065.0016.2525.0065.0016.2550.0065.0032.5025.0085.0021.2525.0090.0022.5050.0086.2543.13
Personal objectives15.0081.2712.1925.0080.0020.0025.0080.0020.0015.0097.9214.6920.0097.7019.5425.0092.1823.04
Total100.00 63.71100.00 66.25100.00 67.50100.00 79.96100.00 89.54100.00 91.17
Maximum annual incentive opportunity (£000)  £2,660 £1,490 £1,490  £2,660 £1,490 £1,490
Annual incentive (£000) £1,695 £987 £1,005 £2,127 £1,334 £1,358
Financial performance
Annual assessment 
 
Minimum
(25% payout)

Maximum
(100% payout)

Performance
Assessment
Measure    
Profit before tax ($bn)1

$16.0

$19.0

$21.2
100.00%
Deliver cost savings ($bn) 2

$30.2

$29.6

$30.2
25.00%
Reduce Group RWAs ($bn)
$63.4

$70.5

$70.7
100.00%
Strategic growth3
Various
Various
Fully met targets for six measures and partly met targets for three measures.
90.19%
1Adjusted profitProfit before tax, as defined for Group annual bonus pool calculation. This definition excludes the year-on-year effects of foreign currency translation differences, fair value movements on our own debt, business disposal gains and losses, acquisitions and goodwill, debt valuation adjustments, restructuring and write-off costs included in costs‘Costs to achieveAchieve' and variable pay expense. The adjusted profit before tax includes the cost ofIt does, however, take into account fines, penalties and costs of customer redress.redress, which are excluded from the adjusted profit before tax. The adjusted profit before tax as per adjusted results is found on page 2.
Financial performance
Annual assessment
Minimum
(25% payout)
Maximum
(100% payout)
PerformanceAssessment
Measure
Profit before tax$19.7bn$20.6bn$18.2bn0%
Deliver cost savings1
$34.0bn$32.9bn$30.7bn100%
Reduce Group RWAs$100.0bn$110.0bn$143.0bn100%
Strategic growth2
VariousVariousPartly met targets for seven measures and did not meet minimum targets for two measures.5.27%
12Measured by reference to Groupthe 2017 exit run-rate for adjusted costs compared with our 2014 cost base.
23Strategic growth measures oninclude optimising global network, rebuilding NAFTA region profitability, delivering growth above GDP from our international network, pivot to Asia and renminbiRenminbi internationalisation.


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Directors’ Remuneration Report

Non-financial performance
The table below provides an overview of the non-financial performance achieved by each executive Director.


Stuart Gulliver
 PerformanceAssessment
Global Standards including risk and compliance
•
Effective risk management inAchieve and sustain compliance with AML, sanctionsglobal financial crime compliance policies and anti-bribery and corruption policies.
•
Enhancement of customer due diligence.procedures, and/or have approved dispensations in place.
•
Implementation and embeddingof the operational risk management framework.
•
Implementation of global conduct programme.programme and maturity level achieved against the required conduct outcomes.
•
Progress on embeddingEffective risk management with AML, sanctions, anti-bribery and corruption policies and Global Standards.
•
Progressive implementationThe financial crime risk management agenda has continued to be pursued rigorously resulting in key compliance action plan deliverables being met and strong progress made on Global Standards programme. This has been reinforced by a strong tone from the top, active engagement at relevant governance forums and full commitment to the ongoing development of the most effective Global Standards to combat financial crimeFinancial Crime Risk ('FCR') function. Risk management practices materially strengthened across the Group continues, including related attestations by country chief executive officers.regions and businesses. However, further improvement is needed before sustainable maturity is achieved.
•
AML and sanctions policy outcomes strengthenedImplemented the operational risk management framework with strategic deployments covering client due diligence, sanctions screening and transaction monitoring.key milestones met.
•
Empirical measurements usedThe conduct programme consistently delivered against the committed plan, including high priority conduct gaps closed and action plans implemented in respect of remaining gaps as well as the production and embedding of conduct management information. Achieved consistent management, oversight and delivery of conduct outcomes across all global businesses and significant global functions, including the effective transition to assess sustainable operational effectiveness in financial crime compliance.business as usual activities.
•
Conduct programme implementation progressed largely to plan.
•
For 2016,The AML DPA expired on 11 December 2017, and at the Committee exercised its discretion and reducedDoJ's request, the Global Standards assessments from 75% to 65%. This was based on feedback received fromcharges deferred by the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering AML and sanctions-related issues.DPA have been dismissed by the US district court that oversaw the agreement.
65.085.0%
Personal objectives
•
Progress transactions in Brazil and Turkey.Ensure climate change is reflected across the Group‘s activities.
•
Progress key milestones on set-up ofOptimise global network and reduce complexity.
•
Set up UK ring-fenced bank.bank headquartered in Birmingham and move the business to be ready for UK departure from the EU.
•
Delivery of other high-priority projects.
•
People development includingImprove customer satisfaction and employee diversity.
•
Complete succession and transition planning.
•
Completed saleHSBC scored ‘A-’ (leadership level) in the Climate Disclosure Project 2017 climate change rankings. In 2017, HSBC developed and published its sustainability strategy and announced five commitments to support the transition to a low-carbon economy. These include a commitment to provide $100bn of operationssustainable finance, demonstrating HSBC’s ambition to be a leading global partner to the public and private sectors in Brazilthe transition to a low carbon economy.
•
The Group’s geographic coverage has been reduced to 67 countries and maintained a presence to serve large corporate clients. Restructuringterritories and previously announced transactions/closures are being progressed.
•
Establishment of business in Turkey to make it a profitable franchise largelythe UK ring-fenced bank is on track, with the provisional banking licence approved by the Prudential Regulation Authority (‘PRA’). 91% of Birmingham head office roles resourced, and the majority of technology deployments complete.
•
Overall implementation of high-priority programmes is fully met includingImplementation plan for a UK departure from the establishment of the ring-fenced bank in the UK whichEU is on track for completion by 1 July 2018.track.
•
Comprehensive review of diversity and inclusion completed. Refreshed diversity and inclusion strategy and targets.
•
Exceeded target for female share of promotions into senior management.
81.3%
Iain Mackay
PerformanceAssessment
Global Standards including risk and compliance
•
Strengthen governance and control around financial processes.
•
Delivery of controls optimisation project.
•
Implementation and embedding of global conduct programme.
•
Enhancement of operational risk management framework.
•
Successful delivery of stress testing in key markets.
•
Continued enhancement of the Sarbanes Oxley framework and alignment with the operational risk management framework ('ORMF'). Delivery of 2016 milestones for the controls optimisation project which is on track to be completed by April 2017.
•
Effective execution of operational risk management through embedding of the three lines of defence, with remediation plans in place to address any gaps identified against ORMF.
•
Continued progress to comply with regulatory requirements including 2016 stress tests for the PRA, European Banking Authority and US Federal Reserve Bank, and successful submission of the inaugural Group-wide individual liquidity adequacy assessment process.
•
Embedding of the tax risk management framework in businesses and functions continues. Significant progress achieved in embedding US Foreign Account Tax Compliance Act ('FATCA') related measures, common reporting standards and tax transparency.
•
Implementation of global conduct programme milestones and outcomes were largely met.
•
For 2016, the Committee exercised its discretion and reduced the Global Standards assessments from 86% to 65%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering AML and sanctions-related issues.
65.0%
Personal objectives
•
Deliver cost savings.
•
Implementation of consistent capital management framework.
•
Progress key milestones on set-up of UK ring-fenced bank.
•
People development including diversity.
•
2016 Global Finance function direct costs and FTE targets met via significant restructuring (transforming the function from geographically aligned to a global operating model), accompanied by enhancements of technology, demand management, process re-engineering and off-shoring. Material progress achieved in the strengthening of the Global Finance Centre.
•
Activities to implement business segmentation on track and further enhancements to the capital management framework delivered.
•
New internal liquidity framework fully implemented.
•
Delivery against 2016 milestones for UK ring-fencing requirements and otherThe high-priority programmes, wereincluding digital transformation and cybersecurity have been assessed as fully met.
•
DeliveryAchieved customer recommendation of 82% (target 75%) by retail customers. Good progress has been made in 2017, notably establishing the ‘Moments Of Truth’ survey in key markets.
•
Achieved target (26.3%) for female representation at senior management level.
•
Group succession plan is in place for key management personnel.
•
Stuart Gulliver was awarded ‘Order of the Global Finance function people agenda, including implementation of accelerated development programmesAztec Eagle’, Mexico‘s highest distinction for targeted employees,foreign citizens and was the sponsorship and development of careers and capabilities of employees, and improvement of gender diversity in the function.first banking executive ever to receive this award.
80.097.9%

200
HSBC Holdings plc
193

Directors’ Remuneration Report

Iain Mackay
PerformanceAssessment
Capital management
•
Implement consistent capital management framework across the Group for internal and external reporting.
•
Capital management framework fully implemented with capital actions enabled and return on tangible equity introduced as the revised capital management measure in internal and external reporting.
100.0%
Global Standards including risk and compliance
•
Effective management of material operational risks.
•
Implementation of the operational risk management framework.
•
Proactively review and challenge the first line of defence to assess the adequacy of risk management activities relating to accounting and tax.
•
Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.
•
Successful delivery of regulatory and internal stress tests in 2017.
•
Significant effort undertaken during 2017 to strengthen the self-identification, recording and remediation of audit issues through the implementation, training and awareness of the enhanced control framework. There were a small number of residual risks, all of which are appropriately managed.
•
Largely implemented the operational risk transformation programme and operational risk management framework.
•
Strong progress made towards the implementation of risk steward responsibilities for accounting and tax risk. Oversight of these risks within business areas is being progressed through the controls optimisation project.
•
Completed implementation of the global conduct programme milestones including the production and embedding of conduct management information.
•
Successfully delivered stress test submissions; including Comprehensive Capital Analysis and Review (‘CCAR’), Annual ReportStress Testing and Accounts 2016PRA stress tests. Largely completed delivery of IFRS 9 programme.
90.0%
Personal objectives
•
Enhanced environmental, social and governance (‘ESG’) disclosures.
•
Deliver Global Finance transformation.
•
Set-up UK ring-fenced bank headquartered in Birmingham and move the business to be ready for a UK departure from the EU.
•
Improve employee diversity.
•
Complete succession and transition planning.
•
First ESG report published in April 2017. Updated ESG report published in November 2017.
•
Significant cost and headcount saves achieved through the Global Finance transformation together with substantial strengthening of the Global Finance centres. Progress achieved in enhancing efficiency through process re-engineering and technology deployment with improvements in timing and quality of delivery.
•
UK ring-fenced bank financial and regulatory reporting infrastructure on track to support employees and product systems migrations and to start trading as HSBC UK on 1 July 2018, subject to ring-fencing transfer scheme approval by court. 91% of Birmingham head office roles resourced.
•
Finance Steering Committee established for dealing with UK’s departure from the EU and implementation plan is on track.
•
Achieved 26.7% (target = 28.5%) for female representation at senior management in the Finance function.
•
Global people & talent programme established across the Global Finance function, focusing on the identification, development and leverage of talent at all levels to strengthen capability, quality and diversity of leadership succession across the function. Top 100 Programme launched in partnership with Duke Corporate Education.
•
Succession plans in place for key management personnel.
97.7%

194HSBC Holdings plc

Marc Moses
 PerformanceAssessment
Global Standards including risk and compliance
•
Effective risk management inEnsure the Global Risk function enables and supports the FCR function to achieve and sustain compliance with AML, sanctionsglobal financial crime compliance policies and anti-bribery and corruption policies.
•
Enhancement of customer due diligence.procedures.
•
Implementation and embedding of global conduct programme.
•
Enhancement ofthe operational risk management framework.
•
Effective management of material operational risks.
•
Proactively review and challenge the first line of defence to assess the adequacy of risk management activities and fulfil risk steward responsibilities.
•
Manage credit and market risk, and oversee liquidity risk within the Board approved risk appetite.
•
Implementation of US risk management measures.global conduct programme and maturity level achieved against the required conduct outcomes.

•
Successful delivery of regulatory and internal stress tests in 2017.
•
Global Financial Crime Compliance function focus progressed, although not as quickly as planned. Progress in enhancing know your customer, customer due diligence,Enabled effective FCR management through the enterprise wide and effectiveoperational risk management in compliance with AML, sanctions, anti-briberyframeworks, provision of risk analytics support to FCR management and corruption policies and Global Standards, were somewhat met as certain key components were not fully developed at the mid-year.completion of FCR model.
•
Management oversightImplementation of Global Financial Crime Risk function activities were effectively handed overoperational risk management framework and the delivery of risk management system of record on time and within budget. Material operational risks are being actively managed and remediation actions relating to the newly appointed Group Head of Financial Crime Risk following the establishment of the new Financial Crime Risk function.high and very high residual risks are being completed.
•
The conduct programme implementation progressedCompleted the delivery of the US risk management measures to enable compliance with regulations; largely to plan.completed the delivery of IFRS 9 and Dodd-Frank programmes.
•
Our operationalSuccessfully delivered the 2017 Annual Cyclical Scenario: Biennial Exploratory Scenario submissions to the PRA and the CCAR submissions to the Federal Reserve Board.
•
Credit, market and liquidity metrics effectively managed through the Group Risk Management Meeting and within Group risk transformation programme on track with all key milestones delivered. Embedding of the three lines of defence framework continues with the management of ‘High’ rated residual risks, mitigating actions and remediation activities largely meeting expectations. However, further work to self-identify issues is required.appetite profile.
•
Successfully completed all 2016 outcomes to enable2017 conduct programme milestones including the production and embedding of conduct management information, and enabling compliance with conduct regulation.
•
For 2016, the Committee exercised its discretion and reduced the Global Standards assessments from 74% to 65%. This was based on feedback received from the Monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering AML and sanctions-related issues.regulations. Maturity levels across conduct outcomes largely met expectations.
65.086.3%
Personal objectives
•
Deliver cost savings.Develop processes to measure exposure to carbon-intensive and low-carbon-intensive activities.
•
Successful delivery of stress testing.Define opportunities to develop risk management policies and procedures consistent with Group risk appetite to protect the Group from climate change risk, and enable business activities supporting a transition to a low-carbon economy.
•
Support businessPivot to Asia and support growth of customer lending.
•
Deliver Global Risk function transformation.
•
Improve RWA effectiveness and improve RWA effectiveness/efficiency.
•
People development includingImprove employee diversity.
•
Complete succession and transition planning.
•
Effective cost management driven throughEnabled the embedding of effective client and sustainability risk management; engaged constructively with non-governmental organisations and participated actively in the Global Climate Change Disclosure taskforce. Actively applied revised sustainability policies and frameworks to support the successful launch of Green and Social Bonds, the risk management of businessour environmentally-sensitive exposures such as incorporating new standards for the palm oil sector to protect high carbon stock forests and peat, and delivery of actions to reduce client sensitivity to risks associated with the transition from a high-carbon to low-carbon economy through the financing of green initiatives.
•
Pivot to Asia with ongoing RBWM expansion and launch of China Cards has driven higher returns and lending growth, particularly in Hong Kong and the Pearl River Delta. Regulatory approval obtained to establish HSBC Qianhai Securities Limited will increase access to China’s markets for domestic and international clients.
•
Effectively managed costs and headcount of the Global Risk function through rigorous monitoring of performance and Global Risk functionimplementation of transformation activities including process re-engineering, and location optimisation.
•
Satisfactorily progressed the 2016 PRA and European Banking Authority stress tests and stress testing for other key regulators.
•
RBWM expansion in the Pearl River Delta and creation of the risk infrastructure to launch credit cards in China fully met. ImprovedStrengthened RWA effectiveness and efficiency within CMB and GBM to supportsupporting overall reduction in Group RWAs.
•
Delivered Global Risk function people initiatives including performancesuccession plans and reward plans, mandatory and key learning initiatives, and strengthened gender diversity.achieved 27.1% (target = 27.7%) for female representation at senior management in the Risk function.
80.092.2%

HSBC Holdings plc Annual Report and Accounts 2016
201195

Directors’ Remuneration Report

Awards under the long-term incentivesLong-term incentive awards
(Audited)
Under the new policy approved by shareholders, executive Directors are eligible to receive an LTI award. For the 20162017 performance year, the Committee determined to grant Iain Mackay and Marc Moses an LTI award equivalent to 319% of base salary after taking into consideration performance achieved for the financial year ended 31 December 2017 and the achievements against the strategic actions announced in June 2015. The awards will be made in March 2017 withsubject to a three-year performance period starting 1 January 2017. For 2016, all2018. As the awards are not entitled to
dividend equivalents per regulatory requirements, the number of shares to be awarded to executive Directors will be awarded an LTI grant
equivalentadjusted to 319%reflect the expected dividend yield of base salary.the shares over the vesting period. The details of the measures that will be used to assess performance and payout are provideddescribed below. To the extent performance conditions are satisfied at the end of the three-year performance period, the awards will vest in five equal annual instalments commencing from around the third anniversary of the grant date. On vesting, awards are subject to a minimum six-month retention period.period of one year.

Performance conditions
Measures
Minimum
(25% payout)
Target
(50% payout)
Maximum
(100% payout)
Weighting
%
Average return on equity1
7.0%8.5%10.0%20
Cost efficiency (adjusted jaws)Positive1.5%3.0%20
Relative total shareholder return2
At median of the peer group.Straight-line vesting between minimum and maximum.At upper quartile of the peer group.20
Global Standards including risk and compliance
•
Status of DPA.
Not applicable

Not applicableMet all commitments to achieve closure of the DPA and protect HSBC from further regulatory censure for financial crime compliance failings.25
•
Achieve and sustain compliance with Global Financial Crime Compliance policies and procedures.
Performance will be assessed by the Committee based on a number of qualitative and quantitative inputs such as feedback from the Financial System Vulnerabilities Committee, Group Financial Crime Risk assessment against Financial Crime Compliance objectives, outcome of assurance and audit reviews, and achievement of the long-term Group objectives and priorities during the performance period.

 
Strategy
•
International client revenues.
(Share of revenues supported by international network)

50%51%52%15
•
Revenue synergies.
(Share of revenues supported by universal banking model)
22%23%24% 
•
Employee engagement.
(Results of employee survey)
65%67%70% 
•
Customer.
(Based on customer recommendation in home country markets)
Rank within top three in at least two of the four RBWM and CMB customer segments in home country markets.Rank within top three in three of the four RBWM and CMB customer segments in home country markets.Rank within top three in all four RBWM and CMB customer segments in home country markets. 
Total   100
Performance conditions for LTI awards in respect of 2017
Measures
Minimum
(25% payout)
Target
(50% payout)
Maximum
(100% payout)
Weighting
%
Average return on equity (with CET1 underpin)1
9.0%10.0%11.0%20
Cost-efficiency ratio60.0%58.0%55.5%20
Relative total shareholder return2
At median of the peer group.Straight-line vesting between minimum and maximum.At upper quartile of the peer group.20
Risk and compliance
•
Achieve and sustain compliance with Global Financial Crime Compliance policies and procedures.
•
Achieve a sustainable adoption of Group operation risk management framework, along with its policies and practices.
•
Achieve and sustain delivery of global conduct outcomes and compliance with conduct of business regulatory obligations.
Performance will be assessed by the Committee based on a number of qualitative and quantitative inputs such as feedback from the Financial System Vulnerabilities Committee, Group Financial Crime Risk assessment against Financial Crime Compliance objectives, outcome of assurance and audit reviews, and achievement of the long-term Group objectives and priorities during the performance period.

25
Strategy   15
•
Sustainable finance3
$30bn$34bn$37bn
•
Employee confidence4
65%67%70% 
•
Customer
(Based on customer recommendation in top five markets by revenue)
Improvement in recommendation in three of top five markets for CMB, GBM and RBWM.Improvement in recommendation in four of top five markets for CMB, GBM and RBWM.Improvement in recommendation in all of top five markets for CMB, GBM and RBWM. 
Total   100
1Significant items are excluded from the profit attributable to ordinary shareholders of the company for the purpose of computing adjusted return on equity. If the CET1 ratio at the end of performance period is below the CET1 risk tolerance level set in the RAS then, the assessment for this measure will be reduced to nil.
2The peer group for the 20162017 award is: Australia and New Zealand Banking Group, Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank, JPMorgan Chase & Co., Lloyds Banking Group, Standard Chartered and UBS Group.

3To be assessed based on cumulative financing and investment made to develop clean energy, lower-carbon technologies and projects that contribute to the delivery of the Paris Agreement and the UN sustainable development goals.
4Assessed based on results of the latest employee snapshot survey question ‘I am seeing the positive impact of our strategy’.
Payments to past Directors
(Audited)
No payments were made to or in respect of former Directors in the year in excess of the minimum threshold of £50,000 set for this purpose.
Total pension entitlements
(Audited)
No employees who served as executive Directors during the year have a right to amounts under any HSBC final salary pension scheme for their services as executive Directors or are entitled to additional benefits in the event of early retirement. There is no retirement age set for Directors, but the normal retirement age for employees is 65.
External appointments
Douglas Flint received £31,500 in fees from Chairman Mentors International in the period to 30 September 2017.
During 2016,2017, Stuart Gulliver received S$10,000SGD10,000 in fees as a member of the Monetary Authority of Singapore International Advisory Panel, which was donated to charity.
Exit payments made in year
Retirement arrangements for Douglas Flint
(Audited)
NoDouglas Flint retired from the Board on 30 September 2017. In line with the remuneration policy, he is not entitled to be considered for any variable pay awards in respect of 2017. In accordance with his contractual entitlements and the approved policy, he received the following payments and benefits until he ceased to be an employee on 31 December 2017.
Salary and cash in lieu of pension: £487,500; and
Contractual benefits valued at: £24,068.
In December 2017, Douglas Flint received a payment of £377,500 in lieu of his salary and cash in lieu of pension for lossthe period from 1 January 2018 to 11 March 2018 and a payment of office were made£180,000 in 2016lieu of unused holiday entitlement. He received no compensation payment for ceasing to any person serving asbe an executive Director.
As disclosed in our approved remuneration policy, he is also eligible to receive medical coverage for a Director in the year or any previous years.period of seven years from 1 January 2018.
Scheme interests awarded during 20162017
(Audited)
The table below sets out the scheme interests awarded to Directors in 2016 (for2017, for performance in 2015)2016, as disclosed in the 20152016 Directors’ Remuneration Report. No non-executive Directors received scheme interests during the financial year.


202196
HSBC Holdings plc Annual Report and Accounts 2016

Scheme awards in 2016
(Audited)
 Type of interest awardedBasis on which
award made		Date of award
Face value awarded1
£000
Percentage receivable for minimum performance1
Number of
shares
awarded
Share price
on date
of grant2

End of performance period
Stuart GulliverDeferred cashAnnual incentive 201529 Feb 2016322—n/an/a
31 Dec 2015
Deferred sharesAnnual incentive 201529 Feb 2016322—68,845
£4.6735
31 Dec 2015
Deferred sharesGPSP 201529 Feb 20161,969—421,232
£4.6735
31 Dec 2015
Iain MackayDeferred cashAnnual incentive 201529 Feb 2016320—n/an/a
31 Dec 2015
Deferred sharesAnnual incentive 201529 Feb 2016320—68,556
£4.6735
31 Dec 2015
Deferred sharesGPSP 201529 Feb 20161,101—235,654
£4.6735
31 Dec 2015
Marc MosesDeferred cashAnnual incentive 201529 Feb 2016248—n/an/a
31 Dec 2015
Deferred sharesAnnual incentive 201529 Feb 2016248—53,065
£4.6735
31 Dec 2015
Deferred sharesGPSP 201529 Feb 20161,101—235,654
£4.6735
31 Dec 2015
Scheme awards in 2017
(Audited)
 Type of interest awardedBasis on which
award made		Date of award
Face value awarded1,2
£000
Percentage receivable for minimum performance1,2
Number of
shares
awarded
Share price
on date
of grant3

End of performance period
Stuart GulliverDeferred sharesLong-term incentive 201627 Feb 20173,99025613,562
£6.5030
31 Dec 2019
Iain MackayDeferred sharesLong-term incentive 201627 Feb 20172,23225343,226
£6.5030
31 Dec 2019
Marc MosesDeferred sharesLong-term incentive 201627 Feb 20172,23225343,226
£6.5030
31 Dec 2019
1UnvestedFor annual incentive, awards were determined based on performance achieved during the period to 31 December 2015.2016 and were subject to a six-month retention period on vesting. These awards are also subject to clawback for a maximum period of 10 years from the date of the award. The overall award level could have been 0% of the maximum opportunity if minimum performance was not achieved forat the period to 31 December 2015. After grant, awards are subject to service condition and malus provisions.end of the performance period.
2For LTI, awards are subject to a three-year forward-looking performance period and awards vest in five equal instalments subject to performance achieved. On vesting, awards will be subject to a six-month retention period. Awards are subject to malus during the vesting period and clawback for a maximum period of 10 years from the date of the award. Details of performance conditions applicable during the forward-looking performance period are set out below.
3Share price used is the closing mid-market price on the last working day preceding the date of grant.
GPSP awards were made based on performance up to the financial year-end preceding the grant date with no further performance conditions after grant. Vesting occurs five years after grant date and is normally subject to the Director remaining an employee until the vesting date. The net of tax shares which the Director becomes entitled to on the vesting date are subject to a retention requirement.
The above table does not include details of shares issued as part of the fixed pay allowances, as those shares vestvested immediately and are not subject to any service or performance conditions.
 
Details of the performance measures and targets for the LTI award in respect of 2016 are detailed below.
Performance conditions for LTI awards in respect of 2016
Measures
Minimum
(25% payout)
Target
(50% payout)
Maximum
(100% payout)
Weighting
%
Average return on equity1
7.0%8.5%10.0%20
Cost efficiency (adjusted jaws)Positive1.5%3.0%20
Relative total shareholder return2
At median of the peer group.Straight-line vesting between minimum and maximum.At upper quartile of the peer group.20
Global Standards including risk and compliance
•
Status of AML DPA.
Not applicable

Not applicableMet all commitments to achieve closure of the AML DPA and protect HSBC from further regulatory censure for financial crime compliance failings.25
•
Achieve and sustain compliance with Global Financial Crime Compliance policies and procedures.
Performance will be assessed by the Committee based on a number of qualitative and quantitative inputs such as feedback from the Financial System Vulnerabilities Committee, Group Financial Crime Risk assessment against Financial Crime Compliance objectives, outcome of assurance and audit reviews, and achievement of the long-term Group objectives and priorities during the performance period.

 
Strategy
•
International client revenues
(Share of revenues supported by international network)

50%51%52%15
•
Revenue synergies
(Share of revenues supported by universal banking model)
22%23%24% 
•
Employee3
(Results of employee survey)
65%67%70% 
•
Customer
(Based on customer recommendation in home country markets)
Rank within top three in at least two of the four RBWM and CMB customer segments in home country markets.Rank within top three in three of the four RBWM and CMB customer segments in home country markets.Rank within top three in all four RBWM and CMB customer segments in home country markets. 
Total   100
1Significant items are excluded from the profit attributable to ordinary shareholders of the company for the purpose of computing adjusted return on equity.
2The peer group for the 2016 award is: Australia and New Zealand Banking Group, Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank, JPMorgan Chase & Co., Lloyds Banking Group, Standard Chartered and UBS Group.
3Assessed based on results of the latest employee snapshot survey question ‘I am seeing the positive impact of our strategy’.


HSBC Holdings plc197

Directors’ Remuneration Report

Directors’ interests in shares
(Audited)
The shareholdings of all persons who were Directors in 2016,2017, including the shareholdings of their connected persons, at 31 December 2016 2017, or date of retirement from the Board, if earlier,
are set out below. The table below shows the comparison of shareholdings to the company shareholding guidelines. There There
have been no changes in the shareholdings of the Directors from 31 December 20162017 to the date of this report excluding those disclosed in footnote 8 of the below table.report.

Shares(Audited)
Shareholding guidelines2
(% of salary)
Current
shareholding
as at Dec 20163
(% of salary)
At 31 Dec 2016
Shareholding guidelines2
(% of salary)

Shareholding at
31 Dec 2017, or date of retirement from the Board, if earlier3 (% of salary)

At 31 Dec 2017, or date of retirement from the Board, if earlier
 Scheme interests Scheme interests
Share
interests4
(number
of shares)

Share options5

Shares awarded subject to deferral1
Share
interests4
(number
of shares)

Share options5

Shares awarded subject to deferral1
without performance conditions4, 6

with
performance
conditions7

without performance conditions4, 6

with
performance
conditions7

Executive DirectorsExecutive Directors  Executive Directors  
Douglas Flint8
100%170%402,158
2,919
—
—
Douglas Flint (retired from the Board on
30 September 2017)
100%125%252,606
2,919
—
—
Stuart Gulliver400%1,691%3,344,208
—
3,132,917
99,357
400%2,211%3,711,169
—
2,293,071
738,499
Iain Mackay300%312%345,469
3,469
1,424,437
68,688
300%470%442,118
3,469
1,268,016
426,997
Marc Moses300%744%824,241
—
1,735,488
66,734
300%1,284%1,207,068
—
1,288,389
424,927
Group Managing Directors9
250,000 sharesn/a
n/a
n/a
n/a
Group Managing Directors8
250,000 shares
n/a
n/a
n/a
n/a
n/a
1The gross number of shares is disclosed. A portion of these shares will be sold at vesting to cover any income tax and social security which falls due at the time of vesting.
2The currentUnvested share-based incentives are note counted towards compliance with the shareholding guideline does not count unvested share-based incentives.guideline.
3An
The value of the shareholding is calculated using an average of three-monththe daily closing share price as onprices in the three months to 31 December 2016 (£6.3224) has been used to calculate current shareholding as a percentage of salary.2017, (£7.4468).
4Under the annualFor variable pay awards (annual incentive and LTI), in line with regulatory requirements, any deferred shares (net of tax) which the Director becomes entitled to are subject to a retention requirement, such that they must be held for a predefined period of time. To provide the executive Directors with appropriate flexibility, the Committee determined that, the requirement to hold these shares could be met either by (i) retaining the shares that vested from the underlying award (net of tax) or (ii) by separately retaining a number of shares equivalent to those that vested under the award. The Committee consider that such an arrangement results in the employee holding the same number of shares as per the original intention of the retention period as set out in the remuneration policy approved by shareholders in 2014.
5All share options are unvested and unexercised.
6
Includes GPSPGroup Performance Share Plan ('GPSP') awards, which were made following an assessment of performance over the relevant period ending on 31 December immediately before the grant date but are subject to a five-yearfive-year vesting period.
7
Awards granted in March 2013 are subject to service conditions and satisfactory completion of the AML DPA, as determined by the Committee. The AML DPA condition ends on the fifth anniversary of the award date unless the DPA is extended or otherwise continues beyond that date,date. LTI awards granted in which case the awards will vest on the date on which the DPA expires and otherwise ceasesFebruary 2017 are subject to operate. This award will lapse if the Committee determines that the performance conditions are not satisfied.as set out on page 197.
8Since the end of the year, the number of HSBC Holdings ordinary shares held by Douglas Flint has increased by 22, following an acquisition, through regular monthly contributions in the HSBC Holdings UK Share Incentive Plan.
9
All Group Managing Directors are expected to meet their minimum shareholding guideline by 2019 or within five years of the date of their appointment, whichever is later.
Share options(Audited)
Date of awardExercise priceExercisableAt 1 Jan
Exercised
At 31 Dec
Date of awardExercise priceExercisableAt 1 Jan
Exercised
At 31 Dec 2017, or date of retirements from the Board, if earlier
 £
from1
until2016
in year
2016
 £
from1
until2017
in year
Douglas Flint23 Sep 20145.18871 Nov 201930 April 20202,919
—
2,919
23 Sep 20145.18871 Jan 201830 June 20182,919
—
2,919
Iain Mackay23 Sep 20145.18871 Nov 201730 April 20183,469
—
3,469
23 Sep 20145.18871 Nov 201730 April 20183,469
—
3,469
1May be advanced to an earlier date in certain circumstances, such as retirement.
The above awards were made under HSBC UK Sharesave, an all-employee share plan under which eligible employees may be granted options to acquire HSBC Holdings ordinary shares. The exercise price is set at a 20% discountdetermined by reference to the share price
average market value of HSBC Holdings ordinary shares on the five business days immediately prior to the start ofpreceding the invitation period.date, then applying a discount of 20%. Employees may make contributions of up to £500 each month over a period of three or five years. The market value per ordinary share at 3129 December 20162017 was £6.5690. £7.6650. Market value is the mid-


HSBC Holdings plc Annual Report and Accounts 2016
203

Directors’ Remuneration Report

marketmid-market price derived from the London Stock Exchange Daily Official List on the relevant date. Under the Securities and Futures Ordinance of Hong Kong, the options are categorised as unlisted physically settled equity derivatives.

Summary of shareholder return and Group Chief Executive remuneration
The following graph shows the total shareholder return (‘TSR’) performance against the FTSE 100 Total Return Index for the
eight-year nine-year period that ended on 31 December 2016.2017. The FTSE 100 Total Return Index has been chosen as this is a recognised broad equity market index of which HSBC Holdings is a member. The single figure remuneration for the Group Chief Executive over the past eightnine years, together with the outcomes of the respective annual incentive and long-term incentive awards, are alsois presented below.in the following table.

198HSBC Holdings plc

HSBC TSR and FTSE 100 Total Return Index
a5ara-corpo_chartx42144.jpga5ara-corpo_chartx42144.jpg
2009
2010
2011
2012
2013
2014
2015
2016
2009
2010
2011
2012
2013
2014
2015
2016
2017
Group Chief
Executive
Michael
Geoghegan

Michael
Geoghegan
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Michael Geoghegan
Michael Geoghegan
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Stuart Gulliver
Total single figure
£000
7,5807,9328,0477,5328,0337,6197,3405,6757,5807,9328,0477,5328,0337,6197,3405,6756,086
Annual incentive1
(% of max.)
94%82%58%52%49%54%45%64%
Long-term incentive2,3
(% of max.)
25%19%50%40%49%44%41%—
Annual incentive1
(% of maximum)
94%82%58%52%49%54%45%64%80%
Long-term incentive2,3
(% of maximum)
25%19%50%40%49%44%41%—%—%
1The 2012 annual incentive figure for Stuart Gulliver used for this table includes 60% of the annual incentive disclosed in the 2012 Directors’ Remuneration Report, which was deferred for five years and subject to service conditions and satisfactory completion of the AML DPA as determined by the Committee. The AML DPA condition ends on the fifth anniversary of the award date unless the DPA is extended or otherwise continues beyond that date, in which case the awards will vest on the date on which the DPA expires and otherwise ceases to operate. This award will lapse if the Committee determines that the performance conditions are not satisfied.date.
2Long-term incentive awards are included in the single figure for the year in which the performance period is deemed to be substantially completed. For GPSP awards this is the end of the financial year preceding the date of grant (GPSP awards shown in 2011 to 2015 therefore relate to awards granted in 2012 to 2016). For performance share awards that were awarded before introduction of GPSP, the value of awards that vested subject to satisfaction of performance conditions attached to those awards are included at the end of the third financial year following the date of grant (for example, performance share awards shown in 2010 relates to awards granted in 2008).
3The GPSP was replaced by the LTI in 2016 and the value for GPSP is nil for 2016 as no GPSP award was made for 2016. The first LTI award will bewas made in MarchFebruary 2017, with a performance period ending in 2019. Vesting of the first LTI award will be included in the single figure table for the financial year ending on 31 December 2019. For year-on-year comparison purposes, if target performance is achieved over the three-year performance period, LTI payout for the 2016 award would be 50% of grant value. In this case, the single figure total remuneration of the executive DirectorsGroup Chief Executive for year-on-year comparison would be (in £000) £7,670 for 2016. Stuart Gulliver.Gulliver was not eligible for an LTI award in respect of 2017 given his announced retirement.

204
HSBC Holdings plc Annual Report and Accounts 2016

Comparison of Group Chief Executive and all-employee pay
The following charts compare the changes in Group Chief Executive pay to changes in employee pay between 20152016 and 2016,2017, and provide a breakdown of total staff pay relative to the amount paid out in dividends.
Percentage change in remuneration between 2015 and 2016
 Group Chief Executive
Employee Group
Base salary 1
0%4%
Benefits 2, 3
(12)%(11)%
Annual incentive 4
58 %(5)%
Percentage change in remuneration between 2016 and 2017
 Group Chief Executive
Employee group
Base salary1
—%5%
Benefits2, 3
(10)%3%
Annual incentive4
25 %12%
1Employee group consists of local full-time UK employees as representative of employees from different businesses and functions across the Group. Group Chief Executive's total fixed pay has not increased since 1 January 2014.
2There has been no change in the benefits provided to the Group Chief Executive. The change in the value of the benefit is due to the change in the taxable value of the benefit as reported in the single figure table.
3EmployeeFor benefits, employee group consists of UK employees eligible for taxable benefits which was deemed the most appropriate comparison for the Group Chief Executive given varying local requirements. There has been no change in the benefit coverage for employees from 2015 to 2016. The reduction in the average cost of benefits per employee is reflective of the decrease in the cost of providing such benefit on average.
4EmployeeFor annual incentive, employee group consists of all employees globally,globally. The change is based on annual incentive pool as disclosed on page 2931 and staff numbers (full-time equivalents at the financial year-end). The percentage change in annual incentive award of the Group Chief Executive is primarily driven by the difference in the 20152016 and 20162017 scorecard outcome, reflecting performance achieved in those years, and change in policy. Details of the 20162017 total single figure of remuneration for the Group Chief Executive are on page 198.190.
 
Relative importance of spend on pay
The chart below shows the change in:
total staff pay between 2016 and 2017; and
dividends paid out in respect of 2016 and 2017.
In 2017, we returned a total of $3bn to shareholders through share buy-backs.
Relative importance of spend on pay
ì
î

5%4%
ìa5ara-corpo_chartx44534.jpg
26%
î
9%
a5ara-corpo_chartx44534.jpg
Return to shareholder
Employee compensation
and benefits
  Dividends  
Share buy-back

The chart above shows the change in:
total staff pay between 2015 and 2016; and
dividends paid out in respect of 2015 and 2016.
We also executed a share buy-back worth approximately $2.5bn in the second half of 2016, and completed this early in the first quarter of 2017.



HSBC Holdings plc Annual Report and Accounts 2016
205199

Directors’ Remuneration Report

Non-executive Directors
(Audited)
The table below shows the total fees of non-executive DirectorDirectors for 2016,2017, together with comparative figures for 2015.2016.
Fees and benefits
(Audited) Fees
Benefits9
Total 
Fees1
Benefits2
Total
(£000)Footnotes20162015
20162015
20162015
Footnotes20172016
20172016
20172016
Phillip Ameen1440403
4313
483416
3474440
1238
486478
Kathleen Casey 155155
2429
179184
 174155
1621
190176
Henri de Castries (Appointed 1 Mar 2016) 79—
4—
83—
Henri de Castries413279
54
13783
Laura Cha2247238
2314
270252
5269247
2220
291267
Lord Evans of Weardale 190190
59
195199
 215190
85
223195
Joachim Faber3152151
1214
164165
6162152
910
171162
Rona Fairhead (Retired on 22 Apr 2016)478510
914
87524
Sam Laidlaw 185174
1313
198187
Sam Laidlaw (Retired on 28 April 2017) 70185
111
71196
Irene Lee5268184
102
278186
7300268
89
308277
John Lipsky 180180
2149
201229
 199180
2521
224201
Rachel Lomax 254253
611
260264
Rachel Lomax (Retired on 28 April 2017) 93254
16
94260
Heidi Miller6536175
3531
571206
8571536
1830
589566
David Nish (Appointed 1 May 2016) 83—
22—
105—
Sir Simon Robertson (Retired on 22 Apr 2016) 49195
212
51207
David Nish915883
1819
176102
Jonathan Symonds7520520
71
527521
10639520
26
641526
Jackson Tai (Appointed 12 Sep 2016) 48—
4—
52—
Jackson Tai1119448
434
23752
Mark Tucker (Appointed on 1 September 2017)12500—
318—
818—
Pauline van der Meer Mohr817232
105
18237
13239172
169
255181
Paul Walsh (Appointed 1 Jan 2016) 142—
6—
148—
Paul Walsh (Resigned on 21 April 2017) 55142
25
57147
Total 3,7783,360
256217
4,0343,577
 4,4443,651
524218
4,9683,869
Total ($000) 5,0975,135
345332
5,4425,467
 5,7204,926
674294
6,3955,220
1Includes feesFees include a travel allowance of £315,000 in 2016 (£278,000 in 2015) as a Director, Chairman of the Audit Committee and member of the Risk Committee of HSBC North America Holdings Inc.£4,000 for non-UK based non-executive Directors.
2Includes fees of £72,000 for 2016 (£63,000 for 2015) as a Director, Deputy Chairman and member of the Nomination Committee of The Hongkong and Shanghai Banking Corporation Limited.
3Includes £7,000 (inclusive of VAT) in respect of his membership of a verwaltungsrat (advisory body) to HSBC Trinkaus & Burkhardt AG. These fees were received in respect of 2015 also, although they were not included in the disclosure.
4Includes fees of £31,000 for 2016 (£360,000 in 2015) as Chairman of HSBC North America Holdings Inc.
5Includes fees of £173,000 in 2016 as Director and member of the Audit Committee and the Risk Committee of The Hongkong and Shanghai Banking Corporation Limited and as Director, member of the Audit Committee and Chairman of the Risk Committee of Hang Seng Bank Limited.
6Includes a fee of £411,000 as Chairman of HSBC North America Holdings Inc. following appointment on 1 January 2016.
7Includes a fee of £345,000 in 2016 (£345,000 in 2015) as non-executive Chairman of HSBC Bank plc.
8Appointed as a Director on 1 September 2015 and as a member of the Conduct & Values Committee and Group Remuneration Committee on 1 January 2016 and the Nomination Committee on 22 April 2016.
9Benefits include accommodation and travel-related expenses relating to attendance at Board and other meetings at HSBC Holdings' registered office. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant. The 2016 amounts have been restated to exclude National Insurance Contributions.

3Includes fees of £330,000 in 2017 (£315,000 in 2016) as a Director, Chairman of the Audit Committee and member of the Risk Committee of HSBC North America Holdings Inc.
4Appointed as a member of the Group Remuneration Committee on 26 May 2017.
5Includes fees of £75,000 in 2017 (£72,000 in 2016) as a Director, Deputy Chairman and member of the Nomination Committee of The Hongkong and Shanghai Banking Corporation Limited.
6Includes £8,000 (inclusive of VAT) in respect of his membership of a verwaltungsrat (advisory body) to HSBC Trinkaus & Burkhardt AG. Stepped down as Chairman of the Group Risk Committee on 28 April 2017 and resigned from the Group Risk Committee on 30 November 2017.
7Includes fees of £187,000 in 2017 (£173,000 in 2016) as a Director, and member of the Audit Committee and the Risk Committee of The Hongkong and Shanghai Banking Corporation Limited and as a Director, member of the Audit Committee and Chairman of the Risk Committee of Hang Seng Bank Limited.
8Includes fees of £427,000 in 2017 (£411,000 in 2016) as Chairman of HSBC North America Holdings Inc.
9Appointed as a member of the Group Remuneration Committee on 26 May 2017.
10Appointed as Senior Independent Director on 28 April 2017. Includes fees of £382,000 in 2017 (£345,000 in 2016) as non-executive Chairman of HSBC Bank plc.
11Appointed as Chairman of the Group Risk Committee on 28 April 2017.
12Received a one time relocation benefit of £300,000.
13Appointed as Chairman of the Conduct & Values Committee and the Group Remuneration Committee on 28 April 2017.
Non-executive Directors’ interests in shares
(Audited)
The shareholdings of persons who were non-executive Directors in 2016,2017, including the shareholdings of their connected persons,
at
31 December 20162017, or date of cessation as a Director, if earlier, are set out below. The table below shows the comparison of shareholdings to the company shareholding guidelines.

SharesShares
Shareholding guidelines
(number of shares)
Share interests
(number of shares)
Shareholding guidelines (number of shares)
Share interests
(number of shares)
Phillip Ameen15,0005,00015,0005,000
Kathleen Casey15,0008,62015,0009,125
Laura Cha15,0005,20015,00018,200
Henri de Castries15,00016,16515,00017,116
Lord Evans of Weardale15,0009,17015,00012,892
Joachim Faber15,00066,60515,00066,605
Sam Laidlaw15,00040,860
Sam Laidlaw (Retired on 28 April 2017)15,00041,887
Irene Lee15,00010,00015,00010,588
John Lipsky15,00016,16515,00016,165
Rachel Lomax15,00018,900
Rachel Lomax (Retired on 28 April 2017)15,00018,900
Heidi Miller15,0003,97515,0004,200
David Nish15,00050,00015,00050,000
Jonathan Symonds15,00021,77115,00042,821
Jackson Tai15,00031,60515,00044,825
Mark Tucker (Appointed on 1 September 2017)15,000276,000
Pauline van der Meer Mohr15,00015,00015,00015,000
Paul Walsh15,0005,079
Paul Walsh (Resigned on 21 April 2017)15,0005,211



206200
HSBC Holdings plc Annual Report and Accounts 2016

Voting results from 2016 Annual General Meeting
The table below summarises the voting results at our last AGM.
 ForAgainstWithheld
Remuneration Report90.49%9.51%54,280,789
(8,327,033,672)(875,494,490) 
Remuneration Policy96.05%3.95%35,165,873
(8,887,168,002)(365,908,568) 
Annual General Meeting voting results
 
For1
Against1
Withheld
Remuneration Report (2017 AGM)96.47%3.53%–
8,885,701,458324,969,99930,526,965
Remuneration Policy (2016 AGM)96.05%3.95%–
8,887,168,002365,908,56835,165,873
1Votes cast.
Implementation of remuneration policy in 20172018 for executive Directors
Implementation of fixed remuneration is disclosed on page 194189, along with the remuneration policy summary. Further details on performance measures and weightings for the 20172018 annual incentive award are provided below.
John Flint's fixed remuneration on taking on the the role of Group Chief Executive is disclosed on page 189. In line with the other executive Directors, he will be eligible for discretionary variable pay that consists of an annual incentive award up to a maximum value of 215% of base salary, and a long-term incentive award up to a maximum of 320% of base salary.
Annual incentive scorecards
The weightings and performance measures to apply tofor the 20172018 annual incentive award for Stuart Gulliver, John Flint, Iain Mackay and Marc Moses are disclosed below. These align to the Group’s
strategic and financial objectives set out in our Investor Update in June 2015. The performance targets for the annual incentive are commercially sensitive and it would be detrimental to the Group’s interests to disclose them at the start of the financial year. Subject to commercial sensitivity, we will disclose the targets after the end offor a relevant financialgiven year in the Annual Report and Accounts for that year’s remuneration report.year in the Directors‘ Remuneration Report.
20172018 annual incentive scorecards
Executive Directors will be eligible for an annual incentive award of up to 213%215% of base salary.

 Stuart GulliverIain MackayMarc Moses
Measures%%%
Profit before tax1
201010
Capital management—25—
Deliver cost savings2010—
Reduce Group RWAs101015
Strategic growth10——
Global Standards including risk and compliance252550
Personal objectives152025
Total100100100
2018 annual incentive scorecards measures and weightings
 John Flint and Stuart GulliverIain MackayMarc Moses
Measures%%%
Profit before tax201015
Positive JAWS1015–
Revenue growth10––
Capital management102510
Strategic priorities1
252515
Risk and compliance2
252560
Total100100100
1Adjusted profit before tax as defined for Group annual bonus pool calculation.
Details of the Global Standards and personal objectives measures are provided below.
Stuart GulliverIain MackayMarc Moses
Measures
Global Standards including risk and compliance
•
Achieve and sustain compliance with global financial crime compliance policies and procedures, and/or have approved dispensations will include key objectives set out in place.
•
Implement the operational risk management framework.
•
Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.
•
Effective risk management with AML, sanctions, anti-bribery and corruption policies and Global Standards.
•
Effective management of material operational risks.
•
Implementation of the operational risk management framework.
•
Proactively review and challenge the first line of defence to assess the adequacy of risk management activities relating to accounting and tax.
•
Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.
•
Successful delivery of regulatory and internal stress tests in 2017.
•
Ensure the Global Risk function enables and supports Financial Crime Risk function to achieve and sustain compliance with global financial crime compliance policies and procedures.
•
Effective management of material operational risks.
•
Implementation of the operational risk management framework.
•
Proactively review and challenge the first line of defence to assess the adequacy of risk management activities and fulfil risk steward responsibilities.
•
Manage credit and market risk, and oversee liquidity risk within the Board approved risk appetite.
•
Implementation of global conduct programme and maturity level achieved against the required conduct outcomes.
•
Successful delivery of regulatory and internal stress tests in 2017.

Personal objectives
•
Ensure climate change is reflected across the Group’s activities.
•
Optimise global network and reduce complexity.
•
Set-up UK ring-fenced bank headquartered in Birmingham and move the businessstrategy to be ready for a UK departure fromagreed with the EU.
•
Delivery of high-priority projects.
•
Improve customer satisfaction and employee diversity.
•
Complete succession and transition planning.
•
Enhanced environmental, social and governance (‘ESG’) disclosures in collaboration with External Affairs function and global businesses.
•
Deliver Global Finance transformation.
•
Set-up UK ring-fenced bank headquartered in Birmingham and move the business to be ready for a UK departure from the EU.
•
Improve employee diversity.
•
Complete succession and transition planning.
•
Develop processes to measure exposure to carbon-intensive and low-carbon-intensive activities.
•
Define opportunities to develop risk management policies and procedures consistent with Group risk appetite to protect the Group from climate change risk, and enable business activities supporting a transition to a low-carbon economy.
•
Pivot to Asia and support growth of customer lending.
•
Deliver Global Risk transformation.
•
Improve RWA effectiveness and efficiency.
•
Improve employee diversity.
•
Complete succession and transition planning.
Board.

HSBC Holdings plc Annual Report2
Measures will include objectives relating to financial crime risk, operational risk, conduct and Accounts 2016207other financial risks.

Stuart Gulliver will step down as Group Chief Executive on 20 February 2018, and John Flint will succeed as Group Chief Executive with effect from 21 February 2018. The scorecard outcome as determined in line with the table above will be applied to the maximum annual incentive award opportunity for Stuart Gulliver and John Flint on a pro-rata basis taking into account time spent by them in the Group Chief Executive role.
Directors’ Remuneration Report
Stuart Gulliver will also be eligible to be considered for an annual incentive award and the Committee will consider his contribution as he continues to advise HSBC during the period between 21 February 2018 and his retirement date of 11 October 2018.

Long-term incentives
Details of the performance measures and targets for LTI
awards to be made in 2017,2018, in respect of 2016,2017, are provided
on page 202.196.
The performance measures and targets for awards to be made in respect of 2017,2018, granted in 2018,2019, will be provided in the Annual ReportsReport and Accounts 20172018.
Retirement arrangements for Stuart Gulliver
Stuart Gulliver will step down as executive Director and Group Chief Executive on 20 February 2018 and will then cease employment with the Group on 11 October 2018.
Under the terms of his service contract, Stuart Gulliver will continue to receive his current salary of £1,250,000 per annum, his fixed pay allowance of £1,700,000 per annum, his cash in lieu of pension allowance of £375,000 per annum and his contractual benefits until his retirement. He will also be eligible to be considered for a 2018 annual incentive award as set out above. He will not receive a 2017 or 2018 LTI award, for which he otherwise would have been eligible to be considered for an amount which could have totalled up to£3,990,000 per year.
Stuart Gulliver will also be granted Good Leaver status, in accordance with the plan rules, in respect of his unvested deferred awards that were awarded in performance years 2012 to 2017. These awards were published in the annual report in those respective years and approved by shareholders at the respective AGMs. These awards will vest on the scheduled vesting dates, subject to the relevant terms (including post-vest retention periods, malus and, where applicable, clawback) and the achievement of any required performance conditions. Vesting of his 2016 performance year LTI award will be pro-rated for the period he is employed by the Group.
As per the shareholder approved remuneration policy, Stuart Gulliver will be entitled to a payment in lieu of any accrued but untaken holiday entitlement at his retirement date of 11 October 2018, and certain post-departure benefits including medical cover for a period of up to seven years. He will receive no compensation or payment for the termination of his service contract.
Implementation of remuneration policy in 20172018 for non-executive Directors
The Committee has reviewed the fee levels payable to the non-executive Directors and details can be found on page 193.188.

Additional remuneration disclosures
This section provides disclosures required under the Hong Kong Ordinances, Hong Kong Listing Rules, the US Securities and Exchange Commission Form 20-F and the Pillar 3 remuneration disclosures.

HSBC Holdings plc201

Directors’ Remuneration Report

Payments on loss of office
The table below sets out the basis on which payments on loss of office may be made. Other than as set out in the table, there are
no further obligations which could give rise to remuneration payments or payments for loss of office.

Component of remunerationApproach taken
Fixed pay and benefits
Executive Directors may be entitled to payments in lieu of:
•
notice, which shall consist of base salary, pension entitlements and other contractual benefits, or an amount in lieu of; and/or
•
accrued but untaken holiday entitlement.
Annual incentives and
long-term incentives
In exceptional circumstances as determined by the Committee, an executive Director may be eligible for annual incentives and long-term incentives based on the time worked in the performance year and on the individual executive Director’s contribution.
Unvested deferred awards
All unvested awards will be forfeited when an executive Director ceases employment voluntarily and is not deemed a good leaver. An executive Director may be considered a good leaver at the discretion of the Committee, and the following will apply:
•
unvested awards will continue to vest in line with the applicable vesting dates, subject to the original performance conditions, the share plan rules, malus and claw-backclawback provisions; or
•
vested shares, subject to retention, will be released to the executive Director on cessation of employment.Inemployment. In the event of death, unvested awards will vest and will be released to the executive Director’s estate as soon as practicable.
In respect of outstanding unvested awards, for an individual to be considered as a good leaver, the Committee needs to be satisfied that the executive has no current or future intention at the date of leaving HSBC of being employed by any competitor financial services firm. The Committee determines the list of competitor firms and length of time this restriction applies. If the Committee becomes aware of any evidence to the contrary before vesting, the award will lapse.
If the executive Director is not deemed a good leaver for purposes of the GPSP, vested shares, subject to retention, will be released to the executive Director in three equal tranches on each of the first, second and third anniversary of cessation of employment.
RepatriationWhere an executive Director has been relocated as part of their employment, the Committee retains the discretion to pay the repatriation costs. ThisThese may include, but are not restricted to airfare, accommodation, shipment, storage, utilities, and any tax and social security that may be due in respect of such benefits.
Post-departure benefits
Applicable for the duration of the claw-backclawback period, up to a maximum of seven years from date of departure for those who depart under good leaver provisions under the HSBC Share Plan and subject to non-compete provisions, in accordance with the terms of the policy. Benefits may include medical coverage, tax return preparation assistance and legal expenses for the duration of the claw-backclawback period.
The Committee also has the discretion to extend the post-departure benefit of medical coverage to former executive Directors up to a maximum of seven years from their date of departure.
Legal claimsThe Committee retains the discretion to make payments (including professional and outplacement fees) to mitigate against legal claims, subject to any such payments being made in accordance with the terms of an appropriate agreement waiving all claims against the Group.
Change of controlIn the event of a change of control, outstanding awards will be treated in line with the provisions set out in the respective plan rules.


Employee compensation and benefits
Executive Directors
Set out below are details of compensation paid to executive Directors for the year ended 31 December 2016.2017.

 Douglas FlintStuart GulliverIain MackayMarc Moses
 2016
2015
2016
2015
2016
2015
2016
2015
 £000
£000
£000
£000
£000
£000
£000
£000
Basic salaries, allowances and benefits in kind2,136
2,496
3,953
4,290
1,949
2,082
1,913
2,035
Pension contributions—
—
—
—
—
—
—
—
Performance-related pay paid or receivable 1,2
—
—
1,695
3,041
987
2,169
1,005
1,928
Inducements to join paid or receivable—
—
—
—
—
—
—
—
Compensation for loss of office—
—
—
—
—
—
—
—
Notional return on deferred cash—
—
27
9
17
5
18
5
Total2,136
2,496
5,675
7,340
2,953
4,256
2,936
3,968
Total ($000)2,882
3,815
7,656
11,218
3,984
6,505
3,961
6,065

208
HSBC Holdings plc Annual Report and Accounts 2016

Emoluments
 Douglas FlintStuart GulliverIain MackayMarc Moses
 2017
2016
2017
2016
2017
2016
2017
2016
 £000
£000
£000
£000
£000
£000
£000
£000
Basic salaries, allowances and benefits in kind1,610
2,136
3,896
3,953
1,961
1,949
1,914
1,913
Pension contributions—
—
—
—
—
—
—
—
Performance-related pay paid or receivable 1
—
—
2,127
5,685
3,566
3,219
3,590
3,237
Inducements to join paid or receivable—
—
—
—
—
—
—
—
Compensation for loss of office—
—
—
—
—
—
—
—
Notional return on deferred cash—
—
63
27
42
17
42
18
Total1,610
2,136
6,086
9,665
5,569
5,185
5,546
5,168
Total ($000)2,072
2,882
7,834
13,039
7,168
6,995
7,139
6,972
1
ForIncludes the 2016 performance year, Stuart Gulliver, Iain Mackay and Marc Moses will receive an LTI award with a face value of £3,990,000, £2,232,000the deferred and £2,232,000, respectively, which is not included inLTI awards at grant. The information for 2016 has been restated to include the amount above. Vestingvalue of the award is subject to the performance conditions detailed on page 202.
2For the 2015 performance year, performance-related pay includes annual incentives and GPSP.
3Deferred compensation accrued in 2016 for awards granted in prior years was £3,630,102 ($4,897,447) for Stuart Gulliver, £1,806,500 ($2,437,187) for Iain Mackay and £2,033,451 ($2,743,371) for Marc Moses. Deferred compensation accrued in 2015 for awards granted in prior years was £3,179,883 ($4,860,042) for Stuart Gulliver, £1,378,660 ($2,107,104) for Iain Mackay and £1,674,155 ($2,558,730) for Marc Moses.LTI.
The aggregate amount of Directors' emoluments as defined above (including both executive Directors and non-executive Directors) for the year ended 31 December 20162017 was $23,925,335.$30,608,444. As per our policy, benefits in kind may include, but are not limited to, the provision of medical insurance, income protection insurance, health assessment, life assurance, club membership, tax assistance, Hong Kong accommodation, for Stuart Gulliver, car benefit, travel assistance, and relocation costs (including any tax due on the benefit,these benefits, where applicable). Medical insurance benefit of £1,605£4,181 ($2,165)5,382) was provided to a pastformer director, Alexander Flockhart, during the year ended 31 December 2016.2017. Amounts are converted into US dollars based on the average year-to-date exchange rates for the respective year.

 
Emoluments of senior management and five highest paid employees
SetThe following table sets out below arethe details of emoluments paid to senior management (being here, executive Directors and Group Managing Directors of HSBC Holdings)the Group) for the year ended 31 December 20162017, or for the period of appointment in 20162017 as a Director or Group Managing Director. Details of the remuneration paid to the five highest paid employees, including threecomprising one executive DirectorsDirector and twofour Group Managing Directors of HSBC Holdings,the Group, for the year ended 31 December 20162017 are also presented below.presented.

Emoluments 
 Five highest paid employees
Senior management
 £000
£000
Basic salaries, allowances and benefits in kind15,474
34,101
Pension contributions82
251
Performance-related pay paid or receivable1
17,916
32,818
Inducements to join paid or receivable—
—
Compensation for loss of office—
2,669
Total33,472
69,839
Total ($000)45,158
94,222
1Includes the face value of LTI awards at grant.


202
HSBC Holdings plc

Emoluments 
 Five highest paid employees
Senior management
 £000
£000
Basic salaries, allowances and benefits in kind18,729
41,143
Pension contributions12
198
Performance-related pay paid or receivable1
15,272
40,220
Inducements to join paid or receivable2,465
2,465
Compensation for loss of office—
—
Total36,478
84,026
Total ($000)46,955
108,159
1Includes the value of deferred shares awards at grant.
Emoluments by bands
Hong Kong dollarsUS dollars
Number of
highest paid employees

Number of
senior management

$16,000,001 – $16,500,000$2,053,177 – $2,117,338—
2
$24,500,001 – $25,000,000$3,143,927 – $3,208,088—
1
$25,500,001 – $26,000,000$3,272,250 – $3,336,412—
1
$33,500,001 – $34,000,000$4,298,839 – $4,363,000—
1
$34,000,001 – $34,500,000$4,363,000 – $4,427,162—
2
$36,000,001 – $36,500,000$4,619,647 – $4,683,809—
1
$43,500,001 – $44,000,000$5,582,074 – $5,646,236—
1
$47,500,001 – $48,000,000$6,095,368 – $6,159,530—
1
$52,500,001 – $53,000,000$6,736,986 – $6,801,147—
1
$55,000,001 – $55,500,000$7,057,795 – $7,121,956—
2
$60,000,001 – $60,500,000$7,699,412 – $7,763,5741
1
$61,500,001 – $62,000,000$7,891,898 – $7,956,0591
1
$64,500,001 – $65,000,000$8,276,868 – $8,341,0301
1
$65,000,001 – $65,500,000$8,341,030 – $8,405,1921
1
$89,000,001 – $89,500,000$11,420,795 – $11,484,9561
1
Pillar 3 remuneration disclosures
Remuneration for all employees
Remuneration policy overview and governance
Our remuneration strategy is designed to reward competitively the achievement of long-term sustainable performance, and attract and motivate the very best people who are committed to maintaining a long-term career with the Group while performing their role in the long-term interests of our stakeholders. We believe that remuneration is an important tool for instilling the right behaviours, and driving and encouraging actions that are aligned to organisational values and expectations.
Our remuneration strategy as approved by the Committee is based on the following principles:
An alignment to performance at all levels (individual, business and Group) taking into account both ‘what’ has been achieved and ‘how’ it has been achieved. The ‘how’ helps ensure that performance is sustainable in the longer term, consistent with HSBC’s values, conduct and risk and compliance standards.
Being informed, but not driven by, market position and practice. Market benchmarks are sourced through independent specialists and provide an indication of the range of pay levels and employee benefits provided by our competitors.
Targeting pay for employees across the full market range depending upon their individual performance and that of the Group. An individual’s position in this market range will also vary depending upon their performance in any given year.
Compliance with relevant regulation across all of our countries and territories.
Based on these principles, our approach to determining remuneration is based on the following objectives:
Offering our employee a competitive total reward package that includes a mix of fixed pay, variable pay and employee benefits.
Maintaining an appropriate balance between fixed pay, variable pay and employee benefits, taking into consideration an
employee’s seniority, role, individual performance and the market.
Fixed pay levels should be market competitive and allow our employees to meet their basic day-to-day living expenses.
Variable pay is awarded on a discretionary basis and dependent upon Group, business and individual performance.
Employee benefits offered should be valued by a diverse workforce, appropriate at the local market level and support HSBC’s commitment to employee well-being.
Promoting employee share ownership through variable pay deferral or voluntary enrolment in an all employee share plan.
Reward packages should be linked to performance and behaviour with no bias towards an individual’s ethnicity, gender, age, or any other characteristic.
The Group remuneration policy for all employees based on the above principles and objectives applies on a group-wide basis, subject to compliance with any applicable local laws and regulation.
Governance and role of relevant stakeholders
The Committee is responsible for setting the principles, parameters and governance framework for the Group‘s remuneration policy applicable to all Group employees. The Committee also oversees the application of the policy to the wider employee population, including employees in subsidiaries and branches, subject to local regulations.
All members of the Committee are independent non-executive Directors of HSBC Holdings plc. Details of the roles, responsibility and membership of the Committee, including other committees and senior management that the Committee engages with, are set out on page 177. Activities and advisers used by the Committee are detailed on page 189.
The Committee reviewed the Group's remuneration policy in
2017 and made no material changes to the policy and its implementation for 2017.

HSBC Holdings plc203

Directors’ Remuneration Report

Link between risk, performance and reward
Our remuneration practices promote sound and effective risk management while supporting our business objectives.
The key features of our remuneration framework that (subject to compliance with local laws and regulations) enable us to achieve alignment between risk, performance and reward are detailed in the following table.
Alignment between risk and reward
Framework elementsApplication
Variable pay pool and individual performance scorecard
The Group variable pay pool is expected to move in line with Group performance. We also use a countercyclical funding methodology, which is categorised by both a floor and a ceiling, and the payout ratio reduces as performance increases to avoid pro-cyclicality. The floor recognises that even in challenging times, remaining competitive is important. The ceiling recognises that at higher levels of performance it is not always necessary to continue to increase the variable pay pool, thereby limiting the risk of inappropriate behaviour to drive financial performance.
The main quantitative and qualitative performance and risk metrics used for assessment of performance include:
•
Group and business unit performance: an evaluation of overall Group and business unit performance provided by Finance is considered by the Committee when determining the Group variable pay pool and, subsequently, the variable pay pool for each business unit. Where performance in a year is weak, as measured by profits, this will have a direct and proportionate impact on the pool. Judgement is exercised to ensure that the pool is adjusted for appropriate current and future risks taking into consideration performance against the RAS and global conduct outcomes. Fines, penalties and provisions for customer redress are automatically included in the Committee’s definition of profit.
•
Individual performance: Annual Reportassessment of performance is made with reference to a balanced scorecard of clear and Accounts 2016relevant objectives. Risk and compliance objectives are included in the performance scorecard of senior management and a mandatory global risk objective is included in the scorecard of all other employees. All employees receive a behaviour rating as well as a performance rating, which ensures performance is assessed not only on what is achieved but also on how it is achieved. Therefore, variable pay of individuals is expected to reflect Group performance, their individual behaviour rating and performance rating determined against their performance objectives for the year, which are aligned to the Group's strategic actions, risk objectives and adherence to the HSBC Values.
209Remuneration for Control Function staff
•
The performance and remuneration of individuals in Control Functions, including risk and compliance employees, is assessed according to a balanced scorecard of objectives specific to the functional role they undertake, to ensure their remuneration is determined independent of the performance of the business areas they control.
•
The Committee is responsible for approving the remuneration recommendations for the Group Chief Risk Officer and senior management in Control Functions.
•
Group policy is for Control Functions staff to report into their respective function and remuneration decisions for senior functional roles are led by, and must carry the approval of, the global function head.
•
The variable pay pool for Control Functions is determined centrally, without influence from the relevant business areas. Furthermore, employees performing a Control Function role have a direct reporting line through the relevant global function rather than through the relevant business areas.
•
Remuneration is carefully benchmarked with the market and internally to ensure that it is set at an appropriate level.
Variable pay adjustments
•
Variable pay awards may be adjusted downwards in circumstances including:
– Detrimental conduct, including conduct which brings HSBC into disrepute.
– Involvement in events resulting in significant operational losses, or events which have caused or have the potential to cause significant harm to HSBC.
– Non-compliance with the HSBC Values and other mandatory requirements or policies.
•
Positive adjustments to variable pay awards can also be made where exceptional behaviours have been demonstrated which go beyond the normal course of an employee’s responsibilities, and those which set an outstanding example of our Values-aligned behaviours and conduct expectations.
•
The override policy was introduced in 2014, based on the recommendations received from the independent Monitor as appointed by the AML DPA. This is applicable for current-year variable pay awards for executive Directors and certain other senior management. In deciding the application and degree of any such downward override to reduce variable pay awards, the Committee considers feedback from the Financial System Vulnerabilities Committee, the Monitor in relation to cooperation with its review and our group legal function.
Malus
Malus can be made to unvested deferred awards granted in prior years. It may be applied in circumstances including:
•
Detrimental conduct, including conduct which brings the business into disrepute.
•
Past performance being materially worse than originally reported.
•
Restatement, correction or amendment of any financial statements.
•
Improper or inadequate risk management.
Clawback
Clawback can be applied to vested or paid awards granted to MRTs on or after 1 January 2015 for a period of seven years. From 2016 onwards, this period may be extended to 10 years for employees under the PRA‘s Senior Manager Regime in the event of ongoing internal/regulatory investigation at the end of the seven-year period. Clawback may be applied in circumstances including:
•
Participation in, or responsibility for, conduct which results in significant losses.
•
Failing to meet appropriate standards and propriety.
•
Reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract of employment.
•
A material failure of risk management suffered by HSBC or a business unit in the context of Group risk-management standards, policies and procedures.
Sales incentives
•
We do not have commission-based sales plans globally.

204HSBC Holdings plc

Remuneration structure
Total compensation (fixed pay and variable pay) is the key focus of our remuneration framework, with variable pay differentiated by performance and adherence to the HSBC Values. The key features
and design characteristic of our remuneration system that applies on a Group-wide basis, subject to compliance with local laws, is set out below:
Overview of remuneration structure for employees
Remuneration components and objectivesApplication
Fixed pay
Attract and retain employees by paying market competitive pay for the role, skills and experience required for the business.
•
This may include salary, fixed pay allowance, cash in lieu of pension and other cash allowances in accordance with local market practices. They are categorised as fixed pay as all of these elements are based on predetermined criteria, non-discretionary, transparent and are not reduced based on performance.
•
Represent a higher proportion of total compensation for more junior employees.
•
All elements of fixed pay are fixed and may change to reflect an individual’s position, role or grade, cost of living in the country, individual skills, competencies, capabilities and experience, as may be evidenced by sustained strong performance of the individual.
•
Fixed pay is delivered in cash on a monthly basis, except for executive Directors, where the fixed pay allowance is delivered in shares.
Benefits
Ensure market competitiveness and provide benefits in accordance with local market practice.
•
This may include, but not be limited to, the provision of pensions, medical insurance, life insurance, health assessment and relocation allowances.
Annual incentive
Drive and reward performance based on annual financial and non-financial measures consistent with the medium- to long-term strategy, stakeholder interests and adherence to HSBC values.
•
All employees are eligible to be considered for a discretionary variable pay award. Individual awards are determined on the basis of individual performance against their performance objectives for the year, which are aligned to the Group’s strategic actions, a global risk objective and adherence to the HSBC Values and business principles.
•
In addition, there is a process to identify behavioural transgressions for all employees during the year to ensure compliance with Group policies and procedures, and other expected behaviours. Such transgressions are taken into consideration in determining ex-ante adjustments to variable pay.
•
Represent a higher proportion of total compensation for more senior employees and will be more closely aligned to Group and business performance as seniority increases.
•
Variable pay awards for all Group employees identified as MRTs under European Union Regulatory Technical Standard 604/2014 are limited to 200% of fixed pay.1
•
All awards are subject to malus and awards granted to employees identified as MRTs are subject to clawback (see section on variable pay adjustment, malus and clawback).
•
Awards can be in the form of cash, shares and, where required by regulations, in units linked to asset management funds. A portion of the annual incentive award may be deferred and vests over a period of three years, five years or seven years.
Deferral
Alignment with the medium- to long-term strategy, stakeholder interests and adherence to the HSBC Values.
•
A Group-wide deferral approach is applicable to all employees across the Group. Awards above a specified threshold are subject to deferral based on a deferral table, as approved by the Group Remuneration Committee. The deferred variable pay is delivered over HSBC shares. Vesting of deferred awards will be annually over a three-year period with 33% vesting on the first anniversary of grant, 33% on the second anniversary and 34% on the third anniversary.
•
For MRTs identified in accordance with the PRA and Financial Conduct Authority (‘FCA’) remuneration rules, awards are generally subject to a minimum 40% deferral (60% for awards of £500,000 or more) over a minimum period of three years2. A longer deferral period is applied for certain MRTs as follows:
–
Five years for individuals identified in a risk-manager MRT role under the PRA and FCA remuneration rules. This reflects the deferral period prescribed by both the PRA and the European Banking Authority ('EBA') for individuals performing key senior roles with the Group.
–
Seven years for individuals in PRA designated senior management functions, being the deferral period mandated by the PRA as reflecting the typical business cycle period.
•
Individuals identified as MRTs under local regulations and not considered Group MRTs are subject to a three-year deferral period, except in Germany and Malta where individuals reporting into the local management Board and Executive Committee members, respectively, are subject to a five-year deferral. Local MRTs are also subject to a minimum deferral rate aligned to the Group MRT policy, except in China (where a minimum deferral rate of 50% is applied for the CEO in China), Oman (where a minimum deferral rate of 45% is applied) and Germany (where a minimum deferral rate of 60% is applied for local management board members).
•
All deferred awards are subject to malus provisions subject to compliance with local laws. Awards granted to MRTs on or after 1 January 2015 are also subject to clawback.
•
HSBC operates an anti-hedging policy for all employees who are required to certify each year that they have not entered into any personal hedging strategies in respect of HSBC securities.
Deferral instruments
Alignment with the medium- to long-term strategy, stakeholder interests and adherence to the HSBC Values.

•
For all employees, other than MRTs identified in accordance with the PRA and FCA remuneration rules or other similar local rules, the underlying instrument for all deferred awards is HSBC shares to ensure alignment between the long-term interest of our employees and the interest of shareholders.
•
For Group and local MRTs, excluding executive Directors where deferral is typically in the form of shares only, a minimum of 50% of the deferred awards is over HSBC shares and the balance is deferred into cash. In accordance with local regulatory requirements, for local MRTs in Oman 100% of the deferred amount is delivered in shares and for local MRTs in Poland 50% of the deferred awards are delivered in an instrument linked to the value of the local entity and the balance in deferred cash.
•
For some employees in our asset management business, where required by the regulations applicable to asset management entities within the Group, at least 50% of the deferred awards is linked to fund units reflective of funds managed by those entities, with the remaining portion of deferred awards being in the form of deferred cash awards.

HSBC Holdings plc205

Directors’ Remuneration Report

The emoluments of senior management were within the following bands:

Hong Kong dollarsUS dollars
Number of
highest paid employees

Number of
senior management

HK$5,500,001 – 6,000,000$708,536 – 772,948—
1
HK$10,000,001 – 10,500,000$1,288,246 – 1,352,658—
1
HK$16,500,001 – 17,000,000$2,125,606 – 2,190,018—
1
HK$22,000,001 – 22,500,000$2,834,142 – 2,898,554—
1
HK$23,500,001 – 24,000,000$3,027,379 – 3,091,791—
1
HK$29,500,001 – 30,000,000$3,800,326 – 3,864,738—
1
HK$30,500,001 – 31,000,000$3,929,151 – 3,993,563—
1
HK$34,500,001 – 35,000,000$4,444,449 – 4,508,862—
1
HK$39,500,001 – 40,000,000$5,088,572 – 5,152,985—
1
HK$44,500,001 – 45,000,000$5,732,695 – 5,797,108—
1
HK$46,000,001 – 46,500,000$5,925,932 – 5,990,345—
1
HK$47,500,001 – 48,000,000$6,119,169 – 6,183,581—
1
HK$53,500,001 – 54,000,000$6,892,117 – 6,956,5291
1
HK$54,000,001 – 54,500,000$6,956,529 – 7,020,9411
1
HK$61,000,001 – 61,500,000$7,858,302 – 7,922,7141
1
HK$80,000,001 – 80,500,000$10,305,969 – 10,370,3811
1
HK$100,500,001 – 101,000,000$12,946,874 – 13,011,2861
1
Overview of remuneration structure for employees (continued)
Remuneration components and objectivesApplication
Post-vesting retention period
To ensure appropriate alignment with shareholders.
•
Awards over HSBC shares or linked to relevant fund units granted to MRTs identified in accordance with the PRA and FCA remuneration rules and local MRTs (except those in Brazil, China, Germany, Oman and Russia) are generally subject to a one-year retention period post vesting. For local MRTs in Brazil, Russia and Germany, a six-month retention period is applied. No retention period is applied for local MRTs in China and Oman.
•
MRTs who are subject to a five-year deferral period, except senior management or individuals in PRA and FCA designated senior management functions, have a six-month retention period applied to their awards.
Long-term incentive awards (‘LTI’)
Alignment with the medium- to long-term strategy, stakeholder interests and adherence to the HSBC Values.

•
Only executive Directors are eligible to be considered for an LTI award. See details on page 196.
Shareholding requirement
Align interests of senior management with shareholders' interests.

•
All executive Directors, Group Managing Directors and Group General Managers of HSBC Holdings are subject to this requirement. Details of the minimum shareholding requirement for executive Directors and Group Managing Directors are set out on page 198. Group General Managers have a minimum shareholding requirement of 25,000 shares.
•
The minimum shareholding requirement must be achieved by 2019 or within five years of their appointment, whichever is later.

Buy-out awards
To support recruitment of talent.
•
Awards may be offered if an individual holds any outstanding unvested awards that are forfeited on resignation from the previous employer.
•
The terms of the buy-out awards will not be more generous than the terms attached to the awards forfeited on cessation of employment with the previous employer.
Guaranteed variable remuneration
To support recruitment of talent.
•
Guaranteed variable remuneration is awarded in exceptional circumstances for new hires, and is limited to the individual’s first year of employment only.
•
The exceptional circumstances where HSBC would offer a guaranteed variable remuneration would typically involve a critical new hire and would also depend on factors such as the seniority of the individual, whether the new hire candidate has any competing offers and the timing of the hire during the performance year.
Severance payments
To adhere to contractual agreements with involuntary leavers.

•
Where an individual’s employment is terminated involuntarily for gross misconduct then, subject to compliance with local laws, the Group’s policy is not to make any severance payment in such cases. For such individuals, all outstanding unvested awards are forfeited.
•
For other cases of involuntary termination of employment, any severance that may be determined to be paid to an individual will take into consideration the performance of the individual, contractual notice period, applicable local laws and circumstances of the case.
•
Where an individual’s employment is terminated involuntarily (except where an individual is dismissed for gross misconduct), all outstanding unvested awards will normally continue to vest in line with the applicable vesting dates and, where relevant, any performance conditions attached to the awards and malus and clawback provisions applicable to those awards.
•
Severance amounts awarded to MRTs are considered as fixed pay where such amounts include: (i) payments of fixed remuneration that would have been payable during the notice and/or consultation period; (ii) statutory severance payments; (iii) payments determined in accordance with any approach applicable in the relevant jurisdictions; and (iv) payments made to settle a potential or actual dispute.
1Shareholders approved the increase in the maximum ratio between the fixed and variable components of total remuneration from 1:1 to 1:2 at the 2014 Annual General Meeting held on 23 May 2014 (98% in favour). The Group has also used the discount rate of 21.85% for individuals with seven-year deferral period and 13.85% for individuals with five-year deferral period. This discount rate was used for six MRTs in UK and one MRT Hong Kong.
2HSBC does not dis-apply any remuneration rules on proportionality grounds. However, in accordance with the terms of the PRA and FCA remuneration rules, the deferral requirement for MRTs is not applied to individuals where their total compensation is £500,000 or less and variable pay is not more than 33% of total compensation. For these individuals, the Group standard deferral applies.
Pillar 3 remuneration disclosuresMaterial Risk Takers
The following tables show the remuneration awards made by HSBC to its MRTs for 2016. Individuals have beenare identified as
MRTs based on the qualitative and quantitative criteria set out in the Regulatory Technical Standard (‘RTS’) EU 604/2014 and additional criteria determined by the Committee. The following key principles underpin HSBC’s identification process:
MRTs are identified at Group and HSBC Bank plc (consolidated) level.
MRTs are also identified at material solo regulated entity level in EU countries.
HSBC uses the Global Business dimension as the primary basis for identifying MRTs within its matrix management structure.
In addition to applying the qualitative and quantitative criteria specified in the RTS, HSBC also identifies additional MRTs based on its own internal criteria, which includes compensation thresholds and individuals in certain roles and grades outside the EU where such individuals are not strictly captured by the criteria prescribed in the RTS.
The list of MRTs, and any exclusions from it, is reviewed by the heads of the relevant global businesses and global functions, Chief Risk Officers, Chief Operating Officers and Heads of Human Resources of the relevant global functions and businesses. The overall results are reviewed by the Group Chief Risk Officer.
The Committee reviews the methodology, key decisions regarding identification, and approves the results of the identification exercise, including proposed MRT exclusions.
Management body and senior management
For the purpose of the Pillar 3 remunerations disclosures executive Directors and non-executive Directors are considered to be members of the management body. Members of the Group Management Board other than the executive Directors are considered as senior management. No guaranteed bonus, sign-on or severance payments were made to this population for the year ended 31 December 2017.
Remuneration disclosures
The tables below set out the remuneration disclosures for individuals identified as MRTs for HSBC Holdings plc. Remuneration information for individuals who are only identified as MRTs at HSBC Bank plc or other solo-regulated entity levels are included in those entities' relevant disclosures.
The 2017 variable pay information included in the tables below is based on the market value of awards granted to MRTs. For share awards, the market value is based on HSBC Holdings plc's share price at the date of grant (unless indicated otherwise). For cash awards, it is the value of awards expected to be paid to the individual over the deferral period.

Aggregate remuneration expenditure
 Global business aligned  
 Retail Banking and Wealth ManagementCommercial BankingGlobal Banking and MarketsGlobal Private BankingCorporate CentreTotal
 $m$m$m$m$m$m
201694.267.4756.966.8391.11,376.4
Includes salary and incentives awarded in respect of the performance year 2016 (including deferred component) and any pension or benefits outside of policy.
206HSBC Holdings plc

Remuneration – fixed and variable amounts – Group-wide
 
Senior management1
MRTs (non-senior management)Total
Number of MRTs1141,2031,317
 $m$m$m
Fixed   
Cash-based116.8619.8736.6
Shares-based13.67.921.5
Total fixed130.4627.7758.1
Variable2
   
Cash20.9138.2159.1
Non-deferred shares3
25.9127.7153.6
Deferred cash29.1116.3145.4
Deferred shares40.5119.7160.2
Total variable pay4
116.4501.9618.3
Remuneration – fixed and variable amounts
 Executive Directors
Non-executive Directors
Senior management
Total
Number of MRTs4
17
15
36
 $m
$m
$m
$m
Total fixed11.5
4.4
33.1
49.0
Cash-based1
6.9
4.4
33.1
44.4
– of which: deferred cash—
—
—
—
Share-based4.6
—
—
4.6
– of which: deferred shares—
—
—
—
Total variable2
14.0
—
44.1
58.1
Cash-based—
—
20.7
20.7
– of which: deferred cash—
—
12.5
12.5
Share-based3
14.0
—
23.4
37.4
– of which: deferred shares3
9.5
—
15.2
24.7
Other forms3
—
—
—
—
– of which: deferred3
—
—
—
—
Total remuneration25.5
4.4
77.2
107.1
1Definition of senior management for Pillar 3 disclosure includes our members of the Group Management Board, Group General Managers and non-executive Directors.Cash-based fixed remuneration is paid immediately.
2Variable pay awarded in respect of 2016.
3Vested shares, subject to a six-month retention period.
42017. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable component of remuneration for any one year is limited to 200% of fixed component of the total remuneration of the MRT.
3Share-based awards are made in HSBC shares. Vested shares are subject to a retention period of up to one year.
Deferred remuneration at 31 December1
    
 
Executive
Directors

Non-executive Directors
Senior
management

Total
$m    
Cash    
Total outstanding deferred remuneration2
3.1
—
24.8
27.9
– of which:    
Unvested3.1
—
24.8
27.9
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment3.1
—
24.8
27.9
Total amount of amendment during the year due to ex post implicit adjustment—
—
—
—
Total amount of amendment during the year due to ex post explicit adjustment3
—
—
—
—
Total amount of deferred remuneration paid out in the financial year1.5
—
7.2
8.7
Shares    
Total outstanding deferred remuneration2
66.7
—
68.7
135.4
– of which:    
Unvested66.7
—
68.7
135.4
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment66.7
—
68.7
135.4
Total amount of amendment during the year due to ex post implicit adjustment9.7
—
10.5
20.2
Total amount of amendment during the year due to ex post explicit adjustment3
—
—
—
—
Total amount of deferred remuneration paid out in the financial year4
20.0
—
25.1
45.1
Other forms    
Total outstanding deferred remuneration2
—
—
—
—
– of which:    
Unvested—
—
—
—
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment—
—
—
—
Total amount of amendment during the year due to ex post implicit adjustment—
—
—
—
Total amount of amendment during the year due to ex post explicit adjustment3
—
—
—
—
Total amount of deferred remuneration paid out in the financial year4
—
—
—
—
1This table provides details of balances and movements during performance year 2017. For details of variable pay awards granted for 2017, please refer to the remuneration tables above. Deferred remuneration is made in cash and/or shares. Share-based awards are made in HSBC shares.
2Includes unvested deferred awards, and vested deferred awards subject to retention period as at 31 December 2017.
3Includes any amendments due to malus or clawback. Page 205 provides details of in-year variable pay adjustments.
4Shares are considered as paid when they vest. Vested shares are valued using the sale price or the closing share price on the business day immediately preceding the vesting day.

210
HSBC Holdings plc Annual Report and Accounts 2016
207

Directors’ Remuneration Report

Other MRTs (non-senior management)
Remuneration – fixed and variable amounts – UK based
 
Senior management1
MRTs (non-senior management)Total
Number of MRTs76522598
 $m$m$m
Total fixed80.4255.8336.2
Variable2



Cash11.657.368.9
Non-deferred shares3
16.651.468.0
Deferred cash16.347.764.0
Deferred shares27.748.476.1
Total variable pay4
72.2204.8277.0
Remuneration – fixed and variable amounts
 Investment banking
Retail 
 banking

Asset management
Corporate functions
Independent control functions
All other
Total
Number of MRTs677
124
30
115
156
96
1,198
 $m
$m
$m
$m
$m
$m
$m
Total fixed406.2
61.3
18.5
58
57.2
61.6
662.8
Cash-based1
406.2
61.3
18.5
58.0
57.2
61.6
662.8
– of which: deferred cash—
—
—
—
—
—
—
Share-based—
—
—
—
—
—
—
– of which: deferred shares—
—
—
—
—
—
—
Total variable2
417.7
58.4
19.0
57.2
44.1
55.1
651.5
Cash-based203.5
28.3
9.4
28.0
22.5
27.0
318.7
– of which: deferred cash105.1
13.8
4.6
13.8
9.0
14.3
160.6
Share-based3
214.2
30.1
5.1
29.2
21.5
28.1
328.2
– of which: deferred shares3
117.0
15.9
2.8
15.8
10.8
15.7
178.0
Other forms3
—
—
4.5
—
0.1
—
4.6
– of which: deferred shares3
—
—
2.7
—
—
—
2.7
Total remuneration823.9
119.7
37.5
115.2
101.3
116.7
1,314.3
1Definition of senior management for Pillar 3 disclosure includes our members of the Group Management Board, Group General Managers and non-executive Directors.Cash-based fixed remuneration is paid immediately.
2Variable pay awarded in respect of 2016.
3Vested shares, subject to a six-month retention period.
42017. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable component of remuneration for any one year is limited to 200% of the fixed component of the total remuneration of the MRT.
3Share-based awards are made in HSBC shares and/or linked to notional fund units in the HSBC World Selection Balanced Portfolio. Vested shares are subject to a retention period of up to one year.
Deferred remuneration1
 Senior management
MRTs (non-senior management)
Total
 $m
$m
$m
Deferred remuneration at 31 Dec   
Outstanding, unvested280.3
657.1
937.4
Awarded during the year86.2
331.1
417.3
Paid out2
53.2
216.8
270.0
Reduced through malus—
—
—
Guaranteed bonus, sign-on and severance payments
 Investment banking
Retail banking
Asset management
Corporate functions
Independent control functions
All other
Total
Guaranteed bonus and sign-on payments1
       
Made during year ($m)11.4
0.4
—
1.7
0.8
0.7
15.0
Number of beneficiaries17
1
—
3
3
1
25
Severance payments2
       
Awarded during year ($m)17.3
1.9
—
1.4
0.6
4.8
26.0
Number of beneficiaries31
3
—
2
2
4
42
Highest such award to a single person ($m)1.9
0.7
—
1.2
0.5
2.9
2.9
Made during year ($m)17.1
1.5
—
1.4
0.6
4.8
25.4
Number of beneficiaries31
2
—
2
2
4
41
1No sign-on payments were made in 2017. A guaranteed bonus is awarded in exceptional circumstances for new hires, and in the first year only. The circumstances where HSBC would offer a guaranteed bonus would typically involve a critical new hire and would also depend on factors such as the seniority of the individual, whether the new hire candidate has any competing offers and the timing of the hire during the performance year.
2Includes payments such as payment in lieu of notice, statutory severance, outplacement service, legal fees, ex-gratia payments and settlements (excludes pre-existing benefit entitlements triggered on terminations).

208HSBC Holdings plc

Deferred remuneration at 31 December1
      
 Investment banking
Retail banking
Asset management
Corporate functions
Independent control functions
All other
Total
$m       
Cash       
Total outstanding deferred remuneration2
162.9
19.2
8.3
19.9
12.4
24.4
247.1
– of which:       
Unvested162.9
19.2
8.3
19.9
12.4
24.4
247.1
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment162.9
19.2
8.3
19.9
12.4
24.4
247.1
Total amount of amendment during the year due to ex post implicit adjustment—
—
—
—
—
—
—
Total amount of amendment during the year due to ex post explicit adjustment3
—
—
—
—
—
—
—
Total amount of deferred remuneration paid out in the financial year71.1
7.0
4.0
7.2
4.6
9.8
103.7
Shares       
Total outstanding deferred remuneration2
286.2
31.8
12.6
38.5
23.9
48.2
441.2
– of which:       
Unvested286.1
31.8
12.6
38.5
23.9
48.1
441.0
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment286.2
31.8
12.6
38.5
23.9
48.2
441.2
Total amount of amendment during the year due to ex post implicit adjustment43.7
5.5
1.8
6.3
3.7
7.7
68.7
Total amount of amendment during the year due to ex post explicit adjustment3
—
—
—
—
—
—
—
Total amount of deferred remuneration paid out in the financial year4
231.1
30.5
11.0
29.2
20.2
32.1
354.1
Other forms       
Total outstanding deferred remuneration2
—
—
0.5
—
—
—
0.5
– of which:       
Unvested—
—
0.5
—
—
—
0.5
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment—
—
0.5
—
—
—
0.5
Total amount of amendment during the year due to ex post implicit adjustment—
—
—
—
—
—
—
Total amount of amendment during the year due to ex post explicit adjustment3
—
—
—
—
—
—
—
Total amount of deferred remuneration paid out in the financial year4
—
—
0.4
—
—
—
0.4
1This table provides details of actions takenmovements during performance year 2016.2017. For details of variable pay awards granted for 2016,2017, please refer to both the ‘remuneration’
remuneration tables above. Deferred remuneration is made in cash and/or shares. Share-based awards are made in HSBC shares and/or linked to notional fund units in the HSBC World Selection Balanced Portfolio.
2Includes unvested deferred awards, and vested deferred awards subject to retention period as at 31 December 2017.
3Includes any amendments due to malus or clawback. Page 205 provides details of in-year variable pay adjustments.
4Shares are considered as paid when they vest. Vested shares are valued using the sale price or the closing share price on the business day immediately preceding the vesting day.
Sign-on and severance payments
 Senior management
MRTs (non-senior management)Total
Sign-on payments1
   
Made during year ($m)1.6
11.713.3
Number of beneficiaries1
1819
Severance payments2
   
Awarded and made during year ($m)3.2
4.07.2
Number of beneficiaries1
78
Highest such award to a single person ($m)3.2
1.85.0
1Guaranteed variable pay awards granted to new hires and limited to their first year of service.
2Represents non-standard termination payments made in excess of any local policies, standards or statutory amounts.
Material risk takers’ remuneration by band1
MRTs’ remuneration by band1
 
Senior management
MRTs (non-senior management)
Total
Management body
All other
Total
€0 – 1,000,00037
917
954
17
841
858
€1,000,000 – 1,500,00020
180
200
—
208
208
€1,500,000 – 2,000,00013
53
66
—
72
72
€2,000,000 – 2,500,00012
29
41
1
34
35
€2,500,000 – 3,000,00010
13
23
—
22
22
€3,000,000 – 3,500,0006
3
9
—
12
12
€3,500,000 – 4,000,0003
2
5
—
7
7
€4,000,000 – 4,500,0003
5
8
—
6
6
€4,500,000 – 5,000,0001
—
1
—
3
3
€5,000,000 – 6,000,0005
1
6
—
2
2
€6,000,000 – 7,000,0002
—
2
3
5
8
€7,000,000 – 8,000,000—
—
—
—
—
—
€8,000,000 – 9,000,0001
—
1
—
—
—
€9,000,000 – 10,000,000—
—
—
—
—
—
€10,000,000 – 11,000,0001
—
1
—
1
1
1Table prepared in euros in accordance with Article 450 of the European Union Capital Requirements Regulation, using the exchange rates published by the European Commission for financial programming and budget for December of the reported year as published on its website.

HSBC Holdings plc Annual Report and Accounts 2016
211209

Directors’ Remuneration Report of the Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of HSBC Holdings plc

Payments on loss of office
The table below sets out the basis on which payments on loss of office may be made. Other than as set out in the table, there
are no further obligations which could give rise to remuneration payments or payments for loss of office.

Component of remunerationApproach taken
Fixed pay and benefits
Executive Directors may be entitled to payments in lieu of:
•
notice, which shall consist of base salary, pension entitlements and other contractual benefits, or an amount in lieu of; and/or
•
accrued but untaken holiday entitlement.
Annual incentives and
long-term incentives
In exceptional circumstances as determined by the Committee, an executive Director may be eligible for annual incentives and long-term incentives based on the time worked in the performance year and on the individual executive Director’s contribution.
Unvested deferred awards
All unvested awards will be forfeited when an executive Director ceases employment voluntarily and is not deemed a good leaver. An executive Director may be considered a good leaver at the discretion of the Committee, and the following will apply:
•
unvested awards will continue to vest in line with the applicable vesting dates, subject to the original performance conditions, the share plan rules, malus and claw-back provisions; or
•
vested shares, subject to retention, will be released to the executive Director on cessation of employment.In the event of death, unvested awards will vest and will be released to the executive Director’s estate as soon as practicable.
In respect of outstanding unvested awards, for an individual to be considered as a good leaver, the Committee needs to be satisfied that the executive has no current or future intention at the date of leaving HSBC of being employed by any competitor financial services firm. The Committee determines the list of competitor firms and length of time this restriction applies. If the Committee becomes aware of any evidence to the contrary before vesting, the award will lapse.
If the executive Director is not deemed a good leaver for purposes of the GPSP, vested shares, subject to retention, will be released to the executive Director in three equal tranches on each of the first, second and third anniversary of cessation of employment.
RepatriationWhere an executive Director has been relocated as part of their employment, the Committee retains the discretion to pay the repatriation costs. This may include, but are not restricted to airfare, accommodation, shipment, storage, utilities, and any tax and social security that may be due in respect of such benefits.
Post-departure benefits
Applicable for the duration of the claw-back period, up to a maximum of seven years from date of departure for those who depart under good leaver provisions under the HSBC Share Plan and subject to non-compete provisions, in accordance with the terms of the policy. Benefits may include medical coverage, tax return preparation assistance and legal expenses for the duration of the claw-back period.
The Committee also has the discretion to extend the post-departure benefit of medical coverage to former executive Directors, up to a maximum of seven years from their date of departure.
Legal claimsThe Committee retains the discretion to make payments (including professional and outplacement fees) to mitigate against legal claims, subject to any such payments being made in accordance with the terms of an appropriate agreement waiving all claims against the Group.
Change of controlIn the event of a change of control, outstanding awards will be treated in line with the provisions set out in the respective plan rules.



212
HSBC Holdings plc Annual Report and Accounts 2016

Report of the Independent Registered Public Accounting Firm to the Board of Directors and
Shareholders of HSBC Holdings plc
In our opinion,
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of HSBC Holdings plc and its subsidiaries as of 31 December 2017 and 31 December 2016, and the related consolidated income statements, consolidated statements of income, comprehensive income, consolidated statements of cash flows and consolidated statements of changes in equity and cash flows (togetherfor each of the “financial statements”three years in the period ended 31 December 2017, including the related notes (collectively referred to as the 'financial statements'). We also have audited the Company’s internal control over financial reporting as of 31 December 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HSBC Holdings plc and its subsidiaries (the “Company”) atthe Company as of 31 December 20162017 and
31 December 2015,2016, and the results of their operations and their cash flows for each of the twothree years in the period ended
31 December 20162017 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of 31 December 2016,2017, based on criteria established in Internal Control - Integrated Framework 2013(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.
Basis for Opinions
The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’smanagement’s assessment of internal controls over financial reporting appearing on page 79.178 of the Annual Report and Accounts 2017. Our responsibility is to express opinions on thesethe Company’s financial statements and on the Company's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
We also have audited the retrospective change in presentationDefinition and Limitations of the segment information to the 2014 financial statements, as described in pages 59 to 62. In our opinion, the change in presentation is appropriate and has been consistently applied. We were not engaged to audit, review, or apply any procedures to the 2014 financial statements of the Company other than with respect to the change in presentation of the segment information, accordingly, we do not express an opinion or any other form of assurance on the 2014 financial statements taken as a whole.Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.mis-statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We have served as the Company’s auditor since 2015.





PricewaterhouseCoopers LLP
London, United Kingdom
2120 February 20172018






210
HSBC Holdings plc Annual Report and Accounts 2016213

Report of Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of HSBC Holdings plc
We have audited the accompanying consolidated income statement and consolidated statements of comprehensive income, changes in equity and cash flows, before the retrospective change in presentation of the segment information described on pages 59 to 62, of HSBC Holdings plc and its subsidiaries (together “HSBC") for the year ended 31 December 2014 on pages 216 to 306. These consolidated financial statements are the responsibility of HSBC’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, before the retrospective change in presentation of the segment information described on pages 59 to 62,  present fairly, in all material respects, the results of operations and the cash flows of HSBC for the year ended 31 December 2014, in conformity with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union (‘EU’) and IFRSs as issued by the International Accounting Standards Board (‘IASB’).
We were not engaged to audit, review, or apply any procedures to the retrospective change in presentation of the segment information described on pages 59 to 62, and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by a successor auditor.

KPMG Audit Plc
London, England
23 February 2015


214
HSBC Holdings plc Annual Report and Accounts 2016
 

Financial StatementsFinancial Statements Financial Statements
 
Page Page
Consolidated income statementConsolidated income statement216Consolidated income statement
212
Consolidated statement of comprehensive incomeConsolidated statement of comprehensive income217Consolidated statement of comprehensive income
213
Consolidated balance sheetConsolidated balance sheet218Consolidated balance sheet
214
Consolidated statement of cash flowsConsolidated statement of cash flows219Consolidated statement of cash flows
215
Consolidated statement of changes in equityConsolidated statement of changes in equity220Consolidated statement of changes in equity
216
HSBC Holdings income statementHSBC Holdings income statement222HSBC Holdings income statement
218
HSBC Holdings statement of comprehensive incomeHSBC Holdings statement of comprehensive income222HSBC Holdings statement of comprehensive income
218
HSBC Holdings balance sheetHSBC Holdings balance sheet223HSBC Holdings balance sheet
219
HSBC Holdings statement of cash flowsHSBC Holdings statement of cash flows224HSBC Holdings statement of cash flows
220
HSBC Holdings statement of changes in equityHSBC Holdings statement of changes in equity225HSBC Holdings statement of changes in equity
221
   
Notes on the Financial
Statements
Notes on the Financial
Statements
 
Notes on the Financial
Statements
 
1
Basis of preparation and significant accounting policies226Basis of preparation and significant accounting policies
222
2
Net income/(expense) from financial instruments designated at fair value235Net income/(expense) from financial instruments designated at fair value
231
3
Insurance business236Insurance business
231
4
Operating profit238Operating profit
233
5
Employee compensation and benefits238Employee compensation and benefits
233
6
Auditors’ remuneration244Auditors’ remuneration
239
7
Tax245Tax
239
8
Dividends247Dividends
242
9
Earnings per share248Earnings per share
242
10
Trading assets248Trading assets
243
11
Fair values of financial instruments carried at fair value249Fair values of financial instruments carried at fair value
243
 
12
Fair values of financial instruments not carried at fair value256Fair values of financial instruments not carried at fair value
251
13
Financial assets designated at fair value258Financial assets designated at fair value
252
14
Derivatives258Derivatives
253
15
Financial investments261Financial investments
255
16
Assets pledged, collateral received and assets transferred262Assets pledged, collateral received and assets transferred
256
17
Interests in associates and joint ventures263Interests in associates and joint ventures
257
18
Investments in subsidiaries

267
Investments in subsidiaries

260
19
Structured entities268Structured entities
261
20
Goodwill and intangible assets

270
Goodwill and intangible assets

263
21
Prepayments, accrued income and other assets273Prepayments, accrued income and other assets
265
22
Assets held for sale and liabilities of disposal groups held for sale273Trading liabilities
265
23
Trading liabilities274Financial liabilities designated at fair value
266
24
Financial liabilities designated at fair value274Debt securities in issue
266
25
Debt securities in issue274Accruals, deferred income and other liabilities
266
26
Accruals, deferred income and other liabilities275Provisions
267
27
Provisions275Subordinated liabilities
268
28
Subordinated liabilities276Maturity analysis of assets, liabilities and off-balance sheet commitments
271
29
Maturity analysis of assets, liabilities and off-balance sheet commitments279Offsetting of financial assets and financial liabilities
275
30
Offsetting of financial assets and financial liabilities284Non-controlling interests
276
31
Non-controlling interests285Called up share capital and other equity instruments
277
32
Called up share capital and other equity instruments285
Contingent liabilities, contractual commitments
and guarantees
279
33
Contingent liabilities, contractual commitments
and guarantees
287Lease commitments
279
34
Lease commitments288Legal proceedings and regulatory matters
280
35
Legal proceedings and regulatory matters288Related party transactions
286
36
Related party transactions294Events after the balance sheet date
288
37
Events after the balance sheet date296HSBC Holdings’ subsidiaries, joint ventures and associates
288
38
HSBC Holdings’ subsidiaries, joint ventures and associates297Non-statutory accounts
297
39
Non-statutory accounts306




HSBC Holdings plc Annual Report and Accounts 2016
215  211


Financial Statements

Consolidated income statement

Consolidated income statement

Consolidated income statement
for the year ended 31 December
 2016
2015
2014
 2017
2016
2015
Notes$m
$m
$m
Notes$m
$m
$m
Net interest income 29,813
32,531
34,705
 28,176
29,813
32,531
– interest income 42,414
47,189
50,955
 40,995
42,414
47,189
– interest expense (12,601)(14,658)(16,250) (12,819)(12,601)(14,658)
Net fee income 12,777
14,705
15,957
 12,811
12,777
14,705
– fee income 15,669
18,016
19,545
 15,853
15,669
18,016
– fee expense (2,892)(3,311)(3,588) (3,042)(2,892)(3,311)
Net trading income 9,452
8,723
6,760
 7,719
9,452
8,723
– trading income excluding net interest income 8,066
6,948
4,853
 6,098
8,066
6,948
– net interest income on trading activities 1,386
1,775
1,907
 1,621
1,386
1,775
Net income/(expense) from financial instruments designated at fair value2(2,666)1,532
2,473
23,698
(2,666)1,532
– changes in fair value of long-term debt and related derivatives (3,975)863
508
 672
(3,975)863
– net income from other financial instruments designated at fair value 1,309
669
1,965
 3,026
1,309
669
Gains less losses from financial investments 1,385
2,068
1,335
 1,150
1,385
2,068
Dividend income 95
123
311
 106
95
123
Net insurance premium income39,951
10,355
11,921
39,779
9,951
10,355
Other operating income/(expense) (971)1,055
1,131
 337
(971)1,055
Total operating income 59,836
71,092
74,593
 63,776
59,836
71,092
Net insurance claims and benefits paid and movement in liabilities to policyholders3(11,870)(11,292)(13,345)3(12,331)(11,870)(11,292)
Net operating income before loan impairment charges and other credit risk provisions 47,966
59,800
61,248
 51,445
47,966
59,800
Loan impairment charges and other credit risk provisions4(3,400)(3,721)(3,851)4(1,769)(3,400)(3,721)
Net operating income 44,566
56,079
57,397
 49,676
44,566
56,079
Employee compensation and benefits5(18,089)(19,900)(20,366)5(17,315)(18,089)(19,900)
General and administrative expenses (16,473)(17,662)(18,565) (15,707)(16,473)(17,662)
Depreciation and impairment of property, plant and equipment (1,229)(1,269)(1,382) (1,166)(1,229)(1,269)
Amortisation and impairment of intangible assets (777)(937)(936) (696)(777)(937)
Goodwill impairment of Global Private Banking – Europe20(3,240)—
—
20—
(3,240)—
Total operating expenses (39,808)(39,768)(41,249) (34,884)(39,808)(39,768)
Operating profit44,758
16,311
16,148
414,792
4,758
16,311
Share of profit in associates and joint ventures172,354
2,556
2,532
172,375
2,354
2,556
Profit before tax 7,112
18,867
18,680
 17,167
7,112
18,867
Tax expense7(3,666)(3,771)(3,975)7(5,288)(3,666)(3,771)
Profit for the year 3,446
15,096
14,705
 11,879
3,446
15,096
Attributable to:    

 
– ordinary shareholders of the parent company 1,299
12,572
13,115
 9,683
1,299
12,572
– preference shareholders of the parent company890
90
90
 90
90
90
– other equity holders81,090
860
483
 1,025
1,090
860
– non-controlling interests 967
1,574
1,017
 1,081
967
1,574
Profit for the year 3,446
15,096
14,705
 11,879
3,446
15,096
 $
$
$
 $
$
$
Basic earnings per ordinary share90.07
0.65
0.69
90.48
0.07
0.65
Diluted earnings per ordinary share90.07
0.64
0.69
90.48
0.07
0.64


216  212
HSBC Holdings plc Annual Report and Accounts 2016


Consolidated statement of comprehensive incomefor the year ended 31 December
2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
Profit for the year3,446
15,096
14,705
11,879
3,446
15,096
Other comprehensive income/(expense)    
Items that will be reclassified subsequently to profit or loss when specific conditions are met:    
Available-for-sale investments(299)(3,072)2,972
146
(299)(3,072)
– fair value gains/(losses)475
(1,231)4,794
1,227
475
(1,231)
– fair value gains reclassified to the income statement(895)(2,437)(1,672)(1,033)(895)(2,437)
– amounts reclassified to the income statement in respect of impairment losses71
127
374
93
71
127
– income taxes50
469
(524)(141)50
469
Cash flow hedges(68)(24)188
(192)(68)(24)
– fair value (losses)/gains(297)704
1,512
(1,046)(297)704
– fair value losses/(gains) reclassified to the income statement195
(705)(1,244)833
195
(705)
– income taxes34
(23)(80)21
34
(23)
Share of other comprehensive income/(expense) of associates and joint ventures54
(9)80
(43)54
(9)
– share for the year54
(9)78
(43)54
(9)
– reclassified to income statement on disposal—
—
2
Exchange differences(8,092)(10,945)(8,903)9,077
(8,092)(10,945)
– foreign exchange gains reclassified to income statement on disposal of a foreign operation1,894
—
(21)—
1,894
—
– other exchange differences(9,791)(11,112)(8,917)8,939
(9,791)(11,112)
– income tax attributable to exchange differences(195)167
35
138
(195)167
Items that will not be reclassified subsequently to profit or loss:    
Remeasurement of defined benefit asset/liability7
101
1,985
2,419
7
101
– before income taxes(84)130
2,419
3,440
(84)130
– income taxes91
(29)(434)(1,021)91
(29)
Other comprehensive income for the year, net of tax(8,398)(13,949)(3,678)
Total comprehensive income for the year(4,952)1,147
11,027
Changes in fair value of financial liabilities designated at fair value due to movement in own credit risk(2,024)—
—
– before income taxes(2,409)—
—
– income taxes385
—
—
Other comprehensive income/(expense) for the year, net of tax9,383
(8,398)(13,949)
Total comprehensive income/(expense) for the year21,262
(4,952)1,147
Attributable to:    
– ordinary shareholders of the parent company(6,968)(490)8,672
18,914
(6,968)(490)
– preference shareholders of the parent company90
90
90
90
90
90
– other equity holders1,090
860
483
1,025
1,090
860
– non-controlling interests836
687
1,782
1,233
836
687
Total comprehensive income for the year(4,952)1,147
11,027
Total comprehensive income/(expense) for the year21,262
(4,952)1,147


HSBC Holdings plc Annual Report and Accounts 2016
217  213


Financial Statements

Consolidated balance sheetat 31 December
 2016
2015
 2017
2016
Notes$m
$m
Notes$m
$m
Assets      
Cash and balances at central banks 128,009
98,934
 180,624
128,009
Items in the course of collection from other banks 5,003
5,768
 6,628
5,003
Hong Kong Government certificates of indebtedness 31,228
28,410
 34,186
31,228
Trading assets10235,125
224,837
10287,995
235,125
Financial assets designated at fair value1324,756
23,852
1329,464
24,756
Derivatives14290,872
288,476
14219,818
290,872
Loans and advances to banks 88,126
90,401
 90,393
88,126
Loans and advances to customers 861,504
924,454
 962,964
861,504
Reverse repurchase agreements – non-trading 160,974
146,255
 201,553
160,974
Financial investments15436,797
428,955
15389,076
436,797
Assets held for sale224,389
43,900
Prepayments, accrued income and other assets2159,520
54,398
2167,191
63,909
Current tax assets 1,145
1,221
 1,006
1,145
Interests in associates and joint ventures1720,029
19,139
1722,744
20,029
Goodwill and intangible assets2021,346
24,605
2023,453
21,346
Deferred tax assets76,163
6,051
74,676
6,163
Total assets at 31 Dec 2,374,986
2,409,656
 2,521,771
2,374,986
Liabilities and equity      
Liabilities      
Hong Kong currency notes in circulation 31,228
28,410
 34,186
31,228
Deposits by banks 59,939
54,371
 69,922
59,939
Customer accounts 1,272,386
1,289,586
 1,364,462
1,272,386
Repurchase agreements – non-trading 88,958
80,400
 130,002
88,958
Items in the course of transmission to other banks 5,977
5,638
 6,850
5,977
Trading liabilities23153,691
141,614
22184,361
153,691
Financial liabilities designated at fair value2486,832
66,408
2394,429
86,832
Derivatives14279,819
281,071
14216,821
279,819
Debt securities in issue2565,915
88,949
2464,546
65,915
Liabilities of disposal groups held for sale222,790
36,840
Accruals, deferred income and other liabilities2641,501
38,116
2545,907
44,291
Current tax liabilities 719
783
 928
719
Liabilities under insurance contracts375,273
69,938
385,667
75,273
Provisions274,773
5,552
264,011
4,773
Deferred tax liabilities71,623
1,760
71,982
1,623
Subordinated liabilities2820,984
22,702
2719,826
20,984
Total liabilities at 31 Dec 2,192,408
2,212,138
 2,323,900
2,192,408
Equity      
Called up share capital3210,096
9,842
3110,160
10,096
Share premium account3212,619
12,421
3110,177
12,619
Other equity instruments 17,110
15,112
 22,250
17,110
Other reserves (1,234)7,109
 7,664
(1,234)
Retained earnings 136,795
143,976
 139,999
136,795
Total shareholders’ equity 175,386
188,460
 190,250
175,386
Non-controlling interests317,192
9,058
307,621
7,192
Total equity at 31 Dec 182,578
197,518
 197,871
182,578
Total liabilities and equity at 31 Dec 2,374,986
2,409,656
 2,521,771
2,374,986
The accompanying notes on pages 226222 to 303,297, the audited sections in ‘Global businesses and regions’ on pages 5964 to 76,82, ‘Risk’ on
pages 8995 to 164,161, ‘Capital’ on pages 165162 to 169165 and ‘Directors’ Remuneration Report’ on pages 191186 to 208202 form an integral part of
these financial statements.
These financial statements were approved by the Board of Directors on 2120 February 20172018 and signed on its behalf by:
arasection44image3a01.jpgmarksignaturea01.jpg
 
iainmackaysignaturea01.jpg
Douglas Flint
Mark E Tucker

 Iain Mackay
Group Chairman Group Finance Director

218  214
HSBC Holdings plc Annual Report and Accounts 2016


Consolidated statement of cash flowsfor the year ended 31 December

 2016
2015
2014
 2017
2016
2015

Footnotes$m
$m
$m
Footnotes$m
$m
$m
Profit before tax 7,112
18,867
18,680
 17,167
7,112
18,867
Adjustments for non-cash items: 



  



 
Depreciation, amortisation and impairment 5,212
2,181
2,251
 1,862
5,212
2,181
Net gain from investing activities (1,215)(1,935)(1,928) (1,152)(1,215)(1,935)
Share of profits in associates and joint ventures (2,354)(2,556)(2,532) (2,375)(2,354)(2,556)
(Gain)/loss on disposal of subsidiaries, businesses, associates and joint ventures 1,743
—
41
(Gain)/Loss on disposal of subsidiaries, businesses, associates and joint ventures (79)1,743
—
Loan impairment losses gross of recoveries and other credit risk provisions 4,090
4,546
5,125
 2,603
4,090
4,546
Provisions including pensions 2,482
3,472
3,609
 917
2,482
3,472
Share-based payment expense 534
757
732
 500
534
757
Other non-cash items included in profit before tax (207)(191)(487) (381)(207)(191)
Elimination of exchange differences115,364
18,308
24,571
1(21,289)15,364
18,308
Changes in operating assets and liabilities 



  



 
Change in net trading securities and derivatives 4,395
24,384
(18,498) (10,901)4,395
24,384
Change in loans and advances to banks and customers 52,868
32,971
17,813
 (108,984)52,868
32,971
Change in reverse repurchase agreements – non-trading (13,138)(3,011)18,900
 (37,281)(13,138)(3,011)
Change in financial assets designated at fair value (1,235)2,394
3,269
 (5,303)(1,235)2,394
Change in other assets (6,591)9,090
4,393
 (6,570)(6,591)9,090
Change in deposits by banks and customer accounts (8,918)(65,907)(17,443) 102,211
(8,918)(65,907)
Change in repurchase agreements – non-trading 8,558
(26,481)(56,788) 41,044
8,558
(26,481)
Change in debt securities in issue (23,034)960
(8,133) (1,369)(23,034)960
Change in financial liabilities designated at fair value 17,802
(10,785)(10,734) 8,508
17,802
(10,785)
Change in other liabilities 8,792
(4,549)(716) 13,514
8,792
(4,549)
Dividends received from associates 689
879
757
 740
689
879
Contributions paid to defined benefit plans (726)(664)(681) (685)(726)(664)
Tax paid (3,264)(3,852)(3,573) (3,175)(3,264)(3,852)
Net cash from operating activities 68,959
(1,122)(21,372) (10,478)68,959
(1,122)
Purchase of financial investments (457,084)(438,376)(384,199) (357,264)(457,084)(438,376)
Proceeds from the sale and maturity of financial investments 430,085
399,636
382,837
 418,352
430,085
399,636
Net cash flows from the purchase and sale of property, plant and equipment (1,151)(1,249)(1,389) (1,167)(1,151)(1,249)
Net cash inflow/(outflow) from disposal of customer and loan portfolios 9,194
2,023
(1,035)
Net cash flows from disposal of customer and loan portfolios 6,756
9,194
2,023
Net investment in intangible assets (906)(954)(903) (1,285)(906)(954)
Net cash flow on disposal of subsidiaries, businesses, associates and joint ventures24,802
8
(272)2165
4,802
8
Net cash from investing activities (15,060)(38,912)(4,961) 65,557
(15,060)(38,912)
Issue of ordinary share capital and other equity instruments 2,024
3,727
5,948
 5,196
2,024
3,727
Cancellation of shares (3,000)—
—
Net sales/(purchases) of own shares for market-making and investment purposes 523
331
(96) (67)523
331
Purchase of treasury shares (2,510)—
—
 —
(2,510)—
Redemption of preference shares and other equity instruments (1,825)(463)(234) —
(1,825)(463)
Subordinated loan capital issued 2,622
3,180
3,500
 —
2,622
3,180
Subordinated loan capital repaid (595)(2,157)(3,163)4(3,574)(595)(2,157)
Dividends paid to shareholders of the parent company and non-controlling interests (9,157)(8,195)(7,823) (9,005)(9,157)(8,195)
Net cash from financing activities (8,918)(3,577)(1,868) (10,450)(8,918)(3,577)
Net increase/(decrease) in cash and cash equivalents 44,981
(43,611)(28,201) 44,629
44,981
(43,611)
Cash and cash equivalents at 1 Jan 243,863
301,301
346,281
 274,550
243,863
301,301
Exchange differences in respect of cash and cash equivalents (14,294)(13,827)(16,779) 18,233
(14,294)(13,827)
Cash and cash equivalents at 31 Dec 274,550
243,863
301,301
 337,412
274,550
243,863
Cash and cash equivalents comprise:3


 3


 
– cash and balances at central banks 128,009
98,934
129,957
 180,624
128,009
98,934
– items in the course of collection from other banks 5,003
5,768
4,927
 6,628
5,003
5,768
– loans and advances to banks of one month or less 77,318
70,985
89,285
 82,771
77,318
70,985
– reverse repurchase agreements with banks of one month or less 55,551
53,971
68,930
 58,850
55,551
53,971
– treasury bills, other bills and certificates of deposit less than three months 14,646
19,843
14,192
 15,389
14,646
19,843
– less: items in the course of transmission to other banks (5,977)(5,638)(5,990) (6,850)(5,977)(5,638)
 274,550
243,863
301,301
 337,412
274,550
243,863
Interest received was $42,586m (2015: $47,623m; 2014: $51,522m)$41,676m (2016: $42,586m; 2015: $47,623m), interest paid was $12,027m (2015: $14,559m; 2014: $15,633m)$10,962m (2016: $12,027m; 2015: $14,559m) and dividends received were $475m (2015: $914m; 2014: $1,199m)$2,225m (2016: $475m; 2015: $914m).
1Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details cannot be determined without unreasonable expense.
2
In July 2016, we completed the disposal of the Brazilian operations resulting in net cash inflow of $4.8bn.$4.8bn.
3At 31 December 2016 $35,501m (2015: $33,744m)2017 $39,830m (2016: $35,501m) was not available for use by HSBC, of which $21,108m (2015: $21,773m)$21,424m (2016: $21,108m) related to mandatory deposits at central banks.
4Subordinated liabilities changes during the year are attributable to repayments of $(3.6)bn (2016: $(0.6)bn) of securities. Non-cash changes during the year included foreign exchange loss/gain ($0.6bn) (2016: $2.1bn) and fair value losses of ($1.2bn) (2016: ($0.3bn)).

HSBC Holdings plc Annual Report and Accounts 2016
219  215


Financial Statements

Consolidated statement of changes in equityfor the year ended 31 December







Other reserves5












Other reserves6







Called up share capital and share premium1

Other
equity
instru-ments2

Retained
earnings3, 4

Available- for-sale fair value
reserve
Cash flow
hedging
reserve
Foreign
exchange
reserve
Merger
reserve6

Total
share-
holders’
equity
Non-
controlling
interests
Total
equity
Called up share capital and share premium1

Other
equity
instru-ments2

Retained
earnings3, 4, 5

Available- for-sale fair value
reserve
Cash flow
hedging
reserve
Foreign
exchange
reserve
Merger
reserve7

Total
share-
holders’
equity
Non-
controlling
interests
Total
equity
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 201722,715
17,110
136,795
(477)(27)(28,038)27,308
175,386
7,192
182,578
Profit for the year—
—
10,798
—
—
—
—
10,798
1,081
11,879
Other comprehensive income
(net of tax)		—
—
328
131
(194)8,966
—
9,231
152
9,383
– available-for-sale investments—
—
—
131
—
—
—
131
15
146
– cash flow hedges—
—
—
—
(194)—
—
(194)2
(192)
– changes in fair value of financial liabilities designated at fair value due to movement in own credit risk—
—
(2,024)—
—
—
—
(2,024)—
(2,024)
– remeasurement of defined benefit asset/liability8
—
—
2,395
—
—
—
—
2,395
24
2,419
– share of other comprehensive income of associates and joint ventures—
—
(43)—
—
—
—
(43)—
(43)
– exchange differences—
—
—
—
—
8,966
—
8,966
111
9,077
Total comprehensive income for the year—
—
11,126
131
(194)8,966
—
20,029
1,233
21,262
Shares issued under employee remuneration and share plans622
—
(566)—
—
—
—
56
—
56
Shares issued in lieu of dividends and amounts arising thereon—
—
3,206
—
—
—
—
3,206
—
3,206
Capital securities issued—
5,140
—
—
—
—
—
5,140
—
5,140
Dividends to shareholders—
—
(11,551)—
—
—
—
(11,551)(660)(12,211)
Cost of share-based payment arrangements—
—
500
—
—
—
—
500
—
500
Cancellation of shares(3,000)—
—
—
—
—
—
(3,000)—
(3,000)
Other movements—
—
489
(4)(1)—
—
484
(144)340
At 31 Dec 201720,337
22,250
139,999
(350)(222)(19,072)27,308
190,250
7,621
197,871

$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
 
At 1 Jan 201622,263
15,112
143,976
(189)34
(20,044)27,308
188,460
9,058
197,518
22,263
15,112
143,976
(189)34
(20,044)27,308
188,460
9,058
197,518
Profit for the year—
—
2,479
—
—
—
—
2,479
967
3,446
—
—
2,479
—
—
—
—
2,479
967
3,446
Other comprehensive income
(net of tax)		—
—
59
(271)(61)(7,994)—
(8,267)(131)(8,398)—
—
59
(271)(61)(7,994)—
(8,267)(131)(8,398)
– available-for-sale investments—
—
—
(271)—
—
—
(271)(28)(299)—
—
—
(271)—
—
—
(271)(28)(299)
– cash flow hedges—
—
—
—
(61)—
—
(61)(7)(68)—
—
—
—
(61)—
—
(61)(7)(68)
– remeasurement of defined benefit asset/liability—
—
5
—
—
—
—
5
2
7
—
—
5
—
—
—
—
5
2
7
– share of other comprehensive income of associates and joint ventures—
—
54
—
—
—
—
54
—
54
—
—
54
—
—
—
—
54
—
54
– foreign exchange reclassified to income statement on disposal of a foreign operation—
—
—
—
—
1,894
—
1,894
—
1,894
—
—
—
—
—
1,894
—
1,894
—
1,894
– exchange differences—
—
—
—
—
(9,888)—
(9,888)(98)(9,986)—
—
—
—
—
(9,888)—
(9,888)(98)(9,986)
Total comprehensive income for the year—
—
2,538
(271)(61)(7,994)—
(5,788)836
(4,952)—
—
2,538
(271)(61)(7,994)—
(5,788)836
(4,952)
Shares issued under employee remuneration and share plans452
—
(425)—
—
—
—
27
—
27
452
—
(425)—
—
—
—
27
—
27
Shares issued in lieu of dividends and amounts arising thereon—
—
3,040
—
—
—
—
3,040
—
3,040
—
—
3,040
—
—
—
—
3,040
—
3,040
Net increase in treasury shares—
—
(2,510)—
—
—
—
(2,510)—
(2,510)—
—
(2,510)—
—
—
—
(2,510)—
(2,510)
Capital securities issued—
1,998
—
—
—
—
—
1,998
—
1,998
—
1,998
—
—
—
—
—
1,998
—
1,998
Dividends to shareholders—
—
(11,279)—
—
—
—
(11,279)(919)(12,198)—
—
(11,279)—
—
—
—
(11,279)(919)(12,198)
Cost of share-based payment arrangements—
—
534
—
—
—
—
534
—
534
—
—
534
—
—
—
—
534
—
534
Other movements—
—
921
(17)—
—
—
904
(1,783)(879)—
—
921
(17)—
—
—
904
(1,783)(879)
At 31 Dec 201622,715
17,110
136,795
(477)(27)(28,038)27,308
175,386
7,192
182,578
22,715
17,110
136,795
(477)(27)(28,038)27,308
175,386
7,192
182,578
 
At 1 Jan 201521,527
11,532
137,144
2,143
58
(9,265)27,308
190,447
9,531
199,978
Profit for the year—
—
13,522
—
—
—
—
13,522
1,574
15,096
Other comprehensive income
(net of tax)		—
—
73
(2,332)(24)(10,779)—
(13,062)(887)(13,949)
– available-for-sale investments—
—
—
(2,332)—
—
—
(2,332)(740)(3,072)
– cash flow hedges—
—
—
—
(24)—
—
(24)—
(24)
– remeasurement of defined benefit asset/liability—
—
82
—
—
—
—
82
19
101
– share of other comprehensive income of associates and joint ventures—
—
(9)—
—
—
—
(9)—
(9)
– exchange differences—
—
—
—
—
(10,779)—
(10,779)(166)(10,945)
Total comprehensive income for
the year		—
—
13,595
(2,332)(24)(10,779)—
460
687
1,147
Shares issued under employee remuneration and share plans736
—
(589)—
—
—
—
147
—
147
Shares issued in lieu of dividends and amounts arising thereon—
—
3,162
—
—
—
—
3,162
—
3,162
Capital securities issued—
3,580
—
—
—
—
—
3,580
—
3,580
Dividends to shareholders—
—
(10,660)—
—
—
—
(10,660)(697)(11,357)
Cost of share-based payment arrangements—
—
757
—
—
—
—
757
—
757
Other movements—
—
567
—
—
—
—
567
(463)104
At 31 Dec 201522,263
15,112
143,976
(189)34
(20,044)27,308
188,460
9,058
197,518

220  216
HSBC Holdings plc Annual Report and Accounts 2016


Consolidated statement of changes in equity (continued)
 
Other reserves5
  
Other reserves6
 
Called up share capital and share premium1

Other
equity
instru-ments2

Retained
earnings3, 4

Available- for-sale fair value
reserve

Cash flow
hedging
reserve

Foreign
exchange
reserve

Merger
reserve6

Total
share-
holders’
equity

Non-
controlling
interests

Total
equity

Called up share capital and share premium1

Other
equity
instru-ments2

Retained
earnings3, 4, 5

Available- for-sale fair value
reserve

Cash flow
hedging
reserve

Foreign
exchange
reserve

Merger
reserve7

Total
share-
holders’
equity

Non-
controlling
interests

Total
equity

$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 201420,550
5,851
128,728
97
(121)(542)27,308
181,871
8,588
190,459
At 1 Jan 201521,527
11,532
137,144
2,143
58
(9,265)27,308
190,447
9,531
199,978
Profit for the year—
—
13,688
—
—
—
—
13,688
1,017
14,705
—
—
13,522
—
—
—
—
13,522
1,574
15,096
Other comprehensive income
(net of tax)		—
—
2,066
2,025
189
(8,723)—
(4,443)765
(3,678)—
—
73
(2,332)(24)(10,779)—
(13,062)(887)(13,949)
– available-for-sale investments—
—
—
2,025
—
—
—
2,025
947
2,972
—
—
—
(2,332)—
—
—
(2,332)(740)(3,072)
– cash flow hedges—
—
—
—
189
—
—
189
(1)188
—
—
—
—
(24)—
—
(24)—
(24)
– remeasurement of defined benefit asset/liability—
—
1,986
—
—
—
—
1,986
(1)1,985
—
—
82
—
—
—
—
82
19
101
– share of other comprehensive income of associates and joint ventures—
—
80
—
—
—
—
80
—
80
—
—
(9)—
—
—
—
(9)—
(9)
– exchange differences—
—
—
—
—
(8,723)—
(8,723)(180)(8,903)—
—
—
—
—
(10,779)—
(10,779)(166)(10,945)
Total comprehensive income for
the year		—
—
15,754
2,025
189
(8,723)—
9,245
1,782
11,027
—
—
13,595
(2,332)(24)(10,779)—
460
687
1,147
Shares issued under employee remuneration and share plans977
—
(710)—
—
—
—
267
—
267
736
—
(589)—
—
—
—
147
—
147
Shares issued in lieu of dividends and amounts arising thereon—
—
2,709
—
—
—
—
2,709
—
2,709
—
—
3,162
—
—
—
—
3,162
—
3,162
Capital securities issued—
5,681
—
—
—
—
—
5,681
—
5,681
—
3,580
—
—
—
—
—
3,580
—
3,580
Dividends to shareholders—
—
(9,893)—
—
—
—
(9,893)(712)(10,605)—
—
(10,660)—
—
—
—
(10,660)(697)(11,357)
Cost of share-based payment arrangements—
—
732
—
—
—
—
732
—
732
—
—
757
—
—
—
—
757
—
757
Other movements—
—
(176)21
(10)—
—
(165)(127)(292)—
—
567
—
—
—
—
567
(463)104
At 31 Dec 201421,527
11,532
137,144
2,143
58
(9,265)27,308
190,447
9,531
199,978
At 31 Dec 201522,263
15,112
143,976
(189)34
(20,044)27,308
188,460
9,058
197,518
1For further details refer to Note 32.31. In February 2017, HSBC announced a share buy-back of up to $1.0bn. Subsequently, HSBC completed a $1.0bn share buy-back in April 2017. In July 2017, HSBC announced a further share buy-back of up to $2.0bn. Subsequently, HSBC completed a $2.0bn share buy-back in November 2017.
2During 2017, HSBC Holdings issued $3,000m, SGD1,000m and €1,250m of perpetual subordinated contingent convertible capital securities, on which there were $14m of external issuance costs, $37m of intra-group issuance costs and $10m of tax benefits. In 2016, HSBC Holdings issued $2,000m of perpetual subordinated contingent convertible capital securities, after issuance costs of $6m and tax benefits of $4m. In 2015, HSBC Holdings issued $2,450m and €1,000m of perpetual subordinated contingent convertible capital securities, on which there were $12m of external issuance costs, $25m of intra-group issuance costs and $19m of tax. In 2014, HSBC Holdings issued $2,250m, $1,500m and €1,500m of perpetual subordinated contingent convertible capital securities, on which there were $13m of external issuance costs and $33m of intra-group issuance costs. Under IFRSs these issuance costs and tax benefits are classified as equity.
3At 31 December 2016,2017, retained earnings included 353,356,251360,590,019 treasury shares (2015: 81,580,180; 2014: 85,337,430)(2016: 353,356,251; 2015: 81,580,180). The increase principally reflects the share buy-back initiative, with the purchase of 325,273,407 ordinary shares to reduce outstanding ordinary shares. In addition, treasury shares are also held within HSBC’s Insurance business retirement funds for the benefit of policyholders or beneficiaries within employee trusts for the settlement of shares expected to be delivered under employee share schemes or bonus plans, and the market-making activities in Markets.
4Cumulative goodwill amounting to $5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to 1 January 1998, including $3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of $1,669m has been charged against retained earnings.
5At 1 January 2017, the cumulative changes in fair value attributable to changes in own credit risk of financial liabilities designated at fair value was a loss of $1,672m.
6At 31 December 2015, our operations in Brazil were classified as held for sale (see Note 22).sale. The cumulative amount of other reserves attributable to these operations were as follows: available-for-sale fair value reserve debit of $176m, cash flow hedging reserve credit of $34m and foreign exchange reserve debit of $2.6bn.
67Statutory share premium relief under Section 131 of the Companies Act 1985 (the ‘Act’) was taken in respect of the acquisition of HSBC Bank plc in 1992, HSBC France in 2000 and HSBC Finance Corporation in 2003, and the shares issued were recorded at their nominal value only. In HSBC’s consolidated financial statements the fair value differences of $8,290m in respect of HSBC France and $12,768m in respect of HSBC Finance Corporation were recognised in the merger reserve. The merger reserve created on the acquisition of HSBC Finance Corporation subsequently became attached to HSBC Overseas Holdings (UK) Limited (‘HOHU’), following a number of intra-group reorganisations. During 2009, pursuant to Section 131 of the Companies Act 1985, statutory share premium relief was taken in respect of the rights issue and $15,796m was recognised in the merger reserve. The merger reserve includes a deduction of $614m in respect of costs relating to the rights issue, of which $149m was subsequently transferred to the income statement. Of this $149m, $121m was a loss arising from accounting for the agreement with the underwriters as a contingent forward contract. The merger reserve excludes the loss of $344m on a forward foreign exchange contract associated with hedging the proceeds of the rights issue.
8
An actuarial gain of $1,730m has arisen as a result of the remeasurement of the defined benefit pension obligation of the HSBC Bank (UK) Pension Scheme. Refer to Note 5 for
further detail.

HSBC Holdings plc Annual Report and Accounts 2016
221  217


Financial Statements

HSBC Holdings income statementfor the year ended 31 December
 2016
2015
2014
 2017
2016
2015
Notes$m
$m
$m
Notes$m
$m
$m
Net interest expense (424)(438)(486) (383)(424)(438)
– interest income 1,380
866
944
 2,185
1,380
866
– interest expense (1,804)(1,304)(1,430) (2,568)(1,804)(1,304)
Fee (expense)/income (1)39
47
 2
(1)39
Net trading income/(expense) 119
(349)(215) (392)119
(349)
Net (expense)/income from financial instruments designated at fair value2(49)276
438
2314
(49)276
– changes in fair value of long term debt and related derivatives 103
(49)276
– net income from other financial instruments designated at fair value 211
—
—
Gains less losses from financial investments 154
—
—
Dividend income from subsidiaries 10,436
8,469
9,077
 10,039
10,436
8,469
Other operating income 696
654
608
 769
696
654
Total operating income 10,777
8,651
9,469
 10,503
10,777
8,651
Employee compensation and benefits5(570)(908)(681)5(54)(570)(908)
General and administrative expenses (4,014)(3,434)(2,522) (4,911)(4,014)(3,434)
Impairment of subsidiaries —
(26)(38) (63)—
(26)
Total operating expenses (4,584)(4,368)(3,241) (5,028)(4,584)(4,368)
Profit before tax 6,193
4,283
6,228
 5,475
6,193
4,283
Tax credit 402
570
299
 64
402
570
Profit for the year 6,595
4,853
6,527
 5,539
6,595
4,853
HSBC Holdings statement of comprehensive incomefor the year ended 31 December
2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
Profit for the year6,595
4,853
6,527
5,539
6,595
4,853
Other comprehensive income/(expense)











Items that will be reclassified subsequently to profit or loss when specific conditions are met:











Available-for-sale investments(72)(57)116
Financial investments in HSBC undertakings(53)(72)(57)
– fair value gains/(losses)(83)(77)152
(70)(83)(77)
– income taxes11
20
(36)17
11
20
Items that will not be reclassified subsequently to profit or loss:











Changes in fair value of financial liabilities designated at fair value due to movement in own credit risk

(896)—
—
(828)(896)—
– before income taxes(1,030)—
—
(1,007)(1,030)—
– income taxes134
—
—
179
134
—
Other comprehensive income for the year, net of tax(968)(57)116
(881)(968)(57)
Total comprehensive income for the year5,627
4,796
6,643
4,658
5,627
4,796


222  218
HSBC Holdings plc Annual Report and Accounts 2016


HSBC Holdings balance sheetat 31 December
 2016
2015
 2017
2016
Notes$m
$m
Notes$m
$m
Assets      
Cash and balances with HSBC undertakings 247
242
 1,985
247
Loans and advances to HSBC undertakings designated at fair value 11,944
—
Derivatives142,148
2,467
142,388
2,148
Loans and advances to HSBC undertakings 77,421
44,350
 76,627
77,421
Financial investments in HSBC undertakings 3,590
4,285
 4,264
3,590
Prepayments, accrued income and other assets 503
265
 369
503
Current tax assets 631
723
 379
631
Investments in subsidiaries1895,850
97,770
1892,930
95,850
Intangible assets 176
75
 293
176
Deferred tax assets 232
17
 555
232
Total assets at 31 Dec 180,798
150,194
 191,734
180,798
Liabilities and equity      
Liabilities      
Amounts owed to HSBC undertakings 2,157
2,152
 2,571
2,157
Financial liabilities designated at fair value2430,113
19,853
2330,890
30,113
Derivatives145,025
2,278
143,082
5,025
Debt securities in issue2521,805
960
2434,258
21,805
Accruals, deferred income and other liabilities 1,651
1,642
 1,269
1,651
Deferred tax liabilities —
—
Subordinated liabilities2815,189
15,895
2715,877
15,189
Total liabilities 75,940
42,780
 87,947
75,940
Equity      
Called up share capital3210,096
9,842
3110,160
10,096
Share premium account 12,619
12,421
 10,177
12,619
Other equity instruments 17,004
15,020
 22,107
17,004
Other reserves 37,483
37,907
 37,440
37,483
Retained earnings 27,656
32,224
 23,903
27,656
Total equity 104,858
107,414
 103,787
104,858
Total liabilities and equity at 31 Dec 180,798
150,194
 191,734
180,798
The accompanying notes on pages 226222 to 303297 and the audited sections in ‘Global businesses and regions’ on pages 5964 to 76,82, ‘Risk’ on pages 8995 to 164,161, ‘Capital’ on pages 165162 to 169165 and ‘Directors’ Remuneration Report’ on pages 191186 to 208202 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 2120 February 20172018 and signed on its behalf by:


arasection44image3a01.jpgmarksignaturea01.jpg
 
iainmackaysignaturea01.jpg
Douglas Flint
Mark E Tucker

 Iain Mackay
Group Chairman Group Finance Director


HSBC Holdings plc Annual Report and Accounts 2016
223  219


Financial Statements

HSBC Holdings statement of cash flowsfor the year ended 31 December
2016
2015
2014
2017
2016
2015
$m
$m
$m
 
(Restated)1

(Restated)1

$m
$m
$m
Profit before tax6,193
4,283
6,228
5,475
6,193
4,283
Adjustments for non-cash items:48
114
52
(17)48
114
– depreciation, amortisation and impairment10
30
39
33
10
30
– charge for share-based payment34
86
74
– (credit)/charge for share-based payment(2)34
86
– other non-cash items included in profit before tax4
(2)(61)(48)4
(2)
Changes in operating assets and liabilities











Change in loans to HSBC undertakings(33,069)(454)3,474
(1,122)(36,437)1,247
Change in loans and advances to HSBC undertakings designated at fair value(11,944)—
—
Change in financial investments in HSBC undertakings(1,775)612
(289)
Change in net trading securities and net derivatives3,066
1,413
483
(2,183)3,066
1,413
Change in other assets(239)(141)7
134
(239)(141)
Change in debt securities in issue(1,633)(49)(149)
Change in debt securities in issue2
1,020
(1,633)(49)
Change in financial liabilities designated at fair value(1,229)(1,228)(694)954
(1,229)(1,228)
Change in other liabilities(693)(1,065)(9,071)721
(693)(1,065)
Tax received646
470
133
443
646
470
Net cash from operating activities(26,910)3,343
463
(8,294)(29,666)4,755
Purchase of financial investments in HSBC undertakings

—
(276)(2,410)—
—
(276)
Proceeds from the sale and maturity of financial investments in HSBC undertakings610
—
300
1,165
610
—
Net cash outflow from acquisition of or increase in stake of subsidiaries(2,073)(2,118)(1,603)(89)(2,073)(2,118)
Repayment of capital from subsidiaries3,920
790
3,505
4,070
3,920
790
Net investment in intangible assets(109)(79)—
(150)(109)(79)
Net cash from investing activities2,348
(1,683)(208)4,996
2,348
(1,683)
Issue of ordinary share capital and other equity instruments2,381
4,216
6,559
5,647
2,381
4,216
Purchase of treasury shares(2,510)—
—
—
(2,510)—
Cancellation of shares(3,000)—
—
Subordinated loan capital issued2,636
3,180
3,500
—
2,636
3,180
Subordinated loan capital repaid(1,781)(1,565)(1,654)(1,184)(1,781)(1,565)
Debt securities issued32,080
0
—
11,433
32,080
—
Debt securities repaid—
—
(1,634)—
—
—
Dividends paid on ordinary shares(7,059)(6,548)(6,611)(6,987)(7,059)(6,548)
Dividends paid to holders of other equity instruments(1,180)(950)(573)(1,359)(1,180)(950)
Net cash from financing activities24,567
(1,667)(413)4,550
24,567
(1,667)
Net increase/(decrease) in cash and cash equivalents5
(7)(158)1,252
(2,751)1,405
Cash and cash equivalents at 1 January242
249
407
3,697
6,448
5,043
Cash and cash equivalents at 31 Dec247
242
249
Cash and cash equivalents comprise





Cash at bank with HSBC undertakings247
242
249
Cash and cash equivalents at 31 Dec1
4,949
3,697
6,448
Cash and cash equivalents comprise:





– Cash at bank with HSBC undertakings1,985
247
242
– Loans and advances to banks of one month or less2,964
3,450
6,206
Interest received was $2,605m (2015: $2,026m)$2,103m (2016: $1,329m; 2015: $792m), interest paid was $2,910m (2015: $2,309m)$2,443m (2016: $1,791m; 2015: $1,289m) and dividends received were $10,412m (2015:$10,039m (2016: $10,412m; 2015: $8,469m).
1.In 2017 cash and cash equivalents include loans and advances to HSBC undertakings of one month or less duration. The comparative figures have also been amended.
2.Subordinated liabilities changes during the year $0.7bn (2016: $0.7bn) are wholly attributable to non-cash changes. During the year fair value losses amounted to $0.7bn (2016: gain$0.7bn).

224  220
HSBC Holdings plc Annual Report and Accounts 2016


HSBC Holdings statement of changes in equityfor the year ended 31 December
 Other reserves  Other reserves 
Called up
share
capital

Share
premium

Other
equity
instruments

Retained earnings1

Available-for-sale fair value reserve
Other
paid-in
capital2

Merger
and other
reserves

Total
share-
holders’
equity

Called up
share
capital

Share
premium

Other
equity
instruments

Retained earnings1

Available-for-sale fair value reserve
Other
paid-in
capital2

Merger
and other
reserves

Total
share-
holders’
equity

$m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 201710,096
12,619
17,004
27,656
112
2,244
35,127
104,858
Profit for the year—
—
—
5,539
—
—
—
5,539
Other comprehensive income (net of tax)—
—
—
(828)(53)—
—
(881)
– available-for-sale investments—
—
—
—
(53)—
—
(53)
– changes in fair value of financial liabilities designated at fair value due to movement in own credit risk

—
—
—
(828)—
—
—
(828)
Total comprehensive income for the year—
—
—
4,711
(53)—
—
4,658
Shares issued under employee share plans38
584
—
(52)—
—
—
570
Shares issued in lieu of dividends and amounts arising thereon190
(190)—
3,205
—
—
—
3,205
Cancellation of shares(164)(2,836)—
—
—
—
—
(3,000)
Capital securities issued—


5,103
—
—
—
—
5,103
Dividends to shareholders—
—
—
(11,551)—
—
—
(11,551)
Cost of share-based payment arrangements—
—
—
(2)—
—
—
(2)
Other movements—
—
—
(64)—
10
—
(54)
At 31 Dec 201710,160
10,177
22,107
23,903
59
2,254
35,127
103,787
$m
$m
$m
$m
$m
$m
$m
$m
 
At 1 Jan 20169,842
12,421
15,020
32,224
183
2,597
35,127
107,414
9,842
12,421
15,020
32,224
183
2,597
35,127
107,414
Profit for the year—
—
—
6,595
—
—
—
6,595
—
—
—
6,595
—
—
—
6,595
Other comprehensive income (net of tax)—
—
—
(896)(72)—
—
(968)—
—
—
(896)(72)—
—
(968)
– available-for-sale investments—
—
—
—
(72)—
—
(72)—
—
—
—
(72)—
—
(72)
– changes in fair value of financial liabilities designated at fair value due to movement in own credit risk

—
—
—
(896)—
—
—
(896)—
—
—
(896)—
—
—
(896)
Total comprehensive income for the year—
—
—
5,699
(72)—
—
5,627
—
—
—
5,699
(72)—
—
5,627
Shares issued under employee share plans35
417
—
(51)—
—
—
401
35
417
—
(51)—
—
—
401
Shares issued in lieu of dividends and amounts arising thereon219
(219)—
3,040
—
—
—
3,040
219
(219)—
3,040
—
—
—
3,040
Net increase in treasury shares—
—
—
(2,510)—
—
—
(2,510)—
—
—
(2,510)—
—
—
(2,510)
Capital securities issued—


1,984
—
—
—
—
1,984
—


1,984
—
—
—
—
1,984
Dividends to shareholders—
—
—
(11,279)—
—
—
(11,279)—
—
—
(11,279)—
—
—
(11,279)
Cost of share-based payment arrangements—
—
—
34
—
—
—
34
—
—
—
34
—
—
—
34
Other movements—
—
—
499
1
(353)—
147
—
—
—
499
1
(353)—
147
At 31 Dec 201610,096
12,619
17,004
27,656
112
2,244
35,127
104,858
10,096
12,619
17,004
27,656
112
2,244
35,127
104,858
  
At 1 Jan 20159,609
11,918
11,476
34,986
240
2,089
35,127
105,445
9,609
11,918
11,476
34,986
240
2,089
35,127
105,445
Profit for the year—
—
—
4,853
—
—
—
4,853
—
—
—
4,853
—
—
—
4,853
Other comprehensive income (net of tax)—
—
—
—
(57)—
—
(57)—
—
—
—
(57)—
—
(57)
– available-for-sale investments—
—
—
—
(57)—
—
(57)—
—
—
—
(57)—
—
(57)
Total comprehensive income for the year—
—
—
4,853
(57)—
—
4,796
—
—
—
4,853
(57)—
—
4,796
Shares issued under employee share plans45
691
—
(59)—
—
—
677
45
691
—
(59)—
—
—
677
Shares issued in lieu of dividends and amounts arising thereon188
(188)—
3,162
—
—
—
3,162
188
(188)—
3,162
—
—
—
3,162
Capital securities issued—
—
3,544
—
—
—
—
3,544
—
—
3,544
—
—
—
—
3,544
Dividends to shareholders—
—
—
(10,660)—
—
—
(10,660)—
—
—
(10,660)—
—
—
(10,660)
Cost of share-based payment arrangements—
—
—
86
—
—
—
86
—
—
—
86
—
—
—
86
Other movements—
—
—
(144)—
508
—
364
—
—
—
(144)—
508
—
364
At 31 Dec 20159,842
12,421
15,020
32,224
183
2,597
35,127
107,414
9,842
12,421
15,020
32,224
183
2,597
35,127
107,414
 
At 1 Jan 20149,415
11,135
5,828
35,406
124
2,052
35,127
99,087
Profit for the year—
—
—
6,527
—
—
—
6,527
Other comprehensive income (net of tax)—
—
—
—
116
—
—
116
– available-for-sale investments—
—
—
—
116
—
—
116
Total comprehensive income for the year—
—
—
6,527
116
—
—
6,643
Shares issued under employee share plans60
917
—
(53)—
—
—
924
Shares issued in lieu of dividends and amounts arising thereon134
(134)—
2,709
—
—
—
2,709
Capital securities issued—
—
5,648
—
—
—
—
5,648
Dividends to shareholders—
—
—
(9,893)—
—
—
(9,893)
Cost of share-based payment arrangements—
—
—
74
—
—
—
74
Other movements—
—
—
216
—
37
—
253
At 31 Dec 20149,609
11,918
11,476
34,986
240
2,089
35,127
105,445
Dividends per ordinary share at 31 December 20162017 were $0.51 (2015: $0.50; 2014:(2016: $0.51; 2015:$0.49)0.50).
1At 31 December 2016,2017, retained earnings included 325,499,152326,843,840 ($2,499m)2,542m) of treasury shares (2015:(2016: 325,499,152 ($2,499m); 2015: 67,881 ($1m); 2014: 179,419 ($3m)). The increase principally reflects the share buy-back initiative, with the purchase of 325,273,407328.2m ordinary shares ($2,497m)3,000m) all of which were cancelled during the year and used to reduce outstanding ordinary shares. In addition, treasury shares are held to fund employee share plans.
2Other paid-in capital arises from the exercise and lapse of share options granted to employees of HSBC Holdings subsidiaries.


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225  221


Notes on the Financial Statements

1
Basis of preparation and significant accounting policies
1.1Basis of preparation
(a)Compliance with International Financial Reporting Standards
The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings have been prepared in accordance with IFRSs as issued by the IASB, including interpretations (‘IFRICS’) issued by the IFRS Interpretations Committee, and as endorsed by the European Union (‘EU’). At 31 December 2016,2017, there were no unendorsed standards effective for the year ended 31 December 20162017 affecting these consolidated and separate financial statements, and HSBC’s application of IFRSs results in no differences between IFRSs as issued by the IASB and IFRSs as endorsed by the EU.EU.
Standards adopted during the year ended 31 December 20162017
There were no new standards applied duringHSBC has adopted the year ended 31 December 2016 by HSBC.
The requirements of IFRS 9 ‘Financial Instruments’ relating to the presentation of gains and losses on financial liabilities designated at fair value were adoptedfrom 1 January 2017 in the separateconsolidated financial statements of HSBC Holdings.statements. As a result, the effects of changes in those liabilities’ credit risk is presented in other comprehensive income with the remaining effect presented in profit or loss. In accordance withAs permitted by the transitional requirements of IFRS 9, comparatives have not been restated. Adoption increased profit beforeafter tax by $896m$2,024m and basic and diluted earnings per share by $0.10 with the opposite effect on other comprehensive income withand no effect on net assets. These requirements were adopted in the separate financial statements of HSBC Holdings in 2016.
During 2016,There were no other new standards applied in 2017. However, during 2017, HSBC adopted a number of interpretations and amendments to standards which had an insignificant effect on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
(b)Differences between IFRSs and Hong Kong Financial Reporting Standards
There are no significant differences between IFRSs and Hong Kong Financial Reporting Standards in terms of their application to HSBC, and consequently there would be no significant differences had the financial statements been prepared in accordance with Hong Kong Financial Reporting Standards. The Notes on the Financial Statements, taken together with the Report of the Directors, include the aggregate of all disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements.
(c)Future accounting developments
Minor amendments to IFRSs
The IASB has published a number of minor amendments to IFRSs in the ‘Annual Improvements to IFRSs 2012-2014’which are effective from 1 January 2018 and in a series of stand-alone amendments, one2019, some of which has not yethave been endorsed for use in the EU. HSBC has not early adopted any of the amendments effective after 31 December 2016 and it expects they will have an insignificant effect, when adopted, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings. HSBC has not early adopted any of the amendments effective after 31 December 2017, except the requirements of IFRS 9 ‘Financial Instruments’ relating to the presentation of gains and losses on financial liabilities designated at fair value which was adopted from 1 January 2017.
Major new IFRSs
The IASB has published IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue from Contracts with Customers’, IFRS 16 ‘Leases’ and IFRS 16 ‘Leases’17 ‘Insurance contracts’. IFRS 9 , IFRS 15 and IFRS 1516 have been endorsed for use in the EU and IFRS 1617 has not yet been endorsed.
IFRS 9 ‘Financial Instruments’
In July 2014, the IASB issued IFRS 9 ‘Financial Instruments’, which is the comprehensive standard to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’, and includes requirements for classification and measurement of financial assets and liabilities, impairment of financial assets and hedge accounting.
Classification and measurement
The classification and measurement of financial assets will depend on how these are managed (the entity’s business model) and their contractual cash flow characteristics. These factors determine whether the financial assets are measured at amortised cost, fair value through other comprehensive income (‘FVOCI’) or fair value through profit or loss (‘FVPL’). The combined effect of the application of the business model and the contractual cash flow characteristics tests may result in some differences in the population of financial assets measured at amortised cost or fair value compared with IAS 39. However, basedIn addition, on an assessmenttransition to IFRS 9 entities are required to revoke previous designations of financial assets performed to date and expectations around changes to balance sheet composition, HSBC expects that the overall impact of any change will not be significant.
For financial liabilities designated to be measured at fair value gainsthrough profit or losses relatingloss where the accounting mismatch no longer exists and are permitted to changes in the entity’s own credit risk arerevoke such designations where accounting mismatches continue to be included in other comprehensive income.exist.
Impairment
The impairment requirements apply to financial assets measured at amortised cost and FVOCI, and lease receivables, and certain loan commitments and financial guarantee contracts. At initial recognition, an impairment allowance (or provision in the case of commitments and guarantees) is required for expected credit losses (‘ECL’) resulting from default events that are possible within the next 12 months (’12-month ECL’). In the event of a significant increase in credit risk, an allowance (or provision) is required for ECL resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’). Financial assets where 12‑month12-month ECL is recognised are in ‘stage 1’; financial assets that are considered to have experienced a significant increase in credit risk are in ‘stage 2’; and financial assets for which there is objective evidence of impairment, so are considered to be in default or otherwise credit impaired, are in ‘stage 3’.
The assessment of credit risk and the estimation of ECL are required to be unbiased and probability-weighted, and should incorporate all available information relevant to the assessment, including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money. As a result, the recognition and measurement of impairment is intended to be more forward-looking than under IAS 39, and the resulting impairment charge will tend tomay be more volatile. IFRS 9 willmay also tend to result in an increase in the total level of impairment allowances, since all financial assets will be assessed for at least 12-month ECL and the population of financial assets to which lifetime ECL applies is likely to be larger than the population for which there is objective evidence of impairment in accordance with IAS 39.

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HSBC Holdings plc Annual Report and Accounts 2016


Hedge accounting
The general hedge accounting requirements aim to simplify hedge accounting, creating a stronger link with risk management strategy and permitting hedge accounting to be applied to a greater variety of hedging instruments and risks. However, they do not explicitly address macro hedge accounting strategies, which are particularly important for banks. As a result, IFRS 9 includes an accounting policy choice to remain with IAS 39 hedge accounting.
BasedTransitional impact
With the exception of the provisions relating to the presentation of gains and losses on financial liabilities designated at fair value, which were adopted from 1 January 2017, the analysis performed to date, HSBC expects to exercise therequirements of IFRS 9 ‘Financial Instruments’ will be adopted from 1 January 2018. IFRS 9 includes an accounting policy choice to continue IAS 39 hedge accounting, and therefore is not currently planning to change hedge accounting,which HSBC has exercised, although it will implement the revised hedge accounting disclosures required by the related amendments to IFRS 7 ‘Financial Instruments: Disclosures’.
Transition
The classification and measurement and impairment requirements are applied retrospectively by adjusting the opening balance sheet at the date of initial application, with no requirement to restate comparative periods. HSBC does not intend to restate comparatives. The mandatory application date forFor the standard as a wholeconsolidated financial statements of HSBC, adoption is expected to reduce net assets at 1 January 2018 but itby $1.0bn, with the classification and measurement changes increasing net assets by $0.9bn and impairment reducing net assets by $2.2bn, net of deferred tax of $0.3bn. As a consequence, common equity tier 1 capital is possibleexpected to apply the revised presentation for certain liabilities measured at fair value from an earlier date. HSBC has early adopted the revised presentation of fair value gainsincrease by $1.2bn, applying regulatory transitional arrangements, and losses relating to an entity’s own credit riskby $0.2bn on certain liabilities ina fully loaded basis. For the separate financial statements of HSBC Holdings, fromadoption is expected to increase net assets at 1 January 2016,2018 by $0.9bn, net of deferred tax, as a result of classification and since interim financial statements have been issued during 2016 without adoption, will adopt new requirements in the consolidated financial statements from 1 January 2017. If this presentation was applied in the consolidated financial statements at 31 December 2016, the effect would be to increase profit before tax with the opposite effect on other comprehensive incomemeasurement changes. These estimates are based on accounting policies, assumptions, judgements and estimation techniques that remain subject to change until the change in fair value attributable to changes in HSBC’s credit riskGroup finalises its financial statements for the year with no effect on net assets. Further information on the change in fair value attributable to changes in credit risk, including HSBC’s credit risk, is disclosed in Note 24. HSBC is assessing the impact that the impairment requirements will have on the financial statements.
The joint Global Risk and Global Finance IFRS 9 Implementation Programme continues to progress with the documentation of Group accounting policy, the development of operating and system target operating models and the development, build and testing of risk modelling methodologies for the calculation of impairment nearing completion. HSBC intends to perform a parallel run during the second half of 2017 to gain a better understanding of the potential effect of the new standard and for the governance framework to gain experience. HSBC intends to quantify the potential impact of IFRS 9 once it is practicable to provide reliable estimates, which will be no later than in the Annual Report and Accounts 2017. Until reliable estimates of the impact are available, particularly on the interaction with the regulatory capital requirements, further information on the expected impact on the financial position and on capital planning cannot be provided. Further information about the application of IFRS 9 by HSBC is available on pages 347 to 352 of the Annual Report and Accounts 2015.ending 31 December 2018.
IFRS 15 ‘Revenue from Contracts with Customers’
In May 2014, the IASB issued IFRS 15 ‘Revenue from Contracts with Customers’. The original effective date of IFRS 15 has been delayed by one year and the standardit is now effective for annual periods beginning on or after 1 January 2018 with early application permitted.2018. IFRS 15 provides a principles-based approach for revenue recognition, and introduces the concept of recognising revenue for performance obligations as they are satisfied. TheHSBC will adopt the standard shouldon its mandatory effective date, and the standard will be applied retrospectively, with certain practical expedients available.on a retrospective basis, recognising the cumulative effect, if any, of initially applying the standard as an adjustment to the opening balance of retained earnings. HSBC has assessed the impact of IFRS 15 and expects that the standard will have no significant effect, when applied, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
IFRS 16 ‘Leases’
In January 2016, the IASB issued IFRS 16 ‘Leases’ with an effective date for annual periods beginning on or after 1 January 2019. IFRS 16 results in lessees accounting for most leases within the scope of the standard in a manner similar to the way in which finance leases are currently accounted for under IAS 17 ‘Leases’. Lessees will recognise a ‘right of use’ asset and a corresponding financial liability on the balance sheet. The asset will be amortised over the length of the lease, and the financial liability measured at amortised cost. Lessor accounting remains substantially the same as under IAS 17. HSBC is currently assessing the impact of IFRS 16, and it is not practicable to quantify the effect at the date of the publication of these financial statements. Existing operating lease commitments are set out in Note 34.33.
IFRS 17 ‘Insurance contracts’
IFRS 17 ‘Insurance contracts’ was issued in May 2017, and sets out the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. IFRS 17 is effective from 1 January 2021, and HSBC is considering its impact.
(d)Foreign currencies
HSBC’s consolidated financial statements are presented in US dollars because the US dollar and currencies linked to it form the major currency bloc in which HSBC transacts and funds its business. The US dollar is also HSBC Holdings’ functional currency because the US dollar and currencies linked to it are the most significant currencies relevant to the underlying transactions, events and conditions of its subsidiaries, as well as representing a significant proportion of its funds generated from financing activities.
Transactions in foreign currencies are recorded at the rate of exchange on the date of the transaction. Assets and liabilities denominated in foreign currencies are translated at the rate of exchange at the balance sheet date except non-monetary assets and liabilities measured at historical cost thatwhich are translated using the rate of exchange at the initial transaction date. Exchange differences are included in other comprehensive income or in the income statement depending on where the gain or loss on the underlying item is recognised.
In the consolidated financial statements, the assets, liabilities and results of foreign operations whose functional currency is not US dollars are translated into the Group’s presentation currency at the reporting date. Exchange differences arising are recognised in other comprehensive income. On disposal of a foreign operation, exchange differences previously recognised in other comprehensive income are reclassified to the income statement.
(e)Presentation of information
Certain disclosures required by IFRSs have been included in the audited sections of this Annual Report and Accounts as follows:
segmental disclosures are included in the ‘Report of the Directors: Financial Review’ on pages 3032 to 7985;
disclosures concerning the nature and extent of risks relating to insurance contracts and financial instruments are included in the ‘Report of the Directors: Risk’ on pages 8995 to 164161;
capital disclosures are included in the ‘Report of the Directors: Capital’ on pages 165162 to 169165; and

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227  


Notes on the Financial Statements

disclosures relating to HSBC’s securitisation activities and structured products are included in the ‘Report of the Directors: Risk’ on pages 8995 to 164161.
In accordance with HSBC’sits policy to provide disclosures that help investors and other stakeholders understand the Group’s performance, financial position and changes to them, the information provided in the Notes on the Financial Statements and the Report of the Directors goes beyond the minimum levels required by accounting standards, statutory and regulatory requirements and listing rules. In addition, HSBC follows the British Bankers’ AssociationUK Finance Disclosure Code for Financial Reporting Disclosure (‘the BBAUKF Disclosure Code’). The BBAUKF Disclosure Code aims to increase the quality and comparability of UK banks’ disclosures and sets out five disclosure principles together with supporting guidance.guidance agreed in 2010. In line with the principles of the BBAUKF Disclosure Code, HSBC assesses good practice recommendations issued from time to time by relevant

HSBC Holdings plc223


Notes on the Financial Statements

regulators and standard setters, and will assess the applicability and relevance of such guidance, enhancing disclosures where appropriate.
(f)Critical accounting estimates and judgements
The preparation of financial information requires the use of estimates and judgements about future conditions. In view of the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of items highlighted as the critical accounting estimates and judgements in section 1.2 below, it is possible that the outcomes in the next financial year could differ from those on which management’s estimates are based, resultingbased. This could result in materially different conclusionsestimates and judgements from those reached by management for the purposes of these Financial Statements.financial statements. Management’s selection of HSBC’s accounting policies which contain critical estimates and judgements reflects the materiality of the items to which the policies are applied and the high degree of judgement and estimation uncertainty involved.
(g)Segmental analysis
HSBC’s chief operating decision-maker is the Group Chief Executive, supported by the rest of the Group Management Board (‘GMB’), which operates as a general management committee under the direct authority of the Board, and operatingBoard. Operating segments are reported in a manner consistent with the internal reporting provided to the Group Chief Executive and the GMB.
Measurement of segmental assets, liabilities, income and expenses is in accordance with the Group’s accounting policies. Segmental income and expenses include transfers between segments, and these transfers are conducted at arm’s length. Shared costs are included in segments on the basis of the actual recharges made.
(h)Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources.
1.2Summary of significant accounting policies
(a)Consolidation and related policies
Investments in subsidiaries
Where an entity is governed by voting rights, HSBC consolidates when it holds, directly or indirectly, the necessary voting rights to pass resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other factors, including having exposure to variability of returns, power to direct relevant activities and whether power is held as agent or principal.
Business combinations are accounted for using the acquisition method. The amount of non-controlling interest is measured either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. This election is made for each business combination.
HSBC Holdings’ investments in subsidiaries are stated at cost less impairment losses.
Goodwill
Goodwill is allocated to cash-generating units (‘CGUs’) for the purpose of impairment testing, which is undertaken at the lowest level at which goodwill is monitored for internal management purposes. HSBC’s CGUs are based on geographical regions subdivided by global business, except for Global Banking and Markets, for which goodwill is monitored on a global basis.
Impairment testing is performed at least once a year, or whenever there is an indication of impairment, by comparing the recoverable amount of a CGU with its carrying amount.
Goodwill is included in a disposal group if the disposal group is a CGU to which goodwill has been allocated or it is an operation within such a CGU. The amount of goodwill included in a disposal group is measured on the basis of the relative values of the operation disposed of and the portion of the CGU retained.
Critical accounting estimates and judgements
The review of goodwill for impairment reflects management’s best estimate of the future cash flows of the CGUs and the rates used to discount these cash flows, both of which are subject to uncertain factors as follows:
•
The future cash flows of the CGUs are sensitive to the cash flows projected for the periods for which detailed forecasts are available and to assumptions regarding the long-term pattern of sustainable cash flows thereafter. Forecasts are compared with actual performance and verifiable economic data, but they reflect management’s view of future business prospects at the time of the assessment.
•
The rates used to discount future expected cash flows can have a significant effect on their valuation, and are based on the costs of capital assigned to individual CGUs. The cost of capital percentage is generally derived from a capital asset pricing model, which incorporates inputs reflecting a number of financial and economic variables, including the risk-free interest rate in the country concerned and a premium for the risk of the business being evaluated. These variables are subject to fluctuations in external market rates and economic conditions beyond management’s control,control. They are therefore subject to uncertainty and require the exercise of significant judgement.
The accuracy of forecast cash flows is subject to a high degree of uncertainty in volatile market conditions. In such circumstances, management retests goodwill for impairment more frequently than once a year when indicators of impairment exist to ensureexist. This ensures that the assumptions on which the cash flow forecasts are based continue to reflect current market conditions and management’s best estimate of future business prospects.

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HSBC sponsored structured entities
HSBC is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that entity or in bringing together relevant counterparties so the transaction that is the purpose of the entity could occur. HSBC is generally not considered a sponsor if the only involvement with the entity is merely administrative.
Interests in associates and joint arrangements
Joint arrangements are investments in which HSBC, together with one or more parties, has joint control. Depending on HSBC’s rights and obligations, the joint arrangement is classified as either a joint operation or a joint venture. HSBC classifies investments in entities over which it has significant influence, and that are neither subsidiaries nor joint arrangements, as associates.
HSBC recognises its share of the assets, liabilities and results in a joint operation. Investments in associates and interests in joint ventures are recognised using the equity method. The attributable share of the results and reserves of joint ventures and associates are

224HSBC Holdings plc


included in the consolidated financial statements of HSBC based on either financial statements made up to 31 December or pro-rated amounts adjusted for any material transactions or events occurring between the date the financial statements are available and
31 December.
Investments in associates and joint ventures are assessed at each reporting date and tested for impairment when there is an indication that the investment may be impaired. Goodwill on acquisitions of interests in joint ventures and associates is not tested separately for impairment, but is assessed as part of the carrying amount of the investment.
Critical accounting estimates and judgements
Impairment testing of investments in associates involves significant judgement in determining the value in use, and in particular estimating the present values of cash flows expected to arise from continuing to hold the investment. The most significant judgements relate to the impairment testing of our investment in Bank of Communications Co., Limited (‘BoCom’). Key assumptions used in estimating BoCom’s value in use, the sensitivity of the value in use calculation to different assumptions and a sensitivity analysis that shows the changes in key assumptions that would reduce the excess of value in use over the carrying amount (the ‘headroom’) to nil are described in Note 17.
(b)Income and expense
Operating income
Interest income and expense
Interest income and expense for all financial instruments, excluding those classified as held for trading or designated at fair value are recognised in ‘Interest income’ and ‘Interest expense’ in the income statement using the effective interest method. However, as an exception to this, interest on debt securities issued by HSBC that are designated under the fair value option and derivatives managed in conjunction with those debt securities are included in interest expense.
Interest on impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Non-interest income and expense
Fee income is earned from a diverse range of services provided by HSBC to its customers. Fee income is accounted for as follows:
incomeIncome earned on the execution of a significant act is recognised as revenue when the act is completed (for example, fees arising from negotiating a transaction, such as the acquisition of shares, for a third party); and
incomeIncome earned from the provision of services is recognised as revenue as the services are provided (for example, asset management services).
Net trading income comprises all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading, together with the related interest income, expense and dividends.
Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities, and usually the date when shareholders approve the dividend for unlisted equity securities.
‘Net income/(expense) from financial instruments designated at fair valuevalue’ includes all gains and losses from changes in the fair value of financial assets and liabilities designated at fair value through profit or loss, including derivatives that are managed in conjunction with those financial assets and liabilities, and liabilities under investment contracts. Interest income, interest expense and dividend income in respect of those financial instruments are also included, except for interest arising from debt securities issued by HSBC and derivatives managed in conjunction with those debt securities, which is recognised in ‘Interest expense’.
The accounting policies for insurance premium income are disclosed in Note 1.2(f).
(c)Valuation of financial instruments
All financial instruments are initially recognised at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of a financial instrument on initial recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, if there is a difference between the transaction price and the fair value of financial instruments whose fair value is based on a quoted price in an active market or a valuation technique that uses only data from observable markets, HSBC recognises the difference as a trading gain or loss at inception (‘day(a ‘day 1 gain or loss’). In all other cases, the entire day 1 gain or loss is deferred and recognised in the income statement over the life of the transaction either until the transaction matures or is closed out, the valuation inputs become observable or HSBC enters into an offsetting transaction.
The fair value of financial instruments is generally measured on an individual basis. However, in cases where HSBC manages a group of financial assets and liabilities according to its net market or credit risk exposure, the fair value of the group of financial instruments is measured on a net basis but the underlying financial assets and liabilities are presented separately in the financial statements, unless they satisfy the IFRS offsetting criteria.

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229  


Notes on the Financial Statements

Critical accounting estimates and judgements
The majority of valuation techniques employ only observable market data. However, certain financial instruments are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable, and for them the measurement of fair value is more judgemental. An instrument in its entirety is classified as valued using significant unobservable inputs if, in the opinion of management, a significant proportion of the instrument’s inception profit or greater than 5% of the instrument’s valuation is driven by unobservable inputs. ‘Unobservable’ in this context means that there is little or no current market data available from which to determine the price at which an arm’s length transaction would be likely to occur. It generally does not mean that there is no data available at all upon which to base a determination of fair value (consensus pricing data may, for example,
be used).
(d)Financial instruments measured at amortised cost
Loans and advances to banks and customers, held-to-maturity investments and most financial liabilities are measured at amortised cost. The carrying value of these financial assets at initial recognition includes any directly attributable transactions costs. If the initial fair value is lower than the cash amount advanced, such as in the case of some leveraged finance and syndicated lending activities, the difference is deferred and recognised over the life of the loan (as described in paragraphsub-section (c) above) through the recognition of interest income, unless the loan becomes impaired.

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Notes on the Financial Statements

HSBC may commit to underwriting loans on fixed contractual terms for specified periods of time. When the loan arising from the lending commitment is expected to be held for trading, the commitment to lend is recorded as a derivative. When HSBC intends to hold the loan, a provision on the loan commitment is only recorded where it is probable that HSBC will incur a loss.
Impairment of loans and advances
Losses for impaired loans are recognised when there is objective evidence that impairment of a loan or portfolio of loans has occurred. Losses which may arise from future events are not recognised.
Individually assessed loans and advances
The factors considered in determining whether a loan is individually significant for the purposes of assessing impairment include the size of the loan, the number of loans in the portfolio, the importance of the individual loan relationship and how this is managed. Loans that are determined to be individually significant will be individually assessed for impairment, except when volumes of defaults and losses are sufficient to justify treatment under a collective methodology.
Loans considered as individually significant are typically to corporate and commercial customers, are for larger amounts and are managed on an individual basis. For these loans, HSBC considers on a case-by-case basis at each balance sheet date whether there is any objective evidence that a loan is impaired.
The determination of the realisable value of security is based on the most recently updated market value at the time the impairment assessment is performed. The value is not adjusted for expected future changes in market prices, though adjustments are made to reflect local conditions such as forced sale discounts.
Impairment losses are calculated by discounting the expected future cash flows of a loan, which include expected future receipts of contractual interest, at the loan’s original effective interest rate or an approximation thereof, and comparing the resultant present value with the loan’s current carrying amount.
Collectively assessed loans and advances
Impairment is assessed collectively to cover losses which have been incurred but have not yet been identified on loans subject to individual assessment or for homogeneous groups of loans that are not considered individually significant, which are generally retail lending portfolios.
Incurred but not yet identified impairment
Individually assessed loans for which no evidence of impairment has been specifically identified on an individual basis are grouped together according to their credit risk characteristics for a collective impairment assessment. This assessment captures impairment losses that HSBC has incurred as a result of events occurring before the balance sheet date whichthat HSBC is not able to identify on an individual loan basis, and that can be reliably estimated. When information becomes available whichthat identifies losses on individual loans within a group, those loans are removed from the group and assessed individually.
Homogeneous groups of loans and advances
Statistical methods are used to determine collective impairment losses for homogeneous groups of loans not considered individually significant. The methods used to calculate collective allowances are set out below:
When appropriate empirical information is available, HSBC utilises roll-rate methodology, which employs statistical analyses of historical data and experience of delinquency and default to reliably estimate the amount of the loans that will eventually be written off as a result of the events occurring before the balance sheet date. Individual loans are grouped using ranges of past due days, and statistical estimates are made of the likelihood that loans in each range will progress through the various stages of delinquency and become irrecoverable. Additionally, individual loans are segmented based on their credit characteristics, such as industry sector, loan grade or product. In applying this methodology, adjustments are made to estimate the periods of time between a loss event occurring, for example because of a missed payment, and its confirmation through write-off (known as the loss identification period). Current economic conditions are also evaluated when calculating the appropriate level of allowance required to cover inherent loss. In certain highly developed markets, models also take into account behavioural and account management trends as revealed in, for example, bankruptcy and rescheduling statistics.
When the portfolio size is small or when information is insufficient or not reliable enough to adopt a roll-rate methodology, HSBC adopts a basic formulaic approach based on historical loss rate experience, or a discounted cash flow model. Where a basic formulaic approach is undertaken, the period between a loss event occurring and its identification is estimated by local management, and is typically between six and 12 months.

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Write-off of loans and advances
Loans (andand the related impairment allowance accounts)accounts are normally written off, either partially or in full, when there is no realistic prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In circumstances where the net realisable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier.
Reversals of impairment
If the amount of an impairment loss decreases in a subsequent period, and the decrease can be related objectively to an event occurring after the impairment was recognised, the excess is written back by reducing the loan impairment allowance account accordingly. The write-back is recognised in the income statement.
Assets acquired in exchange for loans
When non-financial assets acquired in exchange for loans as part of an orderly realisation are held for sale, these assets are recorded as ‘Assets held for sale.’
Renegotiated loans
Loans subject to collective impairment assessment whose terms have been renegotiated are no longer considered past due, but are treated as up-to-date loans for measurement purposes once a minimum number of required payments required has been received. Where collectively assessed loan portfolios include significant levels of renegotiated loans, these loans are segregated from other parts of the loan portfolio for the purposes of collective impairment assessment to reflect their risk profile. Loans subject to individual impairment

226HSBC Holdings plc


assessment, whose terms have been renegotiated, are subject to ongoing review to determine whether they remain impaired. The carrying amounts of loans that have been classified as renegotiated retain this classification until maturity or derecognition.
A loan that is renegotiated is derecognised if the existing agreement is cancelled and a new agreement made on substantially different terms or if the terms of an existing agreement are modified such that the renegotiated loan is substantially a different financial instrument. Any new loans that arise following derecognition events will continue to be disclosed as renegotiated loans and are assessed for impairment as above.
Critical accounting estimates and judgements
Loan impairment allowances represent management’s best estimate of losses incurred in the loan portfolios at the balance sheet date. Management is required to exercise judgement in making assumptions and estimates when calculating loan impairment allowances on both individually and collectively assessed loans and advances.
Collective impairment allowances are subject to estimation uncertainty, in part because it is not practicable to identify losses on an individual loan basis due to the large number of individually insignificant loans in the portfolio. The estimation methods include the use of statistical analyses of historical information, supplemented with significant management judgement, to assess whether current economic and credit conditions are such that the actual level of incurred losses is likely to be greater or less than historical experience. Where changes in economic, regulatory or behavioural conditions result in the most recent trends in portfolio risk factors being not fully reflected in the statistical models, risk factors are taken into account by adjusting the impairment allowances derived solely from historical loss experience.
Risk factors include loan portfolio growth, product mix, unemployment rates, bankruptcy trends, geographical concentrations, loan product features, economic conditions such as national and local trends in housing markets, the level of interest rates, portfolio seasoning, account management policies and practices, changes in laws and regulations, and other influences on customer payment patterns. Different factors are applied in different regions and countries to reflect local economic conditions, laws and regulations. The methodology and the assumptions used in calculating impairment losses are reviewed regularly in the light of differences between loss estimates and actual loss experience. For example, roll rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure they remain appropriate.
For individually assessed loans, judgement is required in determining whether there is objective evidence that a loss event has occurred and, if so, the measurement of the impairment allowance. In determining whether there is objective evidence that a loss event has occurred, judgement is exercised in evaluating all relevant information on indicators of impairment, including the consideration of whether payments are contractually past due and the consideration of other factors indicating deterioration in the financial condition and outlook of borrowers, affecting their ability to pay.
A higher level of judgement is required for loans to borrowers showing signs of financial difficulty in market sectors experiencing economic stress, particularly where the likelihood of repayment is affected by the prospects for refinancing or the sale of a specified asset. For those loans where objective evidence of impairment exists, management determines the size of the allowance required based on a range of factors such as the realisable value of security, the likely dividend available on liquidation or bankruptcy, the viability of the customer’s business model and the capacity to trade successfully out of financial difficulties and generate sufficient cash flow to service debt obligations.
HSBC might provide loan forbearance to borrowers experiencing financial difficulties by agreeing to modify the contractual payment terms of loans in order to improve the management of customer relationships, maximise collection opportunities or avoid default or repossession. Where forbearance activities are significant, higher levels of judgement and estimation uncertainty are involved in determining their effects on loan impairment allowances. Judgements are involved in differentiating the credit risk characteristics of forbearance cases, including those which return to performing status following renegotiation. Where collectively assessed loan portfolios include significant levels of loan forbearance, portfolios are segmented to reflect the different credit risk characteristics of forbearance cases, and estimates are made of the incurred losses inherent within each forbearance portfolio segment. Forbearance activities take place in both retail and wholesale loan portfolios, but our largest concentration is in the US, in HSBC Finance’s CML run-off portfolio.
The exercise of judgement requires the use of assumptions which are highly subjective and very sensitive to the risk factors, in particular to changes in economic and credit conditions across a large number of geographical areas. Many of the factors have a high degree of interdependency and there is no single factor to which our loan impairment allowances as a whole are sensitive.

Non-trading reverse repurchase, repurchase and repurchasesimilar agreements
When debt securities are sold subject to a commitment to repurchase them at a predetermined price (‘repos’), they remain on the balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under commitments to resell (‘reverse repos’) are not recognised on the balance sheet and an asset is recorded in respect of the initial consideration paid. Non-trading repos and reverse repos are measured at amortised cost. The difference between the sale and repurchase price or between the purchase and resale price is treated as interest and recognised in net interest income over the life of the agreement.

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Notes onContracts that are economically equivalent to reverse repurchase or repurchase agreements (such as sales or purchases of debt securities entered into together with total return swaps with the Financial Statements

same counterparty) are accounted for similarly to, and presented together with, reverse repurchase or repurchase agreements.
(e)Financial instruments measured at fair value
Available-for-sale financial assets
Available-for-sale financial assets are recognised on the trade date when HSBC enters into contractual arrangements to purchase those instruments,them, and are normally derecognised when the securitiesthey are either sold or redeemed. They are subsequently remeasured at fair value, and changes therein are recognised in other comprehensive income until the assets are either sold or become impaired. Upon disposal, the cumulative gains or losses in other comprehensive income are recognised in the income statement as ‘Gains less losses from financial investments’.
Impairment of available-for-sale financial assets
Available-for-sale financial assets are assessed at each balance sheet date for objective evidence of impairment. Impairment losses are recognised in the income statement within ‘Loan impairment charges and other credit risk provisions’ for debt instruments and within ‘Gains less losses from financial investments’ for equities.
Available-for-sale debt securities
In assessing objective evidence of impairment at the reporting date, HSBC considers all available evidence, including observable data or information about events specifically relating to the securities which may result in a shortfall in the recovery of future cash flows. A subsequent decline in the fair value of the instrument is recognised in the income statement when there is objective evidence of impairment as a result of decreases in the estimated future cash flows. Where there is no further objective evidence of impairment, the decline in the fair value of the financial asset is recognised in other comprehensive income. If the fair value of a debt security increases in a subsequent period, and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, or the instrument is no longer impaired, the impairment loss is reversed through the income statement.
Available-for-sale equity securities
A significant or prolonged decline in the fair value of the equity below its cost is objective evidence of impairment. In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial recognition. In assessing whether it is

HSBC Holdings plc227


Notes on the Financial Statements

prolonged, the decline is evaluated against the continuous period in which the fair value of the asset has been below its original cost at initial recognition.
All subsequent increases in the fair value of the instrument are treated as a revaluation and are recognised in other comprehensive income. Subsequent decreases in the fair value of the available-for-sale equity security are recognised in the income statement to the extent that further cumulative impairment losses have been incurred. Impairment losses recognised on the equity security are not reversed through the income statement.
Financial instruments designated at fair value
Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria set out below, and are so designated irrevocably at inception:
the use of the designation removes or significantly reduces an accounting mismatch;
when a group of financial assets, liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; and
where financial instruments contain one or more non-closely related embedded derivatives.
Designated financial assets are recognised when HSBC enters into contracts with counterparties, which is generally on trade date, and are normally derecognised when the rights to the cash flows expire or are transferred. Designated financial liabilities are recognised when HSBC enters into contracts with counterparties, which is generally on settlement date, and are normally derecognised when extinguished. Subsequent changes in fair values are recognised in the income statement in ‘Net income/(expense) from financial instruments designated at fair value’.
Under this criterion, the main classes of financial instruments designated by HSBC are:
Long-term debt issues
The interest and/or foreign exchange exposure on certain fixed rate debt securities issued has been matched with the interest and/or foreign exchange exposure on certain swaps as part of a documented risk management strategy.
Financial assets and financial liabilities under unit-linked and non-linked investment contracts
A contract under which HSBC does not accept significant insurance risk from another party is not classified as an insurance contract, other than investment contracts with discretionary participation features ('DPF'(‘DPF’), but is accounted for as a financial liability. See Note 1.2(f) for investment contracts with DPF and contracts where HSBC accepts significant insurance risk. Customer liabilities under linked and certain non-linked investment contracts issued by insurance subsidiaries and the corresponding financial assets are designated at fair value. Liabilities are at least equivalent to the surrender or transfer value which is calculated by reference to the value of the relevant underlying funds or indices. Premiums receivable and amounts withdrawn are accounted for as increases or decreases in the liability recorded in respect of investment contracts. The incremental costs directly related to the acquisition of new investment contracts or renewing existing investment contracts are deferred and amortised over the period during which the investment management services are provided.
Derivatives
Derivatives are financial instruments that derive their value from the price of underlying items such as equities, interest rates or other indices. Derivatives are recognised initially and are subsequently measured at fair value.value, with changes in fair value generally recorded in the income statement. Derivatives are classified as assets when their fair value is positive or as liabilities when their fair value is negative; this includes embedded derivatives which are bifurcated from the host contract when they meet the definition of a derivative on a stand-alone basis.basis and are required by IFRSs to be accounted for separately from the host contract.
Gains and losses from changes in the fair value of derivatives that do not qualify for hedge accounting are reported in ‘Net trading income’. Gains and losses on derivatives managed in conjunction with financial instruments designated at fair value are reported in ‘Net income/(expense)income from financial instruments designated at fair value’ together with the gains and losses on the economically

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HSBC Holdings plc Annual Report and Accounts 2016


hedged items. Where the derivatives are managed with debt securities issued by HSBC that are designated at fair value, the contractual interest is shown in ‘Interest expense’ together with the interest payable on the issued debt.
Hedge accounting
When derivatives are not part of fair value designated relationships, if held for risk management purposes they are designated in hedge accounting relationships where the required criteria for documentation and hedge effectiveness are met. HSBC enters intouses these derivatives or, where allowed, other non-derivative hedging instruments in fair value hedges, cash flow hedges or hedges of net investments in foreign operations as appropriate to the risk being hedged.
Fair value hedge
ChangesFair value hedge accounting does not change the recording of gains and losses on derivatives and other hedging instruments, but results in the fair value of derivatives are recorded in the income statement, along withrecognising changes in the fair value of the hedged assets or liabilities attributable to the hedged risk.risk that would not otherwise be recognised in the income statement. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued; the cumulative adjustment to the carrying amount of the hedged item is amortised to the income statement on a recalculated effective interest rate, over the residual period to maturity, unless the hedged item has been derecognised, in which case it is recognised in the income statement immediately.
Cash flow hedge
The effective portion of changes in the fair value of derivativesgains and losses on hedging instruments is recognised in other comprehensive income; the ineffective portion
of the change in fair value of derivative hedging instruments that are part of a cash flow hedge relationship is recognised immediately
in the income statement within ‘Net trading income’. The accumulated gains and losses recognised in other comprehensive income
are reclassified to the income statement in the same periods in which the hedged item affects profit or loss. In hedges of forecast transactions that result in recognition of a non-financial asset or liability, previous gains and losses recognised in other comprehensive income are included in the initial measurement of the asset or liability. When a hedge relationship is discontinued, or partially discontinued, any cumulative gain or loss recognised in other comprehensive income remains in equity until the forecast transaction is recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss previously recognised in other comprehensive income is immediately reclassified to the income statement.

228HSBC Holdings plc


Net investment hedge
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. A gain or loss on theThe effective portion of gains and losses on the hedging instrument is recognised in other comprehensive income; the residual change in fair value isother gains and losses are recognised immediately in the income statement. Gains and losses previously recognised in other comprehensive income are reclassified to the income statement on the disposal, or part disposal, of the foreign operation.
Derivatives that do not qualify for hedge accounting
Non-qualifying hedges are derivatives entered into as economic hedges of assets and liabilities for which hedge accounting was not applied.
(f)Insurance contracts
A contract is classified as an insurance contract where HSBC accepts significant insurance risk from another party by agreeing to compensate that party on the occurrence of a specified uncertain future event. An insurance contract may also transfer financial risk, but is accounted for as an insurance contract if the insurance risk is significant. In addition, HSBC issues investment contracts with DPF which are also accounted for as insurance contracts as required by IFRS 4 ‘Insurance Contracts’.
Net insurance premium income
Premiums for life insurance contracts are accounted for when receivable, except in unit-linked insurance contracts where premiums are accounted for when liabilities are established.
Reinsurance premiums are accounted for in the same accounting period as the premiums for the direct insurance contracts to which they relate.
Net insurance claims and benefits paid and movements in liabilities to policyholders
Gross insurance claims for life insurance contracts reflect the total cost of claims arising during the year, including claim handling costs and any policyholder bonuses allocated in anticipation of a bonus declaration.
Maturity claims are recognised when due for payment. Surrenders are recognised when paid or at an earlier date on which, following notification, the policy ceases to be included within the calculation of the related insurance liabilities. Death claims are recognised when notified.
Reinsurance recoveries are accounted for in the same period as the related claim.
Liabilities under insurance contracts
Liabilities under non-linked life insurance contracts are calculated by each life insurance operation based on local actuarial principles. Liabilities under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value, which is calculated by reference to the value of the relevant underlying funds or indices.
Future profit participation on insurance contracts with DPF
Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts include provisions for the future discretionary benefits to policyholders. These provisions reflect the actual performance of the investment portfolio to date and management’s expectation of the future performance of the assets backing the contracts, as well as other experience factors such as mortality, lapses and operational efficiency, where appropriate. The benefits to policyholders may be determined by the contractual terms, regulation, or past distribution policy.
Investment contracts with DPF
While investment contracts with DPF are financial instruments, they continue to be treated as insurance contracts as required by IFRS 4. The Group therefore recognises the premiums for these contracts as revenue and recognises as an expense the resulting increase in the carrying amount of the liability.

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233  


Notes on the Financial Statements

In the case of net unrealised investment gains on these contracts, whose discretionary benefits principally reflect the actual performance of the investment portfolio, the corresponding increase in the liabilities is recognised in either the income statement or other comprehensive income, following the treatment of the unrealised gains on the relevant assets. In the case of net unrealised losses, a deferred participating asset is recognised only to the extent that its recoverability is highly probable. Movements in the liabilities arising from realised gains and losses on relevant assets are recognised in the income statement.
Present value of in-force long-term insurance business
HSBC recognises the value placed on insurance contracts and investment contracts with DPF, which are classified as long-term and in-force at the balance sheet date, as an asset. The asset represents the present value of the equity holders’ interest in the issuing insurance companies’ profits expected to emerge from these contracts written at the balance sheet date. The present value of in-force business (‘PVIF’) is determined by discounting those expected future profits using appropriate assumptions in assessing factors such as future mortality, lapse rates and levels of expenses, and a risk discount rate that reflects the risk premium attributable to the respective contracts. The PVIF incorporates allowances for both non-market risk and the value of financial options and guarantees. The PVIF asset is presented gross of attributable tax in the balance sheet and movements in the PVIF asset are included in ‘Other operating income’ on a gross of tax basis.
(g)Employee compensation and benefits
Share-based payments
HSBC enters into both equity-settled and cash-settled share-based payment arrangements with its employees as compensation for services provided by employees.
The vesting period for these schemes may commence before the grant date if the employees have started to render services in respect of the award before the grant date. Expenses are recognised when the employee starts to render service to which the award relates.
Cancellations result from the failure to meet a non-vesting condition during the vesting period, and are treated as an acceleration of vesting recognised immediately in the income statement. Failure to meet a vesting condition by the employee is not treated as a cancellation, and the amount of expense recognised for the award is adjusted to reflect the number of awards expected to vest.

HSBC Holdings plc229


Notes on the Financial Statements

Post-employment benefit plans
HSBC operates a number of pension schemes (includingincluding defined benefit and defined contribution)contribution, and post-employment benefit schemes.
Payments to defined contribution plansschemes are charged as an expense as the employees render service.
Defined benefit pension obligations are calculated using the projected unit credit method. The net charge to the income statement mainly comprises the service cost and the net interest on the net defined benefit asset or liability, and is presented in operating expenses.
Re-measurementsRemeasurements of the net defined benefit asset or liability, which comprise actuarial gains and losses, return on plan assets (excluding interest)excluding interest and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The net defined benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of plan assets, after applying the asset ceiling test, where the net defined benefit surplus is limited to the present value of available refunds and reductions in future contributions to the plan.
The cost of obligations arising from other post-employment plans are accounted for on the same basis as defined benefit pension plans.
(h)Tax
Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case the tax is recognised in the same statement as the related item appears.
Current tax is the tax expected to be payable on the taxable profit for the year and on any adjustment to tax payable in respect of previous years. HSBC provides for potential current tax liabilities that may arise on the basis of the amounts expected to be paid to the tax authorities.Payments associated with any incremental Base Erosion and Anti-Abuse Tax are reflected in tax expense in the period incurred.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet, and the amounts attributed to such assets and liabilities for tax purposes. Deferred tax is calculated using the tax rates expected to apply in the periods in which the assets will be realised or the liabilities settled.
Current and deferred tax isare calculated based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.
Critical accounting estimates and judgements
The recognition of a deferred tax asset relies on an assessment of the probability and sufficiency of future taxable profits, future reversals of existing taxable temporary differences and ongoing tax planning strategies. In the absence of a history of taxable profits, the most significant judgements relate to expected future profitability and to the applicability of tax planning strategies, including corporate reorganisations.
(i)Provisions, contingent liabilities and guarantees
Provisions
Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a present legal or constructive obligation that has arisen as a result of past events and for which a reliable estimate can be made.

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Critical accounting estimates and judgements
Judgement is involved in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows. Professional expert advice is taken on the assessment of litigation, property (including onerous contracts) and similar obligations. Provisions for legal proceedings and regulatory matters typically require a higher degree of judgement than other types of provisions. When matters are at an early stage, accounting judgements can be difficult because of the high degree of uncertainty associated with determining whether a present obligation exists, and estimating the probability and amount of any outflows that may arise. As matters progress, management and legal advisers evaluate on an ongoing basis whether provisions should be recognised, revising previous judgements and estimates as appropriate. At more advanced stages, it is typically easier to make judgements and estimates around a better defined set of possible outcomes. However, the amount provisioned can remain very sensitive to the assumptions used. There could be a wide range of possible outcomes for any pending legal proceedings, investigations or inquiries. As a result, it is often not practicable to quantify a range of possible outcomes for individual matters. It is also not practicable to meaningfully quantify ranges of potential outcomes in aggregate for these types of provisions because of the diverse nature and circumstances of such matters and the wide range of uncertainties involved. Provisions for customer remediation also require significant levels of estimation and judgement. The amounts of provisions recognised depend on a number of different assumptions, such as the volume of inbound complaints, the projected period of inbound complaint volumes, the decay rate of complaint volumes, the population identified as systemically mis-sold and the number of policies per customer complaint.
Contingent liabilities, contractual commitments and guarantees
Contingent liabilities
Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security, and contingent liabilities related to legal proceedings or regulatory matters, are not recognised in the financial statements but are disclosed unless the probability of settlement is remote.
Financial guarantee contracts
Liabilities under financial guarantee contracts which are not classified as insurance contracts are recorded initially at their fair value, which is generally the fee received or present value of the fee receivable.
HSBC Holdings has issued financial guarantees and similar contracts to other Group entities. HSBC elects to account for certain guarantees as insurance contracts in HSBC Holdings’ financial statements, in which case they are measured and recognised as insurance liabilities. This election is made on a contract by contractcontract-by-contract basis, and is irrevocable.

230HSBC Holdings plc


2
Net income/(expense) from financial instruments designated at fair value


2016
2015
2014
 2017
2016
2015
$m
$m
$m
Footnote$m
$m
$m
Net income/(expense) arising on:     
Financial assets     
Financial assets held to meet liabilities under insurance and investment contracts1,480
531
2,300
 3,211
1,480
531
Other financial assets designated at fair value90
89
131
 198
90
89
Derivatives managed with other financial assets designated at fair value(43)13
(19) (9)(43)13
1,527
633
2,412
 3,400
1,527
633
Financial liabilities   

 
Liabilities to customers under investment contracts(218)34
(435) (375)(218)34
HSBC’s long-term debt issued and related derivatives(3,975)863
508
 672
(3,975)863
– changes in own credit spread on long-term debt(1,792)1,002
417
1—
(1,792)1,002
– derivatives managed in conjunction with HSBC’s issued debt securities(1,367)(1,997)333
 (273)(1,367)(1,997)
– other changes in fair value(816)1,858
(242) 945
(816)1,858
Other financial liabilities designated at fair value(6)3
(23) 1
(6)3
Derivatives managed with other financial liabilities designated at fair value6
(1)11
 —
6
(1)
(4,193)899
61
 298
(4,193)899
Year ended 31 Dec(2,666)1,532
2,473
 3,698
(2,666)1,532

HSBC Holdings
Net income/(expense) arising on HSBC Holdings’ long-term debt issued and related derivatives
  2016
2015
2014
 Footnotes$m
$m
$m
Net income/(expense) arising on:    
– changes in own credit spread on long-term debt1—
348
339
– derivatives managed in conjunction with HSBC Holdings’ issued debt securities (642)(927)126
– other changes in fair value 593
855
(27)
Year ended 31 Dec (49)276
438
1From 1 January 2016,2017, HSBC Holdings plc adopted, in its separateconsolidated financial statements, the requirements of IFRS 9 'Financial Instruments'‘Financial Instruments’ relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, the effects of changes in those liabilities'fair value attributable to changes in own credit risk isare presented in other comprehensive income with the remaining effect presented in profit or loss.

HSBC Holdings
Net income/(expense) arising on HSBC Holdings’ long-term debt issued and related derivatives
  2017
2016
2015
 Footnote$m
$m
$m
Net income/(expense) arising on:    
Financial assets: 211
—
—
– other financial assets designated at fair value 161
—
—
– derivatives managed with other financial assets designated at fair value 50
—
—
Financial liabilities 103
(49)276
– changes in own credit spread on long-term debt1—
—
348
– derivatives managed in conjunction with HSBC Holdings issued debt securities 292
(642)(927)
– other changes in fair value (189)593
855
Year ended 31 Dec 314
(49)276
1From 1 January 2016, HSBC Holdings plc adopted, in its separate financial statements, the requirements of IFRS 9 ‘Financial Instruments’ relating to the presentation of gains and losses on financial liabilities designated at fair value. As a result, changes in fair value attributable to changes in own credit risk are presented in other comprehensive income with the remaining effect presented in profit or loss.
HSBC Holdings plc Annual Report and Accounts 2016
3		235  


Notes on the Financial Statements

3    Insurance business
Net insurance premium income
Non-linked
insurance

Linked life
insurance

Investment contracts
with DPF1

Total
Non-linked
insurance

Linked life
insurance

Investment contracts
with DPF1

Total
$m
$m
$m
$m
Gross insurance premium income8,424
351
2,027
10,802
Reinsurers’ share of gross insurance premium income(1,016)(7)—
(1,023)
Year ended 31 Dec 20177,408
344
2,027
9,779
$m
$m
$m
$m
 
Gross insurance premium income8,036
675
1,877
10,588
8,036
675
1,877
10,588
Reinsurers’ share of gross insurance premium income(629)(8)—
(637)(629)(8)—
(637)
Year ended 31 Dec 20167,407
667
1,877
9,951
7,407
667
1,877
9,951
  
Gross insurance premium income7,506
1,409
2,097
11,012
7,506
1,409
2,097
11,012
Reinsurers’ share of gross insurance premium income(648)(9)—
(657)(648)(9)—
(657)
Year ended 31 Dec 20156,858
1,400
2,097
10,355
6,858
1,400
2,097
10,355
 
Gross insurance premium income7,705
2,195
2,470
12,370
Reinsurers’ share of gross insurance premium income(441)(8)—
(449)
Year ended 31 Dec 20147,264
2,187
2,470
11,921
1Discretionary participation features.
Net insurance claims and benefits paid and movement in liabilities to policyholders
 
Non-linked
insurance

Linked life
insurance

Investment
contracts
with DPF1

Total
 $m
$m
$m
$m
Gross claims and benefits paid and movement in liabilities8,778
1,321
2,409
12,508
– claims, benefits and surrenders paid2,828
749
2,017
5,594
– movement in liabilities5,950
572
392
6,914
Reinsurers’ share of claims and benefits paid and movement in liabilities(560)(78)—
(638)
– claims, benefits and surrenders paid(112)(14)—
(126)
– movement in liabilities(448)(64)—
(512)
Year ended 31 Dec 20168,218
1,243
2,409
11,870
     
Gross claims and benefits paid and movement in liabilities7,746
1,398
2,728
11,872
– claims, benefits and surrenders paid3,200
1,869
2,101
7,170
– movement in liabilities4,546
(471)627
4,702
Reinsurers’ share of claims and benefits paid and movement in liabilities(575)(5)—
(580)
– claims, benefits and surrenders paid(153)(64)—
(217)
– movement in liabilities(422)59
—
(363)
Year ended 31 Dec 20157,171
1,393
2,728
11,292
     
Gross claims and benefits paid and movement in liabilities7,770
2,765
3,188
13,723
– claims, benefits and surrenders paid3,575
1,499
2,215
7,289
– movement in liabilities4,195
1,266
973
6,434
Reinsurers’ share of claims and benefits paid and movement in liabilities(411)33
—
(378)
– claims, benefits and surrenders paid(176)(88)—
(264)
– movement in liabilities(235)121
—
(114)
Year ended 31 Dec 20147,359
2,798
3,188
13,345
1Discretionary participation features.

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HSBC Holdings plc Annual Report and Accounts 2016
231


Notes on the Financial Statements

Liabilities under insurance contracts
  
Non-linked
insurance

Linked life
insurance

Investment
contracts
with DPF1

Total
 Footnotes$m
$m
$m
$m
Gross liabilities under insurance contracts at 1 Jan 2016 40,538
6,791
22,609
69,938
Claims and benefits paid (2,828)(749)(2,017)(5,594)
Increase in liabilities to policyholders 8,778
1,321
2,409
12,508
Disposals/transfers to held-for-sale —
—
—
—
Exchange differences and other movements2(445)(414)(720)(1,579)
Gross liabilities under insurance contracts at 31 Dec 2016 46,043
6,949
22,281
75,273
Reinsurers’ share of liabilities under insurance contracts (1,500)(320)—
(1,820)
Net liabilities under insurance contracts at 31 Dec 2016 44,543
6,629
22,281
73,453
      
Gross liabilities under insurance contracts at 1 Jan 2015 36,973
11,820
25,068
73,861
Claims and benefits paid (3,200)(1,869)(2,101)(7,170)
Increase in liabilities to policyholders 7,746
1,398
2,728
11,872
Disposals/transfers to held-for-sale (443)(4,594)—
(5,037)
Exchange differences and other movements2(538)36
(3,086)(3,588)
Gross liabilities under insurance contracts at 31 Dec 2015 40,538
6,791
22,609
69,938
Reinsurers’ share of liabilities under insurance contracts (1,115)(263)—
(1,378)
Net liabilities under insurance contracts at 31 Dec 2015 39,423
6,528
22,609
68,560
Net insurance claims and benefits paid and movement in liabilities to policyholders
 
Non-linked
insurance

Linked life
insurance

Investment
contracts
with DPF1

Total
 $m
$m
$m
$m
Gross claims and benefits paid and movement in liabilities8,894
1,413
2,901
13,208
– claims, benefits and surrenders paid2,883
1,044
2,002
5,929
– movement in liabilities6,011
369
899
7,279
Reinsurers’ share of claims and benefits paid and movement in liabilities(942)65
—
(877)
– claims, benefits and surrenders paid(297)(223)—
(520)
– movement in liabilities(645)288
—
(357)
Year ended 31 Dec 20177,952
1,478
2,901
12,331
     
Gross claims and benefits paid and movement in liabilities8,778
1,321
2,409
12,508
– claims, benefits and surrenders paid2,828
749
2,017
5,594
– movement in liabilities5,950
572
392
6,914
Reinsurers’ share of claims and benefits paid and movement in liabilities(560)(78)—
(638)
– claims, benefits and surrenders paid(112)(14)—
(126)
– movement in liabilities(448)(64)—
(512)
Year ended 31 Dec 20168,218
1,243
2,409
11,870
     
Gross claims and benefits paid and movement in liabilities7,746
1,398
2,728
11,872
– claims, benefits and surrenders paid3,200
1,869
2,101
7,170
– movement in liabilities4,546
(471)627
4,702
Reinsurers’ share of claims and benefits paid and movement in liabilities(575)(5)—
(580)
– claims, benefits and surrenders paid(153)(64)—
(217)
– movement in liabilities(422)59
—
(363)
Year ended 31 Dec 20157,171
1,393
2,728
11,292
1Discretionary participation features.
Liabilities under insurance contracts
  
Non-linked
insurance

Linked life
insurance

Investment
contracts
with DPF1

Total
 Footnotes$m
$m
$m
$m
Gross liabilities under insurance contracts at 1 Jan 2017 46,043
6,949
22,281
75,273
Claims and benefits paid (2,883)(1,044)(2,002)(5,929)
Increase in liabilities to policyholders 8,894
1,413
2,901
13,208
Exchange differences and other movements258
230
2,827
3,115
Gross liabilities under insurance contracts at 31 Dec 2017 52,112
7,548
26,007
85,667
Reinsurers’ share of liabilities under insurance contracts (2,203)(268)—
(2,471)
Net liabilities under insurance contracts at 31 Dec 2017 49,909
7,280
26,007
83,196
      
Gross liabilities under insurance contracts at 1 Jan 2016 40,538
6,791
22,609
69,938
Claims and benefits paid (2,828)(749)(2,017)(5,594)
Increase in liabilities to policyholders 8,778
1,321
2,409
12,508
Exchange differences and other movements2(445)(414)(720)(1,579)
Gross liabilities under insurance contracts at 31 Dec 2016 46,043
6,949
22,281
75,273
Reinsurers’ share of liabilities under insurance contracts (1,500)(320)—
(1,820)
Net liabilities under insurance contracts at 31 Dec 2016 44,543
6,629
22,281
73,453
1Discretionary participation features.
2‘Exchange differences and other movements’ includes movements in liabilities arising from net unrealised investment gains recognised in other comprehensive income.
The key factors contributing to the movement in liabilities to policyholders included death claims, surrenders, lapses, liabilities to policyholders created at the initial inception of the policies, the declaration of bonuses and other amounts attributable to policyholders.

232
HSBC Holdings plc Annual Report and Accounts 2016237  


Notes on the Financial Statements

4Operating profit
Operating profit is stated after the following items:
2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
Income  

  

Interest recognised on impaired financial assets574
934
1,137
261
574
934
Fees earned on financial assets that are not at fair value through profit or loss (other than amounts included in determining the effective interest rate)7,732
8,736
9,438
7,577
7,732
8,736
Fees earned on trust and other fiduciary activities2,543
3,052
3,253
2,691
2,543
3,052
Expense











Interest on financial instruments, excluding interest on financial liabilities held for trading or designated at fair value(11,858)(13,680)(15,322)(10,912)(11,858)(13,680)
Fees payable on financial liabilities that are not at fair value through profit or loss (other than amounts included in determining the effective interest rate)(1,214)(1,251)(1,427)(1,475)(1,214)(1,251)
Fees payable relating to trust and other fiduciary activities(129)(166)(185)(134)(129)(166)
Payments under lease and sublease agreements(969)(1,190)(1,548)(936)(969)(1,190)
– minimum lease payments(945)(1,058)(1,199)(911)(945)(1,058)
– contingent rents and sublease payments(24)(132)(349)(25)(24)(132)
UK bank levy(922)(1,421)(1,066)(916)(922)(1,421)
Restructuring provisions(415)(430)(147)(204)(415)(430)
Gains/(losses)











Impairment of available-for-sale equity securities(36)(111)(373)(98)(36)(111)
Gains/(losses) recognised on assets held for sale(206)(244)220
195
(206)(244)
Gains on the partial sale of shareholding in Industrial Bank—
1,372
—
—
—
1,372
Loss on disposal of Brazilian operations(1,743)—
—
Gain/(loss) on disposal of Brazilian operations19
(1,743)—
Loan impairment charges and other credit risk provisions(3,400)(3,721)(3,851)(1,769)(3,400)(3,721)
– net impairment charge on loans and advances(3,350)(3,592)(4,055)(1,992)(3,350)(3,592)
– release of impairment on available-for-sale debt securities63
17
319
190
63
17
– other credit risk provisions(113)(146)(115)33
(113)(146)

External net operating income is attributed to countries on the basis of the location of the branch responsible for reporting the results or advancing the funds:
 2016
2015
2014
 2017
2016
2015
Footnote$m
$m
$m
Footnote$m
$m
$m
External net operating income by country147,966
59,800
61,248
151,445
47,966
59,800
– UK
9,495
14,132
14,392

11,057
9,495
14,132
– Hong Kong
12,864
14,447
12,656

14,992
12,864
14,447
– US
5,094
5,541
5,736

4,573
5,094
5,541
– France
2,571
2,706
2,538

2,203
2,571
2,706
– other countries
17,942
22,974
25,926

18,620
17,942
22,974
– of which: Brazil
(204)3,546
4,817

60
(204)3,546
1Net operating income before loan impairment charges and other credit risk provisions, also referred to as revenue.
5
Employee compensation and benefits

2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
Wages and salaries15,735
17,245
17,477
15,227
15,735
17,245
Social security costs1,312
1,600
1,666
1,419
1,312
1,600
Post-employment benefits1,042
1,055
1,223
669
1,042
1,055
Year ended 31 Dec18,089
19,900
20,366
17,315
18,089
19,900
Average number of persons employed by HSBC during the year by global business
2016
2015
2014
2017
2016
2015
Retail Banking and Wealth Management137,234
155,859
156,397
134,021
137,234
155,859
Commercial Banking45,912
51,007
50,519
46,716
45,912
51,007
Global Banking and Markets47,623
49,912
47,219
49,100
47,623
49,912
Global Private Banking8,322
8,934
8,799
7,817
8,322
8,934
Corporate Centre7,842
2,721
1,833
7,134
7,842
2,721
Year ended 31 Dec246,933
268,433
264,767
244,788
246,933
268,433

238  
HSBC Holdings plc Annual Report and Accounts 2016
233


Notes on the Financial Statements

Average number of persons employed by HSBC during the year by geographical region
 Footnote2016
2015
2014
Europe171,196
68,408
68,163
Asia 122,282
121,438
116,492
Middle East and North Africa112,021
14,467
14,477
North America 20,353
21,506
21,983
Latin America 21,081
42,614
43,652
Year ended 31 Dec 246,933
268,433
264,767
12015 and 2014 figures are restated for the changes explained on page 59.

Average number of persons employed by HSBC during the year by geographical region
 2017
2016
2015
Europe70,301
71,196
68,408
Asia125,004
122,282
121,438
Middle East and North Africa10,408
12,021
14,467
North America18,610
20,353
21,506
Latin America20,465
21,081
42,614
Year ended 31 Dec244,788
246,933
268,433
Reconciliation of total incentive awards granted to income statement charge
2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
Total incentive awards approved and granted for the current year3,035
3,462
3,660
Total incentive awards approved for the current year3,303
3,035
3,462
Less: deferred bonuses awarded, expected to be recognised in future periods(323)(387)(359)(337)(323)(387)
Total incentives awarded and recognised in the current year2,712
3,075
3,301
2,966
2,712
3,075
Add: current year charges for deferred bonuses from previous years371
483
425
336
371
483
Other(128)(40)(114)(78)(128)(40)
Income statement charge for incentive awards2,955
3,518
3,612
3,224
2,955
3,518
Year in which income statement is expected to reflect deferred bonuses
Charge recognisedExpected chargeCharge recognisedExpected charge
2016
2015
2014
2017
2018 and beyond
2017
2016
2015
2018
2019 and beyond
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Variable compensation from 2017 bonus pool162
—
—
162
175
Variable compensation from 2016 bonus pool152
—
—
137
186
126
152
—
109
84
Variable compensation from 2015 bonus pool168
253
—
128
76
Variable compensation from 2014 bonus pool and earlier203
483
670
88
28
Variable compensation from 2015 bonus pool and earlier210
168
253
82
21
Total523
736
670
353
290
498
320
253
353
280
Cash awards163
168
150
102
98
184
114
67
117
99
Equity awards360
568
520
251
192
314
206
186
236
181
Share-based payments
‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $534m$500m were equity settled (2015: $757m; 2014: $732m)(2016: $534m; 2015: $757m), as follows:
201620152014201720162015
$m$m$m$m
Restricted share awards591748738520591748
Savings-related and other share award option plans334336263343
Year ended 31 Dec624791774546624791
HSBC share awards
AwardPolicy
RestrictedDeferred share awards (including annual incentive awards, LTI awards delivered in shares) and GPSP
•    An assessment of performance over the relevant period ending on 31 December is used to determine the amount of the award to be granted.

•    Deferred awards generally require employees to remain in employment over the vesting period and are not subject to performance conditions after the grant date.

•    Deferred share awards generally vest over a period of three, years and GPSP awards vest after five or seven years.

•    Vested shares may be subject to a retention requirement post-vesting. GPSP awards are retained until cessation of employment.

•    Awards granted from 2010 onwards are subject to a malus provision prior to vesting.

•    Awards granted to Material Risk Takers from 2015 onwards are subject to clawback post vesting.
International Employee Share Purchase Plan (‘ShareMatch’)
•    The plan was first introduced in Hong Kong in 2013 and now includes employees based in 2527 jurisdictions.

•    Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency.

•    Matching awards are added at a ratio of one free share for every three purchased.

•    Matching awards vest subject to continued employment and the retention of the purchased shares for a maximum period of two years and nine months.
Movement on HSBC share awards
 2017
2016
 Number
Number
 (000s)
(000s)
Restricted share awards outstanding at 1 Jan123,166
118,665
Additions during the year62,044
94,981
Released in the year(76,051)(76,552)
Forfeited in the year(4,634)(13,928)
Restricted share awards outstanding at 31 Dec104,525
123,166
Weighted average fair value of awards granted ($)7.09
7.25

234
HSBC Holdings plc Annual Report and Accounts 2016239  


Notes on the Financial Statements

Movement on HSBC share awards
 2016
2015
 Number
Number
 (000s)
(000s)
Restricted share awards outstanding at 1 Jan118,665
116,483
Additions during the year94,981
80,749
Released in the year(76,552)(75,235)
Forfeited in the year(13,928)(3,332)
Restricted share awards outstanding at 31 Dec123,166
118,665
Weighted average fair value of awards granted ($)7.25
9.67
HSBC share option plans
Main plansPolicy
Savings-related share option plans (‘Sharesave’)
•    Two plans: the UK Plan and the International Plan. The last grant of options under the International Plan was in 2012.

•    From 2014, eligible employees can save up to £500 per month with the option to use the savings to acquire shares.

•    Exercisable within six months following either the third or fifth anniversariesanniversary of the commencement of a three-year or five-year contract, respectively.

•    The exercise price is set at a 20% (2015:(2016: 20%) discount to the market value immediately preceding the date of invitation.
HSBC Holdings Group share option plan
•    Plan ceased in May 2005.
•    Exercisable between the third and 10th anniversaries of the date of grant.
Calculation of fair values
The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the share price at the date of the grant.
Movement on HSBC share option plans
 Savings-related
share option plans		HSBC Holdings Group
share option plan		 Savings-related
share option plans
 Number
WAEP1

Number
WAEP1

 Number
WAEP1

Footnotes(000s)
£
(000s)
£
Footnotes(000s)
£
Outstanding at 1 Jan 2017 70,027
4.30
Granted during the year210,447
5.96
Exercised during the year3(9,503)4.83
Expired during the year (3,902)4.45
Forfeited during the year (2,399)4.27
Outstanding at 31 Dec 2017 64,670
4.49
Of which exercisable 1,129
5.00
Weighted average remaining contractual life (years) 2.42
 
  
Outstanding at 1 Jan 2016 74,775
4.36
—
—
 74,775
4.36
Granted during the year215,044
4.40
—
—
215,044
4.40
Exercised during the year3(4,354)5.02
—
—
3(4,354)5.02
Expired during the year (15,438)4.47
—
—
 (13,243)4.49
Forfeited during the year (2,195)4.34
Outstanding at 31 Dec 2016 70,027
4.30
—
—
 70,027
4.30
Of which exercisable 1,086
5.25
Weighted average remaining contractual life (years) 2.91
 —
  2.91
 
  
Outstanding at 1 Jan 2015 66,366
4.89
6,374
7.29
Granted during the year252,629
4.05
—
—
Exercised during the year3(21,120)4.45
—
—
Expired during the year (23,100)5.11
(6,374)7.29
Outstanding at 31 Dec 2015 74,775
4.36
—
—
Weighted average remaining contractual life (years) 3.92
 —
 
1Weighted average exercise price.
2The weighted average fair value of options granted during the year was $1.28 (2015: $1.09)$1.29 (2016: $1.28).
3
The weighted average share price at the date the options were exercised was $6.98 (2015: $8.50) and $0 (2015: $0) for the savings-related share option plans and HSBC Holdings Group share option plan, respectively.$9.93 (2016: $6.98).
Post-employment benefit plans
The Group operates pension plans throughout the world for its employees. ‘Pension risk management’ on page 117120 contains details of the policies and practices associated with these pension plans. Some are defined benefit plans, of which the largest is the HSBC Bank (UK) Pension Scheme (‘the principal plan’).
The principal plan
The principal plan has a defined benefit section and a defined contribution section. The defined benefit section was closed to future benefit accrual in 2015, with defined benefits earned by employees at that date continuing to be linked to their salary while they remain employed by HSBC Bank. The plan is overseen by an independent corporate trustee, who has a fiduciary responsibility for the operation of the plan. Its assets are held separately from the assets of the Group.
The investment strategy of the plan is to hold the majority of assets in bonds, with the remainder in a diverse range of investments. It also includes some interest rate swaps to reduce interest rate risk and inflation swaps to reduce inflation risk.


240  
HSBC Holdings plc Annual Report and Accounts 2016


The latest funding valuation of the plan at 31 December 2014 was carried out by Colin G Singer, of Willis Towers Watson Limited, who is a Fellow of the UK Institute and Faculty of Actuaries, using the projected unit credit method. At that date, the market value of the plan’s assets was £24.6bn ($30.3bn) and this exceeded the value placed on its liabilities on an ongoing basis by £520m ($641m), giving a funding level of 102%. The main differences between the assumptions used for assessing the liabilities for this funding valuation and those used for IAS 19 (see ‘Key actuarial assumptions’ section below) are more prudent assumptions for discount rate, inflation rate and longevity assumptions.life expectancy.
Although the plan was in surplus at the valuation date, HSBC agreed to make further contributions to the plan to support a lower-risk investment strategy over the longer term. TheseThe remaining contributions amounted to £128m ($158m) in 2016 and are expected to amount to £64m ($79m) in each of 2017, 2018 and 2019, and £160m ($197m) in each of 2020 and 2021.
To meet the requirements of the Banking Reform Act, it is currently planned that from 1 July 2018, the main employer of the plan will change from HSBC Bank plc to HSBC UK Bank plc, with additional support from HSBC Holdings plc. At the same time, non-ring fenced entities including HSBC Bank plc will exit the section of the plan for ring-fenced entities and join a newly created section for the future defined benefit and defined contribution pension benefits of their employees (approximately 0.2% of the total plan). These changes are not expected to materially affect the funding position of the plan.

HSBC Holdings plc235


Notes on the Financial Statements

The following chart below shows the expected profile of future benefits payable from the plan.
Future benefit payments ($bn)
a6ara-finan_chartx31566.jpgchart-edfa68fd4369a61a5a4.jpg
The actuary also assessed the value of the liabilities if the plan were to be stopped and an insurance company asked to secure all future pension payments. This is generally larger than the amount needed on the ongoing basis described above because an insurance company would use more prudent assumptions and include an explicit allowance for the future administrative expenses of the plan. Under this approach, the amount of assets needed was estimated to be £31bn ($38bn) at 31 December 2014.
Income statement charge
2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
Defined benefit pension plans218
256
469
100
218
256
Defined contribution pension plans783
793
687
603
783
793
Pension plans1,001
1,049
1,156
703
1,001
1,049
Defined benefit and contribution healthcare plans41
6
67
(34)41
6
Year ended 31 Dec1,042
1,055
1,223
669
1,042
1,055
Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
 Fair value of
plan assets
Present value of defined benefit
obligations
Effect of
limit on plan
surpluses
Total
 $m
$m
$m
$m
Defined benefit pension plans42,397
(39,747)(24)2,626
Defined benefit healthcare plans118
(711)—
(593)
At 31 Dec 201642,515
(40,458)(24)2,033
Total employee benefit liabilities
(within ‘Accruals, deferred income and other liabilities’)





(2,681)
Total employee benefit assets
(within ‘Prepayments, accrued income and other assets’)





4,714
     
Defined benefit pension plans41,424
(38,326)(14)3,084
Defined benefit healthcare plans141
(762)—
(621)
At 31 Dec 201541,565
(39,088)(14)2,463
Total employee benefit liabilities
(within ‘Accruals, deferred income and other liabilities’)		   (2,809)
Total employee benefit assets
(within ‘Prepayments, accrued income and other assets’)		   5,272

HSBC Holdings plc Annual Report and Accounts 2016
241  


Notes on the Financial Statements

Defined benefit pension plans
Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans
 Fair value of
plan assets
Present value of defined benefit
obligations
Effect of
limit on plan
surpluses
Total
 $m
$m
$m
$m
Defined benefit pension plans47,265
(40,089)(37)7,139
Defined benefit healthcare plans124
(663)—
(539)
At 31 Dec 201747,389
(40,752)(37)6,600
Total employee benefit liabilities (within ‘Accruals, deferred income and other liabilities’)





(2,152)
Total employee benefit assets (within ‘Prepayments, accrued income and other assets’)





8,752
     
Defined benefit pension plans42,397
(39,747)(24)2,626
Defined benefit healthcare plans118
(711)—
(593)
At 31 Dec 201642,515
(40,458)(24)2,033
Total employee benefit liabilities (within ‘Accruals, deferred income and other liabilities’)   (2,681)
Total employee benefit assets (within ‘Prepayments, accrued income and other assets’)   4,714
Net asset/(liability) under defined benefit pension plans
 Fair value of plan assets Present value of defined benefit obligations Effect of the asset ceiling Net defined benefit asset/(liability) 
 
Principal
plan

Other
plans

Principal
plan

Other
plans

Principal
plan

Other
plans

Principal
plan

Other
plans

 $m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 201632,670
8,754
(27,675)(10,651)—
(14)4,995
(1,911)
Current service cost—
—
(70)(235)—
—
(70)(235)
Past service cost and gains/(losses) from settlements—
(1)—
(39)—
—
—
(40)
Service cost—
(1)(70)(274)—
—
(70)(275)
Net interest income/(cost) on the net defined benefit asset/(liability)1,085
294
(914)(337)—
(1)171
(44)
Re-measurement effects recognised in other comprehensive income6,449
671
(6,886)(299)—
(8)(437)364
– return on plan assets (excluding interest income)6,449
671
—
—
—
—
6,449
671
– actuarial gains/(losses)—
—
(7,029)(152)—
(8)(7,029)(160)
– other changes—
—
143
(147)—
—
143
(147)
Exchange differences(6,097)(534)5,254
410
—
(1)(843)(125)
Contributions by HSBC347
379
—
—
—
—
347
379
– normal64
207
—
—
—
—
64
207
– special283
172
—
—
—
—
283
172
Contributions by employees—
30
—
(30)—
—
—
—
Benefits paid(970)(623)970
698
—
—
—
75
Administrative costs and taxes paid by plan(42)(15)42
15
—
—
—
—
At 31 Dec 201633,442
8,955
(29,279)(10,468)—
(24)4,163
(1,537)
Present value of defined benefit obligation relating to:        
– actives



(7,066)(5,066)







– deferreds



(9,219)(2,306)







– pensioners



(12,994)(3,096)







         
At 1 Jan 201535,244
9,580
(30,480)(11,582)—
(17)4,764
(2,019)
Current service cost—
—
(129)(268)—
—
(129)(268)
Past service cost and gains/(losses) from settlements—
(3)(53)71
—
—
(53)68
Service cost—
(3)(182)(197)—
—
(182)(200)
Net interest income/(cost) on the net defined benefit asset/(liability)1,265
322
(1,088)(371)—
(2)177
(51)
Re-measurement effects recognised in other comprehensive income(1,521)(394)1,642
339
—
(30)121
(85)
– return on plan assets (excluding interest income)(1,521)(394)—
—
—
—
(1,521)(394)
– actuarial gains/(losses)—
—
1,392
339
—
(30)1,392
309
– other changes—
—
250
—
—
—
250
—
Exchange differences(1,704)(458)1,443
529
—
35
(261)106
Contributions by HSBC376
279
—
—
—
—
376
279
– normal159
227
—
—
—
—
159
227
– special217
52
—
—
—
—
217
52
Contributions by employees17
35
(17)(35)—
—
—
—
Benefits paid(970)(590)970
649
—
—
—
59
Administrative costs and taxes paid by plan(37)(17)37
17
—
—
—
—
At 31 Dec 201532,670
8,754
(27,675)(10,651)—
(14)4,995
(1,911)
Present value of defined benefit obligation relating to:        
– actives  (6,310)(5,350)    
– deferreds  (7,919)(2,239)    
– pensioners  (13,446)(3,062)    
HSBC expects to make $425m of contributions to defined benefit pension plans during 2017. Benefits expected to be paid from the plans to retirees over each of the next five years, and in aggregate for the five years thereafter, are as follows:
Benefits expected to be paid from plans 
  2017
2018
2019
2020
2021
2022-2026
 Footnote$m
$m
$m
$m
$m
$m
The principal plan1917
948
979
1,012
1,045
5,533
Other plans1427
468
489
505
536
2,492
1The duration of the defined benefit obligation is 19.0 years for the principal plan under the disclosure assumptions adopted (2015: 17.0 years) and 13.9 years for all other plans combined (2015: 13.9 years).

242  
HSBC Holdings plc Annual Report and Accounts 2016


Fair value of plan assets by asset classes
 31 Dec 201631 Dec 2015
 Value
Quoted
market price
in active
market
No quoted
market price
in active
market
Thereof
HSBC1

Value
Quoted
market price
in active
market
No quoted
market price
in active
market
Thereof
HSBC1

 $m
$m
$m
$m
$m
$m
$m
$m
The principal plan        
Fair value of plan assets33,442
29,379
4,063
878
32,670
29,370
3,300
513
– equities5,386
4,722
664
—
5,730
4,990
740
—
– bonds23,426
23,426
—
—
22,704
22,704
—
—
– derivatives2,107
—
2,107
878
1,011
—
1,011
513
– other2,523
1,231
1,292
—
3,225
1,676
1,549
—
Other plans







    
Fair value of plan assets8,955
7,631
1,324
239
8,754
7,882
872
148
– equities2,255
1,502
753
—
2,434
1,900
534
1
– bonds5,811
5,592
219
5
5,719
5,458
261
2
– derivatives(89)44
(133)(85)7
—
7
1
– other978
493
485
319
594
524
70
144
1The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 36.
Post-employment defined benefit plans’ principal actuarial financial assumptions
HSBC determines the discount rates to be applied to its obligations in consultation with the plans’ local actuaries, on the basis of current average yields of high quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit obligations.
Key actuarial assumptions for the principal plan
 Discount rateInflation rateRate of increase for pensionsRate of pay increase
 %%%%
UK    
At 31 Dec 20162.503.503.204.00
At 31 Dec 20153.703.203.003.70
At 31 Dec 20143.703.203.003.70

Mortality tables and average life expectancy at age 65 for the principal plan
 
Mortality
table
Life expectancy at age 65 for
a male member currently:
Life expectancy at age 65 for
a female member currently:
  Aged 65Aged 45Aged 65Aged 45
UK     
At 31 Dec 2016
SAPS S21
22.424.124.726.6
At 31 Dec 2015
SAPS S12
23.625.024.926.7
1Self-administered Pension Scheme (‘SAPS’) S2 table (Males: 'All Pensioners' version, Females: 'Normal Pensions' version) with a multiplier of 0.98 for both male and female pensioners. Improvements are projected in accordance with the Continuous Mortality Investigation ('CMI) core projection model 2015 with a long-term rate of improvement of 1.25% per annum. Separate tables assuming lighter mortality have been applied to higher paid pensioners.
2Self-administered Pension Scheme (‘SAPS’) Light table with a multiplier of 1.01 for male pensioners and 1.02 for female pensioners. Improvements are projected in accordance with the Continuous Mortality Investigation (‘CMI’) core projection model 2015 with a long-term rate of improvement of 1.25% per annum.
The effect of changes in key assumptions on the principal plan
 Impact on HSBC Bank (UK) Pension Scheme Obligation
 Financial impact of increaseFinancial impact of decrease
 2016
2015
2016
2015
 $m
$m
$m
$m
Discount rate – increase/decrease of 0.25%(1,322)(1,107)1,419
1,180
Inflation rate – increase/decrease of 0.25%735
747
(1,048)(855)
Pension payments and deferred pensions – increase/decrease of 0.25%1,305
990
(1,255)(937)
Pay – increase/decrease of 0.25%143
119
(139)(119)
Change in mortality – increase of 1 year1,326
670
n/a
n/a

HSBC Holdings plc Annual Report and Accounts 2016
243  


Notes on the Financial Statements

HSBC Holdings
Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 20162017 amounted to $571m (2015: $908m)$54m (2016: $570m). The average number of persons employed during 20162017 was 1,660 (2015: 2,656)55 (2016: 1,660). Employees who are members of defined benefit pension plans are principally members of either the HSBC Bank (UK) Pension Scheme or the HSBC International Staff Retirement Benefits Scheme. HSBC Holdings pays contributions to such plans for its own employees in accordance with the schedules of contributions determined by the trustees of the plans and recognises these contributions as an expense as they fall due.
From 1 July 2016 employment costs of most employees are recognised by the ServCo group and the ServCo group has started providing services to HSBC Holdings. HSBC Holdings recognised a management charge of $406m$2,240m (2016 :$406m) for these services which is included under ‘General and administrative expenses’.

236HSBC Holdings plc


Defined benefit pension plans
Net asset/(liability) under defined benefit pension plans
 Fair value of plan assetsPresent value of defined benefit obligationsEffect of the asset ceilingNet defined benefit asset/(liability)
 
Principal
plan

Other
plans

Principal
plan

Other
plans

Principal
plan

Other
plans

Principal
plan

Other
plans

 $m
$m
$m
$m
$m
$m
$m
$m
At 1 Jan 201733,442
8,955
(29,279)(10,468)—
(24)4,163
(1,537)
Current service cost—
—
(65)(160)—
—
(65)(160)
Past service cost and gains/(losses) from settlements—
(833)(231)1,051
—
—
(231)218
Service cost—
(833)(296)891
—
—
(296)58
Net interest income/(cost) on the net defined benefit asset/(liability)864
272
(750)(300)—
(1)114
(29)
Re-measurement effects recognised in other comprehensive income1,410
784
1,730
(486)—
(9)3,140
289
– return on plan assets (excluding interest income)1,410
784
—
—
—
—
1,410
784
– actuarial gains/(losses)—
—
954
(491)—
(9)954
(500)
– other changes—
—
776
5
—
—
776
5
Exchange differences3,292
239
(2,723)(306)—
(3)569
(70)
Contributions by HSBC449
236
—
—
—
—
449
236
– normal58
215
—
—
—
—
58
215
– special391
21
—
—
—
—
391
21
Contributions by employees—
27
—
(27)—
—
—
—
Benefits paid(1,143)(663)1,143
716
—
—
—
53
Administrative costs and taxes paid by plan(49)(17)49
17
—
—
—
—
At 31 Dec 201738,265
9,000
(30,126)(9,963)—
(37)8,139
(1,000)
Present value of defined benefit obligation relating to:        
– actives



(5,837)(5,084)







– deferreds



(8,745)(1,663)







– pensioners



(15,544)(3,216)







         
At 1 Jan 201632,670
8,754
(27,675)(10,651)—
(14)4,995
(1,911)
Current service cost—
—
(70)(235)—
—
(70)(235)
Past service cost and gains/(losses) from settlements—
(1)—
(39)—
—
—
(40)
Service cost—
(1)(70)(274)—
—
(70)(275)
Net interest income/(cost) on the net defined benefit asset/(liability)1,085
294
(914)(337)—
(1)171
(44)
Re-measurement effects recognised in other comprehensive income6,449
671
(6,886)(299)—
(8)(437)364
– return on plan assets (excluding interest income)6,449
671
—
—
—
—
6,449
671
– actuarial gains/(losses)—
—
(7,029)(152)—
(8)(7,029)(160)
– other changes—
—
143
(147)—
—
143
(147)
Exchange differences(6,097)(534)5,254
410
—
(1)(843)(125)
Contributions by HSBC347
379
—
—
—
—
347
379
– normal64
207
—
—
—
—
64
207
– special283
172
—
—
—
—
283
172
Contributions by employees—
30
—
(30)—
—
—
—
Benefits paid(970)(623)970
698
—
—
—
75
Administrative costs and taxes paid by plan(42)(15)42
15
—
—
—
—
At 31 Dec 201633,442
8,955
(29,279)(10,468)—
(24)4,163
(1,537)
Present value of defined benefit obligation relating to:        
– actives  (7,066)(5,066)    
– deferreds  (9,219)(2,306)    
– pensioners  (12,994)(3,096)    
HSBC expects to make $278m of contributions to defined benefit pension plans during 2018. Benefits expected to be paid from the plans to retirees over each of the next five years, and in aggregate for the five years thereafter, are as follows:
Benefits expected to be paid from plans 
  2018
2019
2020
2021
2022
2023-2027
 Footnote$m
$m
$m
$m
$m
$m
The principal plan11,241
1,279
1,320
1,360
1,402
7,692
Other plans1443
508
511
527
520
2,307
1The duration of the defined benefit obligation is 17.4 years for the principal plan under the disclosure assumptions adopted (2016: 19.0 years) and 12.9 years for all other plans combined (2016: 13.9 years).

HSBC Holdings plc237


Notes on the Financial Statements

Fair value of plan assets by asset classes
 31 Dec 201731 Dec 2016
 Value
Quoted
market price
in active
market
No quoted
market price
in active
market
Thereof
HSBC1

Value
Quoted
market price
in active
market
No quoted
market price
in active
market
Thereof
HSBC1

 $m
$m
$m
$m
$m
$m
$m
$m
The principal plan        
Fair value of plan assets38,265
33,624
4,641
1,006
33,442
29,379
4,063
878
– equities6,131
5,503
628
—
5,386
4,722
664
—
– bonds26,591
26,591
—
—
23,426
23,426
—
—
– derivatives2,398
—
2,398
1,006
2,107
—
2,107
878
– other3,145
1,530
1,615
—
2,523
1,231
1,292
—
Other plans







    
Fair value of plan assets9,000
7,737
1,263
114
8,955
7,631
1,324
239
– equities2,005
1,340
665
—
2,255
1,502
753
—
– bonds5,871
5,714
157
7
5,811
5,592
219
5
– derivatives—
39
(39)—
(89)44
(133)(85)
– other1,124
644
480
107
978
493
485
319
1The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 35.
Post-employment defined benefit plans’ principal actuarial financial assumptions
HSBC determines the discount rates to be applied to its obligations in consultation with the plans’ local actuaries, on the basis of current average yields of high quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit obligations.
Key actuarial assumptions for the principal plan
 Discount rateInflation rateRate of increase for pensionsRate of pay increase
 %%%%
UK    
At 31 Dec 20172.603.403.103.88
At 31 Dec 20162.503.503.204.00
At 31 Dec 20153.703.203.003.70
Mortality tables and average life expectancy at age 65 for the principal plan
 
Mortality
table
Life expectancy at age 65 for
a male member currently:
Life expectancy at age 65 for
a female member currently:
  Aged 65Aged 45Aged 65Aged 45
UK     
At 31 Dec 2017
SAPS S21
22.223.624.425.9
At 31 Dec 2016
SAPS S22
22.424.124.726.6
1Self-administered pension scheme (‘SAPS’) S2 table (males: 'All Pensioners' version; females: 'Normal Pensions' version) with a multiplier of 0.98 for both male and female pensioners. Improvements are projected in accordance with the Continuous Mortality Investigation (‘CMI’) core projection model 2016 with a long-term rate of improvement of 1.25% per annum. Separate tables assuming lighter mortality have been applied to higher paid pensioners.
2Self-administered pension scheme (‘SAPS’) S2 table (males: 'All Pensioners' version; females: 'Normal Pensions' version) with a multiplier of 0.98 for both male and female pensioners. Improvements are projected in accordance with the Continuous Mortality Investigation (‘CMI’) core projection model 2015 with a long-term rate of improvement of 1.25% per annum. Separate tables assuming lighter mortality have been applied to higher paid pensioners.
The effect of changes in key assumptions on the principal plan
 Impact on HSBC Bank (UK) Pension Scheme Obligation
 Financial impact of increaseFinancial impact of decrease
 2017
2016
2017
2016
 $m
$m
$m
$m
Discount rate – increase/decrease of 0.25%(1,246)(1,322)1,333
1,419
Inflation rate – increase/decrease of 0.25%850
735
(837)(1,048)
Pension payments and deferred pensions – increase/decrease of 0.25%1,077
1,305
(1,021)(1,255)
Pay – increase/decrease of 0.25%62
143
(61)(139)
Change in mortality – increase of 1 year1,332
1,326
n/a
n/a
Directors’ emoluments
Details of directors’Directors’ emoluments, pensions and their interests are disclosed in the Directors’ Remuneration Report on page 191.186.

238HSBC Holdings plc


6Auditors’ remuneration
 201620152014 201720162015
Footnotes$m$mFootnote$m$m
Audit fees payable to PwC/KPMG1, 265.762.040.6
Audit fees payable to PwC184.865.762.0
Other audit fees payable 1.61.2 1.21.61.2
Year ended 31 Dec 67.363.241.8 86.067.363.2
      
 Fees payable by HSBC to PwC/KPMG2
   2016
2015
2014
  Footnotes$m
$m
$m
 Fees for HSBC Holdings’ statutory audit314.0
13.1
13.4
 Fees for other services provided to HSBC 97.1
85.1
62.5
 – audit of HSBC’s subsidiaries451.7
48.9
27.2
 – audit-related assurance services520.6
16.6
22.6
 – taxation-related services: 





 taxation compliance services 1.9
1.0
1.5
 taxation advisory services 0.4
0.9
0.8
 – other assurance services64.5
2.8
0.7
 – other non-audit services618.0
14.9
9.7
 Year ended 31 Dec 111.1
98.2
75.9
Fees payable by HSBC to PwC    
  2017
2016
2015
 Footnotes$m
$m
$m
Fees for HSBC Holdings’ statutory audit215.1
14.0
13.1
Fees for other services provided to HSBC 114.6
97.1
85.1
– audit of HSBC’s subsidiaries369.7
51.7
48.9
– audit-related assurance services422.5
20.6
16.6
– taxation compliance services 1.2
1.9
1.0
– taxation advisory services —
0.4
0.9
– other assurance services53.9
4.5
2.8
– other non-audit services517.3
18.0
14.9
Year ended 31 Dec 129.7
111.1
98.2
No fees were payable by HSBC to PwC or KPMG as principal auditor for the following types of services: internal audit services and services related to litigation, recruitment and remuneration.
      
 Fees payable by HSBC’s associated pension schemes to PwC/KPMG2
   2016
2015
2014
   $000
$000
$000
 Audit of HSBC’s associated pension schemes 208
352
322
 Audit related assurance services 4
5
5
 Year ended 31 Dec 212
357
327
Fees payable by HSBC’s associated pension schemes to PwC
  2017
2016
2015
  $000
$000
$000
Audit of HSBC’s associated pension schemes 260
208
352
Audit related assurance services 4
4
5
Year ended 31 Dec 264
212
357
1Included within the
The 2016 audit fees payable is a final fee adjustment of $4.2mamount includes $4.2m related to the prior year audit in respect of overruns.
2PwC became the Group’s principal auditor in 2015. KPMG was the principal auditor during 2014.
3Fees payable to PwC and KPMG for the statutory audit of the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings. They include amounts payable for services relating to the consolidation returns of HSBC Holdings’ subsidiaries which are clearly identifiable as being in support of the Group audit opinion.
43
Fees payable for the statutory audit of the financial statements of HSBC’s subsidiaries, including the 2017 and 2016 changes in scope and additional procedures performed due to the technology systems and data access controls matter as described on page 212210.
54Including services for assurance and other services that relate to statutory and regulatory filings, including comfort letters and interim reviews and work performed related to the implementation of IFRS 9.
65Including other permitted services relating to advisory, corporate finance transactions, etc.
No fees were payable by HSBC’s associated pension schemes to PwC or KPMG as principal auditor for the following types of services: audit-related assurance services, internal audit services, other assurance services, services related to corporate finance transactions, valuation and actuarial services, litigation, recruitment and remuneration, and information technology.
In addition to the above, the estimated fees paid to PwC by third parties other thanassociated with HSBC amount to $4.3m (PwC$3.5m (2016: $4.3m; 2015: $2.4m; KPMG 2014: $3.6m)$2.4m). In these cases, HSBC is connected with the contracting party and may therefore be involved in appointing PwC. These fees arise from services such as auditing mutual funds managed by HSBC and reviewing the financial position of corporate concerns which borrow from HSBC.
Fees payable for non-audit services for HSBC Holdings are not disclosed separately because such fees are disclosed on a consolidated basis for the HSBC Group.

244  7
HSBC Holdings plc Annual Report and Accounts 2016


7    Tax
Tax expense
 2016
2015
2014
 2017
2016
2015
Footnotes$m
$m
$m
Footnote$m
$m
$m
Current tax13,669
3,797
3,950
14,264
3,669
3,797
– for this year 3,525
3,882
4,477
 4,115
3,525
3,882
– adjustments in respect of prior years 144
(85)(527) 149
144
(85)
Deferred tax (3)(26)25
 1,024
(3)(26)
– origination and reversal of temporary differences (111)(153)(477) (228)(111)(153)
– effect of changes in tax rates (4)110
83
 1,337
(4)110
– adjustments in respect of prior years 112
17
419
 (85)112
17
Year ended 31 Dec 3,666
3,771
3,975
 5,288
3,666
3,771
1
Current tax included Hong Kong profits tax of $1,118m (2015: $1,294m; 2014: $1,135m)$1,350m (2016: $1,118m; 2015: $1,294m). The Hong Kong tax rate applying to the profits of subsidiaries assessable in Hong Kong was 16.5% (2015:(2016: 16.5%; 2014:2015: 16.5%).

HSBC Holdings plc239


Notes on the Financial Statements

Tax reconciliation
The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK corporation tax rate as follows:
201620152014201720162015
$m
%
$m
%
$m
%
$m
%
$m
%
$m
%
Profit before tax7,112
 18,867
 18,680
 17,167


7,112


18,867


Tax expense  











Taxation at UK corporation tax rate of 20.0% (2015: 20.25%; 2014: 21.5%)1,422
20.0
3,821
20.25
4,016
21.50
Taxation at UK corporation tax rate of 19.25% (2016: 20.0%;
2015: 20.25%)		3,305
19.25
1,422
20.00
3,821
20.25
Impact of differently taxed overseas profits in overseas locations43
0.6
71
0.4
33
0.2
407
2.3
43
0.6
71
0.4
Items increasing tax charge in 2016 not in 2015:











– non-deductible goodwill write-down648
9.1
—
—
—
—
– non-deductible loss and taxes suffered on Brazil disposal464
6.5
—
—
—
—
– UK tax losses not recognised305
4.3
—
—
—
—
– adjustments in respect of prior period liabilities256
3.6
(68)(0.4)(108)(0.6)
– UK Banking Surcharge199
2.8
—
—
—
—
– non-UK tax losses not recognised147
2.1
—
—
—
—
Other items increasing tax charge in 2016:











Items increasing tax charge in 2017 not in 2016:











– deferred tax remeasurement due to US federal tax rate reduction1,288
7.5
—
—
—
—
Other items increasing tax charge in 2017:











– local taxes and overseas withholding taxes434
6.1
416
2.2
434
2.3
618
3.6
434
6.1
416
2.2
– other permanent disallowables438
6.2
421
2.2
476
2.5
400
2.3
438
6.2
421
2.2
– bank levy170
2.4
286
1.5
229
1.2
180
1.0
170
2.4
286
1.5
– non-deductible UK customer compensation162
2.3
87
0.5
—
—
166
1.0
162
2.3
87
0.5
– other items—
—
(116)(0.6)(22)(0.1)
– non-deductible regulatory settlements20
0.3
184
1.0
264
1.4
Items reducing tax charge in 2016:  
– UK banking surcharge136
0.8
199
2.8
—
—
– UK tax losses not recognised70
0.4
305
4.3
—
—
– adjustments in respect of prior period liabilities64
0.4
256
3.6
(68)(0.4)
– change in tax rates49
0.3
(4)(0.1)110
0.6
– non-UK tax losses not recognised33
0.2
147
2.1
—
—
– non-deductible goodwill write-down—
—
648
9.1
—
—
– non-deductible loss and taxes suffered on Brazil disposal—
—
464
6.5
—
—
Items reducing tax charge in 2017:











– non-taxable income and gains(577)(8.1)(501)(2.7)(668)(3.5)(766)(4.4)(577)(8.1)(501)(2.7)
– effect of profits in associates and joint ventures(461)(6.5)(508)(2.7)(547)(2.9)(481)(2.8)(461)(6.5)(508)(2.7)
– change in tax rates(4)(0.1)110
0.6
22
0.1
Non-taxable income and gains - Industrial Bank—
—
(227)(1.2)—
—
US deferred tax temporary differences previously not recognised—
—
(184)(1.0)(154)(0.8)
Other deferred tax temporary differences previously not recognised—
—
(21)(0.1)—
—
– non-deductible regulatory settlements(132)(0.8)20
0.3
184
1.0
– other deferred tax temporary differences previously not recognised(49)(0.3)—
—
(21)(0.1)
– non-taxable income and gains - Industrial Bank—
—
—
—
(227)(1.2)
– US deferred tax temporary differences previously not recognised—
—
—
—
(184)(1.0)
– other items—
—
—
—
(116)(0.6)
Year ended 31 Dec3,666
51.6
3,771
20.0
3,975
21.3
5,288
30.8
3,666
51.6
3,771
20.0
The Group’s profits are taxed at different rates depending on the country in which the profits arise. The key applicable tax rates for 2017 include Hong Kong (16.5%), the USA (35%) and the UK (20%(19.25%). If the Group’s profits were taxed at the statutory rates of the countries in which the profits arisearose then the tax rate for the year would have been 20.6% (2015: 20.65%21.15% (2016: 20.60%). The effective tax rate for the year was 30.8% (2016: 51.6% (2015: 20%) and includes a charge of $1.3bn relating to the remeasurement of US deferred tax balances to reflect the reduction in the US federal tax rate to 21% from 2018. The effective tax rate for 2017 was significantly higherlower than 2015 due tofor 2016 as 2016 included the impact of a non-deductible goodwill write-down and loss on disposal of our operations in Brazil, tax losses not recognised and adjustments in respect of prior periods and the 8% UK banking surcharge, which became applicable from 1 January 2016.periods.
Accounting for taxes involves some estimation because the tax law is uncertain and its application requires a degree of judgement, which authorities may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking into account external advice where appropriate. We do not expect significant liabilities to arise in excess of the amounts provided. HSBC only recognises current and deferred tax assets where recovery is probable.

240
HSBC Holdings plc Annual Report and Accounts 2016245  


Notes on the Financial Statements

Movement of deferred tax assets and liabilities
 Loan
impairment
provisions
Unused tax
losses and
tax credits
Derivatives,
FVOD1
and other
investments

Insurance
business
Expense
provisions
Other
Total
 Loan
impairment
provisions
Unused tax
losses and
tax credits
Derivatives,
FVOD1
and other
investments

Insurance
business
Expense
provisions
Other
Total
Footnote$m
$m
$m
$m
$m
$m
$m
Assets 950
2,212
1,441
—
893
1,857
7,353
Liabilities —
—
(274)(1,170)—
(1,369)(2,813)
At 1 Jan 2017 950
2,212
1,167
(1,170)893
488
4,540
Income statement (235)(873)(397)12
(269)738
(1,024)
Other comprehensive income 3
(6)368
—
—
(1,255)(890)
Equity —
—
—
—
—
29
29
Foreign exchange and other adjustments (5)40
51
(24)19
(42)39
At 31 Dec 2017 713
1,373
1,189
(1,182)643
(42)2,694
Assets2713
1,373
1,282
—
643
2,313
6,324
Liabilities2—
—
(93)(1,182)—
(2,355)(3,630)
Footnotes$m
$m
$m
$m
$m
$m
$m
  
Assets 1,351
1,388
1,400
—
1,271
1,050
6,460
 1,351
1,388
1,400
—
1,271
1,050
6,460
Liabilities —
—
(230)(1,056)—
(883)(2,169) —
—
(230)(1,056)—
(883)(2,169)
At 1 Jan 2016 1,351
1,388
1,170
(1,056)1,271
167
4,291
 1,351
1,388
1,170
(1,056)1,271
167
4,291
Income statement3(279)876
18
(123)(370)(314)(192) (279)876
18
(123)(370)(314)(192)
Other comprehensive income —
—
28
—
—
259
287
 —
—
28
—
—
259
287
Equity —
—
—
—
—
20
20
 —
—
—
—
—
20
20
Foreign exchange and other adjustments (122)(52)(49)9
(8)356
134
 (122)(52)(49)9
(8)356
134
At 31 Dec 2016 950
2,212
1,167
(1,170)893
488
4,540
 950
2,212
1,167
(1,170)893
488
4,540
Assets2950
2,212
1,441
—
893
1,857
7,353
2950
2,212
1,441
—
893
1,857
7,353
Liabilities2—
—
(274)(1,170)—
(1,369)(2,813)2—
—
(274)(1,170)—
(1,369)(2,813)
  
Assets 2,264
1,332
1,764
—
1,244
836
7,440
Liabilities —
—
(233)(861)—
(759)(1,853)
At 1 Jan 2015 2,264
1,332
1,531
(861)1,244
77
5,587
Income statement 45
379
(557)(143)418
(116)26
Other comprehensive income —
—
22
—
156
321
499
Reclassification to 'Assets held for sale'
(673)(186)76
87
(386)(136)(1,218)
Equity —
—
—
—
—
4
4
Foreign exchange and other adjustments (285)(137)98
(139)(161)17
(607)
At 31 Dec 2015 1,351
1,388
1,170
(1,056)1,271
167
4,291
Assets21,351
1,388
1,400
—
1,271
1,050
6,460
Liabilities2—
—
(230)(1,056)—
(883)(2,169)
1Fair value of own debt.
2
After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets $6,163m (2015: $6,051m)$4,676m (2016: $6,163m); and deferred tax liabilities $1,623m (2015: $1,760m)$1,982m (2016: $1,623m).
3Excludes a tax credit of $195m relating to deferred tax balances in Brazil, which were included within 'Assets held for sale' prior to disposal.
In applying judgement in recognising deferred tax assets, management has critically assessed all available information, including future business profit projections and the track record of meeting forecasts.
The net deferred tax asset of $4.5bn (2015: $4.3bn)$2.7bn (2016: $4.5bn) includes $4.8bn (2015: $4.5bn)$3.2bn (2016: $4.8bn) of deferred tax assets relating to the US, of which $2bn deferred tax asset$1bn relates to US tax losses that expire in 16-2016 -19 years. Management expects the US deferred tax asset to be substantially recovered in six to seven years, with the majority recovered in the first five years. The most recent financial forecasts approved by management covers a five-year period and the forecasts have been extrapolated beyond five years by assuming that performance remains constant after the fifth year. The forecasts also include additional tax losses in 2017 – these losses expire in 2037 and are expected to be utilised by 2023.
The US reported a loss for the currentprior period, mainly due to the Household International class action litigation settlement.settlement, and a profit for the current period. Excluding the Household International class action settlement the US would have reported a profit for the current year. In addition, the US reported a profit in 2014 and 2015.prior period. Management does not expect the current yearprior period loss to adversely impact future deferred tax asset recovery to a significant extent.
US tax reform enacted in late 2017 and effective from 2018 included a reduction in the federal rate of tax from 35%to 21%and the introduction of a base erosion anti-avoidance tax. The US deferred tax asset has beenat 31 December 2017 is calculated using the current federalrate of 21%. The remeasurement of the deferred tax asset due to the reduction in tax rate results in charges of 35%. Any possible future reduction$1.3bn to the income statement and $0.3bn to other comprehensive income. The impact of the US federalbase erosion anti-avoidance tax rate from 35% would reduceis currently uncertain and will depend on future regulatory guidance and actions management may take. It is not currently expected that the value ofbase erosion anti-avoidance tax will have a material impact on the US deferredGroup’s future tax assets and create a tax charge in the period in which any change in the tax rate is enacted. This tax charge should be ultimately offset by the benefit of reduced US tax charges in future years.charges.
Unrecognised deferred tax
The amount of gross temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the balance sheet was $18.2bn (2015: $15.5bn)$18.1bn (2016: $18.2bn). These amounts included unused state losses arising in the Group’s US operations of $12.3bn (2015: $11.3bn)(2016: $12.3bn). Of the total amounts unrecognised, $4.9bn (2015: $3.1bn)$4.8bn (2016: $4.9bn) had no expiry date, $1.0bn (2015: $0.9bn)$0.8bn (2016: $1.0bn) was scheduled to expire within 10 years and the remaining balance is expected to expire after 10 years.
Deferred tax is not recognised in respect of the Group’s investments in subsidiaries and branches where HSBC is able to control the timing of remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The aggregate temporary differences relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and branches is $10.6bn (2015: $9.1bn)$12.1bn (2016: $10.6bn) and the corresponding unrecognised deferred tax liability is $0.7bn (2015: $0.6bn)$0.8bn (2016: $0.7bn).


246  
HSBC Holdings plc Annual Report and Accounts 2016
241


Notes on the Financial Statements

8Dividends
Dividends to shareholders of the parent company
201720162015
201620152014Per
share
Total
Settled
in scrip
Per
share
Total
Settled
in scrip
Per
share
Total
Settled
in scrip
Per
share
$

Total
$m

Settled
in scrip
$m

Per
share
$

Total
$m

Settled
in scrip $m

Per
share
$

Total
$m

Settled
in scrip $m

$
$m
$m
$
$m
$m
$
$m
$m
Dividends paid on ordinary shares



































In respect of previous year:



































– fourth interim dividend0.21
4,137
408
0.20
3,845
2,011
0.19
3,582
1,827
0.21
4,169
1,945
0.21
4,137
408
0.20
3,845
2,011
In respect of current year:



































– first interim dividend0.10
1,981
703
0.10
1,951
231
0.10
1,906
284
0.10
2,005
826
0.10
1,981
703
0.10
1,951
231
– second interim dividend0.10
1,991
994
0.10
1,956
160
0.10
1,914
372
0.10
2,014
193
0.10
1,991
994
0.10
1,956
160
– third interim dividend0.10
1,990
935
0.10
1,958
760
0.10
1,918
226
0.10
2,005
242
0.10
1,990
935
0.10
1,958
760
Total0.51
10,099
3,040
0.50
9,710
3,162
0.49
9,320
2,709
0.51
10,193
3,206
0.51
10,099
3,040
0.50
9,710
3,162
Total dividends on preference shares classified as equity (paid quarterly)62.00
90


62.00
90


62.00
90


62.00
90


62.00
90


62.00
90


Total coupons on capital securities classified as equity
 20162015
2014
 20172016
2015
  Total
Total
Total
  Total
Total
Total
FootnotesFirst call datePer security
$m
$m
$m
FootnotesFirst call datePer security
$m
$m
$m
Perpetual subordinated capital securities1, 3    1, 3    
– $2,200m Apr 2013
$2.032
179
179
179
– $3,800m Dec 2015
$2.000
304
304
304
– $2,200m issued at 8.125% Apr 2013
$2.032
179
179
179
– $3,800m issued at 8.000% Dec 2015
$2.000
304
304
304
Perpetual subordinated contingent convertible securities2, 3    2, 3    
– $1,500m issued at 5.625% Jan 2020
$56.250
84
84
70
– $2,000m issued at 6.875% Jun 2021
$68.750
138
69
—
– $2,250m issued at 6.375% Sep 2024
$63.750
143
143
—
 Sep 2024
$63.750
143
143
143
– $1,500m issued at 5.625% Jan 2020
$56.250
84
70
—
– $2,450m issued at 6.375% Mar 2025
$63.750
156
156
78
– $3,000m issued at 6.000% May 2027
$60.000
90
—
—
– €1,500m issued at 5.250% Sep 2022
€52.500
88
86
—
 Sep 2022
€52.500
89
88
86
– $2,450m issued at 6.375% Mar 2025
$63.750
156
78
—
– €1,000m issued at 6.000%
 Sep 2023
€60.000
67
—
—
 Sep 2023
€60.000
68
67
—
– $2,000m issued at 6.875%
 Jun 2021
$68.750
69
—
—
– SGD1,000m issued at 4.700% Jun 2022SGD47.000
17
—
—
Total  1,090
860
483
  1,268
1,090
860
1
Discretionary coupons are paid quarterly on the perpetual subordinated capital securities, in denominations of $25$25 per security.
2
Discretionary coupons are paid semi-annually on the perpetual subordinated contingent convertible securities, in denominations of each security’s issuance currency 1,000 per security.
3
Further details of these securities can be found in Note 3231.
After the end of the year, the Directors declared a fourth interim dividend in respect of the financial year ended 31 December 20162017 of $0.21 per ordinary share, a distribution of approximately $4,172m.$4,199m. The fourth interim dividend will be payable on 6 April 20172018 to holders on the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 2423 February 2017.2018. No liability was recorded in the financial statements in respect of the fourth interim dividend for 2016.2017.
On 4 January 2018, HSBC paid a coupon on its €1,250m subordinated capital securities, representing a total distribution of €30m ($36.3m). On 17 January 2017,2018, HSBC paid a coupon on its $2,200m subordinated capital securities of $0.508 per security, a distribution of $45m. On 17 January 2017,2018, HSBC paid a coupon on its $1,500m subordinated contingent convertible securities issued at 5.625% of $28.125 per security, a distribution of $42m. No liability was recorded in the balance sheet at 31 December 20162017 in respect of these coupon payments.

HSBC Holdings plc Annual Report and Accounts 2016
9		247  


Notes on the Financial Statements

9Earnings per share
Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares.
Profit attributable to the ordinary shareholders of the parent company
2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
Profit attributable to shareholders of the parent company2,479
13,522
13,688
10,798
2,479
13,522
Dividend payable on preference shares classified as equity(90)(90)(90)(90)(90)(90)
Coupon payable on capital securities classified as equity(1,090)(860)(483)(1,025)(1,090)(860)
Year ended 31 Dec1,299
12,572
13,115
9,683
1,299
12,572

242HSBC Holdings plc


Basic and diluted earnings per share
 201620152014 201720162015
 Profit
Number
of shares
Per
share
Profit
Number
of shares

Per
share

Profit
Number
of shares

Per
share

 Profit
Number
of shares
Per
share
Profit
Number
of shares

Per
share

Profit
Number
of shares

Per
share

Footnote$m
(millions)
$
$m
(millions)
$
$m
(millions)
$
Footnote$m
(millions)
$
$m
(millions)
$
$m
(millions)
$
Basic11,299
19,753
0.07
12,572
19,380
0.65
13,115
18,960
0.69
19,683
19,972
0.48
1,299
19,753
0.07
12,572
19,380
0.65
Effect of dilutive potential ordinary shares 

92


 137
 96
  

100


 92
 137
 
Diluted11,299
19,845
0.07
12,572
19,517
0.64
13,115
19,056
0.69
19,683
20,072
0.48
1,299
19,845
0.07
12,572
19,517
0.64
1
Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).
The number of anti-dilutive employee share options excluded from the weighted average number of dilutive potential ordinary shares excludes 10m employee share options that were anti‑dilutive (2015: 7m; 2014: 6m)is nil (2016: 10m; 2015: 7m).
10
Trading assets
 2016
2015
 2017
2016
Footnote$m
$m
Footnote$m
$m
Treasury and other eligible bills 14,451
7,829
 17,532
14,451
Debt securities 94,054
99,038
 107,486
94,054
Equity securities 63,604
66,491
 99,260
63,604
Trading securities 172,109
173,358
 224,278
172,109
Loans and advances to banks124,769
22,303
126,057
24,769
Loans and advances to customers138,247
29,176
137,660
38,247
At 31 Dec 235,125
224,837
 287,995
235,125
1Loans and advances to banks and customers include settlement accounts, stock borrowing, reverse repos, cash collateral and other amounts.margin accounts relating to trading activities.
     
 Trading Securities1
   2016
2015
  Footnotes$m
$m
 US Treasury and US Government agencies217,010
14,833
 UK Government 9,493
10,177
 Hong Kong Government 7,970
6,495
 Other governments 49,229
48,567
 Asset-backed securities32,668
3,135
 Corporate debt and other securities 22,135
23,660
 Equity securities 63,604
66,491
 At 31 Dec 172,109
173,358
Trading Securities1
   
  2017
2016
 Footnotes$m
$m
US Treasury and US Government agencies215,995
17,010
UK Government 9,540
9,493
Hong Kong Government 10,070
7,970
Other governments 58,858
49,229
Asset-backed securities32,986
2,668
Corporate debt and other securities 27,569
22,135
Equity securities 99,260
63,604
At 31 Dec 224,278
172,109
1
Included within these figures are debt securities issued by banks and other financial institutions of $14,630m (2015: $16,403m)$18,585m (2016: $14,630m), of which $789m (2015: $1,034m)$906m (2016: $789m) are guaranteed by various governments.
2Includes securities that are supported by an explicit guarantee issued by the US Government.
3Excludes asset-backed securities included under US Treasury and US Government agencies.

248  11
HSBC Holdings plc Annual Report and Accounts 2016


11    Fair values of financial instruments carried at fair value
Control framework
Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the risk taker.
Where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price determination or validation is used. For inactive markets, HSBC sources alternative market information, with greater weight given to information that is considered to be more relevant and reliable. Examples of the factors considered are price observability, instrument comparability, consistency of data sources, underlying data accuracy and timing of prices.
For fair values determined using valuation models, the control framework includes development or validation by independent support functions of the model logic, inputs, model outputs and adjustments. Valuation models are subject to a process of due diligence before becoming operational and are calibrated against external market data on an ongoing basis.
Changes in fair value are generally subject to a profit and loss analysis process and are disaggregated into high-level categories including portfolio changes, market movements and other fair value adjustments.
The majority of financial instruments measured at fair value are in GB&M. GB&M’s fair value governance structure comprises its Finance function, Valuation Committees and a Valuation Committee Review Group. Finance is responsible for establishing procedures governing valuation and ensuring fair values are in compliance with accounting standards. The fair values are reviewed by the Valuation Committees, which consist of independent support functions. These Committees are overseen by the Valuation Committee Review Group, which considers all material subjective valuations.

HSBC Holdings plc243


Notes on the Financial Statements

Financial liabilities measured at fair value
In certain circumstances, HSBC records its own debt in issue at fair value, based on quoted prices in an active market for the specific instrument. When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which are either based on quoted prices in an inactive market for the instrument or are estimated by comparison with quoted prices in an active market for similar instruments. In both cases, the fair value includes the effect of applying the credit spread which is appropriate to HSBC’s liabilities. The change in fair value of issued debt securities attributable to the Group’s own credit spread is computed as follows: for each security at each reporting date, an externally verifiable price is obtained or a price is derived using credit spreads for similar securities for the same issuer. Then, using discounted cash flow, each security is valued using a Libor-based discount curve. The difference in the valuations is attributable to the Group’s own credit spread. This methodology is applied consistently across all securities.
Structured notes issued and certain other hybrid instruments are included within trading liabilities and are measured at fair value. The credit spread applied to these instruments is derived from the spreads at which HSBC issues structured notes.
Gains and losses arising from changes in the credit spread of liabilities issued by HSBC reverse over the contractual life of the debt, provided that the debt is not repaid at a premium or a discount.
Fair value hierarchy
Fair values of financial assets and liabilities are determined according to the following hierarchy:
Level 1 – valuation technique using quoted market price: financial instruments with quoted prices for identical instruments in active markets that HSBC can access at the measurement date.
Level 2 – valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
Level 3 – valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable.
Financial instruments carried at fair value and bases of valuation
2016201520172016
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Recurring fair value measurements
at 31 Dec		    
Assets    
Trading assets133,744
94,892
6,489
235,125
133,095
84,886
6,856
224,837
181,168
101,775
5,052
287,995
133,744
94,892
6,489
235,125
Financial assets designated at fair value19,882
4,144
730
24,756
18,947
4,431
474
23,852
24,622
3,382
1,460
29,464
19,882
4,144
730
24,756
Derivatives1,076
287,044
2,752
290,872
1,922
284,292
2,262
288,476
1,017
216,357
2,444
219,818
1,076
287,044
2,752
290,872
Financial investments: available for sale274,655
111,743
3,476
389,874
262,929
117,197
4,727
384,853
227,943
104,692
3,432
336,067
274,655
111,743
3,476
389,874
Liabilities    
Trading liabilities45,171
104,938
3,582
153,691
41,462
95,867
4,285
141,614
62,710
117,451
4,200
184,361
45,171
104,938
3,582
153,691
Financial liabilities designated at fair value4,248
82,547
37
86,832
5,260
61,145
3
66,408
4,164
90,265
—
94,429
4,248
82,547
37
86,832
Derivatives1,554
275,965
2,300
279,819
2,243
277,618
1,210
281,071
1,635
213,242
1,944
216,821
1,554
275,965
2,300
279,819

HSBC Holdings plc Annual Report and Accounts 2016
249  


Notes on the Financial Statements

Transfers between Level 1 and Level 2 fair values
AssetsLiabilitiesAssetsLiabilities
Available
for sale
Held for trading
Designated
at fair value
Derivatives
Held for trading
Designated
at fair value
Derivatives
Available
for sale
Held for trading
Designated
at fair value
Derivatives
Held for trading
Designated
at fair value
Derivatives
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 31 Dec 2017 
Transfers from Level 1 to Level 22,231
1,507
—
—
35
—
—
Transfers from Level 2 to Level 111,173
1,384
—
—
683
—
—
 
At 31 Dec 2016  
Transfers from Level 1 to Level 2162
1,614
122
465
2,699
—
209
162
1,614
122
465
2,699
—
209
Transfers from Level 2 to Level 11,314
—
—
—
341
—
—
1,314
—
—
—
341
—
—
 
At 31 Dec 2015 
Transfers from Level 1 to Level 2—
67
—
56
1,563
857
100
Transfers from Level 2 to Level 1—
487
—
2
515
2
—
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each semi-annual reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.
Fair value adjustments
Fair value adjustments are adopted when HSBC determines there are additional factors considered by market participants that are not incorporated within the valuation model. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits or losses within the income statement, such as when models are enhanced and therefore fair value adjustments may no longer be required.required


244HSBC Holdings plc


Global Banking & Markets (‘GB&M’) and Corporate Centre fair value adjustments
 20172016
 GB&M
Corporate Centre
GB&M
Corporate Centre
 $m
$m
$m
$m
Type of adjustment    
Risk-related1,078
79
1,131
5
– bid-offer413
5
416
5
– uncertainty91
8
87
—
– credit valuation adjustment (‘CVA’)420
59
633
—
– debit valuation adjustment (‘DVA’)(82)—
(437)—
– funding fair value adjustment (‘FFVA’)233
7
429
—
– other3
—
3
—
Model-related92
13
14
1
– model limitation92
6
14
1
– other—
7
—
—
Inception profit (Day 1 P&L reserves) (Note 14)106
—
99
—
At 31 Dec1,276
92
1,244
6
Global Banking and Markets fair value adjustments
 2016
2015
 $m
$m
Type of adjustment  
Risk-related1,131
1,402
– bid-offer416
477
– uncertainty87
95
– credit valuation adjustment (‘CVA’)633
853
– debit valuation adjustment (‘DVA’)(437)(465)
– funding fair value adjustment (‘FFVA’)429
442
– other3
—
Model-related14
97
– model limitation14
92
– other—
5
Inception profit (Day 1 P&L reserves) (Note 14)99
97
At 31 Dec1,244
1,596
Fair value adjustments declinedincreased by $352m$118m during the year. The most significant movement was a decline of $220mMovements in respect of the credit valuation adjustment,CVA, DVA, FFVA and model limitations were driven by the disposal of Brazilian operations,tightening credit spreads and refinements to modelling methodology and as a resultmodel methodology.Fair value adjustments under Corporate Centre in 2017 include the transfer of tightening credit spreads.balances on legacy positions no longer managed in GB&M.
Bid-offer
IFRS 13 ‘Fair value measurement’ requires use of the price within the bid-offer spread that is most representative of fair value. Valuation models will typically generate mid-market values. The bid-offer adjustment reflects the extent to which bid-offer costs would be incurred if substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or unwinding the position.
Uncertainty
Certain model inputs may be less readily determinable from market data, and/or the choice of model itself may be more subjective. In these circumstances an adjustment may be necessary to reflect the likelihood that market participants would adopt more conservative values for uncertain parameters and/or model assumptions than those used in HSBC’s valuation model.
Credit and debit valuation adjustments
The CVA is an adjustment to the valuation of over-the-counter (‘OTC’) derivative contracts to reflect the possibility that the counterparty may default and that HSBC may not receive the full market value of the transactions.
The DVA is an adjustment to the valuation of OTC derivative contracts to reflect the possibility that HSBC may default, and that it may not pay the full market value of the transactions.
HSBC calculates a separate CVA and DVA for each legal entity, and for each counterparty to which the entity has exposure. With the exception of central clearing parties, all third-party counterparties are included in the CVA and DVA calculations, and these adjustments are not netted across Group entities.
HSBC calculates the CVA by applying the probability of default (‘PD’) of the counterparty, conditional on the non-default of HSBC, to HSBC’s expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default. Conversely, HSBC calculates the DVA by applying the PD of HSBC, conditional on the non-default of the counterparty, to the expected positive exposure of the counterparty to HSBC and multiplying the result by the loss expected in the event of default. Both calculations are performed over the life of the potential exposure.
For most products HSBC uses a simulation methodology, which incorporates a range of potential exposures over the life of the portfolio, to calculate the expected positive exposure to a counterparty. The simulation methodology includes credit mitigants, such as counterparty netting agreements and collateral agreements with the counterparty.

250  
HSBC Holdings plc Annual Report and Accounts 2016


The methodologies do not, in general, account for ‘wrong-way risk’ which arises when. Wrong-way risk is an adverse correlation between the underlyingcounterparty’s probability of default and the mark-to-market value of the derivative prior to any CVA is positively correlatedunderlying transaction. The risk can either be general, perhaps related to the PDcurrency of the counterparty.issuer country, or specific to the transaction concerned. When there is significant wrong-way risk, a trade-specific approach is applied to reflect this risk in the valuation.
Funding fair value adjustment
The FFVA is calculated by applying future market funding spreads to the expected future funding exposure of any uncollateralised component of the OTC derivative portfolio. The expected future funding exposure is calculated by a simulation methodology, where available, and is adjusted for events that may terminate the exposure, such as the default of HSBC or the counterparty. The FFVA and DVA are calculated independently.
Model limitation
Models used for portfolio valuation purposes may be based upon a simplified set of assumptions that do not capture all current and future material market characteristics. In these circumstances, model limitation adjustments are adopted.
Inception profit (Day 1 P&L reserves)
Inception profit adjustments are adopted when the fair value estimated by a valuation model is based on one or more significant unobservable inputs. The accounting for inception profit adjustments is discussed in Note 1.

HSBC Holdings plc245


Notes on the Financial Statements

Fair value valuation bases
Financial instruments measured at fair value using a valuation technique with significant unobservable inputs – Level 3Financial instruments measured at fair value using a valuation technique with significant unobservable inputs – Level 3 Financial instruments measured at fair value using a valuation technique with significant unobservable inputs – Level 3
AssetsLiabilitiesAssetsLiabilities
Available
for sale

Held for trading
Designated at fair value
Derivatives
Total
Held for trading
Designated at fair value
Derivatives
Total
Available
for sale

Held for trading
Designated at fair value
Derivatives
Total
Held for trading
Designated at fair value
Derivatives
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Private equity including strategic investments2,435
49
712
—
3,196
25
—
—
25
2,012
38
1,458
—
3,508
20
—
—
20
Asset-backed securities761
789
—
—
1,550
—
—
—
—
1,300
1,277
—
—
2,577
—
—
—
—
Loans held for securitisation—
28
—
—
28
—
—
—
—
—
24
—
—
24
—
—
—
—
Structured notes—
2
—
—
2
3,557
—
—
3,557
—
3
—
—
3
4,180
—
—
4,180
Derivatives with monolines—
—
—
175
175
—
—
—
—
—
—
—
113
113
—
—
—
—
Other derivatives—
—
—
2,577
2,577
—
—
2,300
2,300
—
—
—
2,331
2,331
—
—
1,944
1,944
Other portfolios280
5,621
18
—
5,919
—
37
—
37
120
3,710
2
—
3,832
—
—
—
—
At 31 Dec 20163,476
6,489
730
2,752
13,447
3,582
37
2,300
5,919
At 31 Dec 20173,432
5,052
1,460
2,444
12,388
4,200
—
1,944
6,144
  
Private equity including strategic investments3,443
55
453
—
3,951
35
—
—
35
2,435
49
712
—
3,196
25
—
—
25
Asset-backed securities1,053
531
—
—
1,584
—
—
—
—
761
789
—
—
1,550
—
—
—
—
Loans held for securitisation—
30
—
—
30
—
—
—
—
—
28
—
—
28
—
—
—
—
Structured notes—
4
—
—
4
4,250
—
—
4,250
—
2
—
—
2
3,557
—
—
3,557
Derivatives with monolines—
—
—
196
196
—
—
—
—
—
—
—
175
175
—
—
—
—
Other derivatives—
—
—
2,066
2,066
—
—
1,210
1,210
—
—
—
2,577
2,577
—
—
2,300
2,300
Other portfolios231
6,236
21
—
6,488
—
3
—
3
280
5,621
18
—
5,919
—
37
—
37
At 31 Dec 20154,727
6,856
474
2,262
14,319
4,285
3
1,210
5,498
At 31 Dec 20163,476
6,489
730
2,752
13,447
3,582
37
2,300
5,919
Level 3 instruments are present in both ongoing and legacy businesses. Loans held for securitisation, derivatives with monolines, certain ‘other derivatives’ and predominantly all Level 3 ABSs are legacy positions. HSBC has the capability to hold these positions.
Private equity including strategic investments
The investment’s fair value is estimated: on the basis of an analysis of the investee’s financial position and results, risk profile, prospects and other factors; by reference to market valuations for similar entities quoted in an active market; or the price at which similar companies have changed ownership.
Asset-backed securities
While quoted market prices are generally used to determine the fair value of these securities, valuation models are used to substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market prices are required. For certain ABSs such as residential mortgage-backed securities, the valuation uses an industry standard model with assumptions relating to prepayment speeds, default rates and loss severity based on collateral type, and performance, as appropriate. The valuations output is benchmarked for consistency against observable data for securities of a similar nature.
Structured notes
The fair value of Level 3 structured notes is derived from the fair value of the underlying debt security, and the fair value of the embedded derivative is determined as described in the paragraph below on derivatives. These structured notes comprise principally equity-linked notes issued by HSBC which provide the counterparty with a return linked to the performance of equity securities and other portfolios. Examples of the unobservable parameters include long-dated equity volatilities and correlations between equity prices, and interest and foreign exchange rates.
Derivatives
OTC derivative valuation models calculate the present value of expected future cash flows, based upon ‘no-arbitrage’ principles. For many vanilla derivative products, the modelling approaches used are standard across the industry. For more complex derivative products, there may be some differences in market practice. Inputs to valuation models are determined from observable market data wherever possible, including prices available from exchanges, dealers, brokers or providers of consensus pricing. Certain inputs may not be observable in the market directly, but can be determined from observable prices via model calibration procedures or estimated from historical data or other sources.

246
HSBC Holdings plc Annual Report and Accounts 2016251  


Notes on the Financial Statements

Reconciliation of fair value measurements in Level 3 of the fair value hierarchy
Movement in Level 3 financial instruments
 AssetsLiabilities AssetsLiabilities
 Available
for sale
Held for trading
Designated
at fair value
Derivatives
Held for trading
Designated
at fair value
Derivatives
 Available
for sale
Held for trading
Designated
at fair value
Derivatives
Held for trading
Designated
at fair value
Derivatives
Footnote$m
$m
$m
$m
$m
$m
$m
Footnote$m
$m
$m
$m
$m
$m
$m
At 1 Jan 2016 4,727
6,856
474
2,262
4,285
3
1,210
At 1 Jan 2017 3,476
6,489
730
2,752
3,582
37
2,300
Total gains/(losses) recognised in profit or loss 178
31
25
1,107
337
(1)1,428
 351
(188)(107)152
154
(5)400
– trading income/(expense) excluding net interest income —
31
—
1,107
337
—
1,428
 —
(188)—
152
154
—
400
– net income/(expense) from other financial instruments designated at fair value —
—
25
—
—
(1)—
 —
—
(107)—
—
(5)—
– gains less losses from financial investments 91
—
—
—
—
—
—
 313
—
—
—
—
—
—
– loan impairment charges and other credit risk provisions (‘LICs’) 87
—
—
—
—
—
—
 38
—
—
—
—
—
—
Total gains/(losses) recognised in other comprehensive income (‘OCI’)1(162)(610)(8)(335)(130)(1)(240)171
106
7
188
169
1
120
– available-for-sale investments: fair value gains/(losses) 123
—
—
—
—
—
—
 (30)—
—
—
—
—
—
– cash flow hedges: fair value gains/(losses) —
—
—
—
—
—
12
 —
(1)3
(23)—
—
(35)
– exchange differences (285)(610)(8)(335)(130)(1)(252) 101
107
4
211
169
1
155
Purchases 350
823
359
—
20
6
—
 200
1,503
1,127
2
5
—
23
New issuances —
—
—
—
1,882
—
—
 —
—
—
1
1,915
—
—
Sales (1,212)(1,760)(7)—
(40)(2)—
 (939)(3,221)(130)(8)(12)—
(12)
Settlements (177)(311)(113)(107)(1,907)—
(239) (69)(331)(166)(60)(998)—
(123)
Transfers out (947)(199)(2)(187)(920)—
(229) (565)(149)(3)(885)(678)(33)(1,030)
Transfers in 719
1,659
2
12
55
32
370
 907
843
2
302
63
—
266
At 31 Dec 2016 3,476
6,489
730
2,752
3,582
37
2,300
At 31 Dec 2017 3,432
5,052
1,460
2,444
4,200
—
1,944
Unrealised gains/(losses) recognised in profit
or loss relating to assets and liabilities held at
31 Dec 2016		 87
(170)21
364
(143)1
(335) 16
(110)(146)218
(117)—
(397)
– trading income/(expense) excluding net interest income —
(170)—
364
(143)—
(335) —
(110)—
218
(117)—
(397)
– net income/(expense) from other financial instruments designated at fair value —
—
21
—
—
1
—
 —
—
(146)—
—
—
—
– loan impairment charges and other credit risk provisions 87
—
—
—
—
—
—
 16
—
—
—
—
—
—
    
At 1 Jan 2015 4,988
6,468
726
2,924
6,139
—
1,907
At 1 Jan 2016 4,727
6,856
474
2,262
4,285
3
1,210
Total gains/(losses) recognised in profit or loss (34)109
30
95
(573)(1)(209) 178
31
25
1,107
337
(1)1,428
– trading income/(expense) excluding net interest income —
109
—
95
(573)—
(209) —
31
—
1,107
337
—
1,428
– net income from other financial instruments designated at fair value —
—
30
—
—
(1)—
 —
—
25
—
—
(1)—
– gains less losses from financial investments (269)—
—
—
—
—
—
 91
—
—
—
—
—
—
– loan impairment charges and other credit risk provisions (‘LICs’) 235
—
—
—
—
—
—
 87
—
—
—
—
—
—
Total gains/(losses) recognised in other
comprehensive income (‘OCI’)		1226
(192)(11)(126)(118)(1)(64)1(162)(610)(8)(335)(130)(1)(240)
– available-for-sale investments: fair value gains/(losses) 393
—
—
—
—
—
—
 123
—
—
—
—
—
—
– cash flow hedges: fair value gains/(losses) —
—
—
(4)—
—
—
 —
—
—
—
—
—
12
– exchange differences (167)(192)(11)(122)(118)(1)(64) (285)(610)(8)(335)(130)(1)(252)
Purchases 594
1,745
250
—
2
9
—
 350
823
359
—
20
6
—
New issuances —
—
—
—
1,471
—
—
 —
—
—
—
1,882
—
—
Sales (757)(1,206)(50)—
(66)(4)—
 (1,212)(1,760)(7)—
(40)(2)—
Settlements (32)(146)(135)(38)(1,260)—
(241) (177)(311)(113)(107)(1,907)—
(239)
Transfers out (1,471)(206)(336)(1,015)(1,743)—
(283) (947)(199)(2)(187)(920)—
(229)
Transfers in 1,231
284
—
422
433
—
100
 719
1,659
2
12
55
32
370
At 31 Dec 2015 4,727
6,856
474
2,262
4,285
3
1,210
At 31 Dec 2016 3,476
6,489
730
2,752
3,582
37
2,300
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 31 Dec 2015 235
(9)12
89
384
(1)267
 87
(170)21
364
(143)1
(335)
– trading income/(expense) excluding net interest income —
(9)—
89
384
—
267
 —
(170)—
364
(143)—
(335)
– net income from other financial instruments designated at fair value —
—
12
—
—
(1)—
 —
—
21
—
—
1
—
– loan impairment charges and other credit risk provisions 235
—
—
—
—
—
—
 87
—
—
—
—
—
—
1Included in ‘Available-for-sale investments: fair value gains/(losses)’ and ‘Exchange differences’ in the consolidated statement of comprehensive income.
Transfers between levels of the fair value hierarchy are deemed to occur at the end of each semi-annual reporting period. Transfers into and out of Levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.

252  
HSBC Holdings plc Annual Report and Accounts 2016
247


Notes on the Financial Statements

Effect of changes in significant unobservable assumptions to reasonably possible alternatives
Sensitivity of Level 3 fair values to reasonably possible alternative assumptions
 20162015 20172016
 Reflected in profit or lossReflected in OCIReflected in profit or lossReflected in OCI Reflected in profit or lossReflected in OCIReflected in profit or lossReflected in OCI
 Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
 Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Footnote$m
$m
$m
$m
$m
$m
$m
$m
Footnote$m
$m
$m
$m
$m
$m
$m
$m
Derivatives, trading assets and trading liabilities1238
(177)—
—
335
(215)—
—
1372
(253)—
—
238
(177)—
—
Financial assets and liabilities designated at fair value 48
(38)—
—
24
(24)—
—
 89
(74)—
—
48
(38)—
—
Financial investments: available for sale 72
(36)170
(149)35
(30)230
(243) 53
(30)128
(149)72
(36)170
(149)
At 31 Dec 358
(251)170
(149)394
(269)230
(243) 514
(357)128
(149)358
(251)170
(149)
1Derivatives, trading assets and trading liabilities are presented as one category to reflect the manner in which these instruments are risk managed.
Sensitivity of Level 3 fair values to reasonably possible alternative assumptions by instrument type
2016201520172016
Reflected in profit or lossReflected in OCIReflected in profit or lossReflected in OCIReflected in profit or lossReflected in OCIReflected in profit or lossReflected in OCI
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
Favourable
changes
Un-
favourable
changes
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Private equity including strategic investments112
(73)121
(106)54
(53)152
(171)142
(105)117
(102)112
(73)121
(106)
Asset-backed securities43
(15)33
(27)18
(12)57
(51)66
(39)3
(39)43
(15)33
(27)
Loans held for securitisation1
(1)—
—
1
(1)—
—
1
(1)—
—
1
(1)—
—
Structured notes10
(7)—
—
15
(11)—
—
12
(9)—
—
10
(7)—
—
Derivatives with monolines3
(3)—
—
11
(11)—
—
—
—
—
—
3
(3)—
—
Other derivatives141
(94)—
—
179
(87)—
—
249
(150)—
—
141
(94)—
—
Other portfolios48
(58)16
(16)116
(94)21
(21)44
(53)8
(8)48
(58)16
(16)
At 31 Dec358
(251)170
(149)394
(269)230
(243)514
(357)128
(149)358
(251)170
(149)
The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data.
When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most favourable or the most unfavourable change from varying the assumptions individually.

248
HSBC Holdings plc Annual Report and Accounts 2016253  


Notes on the Financial Statements

Key unobservable inputs to Level 3 financial instruments
Quantitative information about significant unobservable inputs in Level 3 valuations
 Fair value 20162015
 Assets
Liabilities
Valuation
techniques		Key unobservable
inputs		Full range
of inputs
Core range
of inputs1 
Full range
of inputs
Core range
of inputs1 
 Fair value 20172016
Footnotes$m
$m
 Lower
Higher
Lower
Higher
Lower
Higher
Lower
Higher
 Assets
Liabilities
Valuation
techniques		Key unobservable
inputs		Full range
of inputs
Core range
of inputs1 
Full range
of inputs
Core range
of inputs1 
     Footnotes$m
$m
 Lower
Higher
Lower
Higher
LowerHigherLowerHigher
Private equity including
strategic investments		 3,196
25
See page 255n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
 3,508
20
See page 255n/a
n/a
n/a
n/a
n/an/an/an/a
Asset-backed securities21,550
—
   22,577


   
– CLO/CDO 498
—
Market proxyPrepayment rate2%7%2%7%1%6%1%6% 520


Market proxyPrepayment rate2%7%2%7%2%7%2%7%
   Market proxyBid quotes0
101
42
94
3
147
54
117
   Market proxyBid quotes0
101
6
53
01014294
other ABSs 1,052
—
Market proxyBid quotes0
96
57
90
0
147
44
109
– other ABSs 2,057


Market proxyBid quotes0
103
34
98
0965790
Loans held for securitisation 28
—
    24
—
   
Structured notes 2
3,557
    3
4,180
   
– equity-linked notes —
3,090
Model –
Option model		Equity volatility11%96%16%36%12%72%19%43% —
4,077
Model –
Option model		Equity volatility7%
47%
14%
30%
11%96%16%36%
 —
300
Model – Option modelEquity correlation33%94%46%81%35%93%43%79%  

Model – Option modelEquity correlation33%
95%
45%
72%
33%94%46%81%
– fund-linked notes —
9
Model – Option modelFund volatility6%11%6%11%6%8%6%8% —
7
Model – Option modelFund volatility6%
15%
6%
15%
6%11%6%11%
– FX-linked notes —
87
Model – Option modelFX volatility3%29%5%18%5%35%5%20% —
76
Model – Option modelFX volatility3%
20%
4%
13%
3%29%5%18%
– other 2
71
    3
20
   
Derivatives with monolines 175
—
Model – Discounted
cash flow		Credit spread2%2%2%2%4%4%4%4% 113
—
Model – Discounted
cash flow		Credit spread0.4%
3%
1%
3%
2%
Other derivatives 2,577
2,300
  
 
 
 
 
 
 
 
 2,331
1,944
  
 
 
 
 
Interest rate derivatives:  
 
  
 
 
 
 
 
 
 
– securitisation swaps 711
1,117
Model – Discounted
cash flow		Prepayment
rate		0%90%8%27%0%90%14%71%
– long-dated swaptions 1,236
109
Model – Option modelIR volatility8%101%21%39%3%66%20%41%
– other 204
108
   
FX derivatives:  
 
   
– FX options 240
364
Model – Option modelFX Volatility0.6%25%7%12%0.5%35%5%14%
– other 4
2
   
Equity derivatives:  
 
   
– long-dated single stock options 103
165
Model – Option modelEquity volatility11%83%16%36%8%104%18%44%
– other 55
388
   
Credit derivatives:  
 
   
– other 24
47
   
– Interest rate derivatives:  
 
  
 
 
 
 
securitisation swaps 285
806
Model – Discounted
cash flow		Prepayment
rate		20%
90%
20%
90%
0%90%8%27%
long-dated swaptions 1,244
66
Model – Option modelIR volatility8%
41%
15%
31%
8%101%21%39%
other 302
145
   
– FX derivatives:  
 
   
FX options 86
83
Model – Option modelFX volatility0.7%
50%
5%
11%
0.6%25%7%12%
other 135
129
   
– Equity derivatives:  
 
   
long-dated single stock options 158
359
Model – Option modelEquity volatility7%
84%
15%
44%
11%83%16%36%
other 96
329
   
– Credit derivatives:  
 
   
other 25
27
   
Other portfolios 5,919
37
    3,832
—
   
– structured certificates 4,446
—
Model – Discounted cash flowCredit volatility3%4%3%4%2%4%2%4% 3,014
—
Model – Discounted cash flowCredit volatility2%
4%
2%
4%
3%4%3%4%
– EM corporate debt 124
—
Market proxyBid quotes96
144
113
113
70
124
100
123
 85
—
Market proxyBid quotes100
100
100
100
96144113
– other31,349
37
   3733
—
   
At 31 Dec 2016 13,447
5,919
   
At 31 Dec 2017 12,388
6,144
   
1The core range of inputs is the estimated range within which 90% of the inputs fall.
2Collateralised loan obligation/collateralised debt obligation.
3'Other'‘Other’ includes a range of smaller asset holdings.


254  
HSBC Holdings plc Annual Report and Accounts 2016


Private equity including strategic investments
Given the bespoke nature of the analysis in respect of each holding, it is not practical to quote a range of key unobservable inputs.
Prepayment rates
Prepayment rates are a measure of the anticipated future speed at which a loan portfolio will be repaid in advance of the due date. They vary according to the nature of the loan portfolio and expectations of future market conditions, and may be estimated using a variety of evidence, such as prepayment rates implied from proxy observable security prices, current or historical prepayment rates and macroeconomic modelling.
Market proxy
Market proxy pricing may be used for an instrument when specific market pricing is not available but there is evidence from instruments with common characteristics. In some cases it might be possible to identify a specific proxy, but more generally evidence across a wider range of instruments will be used to understand the factors that influence current market pricing and the manner of that influence.

HSBC Holdings plc249


Notes on the Financial Statements

Volatility
Volatility is a measure of the anticipated future variability of a market price. It varies by underlying reference market price, and by strike and maturity of the option.
Certain volatilities, typically those of a longer-dated nature, are unobservable and are estimated from observable data. The range of unobservable volatilities reflects the wide variation in volatility inputs by reference market price. The core range is significantly narrower than the full range because these examples with extreme volatilities occur relatively rarely within the HSBC portfolio.
Correlation
Correlation is a measure of the inter-relationship between two market prices and is expressed as a number between minus one and one. It is used to value more complex instruments where the payout is dependent upon more than one market price. There is a wide range of instruments for which correlation is an input, and consequently a wide range of both same-asset correlations and cross-asset correlations is used. In general, the range of same-asset correlations will be narrower than the range of cross-asset correlations.
Unobservable correlations may be estimated based upon a range of evidence, including consensus pricing services, HSBC trade prices, proxy correlations and examination of historical price relationships. The range of unobservable correlations quoted in the table reflects the wide variation in correlation inputs by market price pair.
Credit spread
Credit spread is the premium over a benchmark interest rate required by the market to accept lower credit quality. In a discounted cash flow model, the credit spread increases the discount factors applied to future cash flows, thereby reducing the value of an asset. Credit spreads may be implied from market prices and may not be observable in more illiquid markets.
Inter-relationships between key unobservable inputs
Key unobservable inputs to Level 3 financial instruments may not be independent of each other. As described above, market variables may be correlated. This correlation typically reflects the manner in which different markets tend to react to macroeconomic or other events. Furthermore, the effect of changing market variables on the HSBC portfolio will depend on HSBC’s net risk position in respect of each variable.
HSBC Holdings
Basis of valuing HSBC Holdings’ financial assets and liabilities measured at fair value
2016
2015
2017
2016
$m
$m
$m
$m
Valuation technique using observable inputs: Level 2    
Assets at 31 Dec    
– derivatives2,148
2,467
2,388
2,148
– available for sale3,590
4,285
– financial investments in HSBC undertakings4,264
3,590
– loans and advances to HSBC undertakings designated at fair value11,944
—
Liabilities at 31 Dec







– designated at fair value30,113
19,853
30,890
30,113
– derivatives5,025
2,278
3,082
5,025

250
HSBC Holdings plc Annual Report and Accounts 2016255  


Notes on the Financial Statements

12Fair values of financial instruments not carried at fair value
Fair values of financial instruments not carried at fair value and bases of valuation
  Fair value
 
Carrying
amount

Quoted market
price
Level 1

Observable
inputs
Level 2

Significant
unobservable
inputs
Level 3

Total
 $m
$m
$m
$m
$m
At 31 Dec 2016     
Assets     
Loans and advances to banks88,126
—
85,568
2,572
88,140
Loans and advances to customers861,504
—
15,670
845,894
861,564
Reverse repurchase agreements – non-trading160,974
—
159,504
1,527
161,031
Financial investments – debt securities46,923
1,190
46,014
19
47,223
Liabilities









Deposits by banks59,939
—
59,883
42
59,925
Customer accounts1,272,386
—
1,262,540
10,136
1,272,676
Repurchase agreements – non-trading88,958
—
88,939
—
88,939
Debt securities in issue65,915
—
66,386
—
66,386
Subordinated liabilities20,984
—
23,264
292
23,556
      
At 31 Dec 2015     
Assets









Loans and advances to banks90,401
—
88,156
2,255
90,411
Loans and advances to customers924,454
—
12,412
910,057
922,469
Reverse repurchase agreements – non-trading146,255
—
145,307
959
146,266
Financial investments – debt securities44,102
1,163
44,076
19
45,258
Liabilities









Deposits by banks54,371
—
54,295
76
54,371
Customer accounts1,289,586
—
1,280,368
9,421
1,289,789
Repurchase agreements – non-trading80,400
—
80,400
—
80,400
Debt securities in issue88,949
—
89,023
—
89,023
Subordinated liabilities22,702
—
24,344
649
24,993
Fair values of selected financial instruments not carried at fair value and bases of valuation – assets and disposal groups held
for sale
Fair values of financial instruments not carried at fair value and bases of valuationFair values of financial instruments not carried at fair value and bases of valuation
 Fair value Fair value
Carrying
amount

Quoted market
price
Level 1

Observable
inputs
Level 2

Significant
unobservable
inputs
Level 3

Total
Carrying
amount
Quoted market
price
Level 1
Observable
inputs
Level 2
Significant
unobservable
inputs
Level 3
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 31 Dec 2017 
Assets 
Loans and advances to banks90,393
—
87,384
3,007
90,391
Loans and advances to customers962,964
—
20,029
944,176
964,205
Reverse repurchase agreements – non-trading201,553
—
200,012
1,526
201,538
Financial investments – debt securities52,919
1,363
52,707
17
54,087
Liabilities









Deposits by banks69,922
—
69,862
30
69,892
Customer accounts1,364,462
—
1,353,017
11,608
1,364,625
Repurchase agreements – non-trading130,002
1
129,995
—
129,996
Debt securities in issue64,546
—
65,138
—
65,138
Subordinated liabilities19,826
—
23,740
355
24,095
 
At 31 Dec 2016  
Assets









Loans and advances to banks88,126
—
85,568
2,572
88,140
Loans and advances to customers3,756
—
241
3,306
3,547
861,504
—
15,670
845,894
861,564
Reverse repurchase agreements – non-trading160,974
—
159,504
1,527
161,031
Financial investments – debt securities46,923
1,190
46,014
19
47,223
Liabilities









Deposits by banks59,939
—
59,883
42
59,925
Customer accounts2,713
—
2,713
—
2,713
1,272,386
—
1,262,540
10,136
1,272,676
 
At 31 Dec 2015 
Loans and advances to customers21,109
—
4,068
16,884
20,952
Customer accounts16,682
—
15,578
1,104
16,682
Repurchase agreements – non-trading88,958
—
88,939
—
88,939
Debt securities in issue65,915
—
66,386
—
66,386
Subordinated liabilities20,984
—
23,264
292
23,556
Other financial instruments not carried at fair value are typically short-term in nature and reprice to current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value. They include cash and balances at central banks, items in the course of collection from and transmission to other banks, Hong Kong Government certificates of indebtedness and Hong Kong currency notes in circulation, all of which are measured at amortised cost.

256  
HSBC Holdings plc Annual Report and Accounts 2016


Carrying amount and fair value of loans and advances to customers by industry sector
Carrying amountFair valueCarrying amountFair value
Not Impaired
Impaired
Total
Not Impaired
Impaired
Total
Not Impaired
Impaired
Total
Not Impaired
Impaired
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Loans and advances to customers  
– personal332,574
5,252
337,826
330,167
4,597
334,764
370,842
3,920
374,762
371,131
3,257
374,388
– corporate and commercial453,151
7,058
460,209
456,816
6,393
463,209
510,784
5,970
516,754
512,597
5,769
518,366
– financial63,316
153
63,469
63,411
180
63,591
71,377
71
71,448
71,351
100
71,451
At 31 Dec 2016849,041
12,463
861,504
850,394
11,170
861,564
 
At 31 Dec 2017953,003
9,961
962,964
955,079
9,126
964,205
Loans and advances to customers  
– personal361,716
9,487
371,203
359,559
9,024
368,583
332,574
5,252
337,826
330,167
4,597
334,764
– corporate and commercial485,933
7,145
493,078
487,196
6,592
493,788
453,151
7,058
460,209
456,816
6,393
463,209
– financial60,049
124
60,173
59,941
157
60,098
63,316
153
63,469
63,411
180
63,591
At 31 Dec 2015907,698
16,756
924,454
906,696
15,773
922,469
At 31 Dec 2016849,041
12,463
861,504
850,394
11,170
861,564
Loans and advances to customers are classified as not impaired or impaired in accordance with the criteria described on page 123.126.
Valuation
Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It does not reflect the economic benefits and costs that HSBC expects to flow from an instrument’s cash flow over its expected future life. Our valuation methodologies and assumptions in determining fair values for which no observable market prices are available may differ from those of other companies.
Loans and advances to banks and customers
To determine the fair value of loans and advances to banks and customers, loans are segregated, as far as possible, into portfolios of similar characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values are estimated using valuation models incorporating a range of input assumptions. These assumptions may include: value estimates from third-party brokers reflecting over-the-counter trading activity; forward-looking discounted cash flow models, taking account of expected customer prepayment rates, using assumptions that HSBC believes are consistent with those that would be used by market participants in valuing such loans; new business rates estimates for similar loans; and trading inputs from other market participants including

HSBC Holdings plc251


Notes on the Financial Statements

observed primary and secondary trades. From time to time, we may engage a third partythird-party valuation specialist to measure the fair value of a pool of loans.
The fair value of loans reflects impairments at the balance sheet date and estimates of market participants’ expectations of credit losses over the life of the loans, and the fair value effect of repricing between origination and the balance sheet date. For impaired loans, fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.
Financial investments
The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments are determined using valuation techniques that incorporate the prices and future earnings streams of equivalent quoted securities.
Deposits by banks and customer accounts
The fair values of on demandon-demand deposits are approximated by their carrying value. For deposits with longer-term maturities, fair values are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities.
Debt securities in issue and subordinated liabilities
Fair values are determined using quoted market prices at the balance sheet date where available, or by reference to quoted market prices for similar instruments.
Repurchase and reverse repurchase agreements – non-trading
Fair values approximate carrying amounts as balances are generally short dated.
HSBC Holdings
The methods used by HSBC Holdings to determine fair values of financial instruments for the purposepurposes of measurement and disclosure are described above.
Fair values of HSBC Holdings’ financial instruments not carried at fair value on the balance sheet
 20162015 20172016
 Carrying
amount
Fair
value1

Carrying
amount
Fair
value1

 Carrying
amount
Fair
value1

Carrying
amount
Fair
value1

 $m
$m
$m
$m
 $m
$m
$m
$m
Assets at 31 Dec      
Loans and advances to HSBC undertakings 77,421
79,985
44,350
45,180
 76,627
78,534
77,421
79,985
Liabilities at 31 Dec      
Amounts owed to HSBC undertakings 2,157
2,156
2,152
2,152
 2,571
2,571
2,157
2,156
Debt securities in issue 21,805
23,147
960
1,224
 34,258
36,611
21,805
23,147
Subordinated liabilities 15,189
17,715
15,895
18,297
 15,877
19,596
15,189
17,715
1Fair values were determined using valuation techniques with observable inputs (Level 2).


HSBC Holdings plc Annual Report and Accounts 2016
13		257  


Notes on the Financial Statements

13    Financial assets designated at fair value
 2016
2015
 2017
2016
 $m
$m
 $m
$m
Securities 24,677
23,732
 29,456
24,677
– treasury and other eligible bills 204
396
 606
204
– debt securities 4,189
4,341
 4,090
4,189
– equity securities 20,284
18,995
 24,760
20,284
Loans and advances to banks and customers 79
120
 8
79
At 31 Dec 24,756
23,852
 29,464
24,756
     
 Securities1
   2016
2015
  Footnotes$m
$m
 US Treasury and US Government agencies2104
145
 UK Government 41
103
 Hong Kong Government 16
33
 Other governments 747
1,020
 Asset-backed securities320
25
 Corporate debt and other securities 3,465
3,411
 Equities 20,284
18,995
 At 31 Dec 24,677
23,732
Securities1
  2017
2016
 Footnotes$m
$m
US Treasury and US Government agencies2—
104
UK Government 17
41
Hong Kong Government 64
16
Other governments 1,247
747
Asset-backed securities32
20
Corporate debt and other securities 3,366
3,465
Equities 24,760
20,284
At 31 Dec 29,456
24,677
1
Included within these figures are debt securities issued by banks and other financial institutions of $1,7661,621m (2015: $1,536m)(2016: $1,766m), of which $190.4m (2015: $35m)(2016: $19m) are guaranteed by various governments.
2Includes securities that are supported by an explicit guarantee issued by the US Government.
3Excludes asset-backed securities included under US Treasury and US Government agencies.

252HSBC Holdings plc


14Derivatives
Notional contract amounts and fair values of derivatives by product contract type held by HSBC
Notional contract amountFair value – AssetsFair value – LiabilitiesNotional contract amountFair value – AssetsFair value – Liabilities
Trading
Hedging
Trading
Hedging
Total
Trading
Hedging
Total
Trading
Hedging
Trading
Hedging
Total
Trading
Hedging
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Foreign exchange5,819,814
26,281
126,185
1,228
127,413
118,813
968
119,781
6,215,518
28,768
78,089
428
78,517
74,915
853
75,768
Interest rate13,729,757
215,006
253,398
1,987
255,385
245,941
4,081
250,022
19,751,577
178,289
235,430
1,365
236,795
229,989
3,042
233,031
Equities472,169
—
7,410
—
7,410
9,240
—
9,240
590,156
—
9,353
—
9,353
11,845
—
11,845
Credit448,220
—
5,199
—
5,199
5,767
—
5,767
391,798
—
4,692
—
4,692
5,369
—
5,369
Commodity and other62,009
—
2,020
—
2,020
1,564
—
1,564
59,716
—
886
—
886
1,233
—
1,233
Gross total fair values20,531,969
241,287
394,212
3,215
397,427
381,325
5,049
386,374
27,008,765
207,057
328,450
1,793
330,243
323,351
3,895
327,246
Offset (Note 30)







(106,555)



(106,555)
At 31 Dec 201620,531,969
241,287
394,212
3,215
290,872
381,325
5,049
279,819
Offset (Note 29)







(110,425)



(110,425)
At 31 Dec 201727,008,765
207,057
328,450
1,793
219,818
323,351
3,895
216,821
      
Foreign exchange5,658,030
32,324
95,201
1,140
96,341
94,843
755
95,598
5,819,814
26,281
126,185
1,228
127,413
118,813
968
119,781
Interest rate14,462,113
212,923
277,496
1,658
279,154
267,609
3,758
271,367
13,729,757
215,006
253,398
1,987
255,385
245,941
4,081
250,022
Equities501,834
—
8,732
—
8,732
10,383
—
10,383
472,169
—
7,410
—
7,410
9,240
—
9,240
Credit463,344
—
6,961
—
6,961
6,884
—
6,884
448,220
—
5,199
—
5,199
5,767
—
5,767
Commodity and other51,683
—
3,148
—
3,148
2,699
—
2,699
62,009
—
2,020
—
2,020
1,564
—
1,564
Gross total fair values21,137,004
245,247
391,538
2,798
394,336
382,418
4,513
386,931
20,531,969
241,287
394,212
3,215
397,427
381,325
5,049
386,374
Offset (Note 30) (105,860) (105,860)
At 31 Dec 201521,137,004
245,247
391,538
2,798
288,476
382,418
4,513
281,071
Offset (Note 29) (106,555) (106,555)
At 31 Dec 201620,531,969
241,287
394,212
3,215
290,872
381,325
5,049
279,819
The notional contract amounts of derivatives held for trading purposes and derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk.
Derivative assets increasedand liabilities decreased during 2016, driven by2017, reflecting changes in yield curve movements and changes in foreign exchange rates and yield curve movements.rates.

258  
HSBC Holdings plc Annual Report and Accounts 2016


Notional contract amounts and fair values of derivatives by product contract type held by HSBC Holdings with subsidiaries
Notional contract amountFair value – AssetsFair value – LiabilitiesNotional contract amountFair value – AssetsFair value – Liabilities
Trading
Hedging
Trading
Hedging
Total
Trading
Hedging
Total
Trading
Hedging
Trading
Hedging
Total
Trading
Hedging
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Foreign exchange23,442
1,120
223
—
223
3,201
239
3,440
20,484
1,120
588
—
588
1,330
110
1,440
Interest rate26,858
24,356
1,478
447
1,925
639
946
1,585
41,061
25,294
1,364
436
1,800
678
964
1,642
At 31 Dec 201650,300
25,476
1,701
447
2,148
3,840
1,185
5,025
At 31 Dec 201761,545
26,414
1,952
436
2,388
2,008
1,074
3,082
  
Foreign exchange19,036
1,120
390
—
390
2,065
213
2,278
23,442
1,120
223
—
223
3,201
239
3,440
Interest rate10,150
5,132
1,600
477
2,077
—
—
—
26,858
24,356
1,478
447
1,925
639
946
1,585
At 31 Dec 201529,186
6,252
1,990
477
2,467
2,065
213
2,278
At 31 Dec 201650,300
25,476
1,701
447
2,148
3,840
1,185
5,025
Use of derivatives
For details regarding use of derivatives, see page 154152 under ‘Market Risk’.
Trading derivatives
Most of HSBC’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks. Trading activities include market-making and risk management. Market-making entails quoting bid and offer prices to other market participants for the purpose of generating revenues based on spread and volume. Risk management activity is undertaken to manage the risk arising from client transactions, with the principal purpose of retaining client margin. Other derivatives classified as held for trading include non-qualifying hedging derivatives.
Substantially all of HSBC Holdings’ derivatives entered into with subsidiaries are managed in conjunction with financial liabilities designated at fair value.
Derivatives valued using models with unobservable inputs
The difference between the fair value at initial recognition (the transaction price) and the value that would have been derived had valuation techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is as follows:

HSBC Holdings plc253


Notes on the Financial Statements

Unamortised balance of derivatives valued using models with significant unobservable inputs
 2016
2015
 2017
2016
Footnote$m
$m
Footnote$m
$m
Unamortised balance at 1 Jan 97
114
 99
97
Deferral on new transactions 156
196
 191
156
Recognised in the income statement during the year: (140)(207) (187)(140)
– amortisation (70)(121) (85)(70)
– subsequent to unobservable inputs becoming observable (5)(2) (2)(5)
– maturity, termination or offsetting derivative (65)(84) (100)(65)
Exchange differences (13)(6) 10
(13)
Other (1)—
 (7)(1)
Unamortised balance at 31 Dec199
97
1106
99
1This amount is yet to be recognised in the consolidated income statement.
Hedge accounting derivatives
Fair value hedges
HSBC’s fair value hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fixed-rate long-term financial instruments due to movements in market interest rates.
Notional contract amounts and fair values of derivatives designated as fair value hedges by product type
 20162015
 Notional
Assets
Liabilities
Notional
Assets
Liabilities
 $m
$m
$m
$m
$m
$m
HSBC      
Foreign exchange618
10
22
196
2
—
Interest rate124,361
1,078
3,726
105,127
672
3,395
At 31 Dec124,979
1,088
3,748
105,323
674
3,395
HSBC Holdings      
Foreign exchange1,120
—
239
1,120
—
213
Interest rate24,356
447
946
5,132
477
—
At 31 Dec25,476
447
1,185
6,252
477
213

HSBC Holdings plc Annual Report and Accounts 2016
259  


Notes on the Financial Statements

Notional contract amounts and fair values of derivatives designated as fair value hedges by product type
 20172016
 Notional
Fair Value
Assets
Fair Value
Liabilities
Notional
Fair Value
Assets

Fair Value
Liabilities

 $m
$m
$m
$m
$m
$m
HSBC      
Foreign exchange1,027
—
23
618
10
22
Interest rate112,714
1,020
2,744
124,361
1,078
3,726
At 31 Dec113,741
1,020
2,767
124,979
1,088
3,748
HSBC Holdings      
Foreign exchange1,120
—
110
1,120
—
239
Interest rate25,294
436
964
24,356
447
946
At 31 Dec26,414
436
1,074
25,476
447
1,185
Gains or losses arising from fair value hedges
2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
HSBC    
Gains/(losses):    
– on hedging instruments(439)40
(2,542)621
(439)40
– on the hedged items attributable to the hedged risk462
(51)2,561
(617)462
(51)
Year ended 31 Dec23
(11)19
4
23
(11)
HSBC Holdings    
Gains/(losses):    
– on hedging instruments(909)(4)423
(57)(909)(4)
– on the hedged items attributable to the hedged risk926
6
(422)23
926
6
Year ended 31 Dec17
2
1
(34)17
2
Cash flow hedges
HSBC’s cash flow hedges consist principally of interest rate swaps, futures and cross-currency swaps that are used to protect against exposures to variability in future interest cash flows on non-trading assets and liabilities which bear interest at variable rates or which are expected to be re-funded or reinvested in the future. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their contractual terms and other relevant factors, including estimates of prepayments and defaults. The aggregate principal balances and interest cash flows across all portfolios over time form the basis for identifying gains and losses on the effective portions of derivatives designated as cash flow hedges of forecast transactions.
Notional contract amounts and fair values of derivatives designated as cash flow hedges by product held by HSBC
2016201520172016
Notional
Assets
Liabilities
Notional
Assets
Liabilities
Notional
Assets
Liabilities
Notional
Assets
Liabilities
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Foreign Exchange25,663
1,081
939
32,128
1,027
748
22,741
424
759
25,663
1,081
939
Interest rate90,645
909
355
107,796
986
363
65,575
345
298
90,645
909
355
At 31 Dec116,308
1,990
1,294
139,924
2,013
1,111
88,316
769
1,057
116,308
1,990
1,294

254HSBC Holdings plc


Forecast principal balances on which interest cash flows are expected to arise
 
3 months
or less

More than 3 months
but less than 1 year

5 years or less
but more than 1 year

More than 5 years
 $m
$m
$m
$m
Net cash inflows/(outflows) exposure    
Assets70,769
65,771
44,347
956
Liabilities(7,729)(7,017)(4,992)(536)
At 31 Dec 201763,040
58,754
39,355
420
     
Net cash inflows/(outflows) exposure    
Assets83,472
79,749
57,553
2,750
Liabilities(13,169)(12,977)(11,761)(1,502)
At 31 Dec 201670,303
66,772
45,792
1,248
Forecast principal balances on which interest cash flows are expected to arise
 
3 months
or less

More than 3 months
but less than 1 year

5 years or less
but more than 1 year

More than
5 years

 $m
$m
$m
$m
Net cash inflows/(outflows) exposure    
Assets83,472
79,749
57,553
2,750
Liabilities(13,169)(12,977)(11,761)(1,502)
At 31 Dec 201670,303
66,772
45,792
1,248
     
Net cash inflows/(outflows) exposure    
Assets94,256
93,528
62,664
971
Liabilities(16,241)(17,179)(11,681)(3,326)
At 31 Dec 201578,015
76,349
50,983
(2,355)
This table reflects the interest rate repricing profile of the underlying hedged items. During the year to 31 December 20162017, a loss of
$5m (2016: $5m (2015: gain of $15m; 2014: gain of $34m)loss; 2015: $15m gain) was recognised due to hedge ineffectiveness. A gain of $129m was recognised in respect of amounts reclassified from other comprehensive income to the income statement for partially discontinued macro cash flow hedges, where the hedged forecast transactions are no longer expected to occur (2015: nil; 2014: nil).
Hedges of net investments in foreign operations
The Group applies hedge accounting in respect of certain consolidated net investments. Hedging is undertaken using forward foreign exchange contracts or by financing with foreign currency borrowings. At 31 December 2016,2017, the fair values of outstanding financial instruments designated as hedges of net investments in foreign operations were assets of $137m (2015: $111m)$4m (2016: $137m), liabilities of $7m (2015: $12m)$71m (2016: $7m) and notional contract values of $5,000m (2016: $3,544m (2015: $4,210m)). Ineffectiveness recognised in ‘Net trading income’ in the year ended
31 December 20162017 was nil (2015:(2016: nil; 2014:2015: nil).


260  15
HSBC Holdings plc Annual Report and Accounts 2016


15    Financial investments
Carrying amount of financial investments
 2016
2015
 2017
2016
Footnote$m
$m
Footnote$m
$m
Available for sale securities at fair value 389,874
384,853
 336,157
389,874
– treasury and other eligible bills 99,226
104,551
 78,851
99,226
– debt securities 285,981
274,467
 253,389
285,981
– equity securities 4,667
5,835
 3,917
4,667
Held to maturity securities at amortised cost 46,923
44,102
 52,919
46,923
– debt securities146,923
44,102
152,919
46,923
At 31 Dec 436,797
428,955
 389,076
436,797
1Fair value $47.2bn (2015: $45.3bn)$54.1bn (2016: $47.2bn).
Financial investments at amortised cost and fair value
 20162015 20172016
 Amortised cost
Fair value1

Amortised cost
Fair value1

 Amortised cost
Fair value1

Amortised cost
Fair value1

Footnotes$m
$m
$m
$m
Footnotes$m
$m
$m
$m
US Treasury
57,135
56,625
61,585
61,779

41,427
41,274
57,135
56,625
US Government agencies215,790
15,682
22,910
22,843
218,691
18,494
15,790
15,682
US Government sponsored entities214,397
14,442
10,365
10,627
210,998
11,033
14,397
14,442
UK Government
27,506
28,480
27,250
27,316

17,817
18,538
27,506
28,480
Hong Kong Government
62,500
62,475
53,676
53,674

52,269
52,252
62,500
62,475
Other governments
140,943
142,594
141,329
143,370

134,766
136,414
140,943
142,594
Asset-backed securities310,246
9,392
14,239
13,375
36,187
5,781
10,246
9,392
Corporate debt and other securities
100,180
102,741
89,860
91,292

99,136
102,540
100,180
102,741
Equities
3,042
4,667
4,057
5,835

2,989
3,917
3,042
4,667
At 31 Dec
431,739
437,098
425,271
430,111

384,280
390,243
431,739
437,098
1Included within ‘Fair‘fair value’ figures are debt securities issued by banks and other financial institutions of $69bn (2015: $61bn)$67bn (2016: $69bn), of which $20bn (2015: $18bn)$15bn (2016: $20bn) are guaranteed by various governments.
2Includes securities that are supported by an explicit guarantee issued by the US Government.
3Excludes asset-backed securities included under US Government agencies and sponsored entities.
Maturities of investments in debt securities at their carrying amount
1 year or less
5 years or less
but over
1 year

10 years or less
but over
5 years

Over 10 years
Total
1 year or less
5 years or less
but over
1 year

10 years or less
but over
5 years

Over 10 years
Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Available for sale64,155
142,700
45,385
33,741
285,981
63,896
122,113
37,292
30,088
253,389
Held to maturity2,502
10,210
10,348
23,863
46,923
3,731
9,406
13,482
26,300
52,919
At 31 Dec 201666,657
152,910
55,733
57,604
332,904
At 31 Dec 201767,627
131,519
50,774
56,388
306,308
  
Available for sale61,664
131,023
42,140
39,640
274,467
64,155
142,700
45,385
33,741
285,981
Held to maturity2,428
10,242
8,881
22,551
44,102
2,502
10,210
10,348
23,863
46,923
At 31 Dec 201564,092
141,265
51,021
62,191
318,569
At 31 Dec 201666,657
152,910
55,733
57,604
332,904

HSBC Holdings plc Annual Report and Accounts 2016
261  255


Notes on the Financial Statements

Contractual maturities and weighted average yields of investment debt securities
1 year or less 
5 years or less
but over
1 year
 
10 years or less
but over
5 years
 Over 10 years 1 year or less
5 years or less
but over
1 year
10 years or less
but over
5 years
Over 10 years
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
YieldAmount
YieldAmount
YieldAmount
Yield
$m
%
$m
%
$m
%
$m
%
$m
%$m
%$m
%$m
%
Available for sale



























US Treasury5,896
1.0
22,807
1.5
19,063
1.9
4,024
3.0
3,981
1.116,213
1.915,806
2.03,318
3.1
US Government agencies2
9.5
118
3.3
95
2.5
6,844
2.2
50
1.9129
2.219
3.87,924
2.6
US Government-sponsored agencies200
3.3
3,138
2.8
1,173
2.4
5,829
2.3
148
3.52,759
3.01,965
2.62,733
2.7
UK Government2,913
1.3
6,742
0.9
10,132
1.2
547
3.4
636
0.26,970
0.96,552
0.8—
—
Hong Kong Government357
0.7
1,143
1.2
—
—
—
—
216
0.81,014
1.3—
——
—
Other governments42,513
1.8
61,734
2.4
8,151
3.0
1,480
6.5
45,337
1.857,441
2.77,429
3.01,678
3.4
Asset-backed securities41
1.8
837
1.2
1,196
1.6
8,166
2.1
26
7.828
5.5271
1.75,858
2.9
Corporate debt and other securities11,641
2.0
43,936
1.6
4,524
3.7
7,316
4.2
13,613
1.735,598
1.94,043
2.67,779
3.9
Total amortised cost at 31 Dec 201663,563


140,455


44,334


34,206


Total amortised cost at 31 Dec 201764,007

120,152

36,085

29,290

Total carrying value64,155


142,700


45,385


33,741


63,896

122,113

37,292

30,088

Held to maturity



























US Treasury22
4.8
61
4.8
46
5.0
124
4.2
41
5.022
4.749
4.9130
4.2
US Government agencies—
—
6
1.8
36
3.3
8,690
2.3
—
—21
4.027
2.510,519
2.4
US Government-sponsored agencies—
—
299
2.2
393
2.8
3,364
2.9
—
—322
2.4325
2.82,747
2.9
Hong Kong Government26
0.3
18
3.0
23
1.5
7
1.4
227
0.528
2.613
1.27
1.4
Other governments41
5.6
318
4.0
169
3.9
805
4.3
108
4.7240
4.0198
3.7847
4.3
Asset-backed securities—
—
—
—
—
—
5
7.0
—
——
——
—4
6.7
Corporate debt and other securities2,413
3.2
9,508
3.6
9,681
3.4
10,868
3.9
3,355
3.78,773
3.412,870
3.312,046
3.9
Total amortised cost at 31 Dec 20162,502


10,210


10,348


23,863


Total amortised cost at 31 Dec 20173,731

9,406

13,482

26,300

Total carrying value2,502


10,210


10,348


23,863


3,731

9,406

13,482

26,300

The maturity distributions of ABSs are presented in the above table on the basis of contractual maturity dates. The weighted average yield for each range of maturities is calculated by dividing the annualised interest income for the year ended 31 December 20162017 by the book amount of available-for-sale debt securities at that date. The yields do not include the effect of related derivatives.
16Assets pledged, collateral received and assets transferred
Assets pledged
Financial assets pledged as collateral
2016
2015
2017
2016
$m
$m
$m
$m
Treasury bills and other eligible securities7,151
5,941
10,183
7,151
Loans and advances to banks17,444
15,582
14,518
17,444
Loans and advances to customers74,109
88,927
68,336
74,109
Debt securities80,063
69,470
96,245
80,063
Equity securities2,655
4,644
33,209
2,655
Other1,838
213
2,743
1,838
Assets pledged at 31 Dec183,260
184,777
225,234
183,260
Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 109.67 of the Pillar 3 Disclosures at 31 December 2017.
The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, in the case of securitisations and covered bonds, the amount of liabilities issued plus mandatory over-collateralisation is less than the book value of the pool of assets available for use as collateral. This is also the case where assets are placed with a custodian or a settlement agent which has a floating charge over all the assets placed to secure any liabilities under settlement accounts.
These transactions are conducted under terms that are usual and customary to collateralised transactions including, where relevant, standard securities lending and borrowing, repurchase agreements and derivative margining. HSBC places both cash and non-cash collateral in relation to derivative transactions.
Financial assets pledged as collateral which the counterparty has the right to sell or repledge
2016
2015
2017
2016
$m
$m
$m
$m
Trading assets37,141
32,633
70,117
37,141
Financial investments4,044
8,050
13,581
4,044
At 31 Dec41,185
40,683
83,698
41,185


262  
HSBC Holdings plc Annual Report and Accounts 2016


Collateral received
The fair value of assets accepted as collateral, relating primarily to standard securities lending, reverse repurchase agreements, swaps of securities and derivative margining, that HSBC is permitted to sell or repledge in the absence of default was $250,919m (2015: $222,065m)$387,678m (2016: $250,919m). The fair value of any such collateral sold or repledged was $149,185m (2015: $139,532m)$243,531m (2016: $149,185m).
HSBC is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard securities lending, reverse repurchase agreements and derivative margining.

256HSBC Holdings plc


Assets transferred
The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt securities held by counterparties as collateral under repurchase agreements and equity securities lent under securities lending agreements. Theagreements, as well as swaps of equity and debt securities. For secured borrowings, the transferred asset collateral continues to be recognised in full and a related liability, reflecting the Group’s obligation to repurchase the assets for a fixed price at a future date is also recognised on the balance sheet. Where securities are swapped, the transferred asset continues to be recognised in full. There is no associated liability as the non-cash collateral received is not recognised on the balance sheet. The Group is unable to use, sell or pledge the transferred assets for the duration of the transaction, and remains exposed to interest rate risk and credit risk on these pledged assets. With the exception of ‘Other sales’ in the table below, the counterparty’s recourse is not limited to the transferred assets.
Transferred financial assets not qualifying for full derecognition and associated financial liabilities
Carrying amount of:Fair value of: Carrying amount of:Fair value of:
Transferred assets
Associated liabilities
Transferred assets
Associated liabilities
Net
position

Transferred assets
Associated liabilities
Transferred assets
Associated liabilities
Net
position
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
At 31 Dec 2017









Repurchase agreements55,510
52,093






Securities lending agreements33,878
3,324






Other sales (recourse to transferred assets only)2,387
2,388
2,377
2,378
(1)
 
At 31 Dec 2016  
Repurchase agreements40,364
39,568
 40,364
39,568
 
Securities lending agreements3,324
2,655
 3,324
2,655
 
Other sales (recourse to transferred assets only)2,441
2,466
2,455
2,458
(3)2,441
2,466
2,455
2,458
(3)
 
At 31 Dec 2015 
Repurchase agreements36,153
35,913
 
Securities lending agreements5,275
5,704
 
Other sales (recourse to transferred assets only)2,717
2,768
2,720
2,726
(6)
17Interests in associates and joint ventures

Associates
At 31 December 2016,2017, the carrying amount of HSBC’s interests in associates was $19,874m (2015: $18,900m)$22,577m (2016: $19,874m).
Principal associates of HSBC
 20162015 20172016
 Carrying
amount
Fair
value1

Carrying
amount
Fair
value1

 Carrying
amount
Fair
value1

Carrying
amount
Fair
value1

 $m
$m
$m
$m
 $m
$m
$m
$m
Bank of Communications Co., Limited 15,765
10,207
15,344
9,940
 18,057
10,491
15,765
10,207
The Saudi British Bank 3,280
3,999
3,021
3,957
 3,618
4,320
3,280
3,999
At 31 Dec 19,045
14,206
18,365
13,897
1Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the fair value hierarchy).
 At 31 Dec 2016
 
Country of
incorporation and
principal place of business
Principal
activity
HSBC’s
interest
%
 At 31 Dec 2017
FootnoteFootnote
Country of
incorporation and
principal place of business
Principal
activity
HSBC’s
interest
%
Bank of Communications Co., Limited1PRCBanking services19.031PRCBanking services19.03
The Saudi British Bank Saudi ArabiaBanking services40.00 Saudi ArabiaBanking services40.00
1People’s Republic of China.
A list of all associates and joint ventures is set out on page 303.294.
Bank of Communications Co., Limited
The Group’s significant influence in Bank of Communications Co., Limited (‘BoCom’) was established via representation on BoCom’s board of directors and a technical cooperation and exchange programme (‘TCEP’).programme. Under the TCEP,this programme, a number of HSBC staff have been seconded to assist in the maintenance of BoCom’s financial and operating policies.

HSBC Holdings plc Annual Report and Accounts 2016
263  


Notes on the Financial Statements

Impairment testing
At 31 December 2016,2017, the fair value of HSBC’s investment in BoCom had been below the carrying amount for approximately 5668 months. As a result, the Group performed an impairment test on the carrying amount of the investment in BoCom, which confirmed there was no impairment at 31 December 2016.2017.
 At 31 Dec 2016At 31 Dec 2015
 VIU
Carrying value
Fair
value
VIU
Carrying value
Fair
value
 $bn
$bn
$bn
$bn
$bn
$bn
Bank of Communications Co., Limited16.1
15.8
10.2
17.0
15.3
9.9
 At 31 Dec 2017At 31 Dec 2016
 VIU
Carrying value
Fair
value
VIU
Carrying value
Fair
value
 $bn
$bn
$bn
$bn
$bn
$bn
Bank of Communications Co., Limited18.3
18.1
10.5
16.1
15.8
10.2

HSBC Holdings plc257


Notes on the Financial Statements

Basis of recoverable amount
The impairment test was performed by comparing the recoverable amount of BoCom, determined by a value in use (‘VIU’) calculation, with its carrying amount. The VIU calculation uses discounted cash flow projections based on management’s estimates of earnings. Cash flows beyond the short to medium term are extrapolated in perpetuity using a long-term growth rate.rate to derive a terminal value, which comprises the majority of VIU. An imputed capital maintenance charge (‘CMC’) is calculated to reflect expected regulatory capital requirements, and is deducted from forecast cash flows. The principal inputs to the CMC calculation include estimates of asset growth, the ratio of risk-weighted assets to total assets, and the expected minimum regulatory capital requirements. ManagementAn increase in the CMC as a result of a change to these principal inputs would reduce VIU. Additionally, management considers other factors (including qualitative factors) to ensure that the inputs to the VIU calculation remain appropriate. Significant management judgement is required in estimating the future cash flows of BoCom.
Key assumptions in value in use calculation
TheWe used a number of assumptions we used in our VIU calculation were:calculation:
Long-term profit growth rate of 3% (2016: 5% (2015: 5%) for periods after 2019,2020, which does not exceed forecast GDP growth in mainland China.China and is within the range forecast by external analysts.
Long-term asset growth rate: rate of 3% (2016: 4% (2015: 4%) for periods after 2019,2020, which is the rate that assets are expected to grow to achieve long-term profit growth of 5%3%.
Discount rate: 13% (2015: 13%rate of 11.85% (2016: 13.0%), which is derived from a range of values obtained by applyingbased on a capital asset pricing model (‘CAPM’) calculation for BoCom, using market data. Management also compares rates derived from the CAPM with discount rates from external sources, and HSBC’s discount rate for evaluating investments in mainland China.sources. The discount rate used was within the range of 10.2% to 15.0% (2015: 10.1%13.4% (2016: 10.2% to 14.2%15.0%) indicated by the CAPM and external sources.
Loan impairment charge as a percentage of customer advances: a range from 0.72%0.66% to 0.87% (2015: 0.71%0.82% (2016: 0.72% to 0.78%0.87%) in the short to medium term, largely based on forecasts disclosed by external analysts. For periods after 2019,2020, the ratio is 0.70% (2015: (2016: 0.70%), slightly higher than the historical average.
Risk-weighted assets as a percentage of total assets: 62% (2016: 62%) for all forecast periods (2015: 67%).periods. This is consistent with the medium-term forecasts disclosed by external analysts.
Cost-income ratio: 40% (2015: 41%ranges from 37.1% to 38.0% (2016: 40.0%) in the short to medium term. The ratios were consistent withThis is slightly higher than the short- to medium-term range forecasts of 39.9% to 40.2% (2015: 40.3% to 40.7%) disclosed by external analysts.
The long-term profit growth rate, long-term asset growth rate and discount rate assumptions were updated in 2017 to better align with market practice when setting long-term assumptions in VIU calculations. The long-term profit growth rate was set at the lower end of the range forecast by external analysts and there was a corresponding change to the long-term asset growth rate. These changes reduced management’s uncertainty in respect of estimated future cash flows and accordingly the discount rate was set based on CAPM with no adjustment for uncertainty in future cash flows.
The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom to nil.
Key assumptionChanges to key assumption to reduce headroom to nil
•
Long-term profit growth rate
•
Decrease by 1311 basis points
•
Long-term asset growth rate
•
Increase by 1410 basis points

•
Discount rate
•
Increase by 1713 basis points

•
Loan impairment charge as a percentage of customer advances
•
Increase by 32 basis points

•
Risk-weighted assets as a percentage of total assets
•
Increase by 9563 basis points

•
Cost-income ratio
•
Increase by 6046 basis points



264  
HSBC Holdings plc Annual Report and Accounts 2016


The following table illustrates the effect on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of the VIU to each key assumption on its own, and it is possible that more than one favourable and/or unfavourable change will occur at the same time. The selected rates of reasonably possible changes to key assumptions is largely based on external analysts’ forecasts which can change period to period.
Sensitivity of VIU to reasonably possible changes in key assumptionsSensitivity of VIU to reasonably possible changes in key assumptions Sensitivity of VIU to reasonably possible changes in key assumptions
Favourable changeUnfavourable changeFavourable changeUnfavourable change


Increase
in VIU
VIU


Decrease
In VIU
VIU


Increase
in VIU
VIU


Decrease
In VIU
VIU
bps
$bn
$bn
bps
$bn
$bn
At 31 Dec 2017











Long-term profit growth rate200
6.6
24.9
—
—
18.3
Long-term asset growth rate(20)0.5
18.9
200
(7.1)11.2
Discount rate(35)0.7
19.1
65
(1.2)17.1
Loan impairment charge as a percentage of customer advances2017-20: 0.71%
2021 onwards: 0.70%
0.1
18.5
2017-20: 0.90%
2021 onwards: 0.77%
(1.3)17.0
Risk-weighted assets as a percentage of total assets(60)0.2
18.6
30
(0.1)18.2
Cost-income ratio(173)1.5
19.8
—
—
18.3
bps
$bn
$bn
bps
$bn
$bn
 
At 31 Dec 2016























Long-term profit growth rate—
—
16.1
(150)(3.3)12.8
—
—
16.1
(150)(3.3)12.8
Long-term asset growth rate(80)1.8
17.8
—
—
16.1
(80)1.8
17.8
—
—
16.1
Discount rate(100)2.3
18.4
—
—
16.1
(100)2.3
18.4
—
—
16.1
Loan impairment charge as a percentage of customer advances—
—
16.1
2016-19: 0.93%
2020 onwards: 0.80%
(1.1)15.0
—
—
16.1
2016-19: 0.93%
2020 onwards: 0.80%
(1.1)15.0
Risk-weighted assets as a percentage of total assets(30)0.1
16.2
170
(0.6)15.5
(30)0.1
16.2
170
(0.6)15.5
Cost-income ratio(170)0.9
17.0
250
(1.4)14.7
 
At 31 Dec 2015











Long-term profit growth rate100
3.2
20.3
(210)(4.7)12.3
Long-term asset growth rate(50)1.2
18.2
100
(2.8)14.3
Discount rate(150)4.2
21.2
110
(2.1)14.9
Loan impairment charge as a percentage of customer advances70
throughout
0.1
17.2
2015-18: 0.85%
2019 onwards: 0.75%
(0.7)16.4
Risk-weighted assets as a percentage of total assets(350)1.2
18.2
10
—
17
Cost income ratio(250)1.5
18.5
120
(0.7)16.4
(170)0.9
17.0
250
(1.4)14.7

258HSBC Holdings plc


Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is $14.7bn to $21.1bn (2016: $10.8bn to $19.0bn.$19.0bn).
Selected financial information of BoCom
The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2016,2017, HSBC included the associate’s results on the basis of financial statements for the 12 months ended 30 September 2016,2017, taking into account changes in the subsequent period from 1 October 20162017 to 31 December 20162017 that would have materially affected the results.
Selected balance sheet information of BoCom
At 30 SepAt 30 Sep
2016
2015
2017
2016
$m
$m
$m
$m
Cash and balances at central banks137,844
144,702
146,029
137,844
Loans and advances to banks and other financial institutions101,436
110,915
120,403
101,436
Loans and advances to customers566,126
560,503
662,706
566,126
Other financial assets311,207
244,722
386,067
311,207
Other assets48,922
49,246
58,202
48,922
Total assets1,165,535
1,110,088
1,373,407
1,165,535
Deposits by banks and other financial institutions297,442
261,211
366,993
297,442
Customer accounts680,915
691,959
747,882
680,915
Other financial liabilities69,954
46,932
123,751
69,954
Other liabilities27,860
29,329
32,568
27,860
Total liabilities1,076,171
1,029,431
1,271,194
1,076,171
Total equity89,364
80,657
102,213
89,364
Reconciliation of BoCom’s total shareholders’ equity to the carrying amount in HSBC’s consolidated financial statements
At 30 SepAt 30 Sep
2016
2015
2017
2016
$m
$m
$m
$m
HSBC’s share of total shareholders’ equity15,285
14,824
17,551
15,285
Add: Goodwill and other intangible assets480
520
Goodwill and other intangible assets506
480
Carrying amount15,765
15,344
18,057
15,765
Selected income statement information of BoCom
 For the 12 months ended 30 Sep
 2017
2016
 $m
$m
Net interest income19,080
20,614
Net fee and commission income5,698
5,493
Loan impairment charges(4,286)(4,284)
Depreciation and amortisation(1,342)(1,216)
Tax expense(2,234)(2,800)
Profit for the year10,288
10,151
Other comprehensive income(624)875
Total comprehensive income9,664
11,026
Dividends received from BoCom565
580
Summarised aggregate financial information for all associates excluding BoCom
 2017
2016
 $m
$m
Carrying amount4,520
4,109
HSBC’s share of:



– total assets20,625
20,757
– total liabilities16,119
16,661
– revenues1,051
923
– profit or loss from continuing operations487
454
Joint ventures
At 31 December 2017, the carrying amount of HSBC’s interests in joint ventures was $167m (2016: $155m).
Associates and joint ventures
For the year ended 31 December 2017, HSBC’s share of associates’ and joint ventures’ tax on profit was $440m (2016: $542m). This is included within ‘Share of profit in associates and joint ventures’ in the ‘Consolidated income statement’.

HSBC Holdings plc Annual Report and Accounts 2016
265  259


Notes on the Financial Statements

Selected income statement information of BoCom
 For the 12 months ended 30 Sep
 2016
2015
 $m
$m
Net interest income20,614
22,397
Net fee and commission income5,493
5,432
Loan impairment charges(4,284)(3,772)
Depreciation and amortisation(1,216)(1,012)
Tax expense(2,800)(2,976)
Profit for the year10,151
10,634
Other comprehensive income875
377
Total comprehensive income11,026
11,011
Dividends received from BoCom580
624
Summarised aggregate financial information for all associates excluding BoCom  
 2016
2015
 $m
$m
Carrying amount4,109
3,556
HSBC’s share of:



– total assets20,757
21,645
– total liabilities16,661
18,166
– revenues923
821
– profit or loss from continuing operations454
508
Joint ventures
At 31 December 2016, the carrying amount of HSBC’s interests in joint ventures was $155m (2015: $239m).
Associates and joint ventures
For the year ended 31 December 2016, HSBC’s share of associates’ and joint ventures’ tax on profit was $542m (2015: $575m). This is included within ‘Share of profit in associates and joint ventures’ in the ‘Consolidated income statement’.
Movements in interests in associates and joint ventures
 2016
2015
 2017
2016
Footnote$m
$m
Footnote$m
$m
At 1 Jan 19,139
18,181
 20,029
19,139
Additions 76
3
 60
76
Disposals (25)(8) (67)(25)
Share of results 2,354
2,556
 2,375
2,354
Dividends (751)(879) (740)(751)
Exchange differences (1,115)(718) 1,144
(1,115)
Share of other comprehensive income of associates and joint ventures 54
(9) (43)54
Other movements 297
13
 (14)297
At 31 Dec120,029
19,139
122,744
20,029
1
Includes goodwill of $488m (2015: $593m)$521m (2016: $488m).

266  18
HSBC Holdings plc Annual Report and Accounts 2016


18    Investments in subsidiaries
Principal subsidiaries of HSBC Holdings

At 31 Dec 20162017

Country of incorporation or registrationHSBC’s interest %

Share class
Europe


HSBC Bank plcEngland and Wales100£1 Ordinary and Preferred Ordinary, $0.01 Non-cumulative third Dollar Preference Shares
HSBC FranceFrance99.99€5 Actions
HSBC Assurances Vie (France)France10099.99287.50 EUR Ordinary shares
HSBC Private Banking Holdings (Suisse) SASwitzerland100CHF1,000 Ordinary
HSBC Trinkaus & Burkhardt AGGermany80.6580.67Stückaktien no par value
Asia


Hang Seng Bank LimitedHong Kong62.14HK$5 Ordinary
HSBC Bank Australia LimitedAustralia100Ordinary no par value
HSBC Bank (China) Company Limited
PRC4
100CNY1 Ordinary
HSBC Bank Malaysia BerhadMalaysia100RM0.50 Ordinary
HSBC Bank (Taiwan) LimitedTaiwan100TWD10 Ordinary
HSBC Life (International) LimitedBermuda100HK$1 Ordinary
The Hongkong and Shanghai Banking Corporation LimitedHong Kong100
HK$2.50 Ordinary$1Ordinary no par value, CIP1, CRP2 and NIP32
HSBC Bank (Singapore) LimitedSingapore100SGD100 Ordinary
Middle East and North Africa


HSBC Bank Middle East LimitedUnited Arab Emirates100
$1 Ordinary and $1 CRP23
HSBC Bank Egypt S.A.E.Egypt94.5394.54EGP84 Ordinary
North America


HSBC Bank CanadaCanada100Common no par value and Preference no par value
HSBC Bank USA, N.A.USA100$100 Common and $0.01 Preference
HSBC Securities (USA) Inc.USA100$0.05 Common
Latin America


HSBC Mexico, S.A., Institución de Banca Múltiple,
Grupo Financiero HSBC		Mexico99.99MXN2 Ordinary
1Cumulative Irredeemable Preference shares.
2Cumulative RedeemableNon-cumulative Irredeemable Preference shares.
3Non-cumulative IrredeemableCumulative Redeemable Preference shares.
4People’s Republic of China.

Details of the debt, subordinated debt and preference shares issued by the principal subsidiaries to parties external to the Group are included in Notes 2524 ‘Debt securities in issue’, 2827 ‘Subordinated liabilities’ and 3130 ‘Non-controlling interests’, respectively.
A list of all related undertakings is set out on pages 297288 to 303.297. The principal countries of operation are the same as the countries of incorporation except for HSBC Bank Middle East Limited, which operates mainly in the Middle East and North Africa, and HSBC Life (International) Limited, which operates mainly in Hong Kong.
HSBC is structured as a network of regional banks and locally incorporated regulated banking entities. Each bank is separately capitalised in accordance with applicable prudential requirements and maintains a capital buffer consistent with the Group’s risk appetite for the relevant country or region. HSBC’s capital management process is incorporated in the Annual Operating Plan, which is approved by the Board.
HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where necessary. These investments are substantially funded by HSBC Holdings’ issuance of equity and non-equity capital, and by profit retention. The reduction in HSBC Holdings investments in subsidiaries of $2,920m during the year (2016: $1,920m) is driven by $4,070m return of capital from subsidiaries (2016: $3,898m), $242m intra-group disposals (2016: $0m), $352m of other movements including provisions (2016: $95m) partially offset by $1,744m of new capital injections (2016: $2,073m).

260HSBC Holdings plc


As part of its capital management process, HSBC Holdings seeks to maintain a balance between the composition of its capital and its investment in subsidiaries. Subject to this, there is no current or foreseen impediment to HSBC Holdings’ ability to provide funding for such investments. During 2016,2017, consistent with the Group'sGroup’s capital plan, the Group’s subsidiaries did not experience any significant restrictions on paying dividends or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or payments. However,the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial and operating performance.
The amount of guarantees by HSBC Holdings in favour of other HSBC Group entities is set out in Note 33.32.
Information on structured entities consolidated by HSBC where HSBC owns less than 50% of the voting rights is included in Note 19 ‘Structured entities’. In each of these cases, HSBC controls and consolidates an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

HSBC Holdings plc Annual Report and Accounts 2016
267  


Notes on the Financial Statements

Subsidiaries with significant non-controlling interests
2016
2015
2017
2016
Hang Seng Bank Limited  


Proportion of ownership interests and voting rights held by non-controlling interests37.86%37.86%37.86%
37.86%
Place of businessHong Kong
Hong Kong
Hong Kong
Hong Kong
$m
$m
$m
$m
Profit attributable to non-controlling interests814
1,364
997
814
Accumulated non-controlling interests of the subsidiary5,792
5,866
6,233
5,792
Dividends paid to non-controlling interests811
523
594
811
Summarised financial information:  



– total assets175,242
169,813
186,638
175,242
– total liabilities159,035
153,458
169,275
159,035
– net operating income before loan impairment3,937
5,411
4,556
3,937
– profit for the year2,148
3,604
2,632
2,148
– total comprehensive income for the year2,044
1,636
2,895
2,044
19Structured entities
HSBC is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets, conduits and investment funds, established either by HSBC or a third party.
Consolidated structured entities
Total assets of HSBC’s consolidated structured entities, split by entity type
Conduits
Securitisations
HSBC
managed funds
Other
Total
Conduits
Securitisations
HSBC
managed funds
Other
Total
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
At 31 Dec 201712.9
4.8
7.0
3.2
27.9
At 31 Dec 201615.8
5.7
4.8
3.7
30.0
15.8
5.7
4.8
3.7
30.0
At 31 Dec 201525.9
5.6
8.2
5.7
45.4
Conduits
HSBC has established and manages two types of conduits: securities investment conduits (‘SICs’) and multi-seller conduits.
Securities investment conduits
The SICs purchase highly rated ABSs to facilitate tailored investment opportunities.
Solitaire – At 31 December 2016,2017, Solitaire, HSBC’s principal SIC held $4.7bn$3.2bn of ABSs (2015: $6.2bn)(2016: $4.7bn). These are included within the disclosures of ABSs on page 138140. It is currently funded entirely by commercial paper (‘CP’) issued to HSBC. Although HSBC continues to provide a liquidity facility, Solitaire has no need to draw on it as long as HSBC purchases its issued CP, which HSBC intends to do for the foreseeable future. At 31 December 2016,2017, HSBC held $6.1bn$4.6bn of CP (2015: $8.0bn)(2016: $6.1bn).
Mazarin, BarionandMalachite – All three SICs are predominantlynow funded by medium-term notes, and are no longer funded by repurchase agreements and medium-term notes. HSBC is exposed to the par value of Mazarin assets through the provision of a liquidity facility equal to the lesser of the amortised cost of issued debt and the amortised cost of non-defaulted assets. At 31 December 2016, this amounted to $1.0bn (2015: $1.8bn).agreements. HSBC’s primary exposure to Mazarin, Barion and Malachite is represented by the amortised cost of the debt required to support the non-cash assets of the vehicles. At 31 December 2016,2017, this amounted to $0.8bn (2015: $1.4bn)$0.9bn (2016: $1.3bn). For all three SICs first loss protection is provided through the capital notes issued by these vehicles, which are held substantially by third parties. At 31 December 2016, HSBC held 12.2% of the capital notes (2015: 7.2%) issued by these vehicles with a par value of $69.5m (2015: $55.2m) and a carrying amount of $27.9m (2015: $24.7m).
Multi-seller conduit
HSBC’s multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, HSBC bears risk equal to the transaction-specific liquidity facility offered to the multi-seller conduit, amounting to $10.2bn$15.7bn at 31 December 2016 (2015: $19.8bn)2017 (2016: $15.2bn (restated)). First loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit enhancements. A layer of secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.
Securitisations
HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or synthetically through credit default swaps, and the structured entities issue debt securities to investors.
HSBC managed funds
HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent in its role as investment manager, HSBC controls these funds.

268  
HSBC Holdings plc Annual Report and Accounts 2016
261


Notes on the Financial Statements

Other
HSBC has also entered into a number of transactions in the normal course of business which include asset and structured finance transactions where it has control of the structured entity. In addition, HSBC is deemed to control a number of third-party managed funds through its involvement as a principal in the funds.
Unconsolidated structured entities
The term ‘unconsolidated structured entities’ refers to all structured entities not controlled by HSBC. The Group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.
Nature and risks associated with HSBC interests in unconsolidated structured entities
Securitisations
HSBC
managed funds
Non-HSBC
managed funds
Other
Total
Securitisations
HSBC
managed funds
Non-HSBC
managed funds
Other
Total
Total asset values of the entities ($m) 
0 – 50078
321
930
210
1,539
500 – 2,0006
56
578
3
643
2,000 – 5,000—
17
235
—
252
5,000 – 25,0002
10
104
1
117
25,000+—
2
11
—
13
Number of entities at 31 Dec 201786
406
1,858
214
2,564
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
$bn
Total assets of the entities14.4
200.6
2,016.5
106.3
2,337.8
Total assets in relation to HSBC’s interests in the unconsolidated structured entities2.4
7.1
8.3
10.1
27.9
4.0
9.1
9.3
4.1
26.5
– trading assets—
0.4
0.1
2.1
2.6
—
0.2
0.2
2.4
2.8
– financial assets designated at fair value—
5.9
7.5
—
13.4
—
8.0
8.3
—
16.3
– derivatives—
—
—
3.9
3.9
– loans and advances to banks—
—
—
0.4
0.4
– loans and advances to customers2.4
—
—
3.2
5.6
– financial investments—
0.8
0.7
0.2
1.7
– other assets—
—
—
0.3
0.3
Total liabilities in relation to HSBC’s interests in the unconsolidated structured entities—
—
—
0.3
0.3
– derivatives—
—
—
0.1
0.1
– other liabilities—
—
—
0.2
0.2
HSBC’s maximum exposure at 31 Dec 20162.4
7.1
11
13.5
34
 
Total assets of the entities12.9
227.9
2,003.1
139.9
2,383.8
Total assets in relation to HSBC’s interests in the unconsolidated structured entities1.4
5.6
8.0
9.8
24.8
– trading assets—
0.1
0.2
2.6
2.9
– financial assets designated at fair value—
5.3
6.6
—
11.9
– derivatives—
—
—
3.8
3.8
– loans and advances to banks—
—
—
0.1
0.1
—
—
—
0.1
0.1
– loans and advances to customers1.1
—
0.1
2.9
4.1
4.0
—
—
1.1
5.1
– financial investments0.3
0.2
1.1
0.2
1.8
—
0.9
0.8
0.1
1.8
– other assets—
—
—
0.2
0.2
—
—
—
0.4
0.4
Total liabilities in relation to HSBC’s interests in the unconsolidated structured entities—
—
—
0.1
0.1
—
—
—
0.3
0.3
– other liabilities—
—
—
0.1
0.1
—
—
—
0.3
0.3
HSBC’s maximum exposure at 31 Dec 20153.5
5.6
8.0
14.6
31.7
Other off balance sheet commitments—
0.1
2.2
0.3
2.6
HSBC’s maximum exposure at 31 Dec 20174.0
9.2
11.5
4.4
29.1
 
Total asset values of the entities ($m) 
0 – 50093
374
1,104
95
1,666
500 – 2,00010
43
498
5
556
2,000 – 5,000—
22
187
2
211
5,000 – 25,000—
8
72
2
82
25,000+—
1
4
1
6
Number of entities at 31 Dec 2016103
448
1,865
105
2,521
$bn
$bn
$bn
$bn
$bn
Total assets in relation to HSBC’s interests in the unconsolidated structured entities2.4
7.1
8.3
6.2
24.0
– trading assets—
0.4
0.1
2.1
2.6
– financial assets designated at fair value—
5.9
7.5
—
13.4
– loans and advances to banks—
—
—
0.4
0.4
– loans and advances to customers2.4
—
—
3.2
5.6
– financial investments—
0.8
0.7
0.2
1.7
– other assets—
—
—
0.3
0.3
Total liabilities in relation to HSBC’s interests in the unconsolidated structured entities—
—
—
0.2
0.2
– other liabilities—
—
—
0.2
0.2
Other off balance sheet commitments—
—
2.7
0.1
2.8
HSBC’s maximum exposure at 31 Dec 20162.4
7.1
11.0
6.3
26.8
The maximum exposure to loss from HSBC’s interests in unconsolidated structured entities represents the maximum loss it could incur as a result of its involvement with these entities regardless of the probability of the loss being incurred.
For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential future losses.
For retained and purchased investments in and loans to unconsolidated structured entities, the maximum exposure to loss is the carrying value of these interests at the balance sheet reporting date.
The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements entered into to mitigate HSBC’s exposure to loss.
Securitisations
HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC has investments in ABSs issued by third partythird-party structured entities as set out on page 138.140.

262HSBC Holdings plc


HSBC managed funds
HSBC establishes and manages money market funds and non-money market investment funds to provide customers with investment opportunities. Further information on funds under management is provided on page 77.83.
HSBC, as fund manager, may be entitled to receive management and performance fees based on the assets under management. HSBC may also retain units in these funds.
Non-HSBC managed funds
HSBC purchases and holds units of third-party managed funds in order to facilitate business and meet customer needs. In addition to entities, asset and liability classes disclosed above HSBC enters into derivative contracts to facilitatewith Non-HSBC managed funds. These interests arise in the normal course of business for the facilitation of third-party transactions and risk management solutions for non-HSBC managed funds.solutions. Note 14 provides information on derivatives entered into by HSBC.

HSBC Holdings plc Annual Report and Accounts 2016
269  


Notes on the Financial Statements

Other
HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers, to provide finance to public and private sector infrastructure projects, and for asset and structured finance transactions. In addition to entities, asset and liability classes disclosed above HSBC enters into derivative contracts with Other Structured Entities. These interests arise in the normal course of business for the facilitation of third-party transactions and risk management solutions. Note 14 provides information on derivatives entered into by HSBC.
HSBC sponsored structured entities
The amount of assets transferred to and income received from such sponsored entities during 20162017 and 20152016 were not significant.
20Goodwill and intangible assets
 2016
2015

2017
2016
Footnote$m
$m
Footnote$m
$m
Goodwill 12,330
16,294

13,588
12,330
Present value of in-force long-term insurance business 6,502
5,685

6,610
6,502
Other intangible assets12,514
2,626
13,255
2,514
At 31 Dec 21,346
24,605

23,453
21,346
1
Included within other intangible assets is internally generated software with a net carrying value of $2,641m (2016: $1,982m (2015: $1,934m)).
Movement analysis of goodwill
2016
2015
2017
2016
$m
$m
$m
$m
Gross amount  



At 1 Jan22,187
25,092
21,445
22,187
Exchange differences(562)(1,610)1,490
(562)
Reclassified to held for sale(183)(1,319)—
(183)
Other3
24
(33)3
At 31 Dec21,445
22,187
22,902
21,445
Accumulated impairment losses  



At 1 Jan(5,893)(5,923)(9,115)(5,893)
Impairment losses(3,240)—
—
(3,240)
Exchange differences(327)—
Other18
30
128
18
At 31 Dec(9,115)(5,893)(9,314)(9,115)
Net carrying amount at 31 Dec12,330
16,294
13,588
12,330
Impairment testing
The Group’s impairment test in respect of goodwill allocated to each cash generating unit (CGU)(‘CGU’) is performed as at 1 July each year. A review for indicators of impairment is undertaken at each subsequent quarter-end and as at 31 December 2016. Subsequent to the
1 July 2016 annual test the CGU for Global Banking and Markets was amended from a regional to a global basis. This change is discussed further below.
30 June and 31 December 2016 impairment indicators review
At 30 June 2016, we reviewed the inputs used in our 2015 impairment tests in the light of current economic and market conditions. As a result, impairment tests were performed for Global Private Banking – Europe and Global Banking and Markets – Europe. Following these tests an impairment of $0.8bn was recognised in respect of the Global Private Banking – Europe.
At 31 December 2016, we reviewed the inputs used in our 1 July 2016 impairment test and identified that2017. No indicators of impairment existed within the Global Private Banking – Europe CGU. There were no indicatorsidentified as part of impairment in respect of our other CGUs at this time. Refreshed cash flow projections that became available for Global Private Banking – Europe were significantly adverse when compared to those used in the 1 July 2016 impairment test. The reduction in cash flow forecasts is driven by the continuing repositioning of the business and lower net new money and associated return on asset expectations. As a result, an impairment test was performed resulting in an impairment of $2.4bn.
The assumptions and results of the Global Private Banking – Europe tests are presented below:
 Carrying amount
of which goodwill
Value in use
Impairment
Discount
rate
Nominal
growth rate beyond initial cash flow projections
 $bn
$bn
$bn
$bn
%%
30 Jun 20164.4
3.3
3.6
(0.8)9.72.8
31 Dec 20163.5
2.4
1.1
(2.4)9.72.8
2016 impairment recognised   (3.2)  
these reviews.
Basis of the recoverable amount
The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use (VIU)(‘VIU’) at each respective testing date for 20152016 and 2016.2017. For each CGU, the VIU is calculated by discounting management’s cash flow projections for the CGU. The key assumptions used in the VIU calculation for each significant CGU are discussed below.

270  
HSBC Holdings plc Annual Report and Accounts 2016
263


Notes on the Financial Statements

Key assumptions in VIU calculation
 
Goodwill at
1 Jul 2016

Discount
rate
Nominal growth rate beyond initial cash flow projections
Goodwill at
1 Jul 2015

Goodwill at
31 Dec 2015

Discount
rate
Nominal
growth rate beyond initial cash flow projections

Goodwill at
1 Jul 2017
Discount
rate		Nominal growth rate beyond initial cash flow projectionsGoodwill at
1 Jul 2016
Discount
rate
Nominal
growth rate beyond initial cash flow projections
Footnote$m
%$m
$m
%Footnote$m
%$m
%
Cash-generating unit     




Europe 








RBWM 3,446
8.93.63,562

6.93.3
3,508
8.93.73,446
8.93.6
CMB
2,570
9.93.62,517
9.73.8
Global




GB&M 2,520
10.73.82,690

9.93.514,000
10.65.8n/a
n/a
CMB 2,517
9.73.82,603

9.03.6
North America 



GB&M1918
10.04.6929
931
10.04.3
Latin America 



RBWM 584
11.07.4792

11.06.9
1GB&M North America comparative discount rateSubsequent to the 1 July 2016 annual test the CGU for Global Banking and nominal growth rate beyond initial cash flow project rates areMarkets was amended from a regional to a global basis. The first formal impairment test for this CGU was performed as at 31 December 2015.1 July 2017.

At 1 July 2016,2017, aggregate goodwill of $3,025m$3,059m (1 July 2015: $2,787m)2016: $3,025m) had been allocated to CGUs that were not considered individually significant. The Group’s CGUs do not carry on their balance sheets any significant intangible assets with indefinite useful lives, other than goodwill.
Management’s judgement in estimating the cash flows of a CGU:
The cash flow projections for each CGU are based on plans approved by the GMB. For the goodwill impairment test conducted at 1 July 2016,2017, management’s cash flow projections until the end of 20202021 were used.
Discount rate:
The rate used to discount the cash flows is based on the cost of capital assigned to each CGU, which is derived using a capital asset pricing model (‘CAPM’). CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market’s assessment of the economic variables and management’s judgement. The discount rates for each CGU are refined to reflect the rates of inflation for the countries within which the CGU operate. In addition, for the purposes of testing goodwill for impairment, management supplements this process by comparing the discount rates derived using the internally generated CAPM, with cost of capital rates produced by external sources for businesses operating in similar markets. For the purpose of goodwill testing as at 1 July 2016, all European CGUs include a 100bps uplift to reflect the increased risk in European markets following the UK referendum on membership of the EU.
Nominal long-term growth rate:
The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long‑termlong-term perspective within the Group of business units making up the CGUs. These growth rates reflect GDP and inflation for the countries within which the CGU operates or derives revenue from.
Global Banking and Markets CGU basis
As described on page 59, the Group has changed its operating segments from a geographical region to a global businesses basis, and this change prompted a review of the goodwill allocation. Following this review it has been determined that Global Banking and Markets should be assessed as a single CGU rather than on a regional basis reflecting the global management and customer base of this business. An analysis was performed and Global Banking and Markets is considered to have significant headroom to support its goodwill. All other CGUs remain unchanged.
Sensitivities of key assumptions in calculating VIU
At 1 July 2016, Retail Banking and Wealth Management – Europe was2017, none of the CGUs were sensitive to reasonably possible adverse changes in the discount rate, growth rate or management’s projections of cash flowskey assumptions supporting the recoverable amount. Changes in one or more of these assumptions could cause an impairment to be recognised. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each input to the model such as the external range of discount rates observable, historical performance against forecast and risks attaching to the key assumptions underlying cash flow projections.
The following table presents a summary of the key assumptions underlying the most sensitive inputs to the model for this CGU; the key risks attached; and details of a reasonably possible change to assumptions where, in the opinion of management, these could result in an impairment.

HSBC Holdings plc Annual Report and Accounts 2016
271  


Notes on the Financial Statements

Reasonably possible changes in key assumptions
InputKey assumptionsAssociated risksReasonably possible change
Cash-generating unit
RBWM – Europe

Cash flow projections
•
Level of interest rates and yield curves.
•
Competitors’ position within the market.
•
Level and change in unemployment rates.
•
Uncertain regulatory environment.
•
Customer remediation and regulatory actions.

•
Cash flow projections decrease by 10%. This does not result in an impairment.
Discount
rate
•
Discount rate used is a reasonable estimate of a suitable market rate for the profile of the business.
•
External evidence suggests that the rate used is not appropriate to the business.
•
Discount rate increases by 100bps.
Long-term growth rates
•
Business growth will reflect GDP growth rates in the long term.
•
Growth does not match GDP or there is a fall in GDP forecasts.
•
Real GDP growth does not occur or is not reflected in performance.
Sensitivity of VIU to reasonably possible changes in key assumptions and changes to current assumptions to achieve nil headroom
At 1 Jul 2016RBWM – Europe
In $ billions (unless otherwise stated)$bn
Carrying amount16.6
VIU19.7
Reasonably possible change in key assumption

Discount rate–bps
100
Cash flows–%
(10)
Long-term growth rates–bps
(162)
Impact on VIU

Discount rate(3.1)
Cash flows(2.0)
Long-term growth rates(3.9)
Cumulative impact of all changes(7.3)
Changes to current assumptions to achieve nil headroom

Discount rate–bps
102
Cash flows–%
(15.8)
Long-term growth rates–bps
(122)

Present value of in-force long-term insurance business
When calculating the present value of in-force insurance business (‘PVIF’), expected cash flows are projected after adjusting for a variety of assumptions made by each insurance operation to reflect local market conditions and management’s judgement of future trends, and after applying risk margins to reflect any uncertainty in the underlying assumptions.assumptions is reflected by applying margins (as opposed to a cost of capital methodology). Variations in actual experience and changes to assumptions can contribute to volatility in the results of the insurance business.
Actuarial Control Committees of each key insurance entity meet on a quarterly basis to review and approve PVIF assumptions. All changes to non-economic assumptions, economic assumptions that are not observable and model methodology must be approved by the Actuarial Control Committee.
Movements in PVIF
 2016
2015

2017
2016
Footnotes$m
$m
Footnotes$m
$m
PVIF at 1 Jan 5,685
5,307

6,502
5,685
Change in PVIF of long-term insurance business 902
799

24
902
– value of new business written during the year 900
809

919
900
– expected return1(532)(552)1(599)(532)
– assumption changes and experience variances (see below) 513
504

(280)513
– other adjustments 21
38

(16)21
Transfer of assets classified as held for sale2(45)(219)2—
(45)
Exchange differences and other (40)(202)
84
(40)
PVIF at 31 Dec 6,502
5,685

6,610
6,502
1‘Expected return’ represents the unwinding of the discount rate and reversal of expected cash flows for the period.
2Relates to the Brazilian insurance operations which were classified as held for sale in 2015.

264HSBC Holdings plc


Assumption changes and experience adjustmentsvariances
Included within this line item are:
$(98)m (2016: $279m (2015: $114m)), directly offsetting interest rate-drivenregulatory-driven changes to the valuation of liabilities under insurance contracts.
$(141)m (2016: $301m (2015: $209m)), reflecting the future expected sharing of returns with policyholders on contracts with discretionary participation features (‘DPF’), to the extent this sharing is not already included in liabilities under insurance contracts.
$(41)m (2016: $(67)m (2015: $181m)), driven by other assumptions changes in assumptions and experience variances to projected future profits.

272  
HSBC Holdings plc Annual Report and Accounts 2016variances.


Key assumptions used in the computation of PVIF for main life insurance operations
Economic assumptions are set in a way that is consistent with observable market values. The valuation of PVIF is sensitive to observed market movements andtheimpact of such changes is included in the sensitivities presented below.
2016201520172016
Hong Kong
France1
Hong Kong
France1
Hong Kong
France1
Hong Kong
France1
%%%%
Weighted average risk free rate2.090.991.821.57
Weighted average risk-free rate2.021.502.090.99
Weighted average risk discount rate6.341.846.812.556.202.206.341.84
Expense inflation3.001.663.001.703.001.483.001.66
1
For 2016,2017, the calculation of France’s PVIF assumes a risk discount rate of 2.20% (2016: 1.84% (2015: 2.55%) plus a risk margin of $101m (2015: $51m)$80m (2016: $101m).
Sensitivity to changes in economic assumptions
The Group sets the risk discount rate applied to the PVIF calculation by starting from a risk-free rate curve and adding explicit allowances for risks not reflected in the best estimate cash flow modelling. Where the insurance operations provide options and guarantees to policyholders the cost of these options and guarantees is an explicit reduction to PVIF, unless it is already allowed for as an explicit addition to the technical provisions required by regulators. See page 161160 for further details of these guarantees and the impact of changes in economic assumptions on our insurance manufacturing subsidiaries.
Sensitivity to changes in non-economic assumptions
Policyholder liabilities and PVIF are determined by reference to non-economic assumptions including mortality and/or morbidity, lapse rates and expense rates. See page 163161 for further details on the impact of changes in non-economic assumptions on our insurance manufacturing operations.
21Prepayments, accrued income and other assets
2016
2015
2017
2016
$m
$m
$m
$m
Prepayments and accrued income7,335
7,765
7,929
7,335
Assets held for sale781
4,389
Bullion15,406
11,501
13,128
15,406
Endorsements and acceptances8,574
9,149
9,750
8,574
Reinsurers’ share of liabilities under insurance contracts (Note 3)1,820
1,378
2,471
1,820
Employee benefit assets (Note 5)4,714
5,272
8,752
4,714
Other accounts12,298
9,410
14,353
12,298
Property, plant and equipment9,373
9,923
10,027
9,373
At 31 Dec59,520
54,398
67,191
63,909
Prepayments, accrued income and other assets include $26,927 (2015: $25,310m)$30,431m (2016: $26,927m) of financial assets, the majority of which are measured at amortised cost.
22    Assets held for sale and liabilities of disposal groups held for sale
Assets held for sale and liabilities of disposal groups held for sale
 20162015
 $m
$m
Held for sale at 31 Dec  
Disposal groups1,882
41,715
Non-current assets held for sale2,507
2,185
Total assets4,389
43,900
Liabilities of disposal groups2,790
36,840
Disposal groups
Brazil
On 1 July 2016, we completed the sale of our operations in Brazil to Banco Bradesco S.A. for a cash consideration of $4.8bn. This resulted in a loss on disposal of $1.7bn which includes the reclassification of cumulative foreign exchange differences of $1.9bn.

22
HSBC Holdings plc Annual Report and Accounts 2016
273  


Notes on the Financial Statements

23    Trading liabilities
 2016
2015
 2017
2016
Footnotes$m
$m
Footnotes$m
$m
Deposits by banks124,827
27,054
123,297
24,827
Customer accounts1, 245,085
40,208
1, 252,595
45,085
Other debt securities in issue (Note 25)332,656
30,525
Other debt securities in issue (Note 24)340,734
32,656
Other liabilities – net short positions in securities 51,123
43,827
 67,735
51,123
At 31 Dec 153,691
141,614
 184,361
153,691
1‘Deposits by banks’ and ‘Customer accounts’ include repos, settlement accounts, stock lending, cash collateral and other amounts.margin accounts relating to trading activities.
2Structured deposits placed at HSBC Bank USA and HSBC Trust Company (Delaware) National Association are insured by the Federal Deposit Insurance Corporation, a US government agency, up to $250,000 per depositor.
3‘Other debt securities in issue’ comprises structured notes issued by HSBC for which market risks are actively managed as part of trading portfolios.
At 31 December 2016,2017, the cumulative amount of change in fair value attributable to changes in HSBC’s credit risk was a loss of $543m (2016: gain of $2m (2015: gain of $122m)$2m).

HSBC Holdings plc265


Notes on the Financial Statements

24    23Financial liabilities designated at fair value
HSBC
201620152017
2016
$m
$m
$m
$m
Deposits by banks and customer accounts135
193
145
135
Liabilities to customers under investment contracts6,002
6,027
5,635
6,002
Debt securities in issue (Note 25)57,112
37,678
Subordinated liabilities (Note 28)23,172
21,168
Preferred securities (Note 28)411
1,342
Debt securities in issue (Note 24)64,359
57,112
Subordinated liabilities (Note 27)23,831
23,172
Preferred securities (Note 27)459
411
At 31 Dec86,832
66,408
94,429
86,832
The carrying amount of financial liabilities designated at fair value was $5,343m more than the contractual amount at maturity (2016: $4,413m more). The cumulative own credit loss recognised was $4,107m (2016: loss of $1,672m).
HSBC Holdings

2017
2016

$m
$m
Debt securities in issue (Note 24)17,496
16,766
Subordinated liabilities (Note 27)13,394
13,347
At 31 Dec30,890
30,113
The carrying amount of financial liabilities designated at fair value was $4,413m$3,370m more than the contractual amount at maturity
(2016: $
2,681m(2015: $4,147m more). The cumulative own credit loss recognised was $1,672m (2015: gain of $158m).
HSBC Holdings
 2016
2015
 $m
$m
Debt securities in issue (Note 25)16,766
7,897
Subordinated liabilities (Note 28)13,347
11,956
At 31 Dec30,113
19,853
The carrying amount of financial liabilities designated at fair value was $2,681m more than the contractual amount at maturity
(2015: $2,127m more). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of
$
$1,202m (2015:2,209m (2016: loss of $172m)$1,202m).
25    24Debt securities in issue
HSBC
2016
2015
2017
2016
$m
$m
$m
$m
Bonds and medium-term notes133,721
128,348
146,539
133,721
Other debt securities in issue21,962
28,804
23,100
21,962
Total debt securities in issue155,683
157,152
169,639
155,683
Included within:







– trading liabilities (Note 23)(32,656)(30,525)
– financial liabilities designated at fair value (Note 24)(57,112)(37,678)
– trading liabilities (Note 22)(40,734)(32,656)
– financial liabilities designated at fair value (Note 23)(64,359)(57,112)
At 31 Dec65,915
88,949
64,546
65,915
HSBC Holdings
2016
2015
2017
2016
$m
$m
$m
$m
Debt securities38,571
8,857
51,754
38,571
Included within:







– financial liabilities designated at fair value (Note 24)(16,766)(7,897)
– financial liabilities designated at fair value (Note 23)(17,496)(16,766)
At 31 Dec21,805
960
34,258
21,805
25Accruals, deferred income and other liabilities

2017
2016

$m
$m
Accruals and deferred income11,521
10,770
Endorsements and acceptances9,746
8,567
Employee benefit liabilities (Note 5)2,152
2,681
Liabilities of disposal groups held for sale1,286
2,790
Other liabilities21,202
19,483
At 31 Dec45,907
44,291
Accruals, deferred income and other liabilities include $34,048m (2016: $30,932m) of financial liabilities, the majority of which are measured at amortised cost.

274  266
HSBC Holdings plc Annual Report and Accounts 2016


26    Accruals, deferred income and other liabilities
 2016
2015
 $m
$m
Accruals and deferred income10,770
11,129
Endorsements and acceptances8,567
9,135
Employee benefit liabilities (Note 5)2,681
2,809
Other liabilities19,483
15,043
At 31 Dec41,501
38,116
Accruals, deferred income and other liabilities include $30,932m (2015: $29,358m) of financial liabilities, the majority of which are measured at amortised cost.
26
27    Provisions
Restructuring
costs

Contractual
commitments

Legal proceedings
and regulatory
matters

Customer
remediation

Other
provisions

Total
Restructuring
costs
Contractual
commitments
Legal proceedings
and regulatory
matters
Customer
remediation
Other
provisions
Total
$m
$m
$m
$m
$m
$m
At 1 Jan 2017551
298
2,436
1,124
364
4,773
Additions204
87
829
820
280
2,220
Amounts utilised(353)(3)(850)(543)(133)(1,882)
Unused amounts reversed(103)(135)(980)(52)(107)(1,377)
Unwinding of discounts—
(1)—
—
9
8
Exchange and other movements35
7
66
105
56
269
At 31 Dec 2017334
253
1,501
1,454
469
4,011
$m
$m
$m
$m
$m
$m
 
At 1 Jan 2016463
240
3,174
1,340
335
5,552
463
240
3,174
1,340
335
5,552
Additions415
141
1,258
762
208
2,784
415
141
1,258
762
208
2,784
Amounts utilised(168)(1)(1,831)(680)(118)(2,798)(168)(1)(1,831)(680)(118)(2,798)
Unused amounts reversed(115)(97)(165)(94)(96)(567)(115)(97)(165)(94)(96)(567)
Unwinding of discounts—
—
—
—
6
6
—
—
—
—
6
6
Exchange and other movements(44)15
—
(204)29
(204)(44)15
—
(204)29
(204)
At 31 Dec 2016551
298
2,436
1,124
364
4,773
551
298
2,436
1,124
364
4,773
 
At 1 Jan 2015197
234
2,184
1,831
552
4,998
Additions430
120
2,153
765
138
3,606
Amounts utilised(95)(2)(619)(856)(159)(1,731)
Unused amounts reversed(29)(15)(95)(170)(133)(442)
Unwinding of discounts—
—
40
6
—
46
Exchange and other movements(40)(97)(489)(236)(63)(925)
At 31 Dec 2015463
240
3,174
1,340
335
5,552
Further details of ‘Legal proceedings and regulatory matters’ are set out in Note 35.34. Legal proceedings include:include civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim); or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refers to investigations, reviews and other actions carried out by, or in response to the actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.
Customer remediation refers to HSBC’s activities to compensate customers for losses or damages associated with a failure to comply with regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or industry developments in sales practices, and is not necessarily initiated by regulatory action. Further details of customer remediation are set out in this note.
Payment protection insurance
At 31 December 2016, a provision of $919m (2015: $1,039m) was held1,174m (2016: $919m) relating to the estimated liability for redress in respect of the possible mis-selling of payment protection insurancePayment Protection Insurance (‘PPI’) policies in previous years. Cumulative provisions made since the Judicial Review ruling in the first half of 2011 amount to $5.1bn, of which $4.1bn has$3.9bn had been paid as at 31 December 2016.2017.
An increase in provisions of $492m$637m was recognised during the year, primarily reflecting a delayan adjustment to expected future complaint volumes; in light of additional detail becoming available around the inceptionlikely impact and profile of regulatory media campaigns during the remainder of the expected time bar on inbound complaints; and an anticipated adjustment to the redress parameters surrounding ‘Plevin’ (a 2014 decision of the UK Supreme Courtperiod during which held that, judged on its own facts, non-disclosure of the amounts of commissions payable in connection with the sale of PPI to a customer created an unfair relationship under the provisions of the UK Consumer Credit Act).complaints could be received.
The estimated liability for redress is calculated on the basis of the total premiums paid by the customer plus simple interest of 8% per annum (or the rate inherent in the related loan product where higher). The basis for calculating the redress liability is the same for single premium and regular premium policies. Future estimated redress levels are based on the historically observed redress per policy.
A total of 5.4 million PPI policies have been sold since 2000, generating estimated revenues of $3.5bn$3.3bn at 2016 average exchange rates.2017. The gross written premiums on these policies werewas approximately $4.6bn.$4.4bn.
At 31 December 2016,2017, the estimated total complaints expected to be received were 2.02.2 million, representing 37%41% of total policies sold. It is estimated that contact will be made with regard to 2.42.6 million policies, representing 45%48% of total policies sold. This estimate includes inbound complaints as well as the group'sgroup’s proactive contact exercise on certain policies (‘outbound contact’).
The following table details the cumulative number of complaints received at 31 December 20162017 and the number of claims expected in the future:

HSBC Holdings plc Annual Report and Accounts 2016
275  


Notes on the Financial Statements

Cumulative PPI complaints received to 31 December 2016 and future claims expected
Cumulative PPI complaints received to 31 December 2017 and future claims expectedCumulative PPI complaints received to 31 December 2017 and future claims expected
Footnotes
Cumulative actual to
31 Dec 2016

Future
expected

Footnotes
Cumulative actual to
31 Dec 2017

Future
expected

Inbound complaints (000s of policies)11,363
320
11,555
363
Outbound contact (000s of policies) 725
—
 685
—
Response rate to outbound contact 42%n/a
 44%
n/a
Average uphold rate per claim276%84%276%
84%
Average redress per claim ($) 2,670
2,702
 2,564
3,029
Complaints to Financial Ombudsman Service (000s of policies) 138
47
 144
26
Average uphold rate per Financial Ombudsman Service claim 41%55% 40%
47%
1Excludes invalid claims for which no PPI policy exists.
2Claims include inbound and responses to outbound contact.
A 100,000 increase/decrease in the total inbound complaints would increase/decrease the redress provision by approximately $203m$194m at 20162017 average exchange rates.
Each 1% increase/decrease in

HSBC Holdings plc267


Notes on the response rate to our outbound contact exercise would increase/decrease the redress provision by approximately $12m.Financial Statements

28    27Subordinated liabilities
HSBC
HSBC’s subordinated liabilities 
2016
2015
2017
2016
$m
$m
$m
$m
At amortised cost20,984
22,702
19,826
20,984
– subordinated liabilities19,230
20,773
17,988
19,230
– preferred securities1,754
1,929
1,838
1,754
Designated at fair value (Note 24)23,583
22,510
Designated at fair value (Note 23)24,290
23,583
– subordinated liabilities23,172
21,168
23,831
23,172
– preferred securities411
1,342
459
411
At 31 Dec44,567
45,212
44,116
44,567
Issued by HSBC subsidiaries16,860
19,150
15,470
16,860
Issued by HSBC Holdings27,707
26,062
28,646
27,707
HSBC’s subordinated liabilities
Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Capital securities may be called and redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If not redeemed at the first call date, coupons payable may step up or become floating rate based on interbank rates. On capital securities other than floating rate notes, interest is payable at fixed rates of up to 10.176%.
The balance sheet amounts disclosed below are presented on an IFRSsIFRS basis and do not reflect the amount that the instruments contribute to regulatory capital principally due to the inclusion of issuance costs, regulatory amortisation and regulatory eligibility limits prescribed in the grandfathering provisions under CRD IV.limits.

276  268
HSBC Holdings plc Annual Report and Accounts 2016


HSBC’s subordinated liabilities in issue
 First call
Maturity2016
2015
    2017
2016
Footnotesdate
date$m
$m
 FootnotesFirst call date
Maturity date$m
$m
Additional tier 1 capital securities guaranteed by HSBC Holdings plcAdditional tier 1 capital securities guaranteed by HSBC Holdings plc1    Additional tier 1 capital securities guaranteed by HSBC Holdings plc1    
€750m5.13% non-cumulative step-up perpetual preferred securities2Mar 2016
 —
856
$900m10.176% non-cumulative step-up perpetual preferred securities, series 2 Jun 2030
 891
891
10.176% non-cumulative step-up perpetual preferred securities, series 2 Jun 2030
 892
891
   891
1,747
   892
891
Additional tier 1 capital securities guaranteed by HSBC Bank plcAdditional tier 1 capital securities guaranteed by HSBC Bank plc1    Additional tier 1 capital securities guaranteed by HSBC Bank plc1    
£300m5.862% non-cumulative step-up perpetual preferred securities Apr 2020
 411
488
5.862% non-cumulative step-up perpetual preferred securities Apr 2020
 459
411
£700m5.844% non-cumulative step-up perpetual preferred securities Nov 2031
 863
1,038
5.844% non-cumulative step-up perpetual preferred securities Nov 2031
 946
863
   1,274
1,526
   1,405
1,274
Tier 2 securities issued by HSBC Bank plcTier 2 securities issued by HSBC Bank plc     Tier 2 securities issued by HSBC Bank plc     
$750mUndated floating rate primary capital notes Jun 1990
 750
750
$500mUndated floating rate primary capital notes Sep 1990
 500
500
$300mUndated floating rate primary capital notes, series 3 Jun 1992
 300
300
$300m7.65% subordinated notes —
May 2025375
372
     
£350m5.00% callable subordinated notes3Mar 2018
Mar 2023466
562
5.00% callable subordinated notes2Mar 2018
Mar 2023496
466
£300m6.50% subordinated notes —
Jul 2023369
444
6.50% subordinated notes —
Jul 2023405
369
£350m5.375% callable subordinated step-up notes4Nov 2025
Nov 2030489
569
5.375% callable subordinated step-up notes3Nov 2025
Nov 2030584
489
£500m5.375% subordinated notes —
Aug 2033750
846
5.375% subordinated notes —
Aug 2033912
750
£225m6.25% subordinated notes —
Jan 2041276
332
6.25% subordinated notes —
Jan 2041303
276
£600m4.75% subordinated notes —
Mar 2046731
879
4.75% subordinated notes —
Mar 2046802
731
$300m7.65% subordinated notes —
May 2025372
386
$750mUndated floating rate primary capital notes Jun 1990
 750
750
$500mUndated floating rate primary capital notes Sep 1990
 500
500
$300mUndated floating rate primary capital notes, series 3 Jun 1992
 300
300
   5,003
5,568
   5,427
5,003
Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation LtdTier 2 securities issued by The Hongkong and Shanghai Banking Corporation Ltd     Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Ltd     
$400mPrimary capital undated floating rate notes5Aug 1990
 —
401
$400mPrimary capital undated floating rate notes (third series) Jul 1991
 400
400
Primary capital undated floating rate notes (third series) Jul 1991
 400
400
   400
801
   400
400
Tier 2 securities issued by HSBC Bank Malaysia BerhadTier 2 securities issued by HSBC Bank Malaysia Berhad     Tier 2 securities issued by HSBC Bank Malaysia Berhad     
MYR500m4.35% subordinated bonds Jun 2017
Jun 2022112
116
4.35% subordinated bonds4Jun 2017
Jun 2022—
112
MYR500m5.05% subordinated bonds Nov 2022
Nov 2027112
116
5.05% subordinated bonds Nov 2022
Nov 2027123
112
   224
232
   123
224
Tier 2 securities issued by HSBC USA Inc.Tier 2 securities issued by HSBC USA Inc.     Tier 2 securities issued by HSBC USA Inc.     
$750m5.00% subordinated notes —
Sep 2020748
747
5.00% subordinated notes —
Sep 2020748
748
$250m7.20% subordinated debentures —
Jul 2097220
220
7.20% subordinated debentures —
Jul 2097221
220
Other subordinated liabilities each less than $150m6  284
299
Other subordinated liabilities each less than $150m5  277
284
   1,252
1,266
   1,246
1,252
Tier 2 securities issued by HSBC Bank USA, N.A.Tier 2 securities issued by HSBC Bank USA, N.A.     Tier 2 securities issued by HSBC Bank USA, N.A.     
$500m6.00% subordinated notes —
Aug 2017498
502
6.00% subordinated notes —
Aug 2017—
498
$1,250m4.875% subordinated notes —
Aug 20201,257
1,258
4.875% subordinated notes —
Aug 20201,236
1,257
$1,000m5.875% subordinated notes —
Nov 20341,137
1,142
5.875% subordinated notes —
Nov 20341,272
1,137
$750m5.625% subordinated notes —
Aug 2035862
850
5.625% subordinated notes —
Aug 2035955
862
$700m7.00% subordinated notes —
Jan 2039701
691
7.00% subordinated notes —
Jan 2039700
701
   4,455
4,443
   4,163
4,455
Tier 2 securities issued by HSBC Finance CorporationTier 2 securities issued by HSBC Finance Corporation     Tier 2 securities issued by HSBC Finance Corporation     
$2,939m6.676% senior subordinated notes7—
Jan 20212,192
2,188
6.676% senior subordinated notes6—
Jan 20211,092
2,192
          
Tier 2 securities issued by HSBC Bank CanadaTier 2 securities issued by HSBC Bank Canada     Tier 2 securities issued by HSBC Bank Canada     
CAD400m4.80% subordinated debentures Apr 2017
Apr 2022299
298
4.80% subordinated debentures4Apr 2017
Apr 2022—
299
CAD200m4.94% subordinated debentures5Mar 2016
Mar 2021—
144
Other subordinated liabilities each less than $150m Oct 1996
Nov 208329
29
Other subordinated liabilities each less than $150m Oct 1996
Nov 208331
29
   328
471
   31
328
Securities issued by HSBC Mexico, S.A.Securities issued by HSBC Mexico, S.A.     Securities issued by HSBC Mexico, S.A.     
$300mNon-convertible subordinated obligations8, 9Jun 2014
Jun 2019240
240
Non-convertible subordinated obligations7, 8Jun 2014
Jun 2019240
240
Other subordinated liabilities each less than $150m8  198
236
Other subordinated liability less than $150m7, 9  115
198
   438
476
   355
438
Securities issued by other HSBC subsidiariesSecurities issued by other HSBC subsidiaries     Securities issued by other HSBC subsidiaries     
Other subordinated liabilities each less than $200mOther subordinated liabilities each less than $200m6  403
432
Other subordinated liabilities each less than $200m5  336
403
Subordinated liabilities issued by HSBC subsidiaries at 31 DecSubordinated liabilities issued by HSBC subsidiaries at 31 Dec   16,860
19,150
Subordinated liabilities issued by HSBC subsidiaries at 31 Dec   15,470
16,860
1See paragraph below, ‘Guaranteed by HSBC Holdings or HSBC Bank plc’.
2In February 2016,January 2018, HSBC gave notice that it will call and redeem the €750m 5.13% non-cumulative step-up perpetual preferredthese securities.
3The interest rate payable after March 2018 is the sum of the gross redemption yield of the then prevailing five-year UK gilt plus 1.80 percentage points.
4The interest rate payable after November 2025 is the sum of the three-month sterling Libor plus 1.501.50% percentage points.
54In January 2016,2017 HSBC called and redeemed $400m Primary capital undated floating rate notes and CAD200m 4.94% subordinated debentures.these securities.
65Some securities included here are ineligible for inclusion in the capital base of HSBC.
6HSBC tendered for these securities in accordance with CRD IV rules.2017. In January 2018 a further tender was conducted. The principal balance is now $509m.
7Approximately $731m of the senior subordinated notes are held by HSBC Holdings.
8These securities are ineligible for inclusion in the capital base of HSBC.
8Approximately $60m of these securities are held by HSBC in accordance with CRD IV rules.Holdings.
9Approximately $60m of the subordinated obligations are held byIn February 2018, HSBC Holdings.gave notice it will redeem these securities.


HSBC Holdings plc Annual Report and Accounts 2016
277  269


Notes on the Financial Statements

HSBC Holdings
2016
2015
2017
2016
$m
$m
$m
$m
At amortised cost15,189
15,895
15,877
15,189
Designated at fair value (Note 24)13,347
11,956
Designated at fair value (Note 23)13,394
13,347
At 31 Dec28,536
27,851
29,271
28,536
HSBC Holdings’ subordinated liabilities
 First call
Maturity2016
2015
  First call
Maturity2017
2016
Footnotesdate
date$m
$m
 Footnotesdate
date$m
$m
Tier 2 securities issued by HSBC Holdings plcTier 2 securities issued by HSBC Holdings plc     Tier 2 securities issued by HSBC Holdings plc     
Amounts owed to third partiesAmounts owed to third parties     Amounts owed to third parties     
$2,000m4.25% subordinated notes2,4—
 Mar 20242,038
2,060
$1,500m4.25% subordinated notes2—
Jun 20251,586
1,539
$1,500m4.375% subordinated notes2—
 Nov 20261,580
1,520
$488m7.625% subordinated notes1—
May 2032528
531
7.625% subordinated notes1—
May 2032553
528
$222m7.35% subordinated notes1—
Nov 2032278
278
7.35% subordinated notes1—
Nov 2032248
278
$2,000m6.5% subordinated notes1—
May 20362,029
2,029
6.5% subordinated notes1—
May 20362,042
2,029
$2,500m6.5% subordinated notes1—
Sep 20373,170
3,085
6.5% subordinated notes1—
Sep 20373,365
3,170
$1,500m6.8% subordinated notes1—
Jun 20381,487
1,487
6.8% subordinated notes1—
Jun 20381,489
1,487
$2,000m4.25% subordinated notes2,4—
 Mar 20242,060
2,078
$1,500m5.25% subordinated notes2,4—
Mar 20441,747
1,735
5.25% subordinated notes2,4—
Mar 20441,755
1,747
$1,500m4.25% subordinated notes2—
Jun 20251,539
1,529
$1,500m4.375% subordinated notes2—
 Nov 20261,520
—
     
£900m6.375% callable subordinated notes1,3Oct 2017
Oct 20221,163
1,432
6.375% subordinated notes1,3Oct 2017
Oct 2022—
1,163
£650m5.75% subordinated notes2—
Dec 2027932
1,079
5.75% subordinated notes2—
Dec 20271,114
932
£650m6.75% subordinated notes2—
Sep 2028793
955
6.75% subordinated notes2—
Sep 2028873
793
£750m7.0% subordinated notes2—
Apr 2038971
1,159
7.0% subordinated notes2—
Apr 20381,043
971
£900m6.0% subordinated notes2—
Mar 20401,086
1,310
6.0% subordinated notes2—
Mar 20401,199
1,086
     
€1,600m6.25% subordinated notes2—
Mar 20181,693
1,748
6.25% subordinated notes2—
Mar 20181,918
1,693
€1,750m6.0% subordinated notes2—
Jun 20192,168
2,284
6.0% subordinated notes2—
Jun 20192,349
2,168
€1,500m3.0% subordinated notes2—
Jun 20251,716
1,691
3.375% subordinated notes2,4Jan 2019
Jan 20241,827
1,626
€1,500m3.125% subordinated notes2—
Jun 20281,139
—
3.0% subordinated notes2—
Jun 20252,037
1,716
€1,500m3.375% subordinated notes2,4Jan 2019
Jan 20241,626
1,694
€1,000m3.125% subordinated notes2—
Jun 20281,363
1,139






27,645
26,104





28,379
27,645
Amounts owed to HSBC undertakingsAmounts owed to HSBC undertakings







Amounts owed to HSBC undertakings







€750m5.13% fixed/floating subordinated notes
Mar 2016
Dec 2044—
856
$900m10.176% subordinated step-up cumulative notes
Jun 2030
Jun 2040891
891
10.176% subordinated step-up cumulative notes
Jun 2030
Jun 2040892
891






891
1,747





892
891
At 31 DecAt 31 Dec



28,536
27,851
At 31 Dec



29,271
28,536
1Amounts owed to third parties represent securities included in the capital base of HSBC as tier 2 securities in accordance with the grandfathering provisions under CRD IV rules.
2These securities are included in the capital base of HSBC as fully CRD IV compliant tier 2 securities on an end point basis.
3The interest rate payable after OctoberIn 2017, is the sum of the three-month sterling Libor plus 1.3 percentage points.HSBC redeemed these securities.
4These subordinated notes are measured at amortised cost in HSBC Holdings, where the interest rate risk is hedged using a fair value hedge, while they are measured at fair value in the Group.
Additional tier 1 capital securities
Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred or cancelled at the discretion of HSBC Holdings.HSBC. The securities presented in this Note are accounted for as liabilities because HSBC has an obligation to pay dividends in perpetuity. See Note 3531 for additional tier 1 capital securities accounted for as equity.
The additional tier 1 securities presented in this section do not meet the identifying criteria in full for recognition as tier 1 capital under CRD IV but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.
Guaranteed by HSBC Holdings or HSBC Bank plc
These capital securities were issued by the Jersey limited partnerships and proceeds lent to the respective guarantors by the limited partnerships in the form of subordinated notes. They qualify as additional tier 1 capital for HSBC under CRD IV by virtue of the application of grandfathering provisions, and the two capital securities guaranteed by HSBC Bank plc (‘HSBC Bank’) also qualify as additional tier 1 capital for HSBC Bank (on a solo and a consolidated basis) under CRD IV by virtue of the same grandfathering process.
These preferred securities, together with the guarantee, are intended to provide investors with economic rights equivalent to the rights that they would have had if they had purchased non-cumulative perpetual preference shares of the relevant issuer. There are limitations on the payment of distributions if such payments are prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC’s capital adequacy requirements or if HSBC Holdings or HSBC Bank has insufficient distributable reserves (as defined).
HSBC Holdings and HSBC Bank have individually covenanted that if prevented under certain circumstances from paying distributions on the preferred securities in full, they will not pay dividends or other distributions in respect of their ordinary shares, or repurchase or redeem their ordinary shares, until the distribution on the preferred securities has been paid in full.
Preference shares of HSBC Holdings that have economic terms equal in all material respects to the preferred securities and their guarantee together will be substituted for the preferred securities guaranteed by HSBC Holdings if the total capital ratio of HSBC Holdings falls below the regulatory minimum required, or the Directors expect it to in the near term.

278  
HSBC Holdings plc Annual Report and Accounts 2016


Preference shares of HSBC Bank that have economic terms equal in all material respects to the preferred securities and their guarantee together will be substituted for the preferred securities guaranteed by HSBC Bank if any of the two issues of preferred securities are

270HSBC Holdings plc


outstanding in April 2049 or November 2048, respectively; or the total capital ratio of HSBC Bank on a solo and consolidated basis falls below the regulatory minimum required, or the Directors expect it to in the near term.
Tier 2 capital securities
These capital securities are included within HSBC’s regulatory capital base as tier 2 capital under CRD IV by virtue of the application of grandfathering provisions (with the exception of identified HSBC Holding securities whichthat are compliant with CRD IV end point rules). Tier 2 capital securities are either perpetual subordinated securities or dated subordinated securities on which there is an obligation to pay coupons. In accordance with CRD IV, the capital contribution of all tier 2 securities is amortised for regulatory purposes in their final five years before maturity.
29    28Maturity analysis of assets, liabilities and off-balance sheet commitments
The table on page 280272 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by residual contractual maturity at the balance sheet date. These balances are included in the maturity analysis as follows:
Trading assets and liabilities (including trading derivatives but excluding reverse repos, repos and debt securities in issue) are included in the ‘Due not more than 1 month’ time bucket, because trading balances are typically held for short periods of time.
Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the ‘Due over 5 years’ time bucket. Undated or perpetual instruments are classified based on the contractual notice period which the counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual contracts are included in the ‘Due over 5 years’ time bucket.
Non-financial assets and liabilities with no contractual maturity are included in the ‘Due over 5 years’ time bucket.
Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the contractual maturity of the underlying instruments and not on the basis of the disposal transaction.
Liabilities under insurance contracts are included in the ‘Due over 5 years’ time bucket. Liabilities under investment contracts are classified in accordance with their contractual maturity. Undated investment contracts are included in the ‘Due over 5 years’ time bucket, however, such contracts are subject to surrender and transfer options by the policyholders.
Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down. Application of this policy throughout the Group was improved in 2017, and therefore comparative information has been represented.

HSBC Holdings plc Annual Report and Accounts 2016
279  271


Notes on the Financial Statements

HSBC
Maturity analysis of assets, liabilities and off-balance sheet commitmentsMaturity analysis of assets, liabilities and off-balance sheet commitments Maturity analysis of assets, liabilities and off-balance sheet commitments
Due not
more than
1 month
Due over
1 month
but not
more than
3 months
Due over
3 months
but not
more than
6 months
Due over
6 months
but not
more than
9 months
Due over
9 months
but not
more than
1 year

Due over
1 year
but not
more than
2 years

Due over
2 years
but not
more than
5 years

Due over
5 years

Total
Due not
more than
1 month

Due over
1 month
but not
more than
3 months

Due over
3 months
but not
more than
6 months

Due over
6 months
but not
more than
9 months

Due over
9 months
but not
more than
1 year

Due over
1 year
but not
more than
2 years

Due over
2 years
but not
more than
5 years

Due over
5 years

Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets  
Cash and balances at central banks128,009
—
—
—
—
—
—
—
128,009
180,624
—
—
—
—
—
—
—
180,624
Items in the course of collection from other banks5,003
—
—
—
—
—
—
—
5,003
6,628
—
—
—
—
—
—
—
6,628
Hong Kong Government certificates of indebtedness31,228
—
—
—
—
—
—
—
31,228
34,186
—
—
—
—
—
—
—
34,186
Trading assets232,550
758
230
415
1,172
—
—
—
235,125
284,781
1,432
642
—
1,140
—
—
—
287,995
Financial assets designated at fair value176
182
75
178
363
749
2,486
20,547
24,756
612
93
230
162
197
556
2,068
25,546
29,464
Derivatives287,749
149
207
96
110
704
1,056
801
290,872
218,103
162
97
124
42
234
592
464
219,818
Loans and advances to banks59,636
13,404
4,494
2,375
1,765
2,879
2,298
1,275
88,126
61,968
10,665
4,212
2,344
1,502
5,799
2,491
1,412
90,393
Loans and advances to customers167,531
61,693
47,664
30,115
30,362
85,144
192,787
246,208
861,504
195,577
65,469
49,860
34,107
37,176
93,065
218,784
268,926
962,964
– personal39,295
7,812
6,723
5,928
6,799
22,664
53,620
194,985
337,826
42,593
9,126
8,483
7,441
7,492
23,552
61,238
214,837
374,762
– corporate and commercial108,906
48,333
35,180
21,317
19,573
54,739
126,890
45,271
460,209
124,669
50,532
36,046
22,932
26,577
61,785
144,451
49,762
516,754
– financial19,330
5,548
5,761
2,870
3,990
7,741
12,277
5,952
63,469
28,315
5,811
5,331
3,734
3,107
7,728
13,095
4,327
71,448
Reverse repurchase agreements
– non-trading		115,942
25,525
10,378
5,220
2,350
479
1,080
—
160,974
144,244
30,289
7,951
2,194
3,960
1,072
4,598
7,245
201,553
Financial investments36,932
59,826
30,403
16,800
19,564
50,255
104,933
118,084
436,797
31,981
51,487
31,634
13,446
17,647
40,582
90,366
111,933
389,076
Assets held for sale893
1,663
120
64
64
205
682
283
3,974
Accrued income and other financial assets15,992
6,387
1,617
343
398
216
351
1,624
26,928
19,259
5,795
2,050
358
411
652
513
2,046
31,084
Financial assets at 31 Dec 20161,081,641
169,587
95,188
55,606
56,148
140,631
305,673
388,822
2,293,296
Financial assets at 31 Dec 20171,177,963
165,392
96,676
52,735
62,075
141,960
319,412
417,572
2,433,785
Non-financial assets—
—
—
—
—
—
—
81,690
81,690
—
—
—
—
—
—
—
87,986
87,986
Total assets at 31 Dec 20161,081,641
169,587
95,188
55,606
56,148
140,631
305,673
470,512
2,374,986
Total assets at 31 Dec 20171,177,963
165,392
96,676
52,735
62,075
141,960
319,412
505,558
2,521,771
Off-balance sheet commitments received  

Loan and other credit-related commitments2,813
—
2,050
—
—
110
—
—
4,973
2,431
—
3,335
—
—
133
—
—
5,899
Financial liabilities  
Hong Kong currency notes in circulation31,228
—
—
—
—
—
—
—
31,228
34,186
—
—
—
—
—
—
—
34,186
Deposits by banks46,306
4,075
2,085
665
489
422
4,842
1,055
59,939
56,829
1,961
1,097
616
157
361
7,393
1,508
69,922
Customer accounts1
1,180,641
45,245
19,187
10,277
8,325
4,709
3,500
502
1,272,386
1,269,003
44,129
21,596
11,570
10,757
4,527
2,257
623
1,364,462
– personal590,654
22,222
12,024
5,823
4,786
3,484
2,483
121
641,597
648,040
22,938
13,489
6,810
5,727
2,753
1,557
119
701,433
– corporate and commercial436,666
17,460
6,178
3,951
3,082
1,200
967
360
469,864
458,937
16,496
6,983
3,712
3,970
1,705
641
451
492,895
– financial153,321
5,563
985
503
457
25
50
21
160,925
162,026
4,695
1,124
1,048
1,060
69
59
53
170,134
Repurchase agreements
– non-trading		82,330
2,707
2,871
50
—
—
1,000
—
88,958
113,208
14,042
1,592
160
—
—
1,000
—
130,002
Items in the course of transmission to other banks5,977
—
—
—
—
—
—
—
5,977
6,850
—
—
—
—
—
—
—
6,850
Trading liabilities121,707
2,053
1,423
1,845
3,013
6,219
9,010
8,421
153,691
145,028
2,026
2,177
2,130
3,077
5,038
12,814
12,071
184,361
Financial liabilities designated at
fair value		1,659
958
1,396
3
1,701
5,046
17,989
58,080
86,832
80
281
2,094
271
2,798
4,215
22,468
62,222
94,429
– debt securities in issue: covered bonds1,587
—
303
—
—
207
1,348
2,558
6,003
—
—
—
209
—
212
2,494
1,654
4,569
– debt securities in issue: unsecured25
15
1,091
3
1,700
4,839
14,056
29,380
51,109
55
95
2,087
62
2,797
1,654
19,505
33,535
59,790
– subordinated liabilities and preferred securities—
—
—
—
—
—
2,578
21,005
23,583
—
—
—
—
—
2,349
459
21,482
24,290
– other47
943
2
—
1
—
7
5,137
6,137
25
186
7
—
1
—
10
5,551
5,780
Derivatives274,965
39
39
112
273
506
1,471
2,414
279,819
213,011
79
141
140
202
504
1,107
1,637
216,821
Debt securities in issue4,708
8,598
8,280
5,996
4,610
10,953
19,432
3,338
65,915
6,081
6,295
5,228
5,795
9,240
6,725
22,767
2,415
64,546
– covered bonds—
—
1
71
1
3
24
26
126
—
—
—
—
1
3
10
34
48
– otherwise secured3,207
823
893
114
329
1,882
2,680
1,181
11,109
3,479
4
—
—
1,000
1,100
914
1,193
7,690
– unsecured1,501
7,775
7,386
5,811
4,280
9,068
16,728
2,131
54,680
2,602
6,291
5,228
5,795
8,239
5,622
21,843
1,188
56,808
Liabilities of disposal groups held for sale2,472
107
113
36
34
7
21
—
2,790
Accruals and other financial liabilities16,580
8,065
2,279
797
485
878
1,278
568
30,930
18,009
9,547
2,798
749
717
1,007
1,569
938
35,334
Subordinated liabilities12
—
143
61
497
1,788
5,056
13,427
20,984
—
1,918
73
36
132
273
3,595
13,799
19,826
Total financial liabilities at
31 Dec 2016
1,768,585
71,847
37,816
19,842
19,427
30,528
63,599
87,805
2,099,449
Total financial liabilities at
31 Dec 2017
1,862,285
80,278
36,796
21,467
27,080
22,650
74,970
95,213
2,220,739
Non-financial liabilities—
—
—
—
—
—
—
92,959
92,959
—
—
—
—
—
—
—
103,161
103,161
Total liabilities at 31 Dec 20161,768,585
71,847
37,816
19,842
19,427
30,528
63,599
180,764
2,192,408
Total liabilities at 31 Dec 20171,862,285
80,278
36,796
21,467
27,080
22,650
74,970
198,374
2,323,900
Off-balance sheet commitments given  

Loan and other credit-related commitments:466,780
39,922
14,909
12,537
36,281
11,241
45,778
28,395
655,843
Loan and other credit-related commitments628,070
38,736
3,310
1,777
4,087
3,436
3,824
2,349
685,589
– personal158,054
4,932
5,297
287
4,063
1,129
788
9,260
183,810
187,545
2,001
340
343
1,583
1,033
952
513
194,310
– corporate and commercial259,231
33,421
9,248
11,592
26,829
7,242
40,740
15,173
403,476
388,778
32,011
2,782
1,322
2,309
2,403
2,804
1,716
434,125
– financial49,495
1,569
364
658
5,389
2,870
4,250
3,962
68,557
51,747
4,724
188
112
195
—
68
120
57,154

280  272
HSBC Holdings plc Annual Report and Accounts 2016


Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
Due not
more than
1 month

Due over
1 month
but not
more than
3 months

Due over
3 months
but not
more than
6 months

Due over
6 months
but not
more than
9 months

Due over
9 months
but not
more than
1 year

Due over
1 year
but not
more than
2 years

Due over
2 years
but not
more than
5 years

Due over
5 years

Total
Due not
more than
1 month

Due over
1 month
but not
more than
3 months

Due over
3 months
but not
more than
6 months

Due over
6 months
but not
more than
9 months

Due over
9 months
but not
more than
1 year

Due over
1 year
but not
more than
2 years

Due over
2 years
but not
more than
5 years

Due over
5 years

Total
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets  
Cash and balances at central banks98,934
—
—
—
—
—
—
—
98,934
128,009
—
—
—
—
—
—
—
128,009
Items in the course of collection from other banks5,768
—
—
—
—
—
—
—
5,768
5,003
—
—
—
—
—
—
—
5,003
Hong Kong Government certificates of indebtedness28,410
—
—
—
—
—
—
—
28,410
31,228
—
—
—
—
—
—
—
31,228
Trading assets224,691
34
—
—
—
112
—
—
224,837
232,550
758
230
415
1,172
—
—
—
235,125
Financial assets designated at fair value429
194
222
83
390
896
2,603
19,035
23,852
176
182
75
178
363
749
2,486
20,547
24,756
Derivatives285,797
215
223
198
33
499
841
670
288,476
287,749
149
207
96
110
704
1,056
801
290,872
Loans and advances to banks57,296
14,530
4,063
1,964
2,499
5,134
3,274
1,641
90,401
59,636
13,404
4,494
2,375
1,765
2,879
2,298
1,275
88,126
Loans and advances to customers176,862
69,638
54,730
33,095
34,774
81,560
201,253
272,542
924,454
167,531
61,693
47,664
30,115
30,362
85,144
192,787
246,208
861,504
– personal39,191
8,328
8,510
7,457
9,350
22,438
57,283
218,646
371,203
39,295
7,812
6,723
5,928
6,799
22,664
53,620
194,985
337,826
– corporate and commercial123,901
54,711
40,489
21,081
21,811
50,355
131,166
49,564
493,078
108,906
48,333
35,180
21,317
19,573
54,739
126,890
45,271
460,209
– financial13,770
6,599
5,731
4,557
3,613
8,767
12,804
4,332
60,173
19,330
5,548
5,761
2,870
3,990
7,741
12,277
5,952
63,469
Reverse repurchase agreements
– non-trading
110,478
21,978
7,220
2,786
580
2,985
228
—
146,255
115,942
25,525
10,378
5,220
2,350
479
1,080
—
160,974
Financial investments35,104
59,098
36,897
19,102
17,293
48,634
94,549
118,278
428,955
36,932
59,826
30,403
16,800
19,564
50,255
104,933
118,084
436,797
Assets held for sale15,816
2,628
2,544
1,218
2,611
4,675
6,365
4,422
40,279
Accrued income and other financial assets12,732
6,682
1,995
483
395
463
445
2,115
25,310
16,885
8,050
1,737
407
462
421
1,033
1,907
30,902
Financial assets at 31 Dec 20151,052,317
174,997
107,894
58,929
58,575
144,958
309,558
418,703
2,325,931
Financial assets at 31 Dec 20161,081,641
169,587
95,188
55,606
56,148
140,631
305,673
388,822
2,293,296
Non-financial assets—
—
—
—
—
—
—
83,725
83,725
—
—
—
—
—
—
—
81,690
81,690
Total assets at 31 Dec 20151,052,317
174,997
107,894
58,929
58,575
144,958
309,558
502,428
2,409,656
Total assets at 31 Dec 20161,081,641
169,587
95,188
55,606
56,148
140,631
305,673
470,512
2,374,986
Off-balance sheet commitments received  
Loan and other credit-related commitments3,472
—
2,149
—
—
111
—
—
5,732
2,813
—
2,050
—
—
110
—
—
4,973
Financial liabilities  
Hong Kong currency notes in circulation28,410
—
—
—
—
—
—
—
28,410
31,228
—
—
—
—
—
—
—
31,228
Deposits by banks46,693
2,225
1,049
325
116
712
3,182
69
54,371
46,306
4,075
2,085
665
489
422
4,842
1,055
59,939
Customer accounts1
1,185,091
50,831
21,397
10,421
10,869
6,596
3,852
529
1,289,586
1,180,641
45,245
19,187
10,277
8,325
4,709
3,500
502
1,272,386
– personal574,468
27,646
13,032
7,371
7,990
3,566
2,920
354
637,347
590,654
22,222
12,024
5,823
4,786
3,484
2,483
121
641,597
– corporate and commercial459,813
18,802
7,314
2,479
2,495
2,926
828
156
494,813
436,666
17,460
6,178
3,951
3,082
1,200
967
360
469,864
– financial150,810
4,383
1,051
571
384
104
104
19
157,426
153,321
5,563
985
503
457
25
50
21
160,925
Repurchase agreements – non-trading73,478
3,788
1,816
164
154
—
500
500
80,400
82,330
2,707
2,871
50
—
—
1,000
—
88,958
Items in the course of transmission to other banks5,638
—
—
—
—
—
—
—
5,638
5,977
—
—
—
—
—
—
—
5,977
Trading liabilities111,691
1,471
1,529
882
2,184
4,344
10,105
9,408
141,614
121,707
2,053
1,423
1,845
3,013
6,219
9,010
8,421
153,691
Financial liabilities designated at
fair value
2,036
1,822
2,943
342
1,900
4,930
14,316
38,119
66,408
1,659
958
1,396
3
1,701
5,046
17,989
58,080
86,832
– debt securities in issue: covered bonds—
—
—
—
—
2,012
1,608
2,577
6,197
1,587
—
303
—
—
207
1,348
2,558
6,003
– debt securities in issue: unsecured1,972
973
2,926
342
1,786
2,918
9,819
10,745
31,481
25
15
1,091
3
1,700
4,839
14,056
29,380
51,109
– subordinated liabilities and preferred securities—
848
—
—
—
—
2,773
18,889
22,510
—
—
—
—
—
—
2,578
21,005
23,583
– other64
1
17
—
114
—
116
5,908
6,220
47
943
2
—
1
—
7
5,137
6,137
Derivatives276,765
34
251
213
52
524
1,063
2,169
281,071
274,965
39
39
112
273
506
1,471
2,414
279,819
Debt securities in issue16,536
9,326
16,295
5,542
1,365
10,754
22,866
6,265
88,949
4,708
8,598
8,280
5,996
4,610
10,953
19,432
3,338
65,915
– covered bonds—
—
1
—
1
83
17
33
135
—
—
1
71
1
3
24
26
126
– otherwise secured8,436
173
195
206
173
2,082
4,354
1,118
16,737
3,207
823
893
114
329
1,882
2,680
1,181
11,109
– unsecured8,100
9,153
16,099
5,336
1,191
8,589
18,495
5,114
72,077
1,501
7,775
7,386
5,811
4,280
9,068
16,728
2,131
54,680
Liabilities of disposal groups held
for sale
20,350
1,416
1,548
1,344
1,246
5,050
1,484
115
32,553
Accruals and other financial liabilities14,802
7,965
2,467
659
421
925
1,454
665
29,358
19,052
8,172
2,392
833
519
885
1,299
568
33,720
Subordinated liabilities—
401
—
—
34
650
4,579
17,038
22,702
12
—
143
61
497
1,788
5,056
13,427
20,984
Total financial liabilities at 31 Dec 20151,781,490
79,279
49,295
19,892
18,341
34,485
63,401
74,877
2,121,060
Total financial liabilities at 31 Dec 20161,768,585
71,847
37,816
19,842
19,427
30,528
63,599
87,805
2,099,449
Non-financial liabilities—
—
—
—
—
—
—
91,078
91,078
—
—
—
—
—
—
—
92,959
92,959
Total liabilities at 31 Dec 20151,781,490
79,279
49,295
19,892
18,341
34,485
63,401
165,955
2,212,138
Total liabilities at 31 Dec 20161,768,585
71,847
37,816
19,842
19,427
30,528
63,599
180,764
2,192,408
Off-balance sheet commitments given  
Loan and other credit-related commitments472,277
45,792
16,271
9,798
47,122
11,325
48,756
15,089
666,430
609,923
29,752
3,010
1,897
3,253
2,514
4,280
1,214
655,843
– personal161,843
11,547
6,333
963
19,607
1,207
425
1,018
202,943
177,462
1,835
89
262
1,896
1,114
747
405
183,810
– corporate and commercial272,044
32,764
9,126
8,372
23,984
8,227
38,838
12,558
405,913
366,573
26,650
2,839
1,350
904
996
3,410
754
403,476
– financial38,390
1,481
812
463
3,531
1,891
9,493
1,513
57,574
65,888
1,267
82
285
453
404
123
55
68,557
1
‘Customer accounts’ includes $386,417m (2016: $343,782m (2015: $342,908m)) insured by guarantee schemes.

HSBC Holdings plc Annual Report and Accounts 2016
281  


Notes on the Financial Statements

HSBC Holdings
Maturity analysis of assets, liabilities and off-balance sheet commitments
 
Due not
more than
1 month

Due over
1 month
but not
more than
3 months

Due over
3 months
but not
more than
6 months

Due over
6 months
but not
more than
9 months

Due over
9 months
but not
more than
1 year

Due over
1 year
but not
more than
2 years

Due over
2 years
but not
more than
5 years

Due over
5 years

Total
 $m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets         
Cash at bank and in hand:         
– balances with HSBC undertakings247
—
—
—
—
—
—
—
247
Derivatives1,702
—
—
—
—
—
93
353
2,148
Loans and advances to HSBC undertakings16,372
—
—
—
—
167
14,204
46,678
77,421
Financial investments in HSBC undertakings40
2
—
—
—
—
838
2,710
3,590
Accrued income and other financial assets12
—
—
—
—
—
—
107
119
Total financial assets at
31 Dec 2016
18,373
2
—
—
—
167
15,135
49,848
83,525
Non-financial assets—
—
—
—
—
—
—
97,273
97,273
Total assets at 31 Dec 201618,373
2
—
—
—
167
15,135
147,121
180,798
Financial liabilities

















Amounts owed to HSBC undertakings2,052
—
—
—
—
—
105
—
2,157
Financial liabilities designated at fair value—
—
—
—
—
2,167
5,845
22,101
30,113
– debt securities in issue—
—
—
—
—
—
5,845
10,921
16,766
– subordinated liabilities and preferred securities—
—
—
—
—
2,167
—
11,180
13,347
Derivatives3,841
—
—
—
—
—
592
592
5,025
Debt securities in issue—
—
—
—
—
953
4,822
16,030
21,805
Accruals and other financial liabilities75
1,268
142
22
—
—
—
—
1,507
Subordinated liabilities—
—
—
—
—
1,693
—
13,496
15,189
Total financial liabilities at
31 Dec 2016
5,968
1,268
142
22
—
4,813
11,364
52,219
75,796
Non-financial liabilities—
—
—
—
—
—
—
144
144
Total liabilities at 31 Dec 20165,968
1,268
142
22
—
4,813
11,364
52,363
75,940
Off-balance sheet commitments given

















Undrawn formal standby facilities, credit lines and other commitments to lend—
��
—
—
—
—
—
—
—

282  
HSBC Holdings plc Annual Report and Accounts 2016


Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
 
Due not
more than
1 month

Due over
1 month
but not
more than
3 months

Due over
3 months
but not
more than
6 months

Due over
6 months
but not
more than
9 months

Due over
9 months
but not
more than
1 year

Due over
1 year
but not
more than
2 years

Due over
2 years
but not
more than
5 years

Due over
5 years

Total
 $m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets         
Cash at bank and in hand:         
– balances with HSBC undertakings242
—
—
—
—
—
—
—
242
Derivatives1,990
—
—
—
—
—
109
368
2,467
Loans and advances to HSBC undertakings7,805
2,629
4,618
—
—
—
—
29,298
44,350
Financial investments in HSBC undertakings40
6
—
—
—
—
—
4,239
4,285
Accrued income and other financial assets7
—
—
—
—
—
—
109
116
Total financial assets at 31 Dec 201510,084
2,635
4,618
—
—
—
109
34,014
51,460
Non-financial assets—
—
—
—
—
—
—
98,734
98,734
Total assets at 31 Dec 201510,084
2,635
4,618
—
—
—
109
132,748
150,194
Financial liabilities








Amounts owed to HSBC undertakings1,629
—
—
—
—
415
—
108
2,152
Financial liabilities designated at fair value—
960
—
—
—
—
2,285
16,608
19,853
– debt securities in issue—
—
—
—
—
—
—
6,937
7,897
– subordinated liabilities and preferred securities—
—
—
—
—
—
2,285
9,671
11,956
Derivatives2,065
—
—
—
—
—
213
—
2,278
Debt securities in issue—
—
—
—
—
—
—
960
960
Accruals and other financial liabilities1,231
195
132
20
—
—
—
—
1,578
Subordinated liabilities—
—
—
—
—
—
1,749
14,146
15,895
Total financial liabilities at 31 Dec 20154,928
1,155
132
20
—
415
4,247
31,822
42,716
Non-financial liabilities—
—
—
—
—
—
—
64
64
Total liabilities at 31 Dec 20154,925
1,155
132
20
—
415
4,247
31,886
42,780
Off-balance sheet commitments given








Undrawn formal standby facilities, credit lines and other commitments
to lend
—
—
—
—
—
—
—
—
—

HSBC Holdings plc Annual Report and Accounts 2016
283  273


Notes on the Financial Statements

HSBC Holdings
Maturity analysis of assets, liabilities and off-balance sheet commitments
 
Due not
more than
1 month

Due over
1 month
but not
more than
3 months

Due over
3 months
but not
more than
6 months

Due over
6 months
but not
more than
9 months

Due over
9 months
but not
more than
1 year

Due over
1 year
but not
more than
2 years

Due over
2 years
but not
more than
5 years

Due over
5 years

Total
 $m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets         
Cash at bank and in hand:         
– balances with HSBC undertakings1,985
—
—
—
—
—
—
—
1,985
Derivatives1,952
—
—
—
—
80
—
356
2,388
Loans and advances to HSBC undertakings4,861
13,039
3,145
5
2
1,134
29,560
24,881
76,627
Loans and advances to HSBC undertakings designated at fair value

—
—
—
—
—
2,411
9,533
11,944
Financial investments in HSBC undertakings17
3
—
—
—
—
1,798
2,446
4,264
Accrued income and other financial assets—
4
—
—
—
—
—
123
127
Total financial assets at
31 Dec 2017
8,815
13,046
3,145
5
2
1,214
33,769
37,339
97,335
Non-financial assets—
—
—
—
—
—
—
94,399
94,399
Total assets at 31 Dec 20178,815
13,046
3,145
5
2
1,214
33,769
131,738
191,734
Financial liabilities

















Amounts owed to HSBC undertakings120
2,405
46
—
—
—
—
—
2,571
Financial liabilities designated at fair value—
—
—
—
—
2,349
11,491
17,050
30,890
– debt securities in issue—
—
—
—
—
—
11,491
6,005
17,496
– subordinated liabilities and preferred securities—
—
—
—
—
2,349
—
11,045
13,394
Derivatives2,008
—
—
—
—
110
183
781
3,082
Debt securities in issue—
—
—
—
1,081
—
10,354
22,823
34,258
Accruals and other financial liabilities439
395
157
39
7
3
1
11
1,052
Subordinated liabilities—
1,918
—
—
—
—
—
13,959
15,877
Total financial liabilities at
31 Dec 2017
2,567
4,718
203
39
1,088
2,462
22,029
54,624
87,730
Non-financial liabilities—
—
—
—
—
—
—
217
217
Total liabilities at 31 Dec 20172,567
4,718
203
39
1,088
2,462
22,029
54,841
87,947
Off-balance sheet commitments given

















Undrawn formal standby facilities, credit lines and other commitments to lend—
—
—
—
—
—
—
—
—

274HSBC Holdings plc


Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)
 
Due not
more than
1 month

Due over
1 month
but not
more than
3 months

Due over
3 months
but not
more than
6 months

Due over
6 months
but not
more than
9 months

Due over
9 months
but not
more than
1 year

Due over
1 year
but not
more than
2 years

Due over
2 years
but not
more than
5 years

Due over
5 years

Total
 $m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets         
Cash at bank and in hand:         
– balances with HSBC undertakings247
—
—
—
—
—
—
—
247
Derivatives1,702
—
—
—
—
—
93
353
2,148
Loans and advances to HSBC undertakings16,372
—
—
—
—
167
14,204
46,678
77,421
Financial investments in HSBC undertakings40
2
—
—
—
—
838
2,710
3,590
Accrued income and other financial assets12
—
—
—
—
—
—
107
119
Total financial assets at 31 Dec 201618,373
2
—
—
—
167
15,135
49,848
83,525
Non-financial assets—
—
—
—
—
—
—
97,273
97,273
Total assets at 31 Dec 201618,373
2
—
—
—
167
15,135
147,121
180,798
Financial liabilities








Amounts owed to HSBC undertakings2,052
—
—
—
—
—
105
—
2,157
Financial liabilities designated at fair value—
—
—
—
—
2,167
5,845
22,101
30,113
– debt securities in issue—
—
—
—
—
—
5,845
10,921
16,766
– subordinated liabilities and preferred securities—
—
—
—
—
2,167
—
11,180
13,347
Derivatives3,841
—
—
—
—
—
592
592
5,025
Debt securities in issue—
—
—
—
—
953
4,822
16,030
21,805
Accruals and other financial liabilities75
1,268
142
22
—
—
—
—
1,507
Subordinated liabilities—
—
—
—
—
1,693
—
13,496
15,189
Total financial liabilities at 31 Dec 20165,968
1,268
142
22
—
4,813
11,364
52,219
75,796
Non-financial liabilities—
—
—
—
—
—
—
144
144
Total liabilities at 31 Dec 20165,968
1,268
142
22
—
4,813
11,364
52,363
75,940
Off-balance sheet commitments given








Undrawn formal standby facilities, credit lines and other commitments
to lend
—
—
—
—
—
—
—
—
—
30    29Offsetting of financial assets and financial liabilities
The ‘Amounts not set off in the balance sheet’ include transactions where:
the counterparty has an offsetting exposure with HSBC and a master netting or similar arrangement is in place with a right to set off only in the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and
in the case of derivatives and reverse repurchase/repurchase, stock borrowing/lending and similar agreements,cash and non-cash collateral has been received/pledged.
For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the relevant customer agreements are subject to review and updated, as necessary, to ensure that the legal right to set off remains appropriate.

HSBC Holdings plc275


Notes on the Financial Statements

Offsetting of financial assets and financial liabilitiesOffsetting of financial assets and financial liabilities  
 Amounts subject to enforceable netting arrangements
Amounts not
subject to
enforceable
netting
arrangements5

Total

Amounts subject to enforceable netting arrangements
Amounts not
subject to
enforceable
netting
arrangements5

Total
  
Amounts not set off in the
balance sheet
 






Amounts not set off in the
balance sheet


 
Gross
amounts

Amounts
offset

Net amounts
in the balance sheet

Financial
instruments

Non-cash
collateral

Cash
collateral

Net
amount


Gross
amounts

Amounts
offset

Net amounts
in the balance sheet

Financial
instruments

Non-cash
collateral

Cash
collateral

Net
amount

Footnotes$m
$m
$m
$m
$m
$m
$m
$m
$m
Footnotes$m
$m
$m
$m
$m
$m
$m
$m
$m
Financial assets  


















Derivatives (Note 14)1387,999
(106,555)281,444
(210,067)(11,647)(40,188)19,542
9,428
290,872
1322,422
(110,425)211,997
(156,088)(11,092)(37,302)7,515
7,821
219,818
Reverse repos, stock borrowing and similar agreements classified as:
2 2

















– trading assets 9,859
—
9,859
(475)(9,383)—
1
348
10,207

15,893
—
15,893
(430)(15,462)—
1
1,227
17,120
– non-trading assets 222,485
(87,929)134,556
(4,779)(129,373)(215)189
26,418
160,974

265,666
(105,776)159,890
(3,714)(155,973)(49)154
41,663
201,553
Loans and advances to customers346,296
(14,602)31,694
(24,459)—
(248)6,987
743
32,437
342,091
(10,424)31,667
(26,390)—
(181)5,096
619
32,286
At 31 Dec 2016 666,639
(209,086)457,553
(239,780)(150,403)(40,651)26,719
36,937
494,490
At 31 Dec 2017
646,072
(226,625)419,447
(186,622)(182,527)(37,532)12,766
51,330
470,777
  


















Derivatives (Note 14)1385,682
(105,860)279,822
(215,531)(8,621)(34,040)21,630
8,654
288,476
1387,999
(106,555)281,444
(210,067)(11,647)(40,188)19,542
9,428
290,872
Reverse repos, stock borrowing and similar agreements classified as:2 2

















– trading assets 7,496
—
7,496
—
(7,495)—
1
60
7,556

9,859
—
9,859
(475)(9,383)—
1
348
10,207
– non-trading assets 200,921
(77,925)122,996
(544)(121,981)(270)201
23,259
146,255

222,485
(87,929)134,556
(4,779)(129,373)(215)189
26,418
160,974
Loans and advances to customers377,547
(31,643)45,904
(40,790)—
—
5,114
1,487
47,391
346,296
(14,602)31,694
(24,459)—
(248)6,987
743
32,437
At 31 Dec 2015 671,646
(215,428)456,218
(256,865)(138,097)(34,310)26,946
33,460
489,678
At 31 Dec 2016
666,639
(209,086)457,553
(239,780)(150,403)(40,651)26,719
36,937
494,490
  


















Financial liabilities  


















Derivatives (Note 14)1378,571
(106,555)272,016
(210,035)(15,512)(33,754)12,715
7,803
279,819
1321,932
(110,425)211,507
(156,072)(14,342)(28,666)12,427
5,314
216,821
Repos, stock lending and similar agreements classified as:
2 2

















– trading liabilities 5,034
—
5,034
(475)(4,515)—
44
37
5,071

10,555
—
10,555
(430)(9,615)—
510
63
10,618
– non-trading liabilities 148,443
(87,929)60,514
(6,202)(54,126)(146)40
28,444
88,958

187,268
(105,776)81,492
(7,165)(74,048)(240)39
48,510
130,002
Customer accounts445,422
(14,602)30,820
(24,459)—
(248)6,113
228
31,048
442,533
(10,424)32,109
(26,390)—
(188)5,531
158
32,267
At 31 Dec 2016 577,470
(209,086)368,384
(241,171)(74,153)(34,148)18,912
36,512
404,896
At 31 Dec 2017
562,288
(226,625)335,663
(190,057)(98,005)(29,094)18,507
54,045
389,708
  

Derivatives (Note 14)1377,930
(105,860)272,070
(215,508)(13,629)(30,063)12,870
9,001
281,071
1378,571
(106,555)272,016
(210,035)(15,512)(33,754)12,715
7,803
279,819
Repos, stock lending and similar agreements classified as:
2 2
– trading liabilities 9,300
—
9,300
—
(9,299)—
1
1
9,301

5,034
—
5,034
(475)(4,515)—
44
37
5,071
– non-trading liabilities 126,740
(77,925)48,815
(2,034)(46,731)(26)24
31,585
80,400

148,443
(87,929)60,514
(6,202)(54,126)(146)40
28,444
88,958
Customer accounts483,085
(31,643)51,442
(40,790)—
(1)10,651
729
52,171
445,422
(14,602)30,820
(24,459)—
(248)6,113
228
31,048
At 31 Dec 2015 597,055
(215,428)381,627
(258,332)(69,659)(30,090)23,546
41,316
422,943
At 31 Dec 2016
577,470
(209,086)368,384
(241,171)(74,153)(34,148)18,912
36,512
404,896
1At 31 December 2016,2017, the amount of cash margin received that had been offset against the gross derivatives assets was $3,720m (2015: $4,135m)$6,324m (2016: $3,720m). The amount of cash margin paid that had been offset against the gross derivatives liabilities was $5,862m (2015: $4,224m)$5,196m (2016: $5,862m).
2For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within 'Trading assets' $10,207m (2015: $7,556m)‘Trading assets’ $17,120m (2016: $10,207m) and 'Trading liabilities' $5,071m (2015: $9,301m)‘Trading liabilities’ $10,618m (2016: $5,071m), see the ‘Funding sources and uses’ table on page 145.147.
3At 31 December 2016,2017, the total amount of 'Loans‘Loans and advances to customers'customers’ was $861,504m (2015: $924,454m)$962,964m (2016: $861,504m) of which $31,694m (2015: $45,904m)$31,667m (2016: $31,694m) was subject to offsetting.
4At 31 December 2016,2017, the total amount of 'Customer accounts'‘Customer accounts’ was $1,272,386m (2015: $1,289,586m)$1,364,462m (2016: $1,272,386m) of which $30,820m (2015: $51,442m)$32,109m (2016: $30,820m) was subject to offsetting.
5These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing enforceability of the right of offset.

284  30
HSBC Holdings plc Annual Report and Accounts 2016


31    Non-controlling interests
2016
2015
2017
2016
$m
$m
$m
$m
Non-controlling interests attributable to holders of ordinary shares in subsidiaries6,932
6,981
7,621
6,932
Preferred securities issued by subsidiaries260
2,077
—
260
At 31 Dec7,192
9,058
7,621
7,192
Hang Seng Bank Limited is the only subsidiary in the Group that gives rise to significant non-controlling interest. For summarised financial information of Hang Seng Bank Limited see Note 18 ‘Investment in subsidiaries’.18.
Preferred securities issued by subsidiaries
Preferred securities are securities for which there is no obligation to pay a dividend and, if the dividend is not paid, it may not be cumulative. Such securities do not generally carry voting rights but rank higher than ordinary shares for dividend payments and in the event of a winding-up. These securities have no stated maturity date but may be called and redeemed by the issuer, subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator.

276HSBC Holdings plc


All non-cumulative preferred securities are classified as additional tier 1 capital.
Preferred securities issued by HSBC’s subsidiaries
  Footnotes
First call
date
2016
2015
  $m
$m
HSBC USA Inc.    
$518mFloating rate non-cumulative preferred stock, series F1Apr 2010—
518
$374mFloating rate non-cumulative preferred stock, series G1Jan 2011—
374
$374m6.50% non-cumulative preferred stock, series H2Jul 2011—
374
HSBC Finance Corporation 


$575m6.36% non-cumulative preferred stock, series B2Jun 2010—
559
HSBC Bank Canada 


C$175mNon-cumulative redeemable class 1 preferred shares, series C Jun 2010130
126
C$175mNon-cumulative class 1 preferred shares, series D Dec 2010130
126
At 31 Dec 
260
2,077
Preferred securities issued by HSBC’s subsidiaries
  Footnote
First call
date
2017
2016
  $m
$m
HSBC Bank Canada    
CA$175mNon-cumulative redeemable class 1 preferred shares, series C1Jun 2010—
130
CA$175mNon-cumulative redeemable class 1 preferred shares, series D1Dec 2010—
130
At 31 Dec 
—
260
1
In June 2016,2017 HSBC redeemed its floating non-cumulative preferred stock, series F and G for $892m.
2In June 2016, HSBC redeemed its non-cumulated preferred stock, series H and B, for $949m.these securities.
32    31Called up share capital and other equity instruments
Called up share capital and share premium
HSBC Holdings ordinary shares of $0.50 each, issued and fully paid
 20162015 20172016
FootnoteNumber
$m
Number
$m
FootnoteNumber
$m
Number
$m
At 1 Jan 19,685,096,934
9,842
19,217,874,260
9,609
 20,191,586,214
10,096
19,685,096,934
9,842
Shares issued under HSBC employee share plans 69,187,052
35
91,265,909
45
 76,701,249
38
69,187,052
35
Shares issued in lieu of dividends 437,302,228
219
375,956,765
188
 380,652,196
190
437,302,228
219
Less: Shares repurchased and cancelled

 (328,223,401)(164)—
—
At 31 Dec120,191,586,214
10,096
19,685,096,934
9,842
120,320,716,258
10,160
20,191,586,214
10,096
HSBC Holdings non-cumulative preference shares of $0.01 each
 20162015 20172016
FootnoteNumber
$m
Number
$m
FootnoteNumber
$m
Number
$m
At 1 Jan and 31 Dec21,450,000
—
1,450,000
—
21,450,000
—
1,450,000
—
HSBC Holdings share premium
2016
2015
2017
2016
$m
$m
$m
$m
At 31 Dec12,619
12,421
10,177
12,619
Total called up share capital and share premium
2016
2015
2017
2016
$m
$m
$m
$m
At 31 Dec22,715
22,263
20,337
22,715
1All HSBC Holdings ordinary shares in issue, excluding 325,273,407 shares held in treasury, confer identical rights, including in respect of capital, dividends and voting.
2Included in the capital base of HSBC as additional tier 1 capital in accordance with the CRD IV rules, by virtue of the application of grandfathering provisions.

HSBC Holdings plc Annual Report and Accounts 2016
285  


Notes on the Financial Statements

HSBC Holdings non-cumulative preference shares of $0.01
HSBC Holdings pays dividends on non-cumulative preference shares of $0.01 each (‘dollar preference shares’) quarterly, at the sole and absolute discretion of the Board. The Board will not declare a dividend on them if this would stop the company from meeting the PRA’s capital adequacy requirements, or if profit available for distribution as dividends is insufficient to also pay dividends on other shares that are equally entitled and scheduled on the same date.
HSBC Holdings may not declare or pay dividends on shares ranking lower in the right to dividends than dollar preference shares, or redeem or purchase any of its other shares ranking equal or lower than dollar preference shares, unless it has fully paid, or set aside an amount to fully pay, the dividends on the dollar preference shares for the then current dividend period.
The dollar preference shares carry no rights to conversion into ordinary shares. Holders of dollar preference shares are only entitled to attend and vote at shareholder meetings if dividends on these shares have not been paid in full on four consecutive dividend payment dates. In such circumstances, holders of these shares are entitled to vote at shareholder meetings until HSBC Holdings has paid a full dividend on them. Since 16 December 2010,These securities can be redeemed by HSBC Holdings has been able to redeem dollar preference shares at any time, subject to prior notification toapproval by the PRA.
HSBC Holdings non-cumulative preference share of £0.01
The one non-cumulative sterling preference share of £0.01 (‘sterling preference share’) has been in issue since 29 December 2010 and is held by a subsidiary of HSBC Holdings. Dividends are paid quarterly at the sole and absolute discretion of the Board. The sterling preference share carries no rights of conversion into ordinary shares of HSBC Holdings and no rightsright to attend andor vote at shareholder meetings of HSBC Holdings. These securities can be redeemed by HSBC Holdings may redeem it at any time.time, subject to prior approval by the PRA.
Other equity instruments
HSBC Holdings includes three types of additional tier 1 capital securities in its tier 1 capital. Two are presented in this Note and are accounted for as equity because HSBC does not have an obligation to transfer cash or a variable number of its own ordinary shares to holders under any circumstances outside its control. See Note 2827 for additional tier 1 securities accounted for as liabilities.

HSBC Holdings plc277


Notes on the Financial Statements

Additional tier 1 capital securities
Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred at HSBC Holdings’ discretion. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare or pay dividends or make distributions or similar periodic payments in respect of any securities of lower or equal rank, or repurchase or redeem them. Such securities do not generally carry voting rights but rank higher than ordinary shares for coupon payments, and in the event of a winding-up. They do not meet the identifying criteria in full for recognition as tier 1 capital under CRD IV but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.
At HSBC Holdings’ discretion, and subject to certain conditions being satisfied, the capital securities may be exchanged on any coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and ranking pari passu with the dollar and sterling preference shares in issue. The preference shares would be issued at a nominal value of $0.01 per share and a premium of $24.99 per share, with both amounts being subscribed and fully paid. These securities maycan be called and redeemed by HSBC at any time, subject to prior notification toapproval by the PRA.
HSBC’s additional tier 1 capital securities in issue which are accounted for in equity
 First call
date		2016
2015
 First call
date		2017
2016
 $m
$m
 $m
$m
$2,200m8.125% perpetual subordinated capital securitiesApr 20132,133
2,133
8.125% perpetual subordinated capital securitiesApr 20132,133
2,133
$3,800m8.00% perpetual subordinated capital securities, Series 2Dec 20153,718
3,718
8.000% perpetual subordinated capital securities, Series 2Dec 20153,718
3,718
At 31 DecAt 31 Dec 5,851
5,851
At 31 Dec 5,851
5,851
Additional tier 1 capital – contingent convertible securities
During 2016,2017, HSBC continued to issue contingent convertible securities that are included in HSBC’sits capital base as fully CRD IV compliant additional tier 1 capital securities on an end point basis. The net proceeds of the issuances will beare used for general corporate purposes and to further strengthen theits capital base to meet requirements under CRD IV. These securities bear a fixed rate of interest until their initial call dates. After the initial call dates, if they are not redeemed, the securities will bear interest at rates fixed periodically in advance for five-year5-year periods based on prevailing market rates. Interest on the contingent convertible securities will be due and payable only at the sole discretion of HSBC, and HSBC has sole and absolute discretion at all times to cancel for any reason (in whole or in part) any interest payment that would otherwise be payable on any payment date. Distributions will not be paid if they are prohibited under UK banking regulations or if the company has insufficient reserves or fails to meet the solvency conditions defined in the securities’ terms.
The contingent convertible securities are undated and are repayable, at the option of HSBC, in whole at the initial call date, or on any fifth anniversary after this date. In addition, the securities are repayable at the option of HSBC in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA. These securities rank pari passu with HSBC’s dollar and sterling preference shares and are therefore ahead of ordinary shares. The contingent convertible securities will be converted into fully paid ordinary shares of HSBC at a pre-determinedpredetermined price, should HSBC’s consolidated end point CET1 ratio fall below 7.0%. Therefore, in accordance with the terms of the securities, if the end point CET1 ratio breaches the 7.0% trigger, the securities will convert into ordinary shares at fixed contractual conversion prices in the issuance currencies of the relevant securities, equivalent to £2.70 at the prevailing rate of exchange on the issuance date, subject to certain anti-dilution adjustments.

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HSBC Holdings plc Annual Report and Accounts 2016


HSBC’s additional tier 1 capital – contingent convertible securities in issue which are accounted for in equity
 First call
date		2016
2015
 First call
date		2017
2016
 $m
$m
 $m
$m
$1,500m5.625% perpetual subordinated contingent convertible securitiesJan 20201,494
1,494
$2,000m6.875% perpetual subordinated contingent convertible securitiesJun 20211,998
1,998
$2,250m6.375% perpetual subordinated contingent convertible securitiesSep 20242,244
2,244
6.375% perpetual subordinated contingent convertible securitiesSep 20242,244
2,244
$1,500m5.625% perpetual subordinated contingent convertible securitiesJan 20201,494
1,494
$2,450m6.375% perpetual subordinated contingent convertible securitiesMar 20252,460
2,460
$3,000m6.000% perpetual subordinated contingent convertible securitiesMay 20272,997
—
   
€1,500m5.25% perpetual subordinated contingent convertible securitiesSep 20221,943
1,943
5.250% perpetual subordinated contingent convertible securitiesSep 20221,943
1,943
$2,450m6.375% perpetual subordinated contingent convertible securitiesMar 20252,459
2,459
€1,000m6.000% perpetual subordinated contingent convertible securitiesSep 20231,121
1,121
6.000% perpetual subordinated contingent convertible securitiesSep 20231,120
1,120
$2,000m6.875% perpetual subordinated contingent convertible securitiesJun 20211,998
—
€1,250m4.750% perpetual subordinated contingent convertible securitiesJul 20291,420
—
   
SGD1,000m4.700% perpetual subordinated contingent convertible securitiesJun 2022723
—
At 31 DecAt 31 Dec 11,259
9,261
At 31 Dec 16,399
11,259
Shares under option
For details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings savings-related share option plans, see Note 5.
Aggregate options outstanding under these plans
31 Dec 201631 Dec 2015
Number of
HSBC Holdings
ordinary shares

Period of exerciseExercise price
Number of
HSBC Holdings
ordinary shares

Period of exerciseExercise price
69,217,725
2016 to 2022
£4.0472–5.4738
72,840,810
2015 to 2021£4.0472–5.4738
504,467
2016 to 2018
HK$55.4701–63.9864
1,114,830
2015 to 2018HK$55.4701–63.9864
86,916
2016 to 2018
€5.3532–5.7974
153,610
2015 to 2018€5.3532–6.0657
217,738
2016 to 2018
$7.1456–8.2094
665,445
2015 to 2018$7.1456–8.2094
Aggregate options outstanding under these plans
31 Dec 201731 Dec 2016
Number of
HSBC Holdings
ordinary shares

Period of exerciseExercise price
Number of
HSBC Holdings
ordinary shares

Period of exerciseExercise price
64,604,932
2017 to 2023£4.0472-5.9640
69,217,725
2016 to 2022£4.0472–5.4738
36,309
2017 to 2018HK$55.4701
504,467
2016 to 2018HK$55.4701–63.9864
10,539
2017 to 2018€5.3532
86,916
2016 to 2018€5.3532–6.0657
17,873
2017 to 2018$7.1456
217,738
2016 to 2018$7.1456–8.2094

278HSBC Holdings plc


Maximum obligation to deliver HSBC Holdings ordinary shares
At 31 December 2016,2017, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements and the HSBC International Employee Share Purchase Plan, together with GPSP awards, long-term incentive awards and restricteddeferred share awards granted under the HSBC Share Plan and/or the HSBC Share Plan 2011, was 198,483,750 (2015: 193,178,906)169,615,437 (2016: 198,483,750). The total number of shares at 31 December 20162017 held by employee benefit trusts that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 3,997,619 (2015: 4,753,747)5,883,444 (2016: 3,997,619).
33    32Contingent liabilities, contractual commitments and guarantees
HSBC
HSBC Holdings1
HSBC
HSBC Holdings1
2016
2015
2016
2015
2017
2016
2017
2016
$m
$m
$m
$m
$m
$m
$m
$m
Guarantees and other contingent liabilities:    
 
 
– financial guarantees and similar contracts37,072
46,116
7,619
68,333
38,328
37,072
7,778
7,619
– other guarantees44,394
39,739
—
—
51,434
44,394
—
—
– other contingent liabilities553
490
—
—
616
553
—
—
At 31 Dec82,019
86,345
7,619
68,333
90,378
82,019
7,778
7,619
Commitments:  





 



– documentary credits and short-term trade-related transactions9,190
10,168
—
—
8,776
9,190
—
—
– forward asset purchases and forward deposits placed5,386
981
—
—
4,295
5,386
—
—
– standby facilities, credit lines and other commitments to lend641,267
655,281
—
—
672,518
641,267
—
—
At 31 Dec655,843
666,430
—
—
685,589
655,843
—
—
1Guarantees by HSBC Holdings are all in favour of other Group entities.
The above table discloses the nominal principal amounts, which represents the maximum amounts at risk should the contracts be fully drawn upon and clients default. As a significant portion of guarantees and commitments is expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements.
Approximately half the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to HSBC’s annual credit review process.
Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are disclosed in Notes 27 26
and 35.34.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme (‘FSCS’) has provided compensation to consumers following the collapse of a number of deposit takers. The compensation paid out to consumers is currently funded through loans from HM Treasury, which at 31 December 20162017 stood at approximately £15.7bn ($19.3bn)$6.3bn (£4.7bn). The Group could be liable to pay a proportion of the outstanding amount that the FSCS has borrowed from HM Treasury. The ultimate FSCS levy to the industry as a result of the collapses cannot currently be estimated reliably, as it is dependent on various uncertain factors, including the potential recoveries of assets by the FSCS and changes in the level of protected deposits and the population of FSCS members at the time.
Associates
HSBC’s share of associates’ contingent liabilities amounted to $35.3bn$38.8bn at 31 December 2016 (2015: $39.2bn)2017 (2016: $35.3bn). No matters arose where HSBC was severally liable.

HSBC Holdings plc Annual Report and Accounts 2016
33		287  


Notes on the Financial Statements

34    Lease commitments
Operating lease commitments
At 31 December 2016,2017, future minimum lease payments under non-cancellable operating leases for land, buildings and equipment were $3,893m (2015: $5,333m)
$3,950m (2016: $3,893m).
Finance lease receivables
HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to recover the cost of assets less their residual value, and earn finance income.
2016201520172016
Total future
minimum
payments
Unearned
finance
income
Present
value
Total future
minimum
payments
Unearned
finance
income
Present
value
Total future
minimum
payments
Unearned
finance
income
Present
value
Total future
minimum
payments
Unearned
finance
income
Present
value
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Lease receivables:



No later than one year3,248
(330)2,918
3,382
(332)3,050
3,523
(326)3,197
3,248
(330)2,918
Later than one year and no later than five years6,563
(702)5,861
7,219
(837)6,382
7,033
(696)6,337
6,563
(702)5,861
Later than five years4,548
(633)3,915
4,897
(702)4,195
4,784
(669)4,115
4,548
(633)3,915
At 31 Dec14,359
(1,665)12,694
15,498
(1,871)13,627
15,340
(1,691)13,649
14,359
(1,665)12,694

HSBC Holdings plc279


Notes on the Financial Statements

35    34Legal proceedings and regulatory matters
HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is determined in accordance with the accounting policies set out in Note 1. While the outcome of legal proceedings and regulatory matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at 31 December 20162017 (see Note 27)26). Where an individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.
Securities litigation
Household International, Inc. (‘Household International’) and certain former officers were named as defendants in a securities class action lawsuit, Jaffe v. Household International, Inc., et al., filed in the US District Court for the Northern District of Illinois (the ‘Illinois District Court’) in August 2002. The complaint asserted claims under the US Securities Exchange Act and alleged that the defendants knowingly or recklessly made false and misleading statements of material fact relating to Household International’s Consumer Lending operations (some of which ultimately led to a 2002 settlement with 46 states and the District of Columbia) and certain accounting practices, as evidenced by an August 2002 restatement of previously reported consolidated financial statements. A class was certified on behalf of all persons who acquired and disposed of Household International common stock between July 1999 and October 2002. In April 2009, a jury trial was decided partly in favour of the plaintiffs and, in October 2013, the Illinois District Court entered a partial final judgment against the defendants in the amount of approximately $2.5bn (including pre-judgment interest). The defendants appealed the partial final judgment and, in May 2015, the US Court of Appeals for the Seventh Circuit reversed the partial final judgment of the Illinois District Court and remanded the case for a new trial on loss causation.
In June 2016, HSBC reached an agreement to pay $1.6bn to settle all claims. Final court approval of the settlement and a final court order of dismissal with prejudice was granted in November 2016.
Bernard L. Madoff Investment Securities LLC
Bernard L. Madoff (‘Madoff’) was arrested in December 2008 and later pleaded guilty to running a Ponzi scheme. His firm, Bernard L. Madoff Investment Securities LLC (‘Madoff Securities’), is being liquidated in the US by a trustee (the ‘Trustee’).
Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities, as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.
Based on information available to HSBC, the funds’ actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities’ fraud.
US/UK litigation:The Trustee has brought lawsuits against various HSBC companies in the US Bankruptcy Court and in the English High Court, seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. HSBC and other parties to the action have moved to dismiss the Trustee’s US actions. The US Bankruptcy Court granted HSBC’s motion to dismiss with respect to certain of the Trustee’s claims in November 2016, though2016. In September 2017, the US Court of Appeals for the Second Circuit (the ‘Second Circuit Court of Appeals’) agreed to hear the Trustee’s appeal of the US Bankruptcy Court’s decision, where this rulingmatter is subject to appeal.pending.
The deadline by which the Trustee must serve HSBC with his English action has been extended to September 20172018 for UK-based defendants and November 20172018 for all other defendants.
Alpha Prime Fund Ltd (‘Alpha Prime’) and Senator Fund SPC (‘Senator’), co-defendants in one of the Trustee’s US actions, have each brought cross-claims against certain HSBC defendants. In December 2016, the US Bankruptcy Court granted HSBC’s motion to dismiss the cross-claims and Alpha Prime and Senator’s failure to appeal renders the court’s ruling final.
Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, ‘Fairfield’) (in liquidation since July 2009) have brought lawsuits in the US and the British Virgin Islands (‘BVI’) against fund shareholders, including HSBC companies that

288  
HSBC Holdings plc Annual Report and Accounts 2016


acted as nominees for clients, seeking restitution of redemption payments. In October 2016, the liquidators for Fairfield ('Fairfield(the ‘Fairfield Liquidators') filed a motion seeking leave to amend their complaints in the US Bankruptcy Court. Briefing on the defendants' opposition to the Liquidators' motion and the defendants' own motion to dismiss is underway. In January 2017, the defendants filed their consolidated motionmoved to dismiss and opposition tooppose the Fairfield Liquidators’ motion seeking leave to amend. motion. These motions are pending.
In December 2014, three additional actions were filed in the US. A purported class of direct investors in Madoff Securities asserted common law claims against various HSBC companies in the United StatesUS District Court for the Southern District of New York (the ‘New York District Court’). In September 2016, the New York District Court granted HSBC’s motion to dismiss this action and the plaintiffs’ failure to appeal renders the court’s ruling final. Two investors in Hermes International Fund Limited (‘Hermes’) also asserted common law claims against various HSBC companies in the New York District Court. In March 2017, the court granted HSBC's motion to dismiss, this action remains pending.which dismissal was upheld by the Second Circuit Court of Appeals in November 2017. In addition, SPV Optimal SUS Ltd (‘SPV OSUS’), the purported assignee of the Madoff-invested company, Optimal Strategic US Equity Ltd (‘Optimal’), filed a lawsuit in New York state court against various HSBC companies and others, seeking damages on various alleged grounds, including breach of fiduciary duty and breach of trust. This action has been stayed pending the issuance of a potentially dispositive decision in an action initiated by Optimal regarding the validity of the assignment of its claims to SPV OSUS.
BVI litigation: Beginning in October 2009, the Fairfield Liquidators commenced lawsuits against fund shareholders, including HSBC companies that acted as nominees for clients, seeking recovery of redemption payments. In March 2016, the BVI court denied a motion brought by certain non-HSBC defendants challenging the Fairfield Liquidators’ authorisation to pursue their US claims, which those defendants have appealed. In August 2016, the Fairfield Liquidators voluntarily discontinued their actions against the HSBC defendants.
Bermuda litigation:In January 2009, Kingate Global Fund Limited and Kingate Euro Fund Limited (together, ‘Kingate’) brought an action against HSBC Bank Bermuda Limited (‘HBBM’) for recovery of funds held in Kingate’s accounts, fees and dividends. This action is pending, but is not expected to move forward until the resolution of the Trustee’s US actions against Kingate and HBBM.
Thema Fund Limited (‘Thema’) and Hermes each brought three actions in 2009. The first set of actions seeks recovery of funds in frozen accounts held at HSBC Institutional Trust Services (Bermuda) Limited. The second set of actions asserts liability against HSBC Institutional Trust Services (Bermuda) Limited in relation to claims for mistake, recovery of fees and damages for breach of contract. The third set of actions seeks return of fees from HBBM and HSBC Securities Services (Bermuda) Limited. The parties have agreed to a standstill in respect of all three sets of actions.
Cayman Islands litigation:In February 2013, Primeo Fund Limited (‘Primeo’) (in liquidation since April 2009) brought an action against HSBC Securities Services Luxembourg (‘HSSL’) and The Bank of Bermuda (Cayman), Limited, alleging breach of contract and breach of fiduciary duty, and claiming damages and equitable compensation. Trial beganThe trial concluded in November 2016 and is scheduled to run until the end of February 2017,. and in August 2017, the court dismissed all claims against the defendants. In September 2017, Primeo appealed to the Court of Appeal of the Cayman Islands, where the matter is pending.
Luxembourg litigation: In April 2009, Herald Fund SPC (‘Herald’) (in liquidation since July 2013) brought an action against HSSL before the Luxembourg District Court, seeking restitution of cash and securities Herald purportedly lost because of Madoff Securities’ fraud, or money damages. The Luxembourg District Court dismissed Herald’s securities restitution claim, but reserved Herald’s cash restitution claim and its claim for money damages. Herald has appealed this judgment to the Court of Appeal,. where this matter is pending.
In March 2010, Herald (Lux) SICAV (‘Herald (Lux)’) (in liquidation since April 2009) brought an action against HSSL before the Luxembourg District Court seeking restitution of securities, or the cash equivalent, or money damages. Herald (Lux) has also requested the restitution of fees paid to HSSL. In 2017, the parties agreed a settlement, which was approved by the Luxembourg court in November 2017. The settlement was concluded in January 2018.
In October 2009, Alpha Prime and, in December 2014, Senator, each brought an action against HSSL before the Luxembourg District Court, seeking the restitution of securities, or the cash equivalent, or money damages. The action initiated by Senator hasBoth actions have been temporarily suspended at Senator'sthe plaintiffs’ request. In April 2015, Senator commenced an action against the Luxembourg branch of HSBC Bank plc asserting identical claims before the Luxembourg District Court.
HSSL has also been named as a defendant in various actions by shareholders in Primeo Select Fund, Herald, Herald (Lux), and Hermes. Most of these actions have been dismissed, suspended or postponed.

280HSBC Holdings plc


Ireland litigation:In November 2013, Defender Limited brought an action against HSBC Institutional Trust Services (Ireland) Limited (‘HTIE’) and others, alleging breach of contract and claiming damages and indemnification for fund losses. A provisional trial date has not yet been scheduled.scheduled for October 2018.
In May 2016, following a hearing on two preliminary issues, HTIE was successful in obtaining an order dismissing two remaining claims by purported shareholders in Thema International Fund plc.
SPV OSUS’s action against HTIE and HSBC Securities Services (Ireland) Limited alleging breach of contract and claiming damages and indemnification for fund losses was dismissed by the Irish High Court in October 2015. In March 2017, the Irish Court of Appeal affirmed the dismissal. In April 2017, SPV OSUS’sOSUS filed an application seeking leave to appeal against this first instance decisionthe dismissal to the Irish Supreme Court. The application was heard by the Irish Supreme Court in January 2017.February 2018 and judgment is pending.
There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the information currently available, management’s estimate of the possible aggregate damages that might arise as a result of all claims in the various Madoff-related proceedings is up to or exceeding $800m,$500m, excluding costs and interest. Due to uncertainties and limitations of this estimate, the ultimate damages could differ significantly from this amount.
US mortgage-related investigations
In April 2011, HSBC Bank USA N.A. (‘HSBC Bank USA’) entered into a consent order (the 'OCC‘OCC Servicing Consent Order'Order’) with the Office of the Comptroller of the Currency (‘OCC’), and HSBC Finance Corporation (‘HSBC Finance’) and HSBC North America Holdings Inc. (‘HNAH’) entered into a similar consent order (the ’FRB Servicing Consent Order’) with the Federal Reserve Board (‘FRB’) (together with the OCC Servicing Consent Order, the ‘Servicing Consent Orders’).
The Servicing Consent Orders required prescribed actions to address certain foreclosure practice deficiencies. The Servicing Consent Orders also required an independent foreclosure review which, pursuant to amendments to the Servicing Consent Orders in February 2013, ceased and was replaced by a settlement under which HSBC and 12 other participating servicers agreed to provide cash payments and other assistance to eligible borrowers. In June 2015, the OCC issued an amended OCC Servicing Consent Order citing

HSBC Holdings plc Annual Report and Accounts 2016
289  


Notes on the Financial Statements

the failure of HSBC Bank USA to be in compliance with all requirements of the OCC Servicing Consent Order and stating that the failure to satisfy all requirements of the OCC Servicing Consent Order may result in a variety of regulatory consequences for HSBC Bank USA, including the imposition of civil money penalties. In January 2017, the OCC terminated the OCC Servicing Consent Order together with its February 2013 and June 2015 amendments, after determining that HSBC Bank USA had satisfied the requirements thereunder. In connection with the termination of the OCC Servicing Consent Order,the OCC also assessed a civil money penalty against HSBC Bank USA, finding that HSBC Bank USA failed to correct deficiencies identified under the OCC Servicing Consent Order in a timely fashion. The civil money penalty has been paid. In January 2018, the FRB terminated the FRB Servicing Consent Order after having determined that HNAH and HBIO are in compliance with its terms.
In February 2016, HSBC Bank USA, HSBC Finance, HSBC Mortgage Services Inc. and HNAH entered into an agreement with the US Department of Justice (the ‘DoJ’), the US Department of Housing and Urban Development, the Consumer Financial Protection Bureau, other federal agencies (the ‘Federal Parties’) and the Attorneys General of 49 states and the District of Columbia (the ‘State Parties’) to resolve civil claims related to past residential mortgage loan origination and servicing practices (the ‘National Mortgage Settlement Agreement’ or ‘NMS’). In addition, in February 2016, the FRB announced the imposition against HSBC Finance and HNAH of a $131m civil money penalty in connection with the FRB’s consent order of April 2011. Pursuant to the terms of the FRB’s civil money penalty order, the penalty will be satisfied through theThe cash payments required under the NMS were made toin 2016. In March 2017, the Federal Parties andNMS independent monitor validated that the consumer relief providedobligations were satisfied; and in June 2017, the NMS independent monitor validated that all remaining obligations under the National Mortgage Settlement Agreement.NMS were satisfied.
The Servicing Consent Orders and the National Mortgage Settlement Agreement do not completely preclude other enforcement actions by regulatory, governmental or law enforcement agencies related to foreclosure and other mortgage servicing practices, including, but not limited to, matters relating to the securitisation of mortgages for investors, which could include the imposition of civil money penalties, criminal fines or other sanctions. In addition, these practices have in the past resulted in private litigation, and may result in further private litigation.
US mortgage securitisation activity and litigation
HSBC Bank USA was a sponsor or seller of loans used to facilitate whole loan securitisations underwritten by HSBC Securities (USA) Inc. (‘HSI’). From 2005 to 2007, HSBC Bank USA purchased and sold approximately $24bn of such loans to HSI, which were subsequently securitised and sold by HSI to third parties. The outstanding principal balance was approximately $4.6bn as$4.1bn at 31 December 2016. 2017. HSBC notes that the scale of its mortgage securitisation activities was more limited in relation to a number of other banks in the industry.In addition, HSI served as an underwriter on securitisations issued by HSBC Finance or third parties, andHSBC Bank USA served as trustee on behalf of various mortgage securitisation trusts.
Mortgage foreclosure and trustee matters:matters: As the industry’s residential mortgage foreclosure issues continue, HSBC Bank USA has taken title to a number of foreclosed homes as trustee on behalf of various mortgage securitisation trusts. As nominal record owner of these properties, HSBC Bank USA has been sued by municipalities and tenants alleging various violations of law, including laws relating to property upkeep and tenants’ rights. While HSBC believes and continues to maintain that these obligations and any related liabilities are those of the servicer of each trust, HSBC continues to receive significant adverse publicity in connection with these and similar matters, including foreclosures that are serviced by others in the name of ‘HSBC, as trustee’.
Beginning in June 2014, a number of lawsuits were filed in state and federal courtcourts in New York and OhioVirginia against HSBC Bank USA as trustee of over 320more than 280 mortgage securitisation trusts. These lawsuits are brought on behalf of the trusts by a putative class of investors including, among others, BlackRock and PIMCO funds. The complaints allege that the trusts have sustained losses in collateral value of approximately $38bn. The lawsuits seek unspecified damages resulting from alleged breaches of the US Trust Indenture Act, breach of fiduciary duty, negligence, breach of contract and breach of the common law duty of trust. HSBC’s motions to dismiss in several of these lawsuits were, for the most part, denied.
It is not practicable to estimate the possible financial impact of these matters, as there are many factors that may affect the range of possible outcomes; however, the resulting financial impact could be significant.
Loan repurchase mattersmatters: :HSBC Bank USA, HSBC Finance and Decision One Mortgage Company LLC (an(‘Decision One’), an indirect subsidiary of HSBC Finance) (‘Decision One’)Finance, have been named as defendants in various mortgage loan repurchase actions brought by trustees of mortgage securitisation trusts. In the aggregate, these actions seek to have the HSBC defendants repurchase mortgage loans, or pay compensatory damages, totalling at least $1bn. In August 2016, HSBC reached an agreement in principle to settle one of the matters andmatters. In September 2017, the other matters remain pending.court approved the settlement, concluding the matter. Another matter against HSBC Bank USA was dismissed on appeal in December 2017.
HSBC Mortgage Corporation (USA) Inc. and Decision One have also been named as defendants in two separate actions filed by Residential Funding Company LLC (‘RFC’), a mortgage loan purchase counterparty, seeking unspecified damages in connection with approximately 25,000 mortgage loans.
It is not practicable to estimate the possible financial impact of these matters, as there are many factors that may affect the range ofpossible outcomes; however, the resulting financial impact could be significant.

HSBC Holdings plc281


Notes on the Financial Statements

FIRREAFIRREA::Since 2010, various HSBC entities have received subpoenas and requests for information from the DoJ and the Massachusetts state Attorney General seeking the production of documents and information regarding HSBC’s involvement in certain RMBS transactions as an issuer, sponsor, underwriter, depositor, trustee, custodian or servicer. In November 2014, HNAH, on behalf of itself and various subsidiaries including, but not limited to, HSBC Bank USA, HSI Asset Securitization Corp., HSI, HSBC Mortgage Corporation (USA), HSBC Finance and Decision One, received a subpoena from the US Attorney’s Office for the District of Colorado, pursuant to the Financial Industry Reform, Recovery and Enforcement Act (‘FIRREA’), concerning the origination, financing, purchase, securitisation and servicing of subprimesub-prime and non-subprimenon-sub-prime residential mortgages.
HSBC continues to cooperate with the DoJ’s investigation,these investigations, which isare at or nearing completion.
In December 2016, HSBC had an initial discussion with the DoJ, wherein the DoJ stated its preliminary view that HSBC is subject to liability under FIRREA in connection with certain securitisations from 2005 to 2007 with respect to which HSBC Bank USA served as sponsor or seller of loans and HSI served as underwriter. In March 2017, HSBC provided its response to the DoJ, which, among other things, outlined why the Bank disagrees with the DoJ’s preliminary view, andview. Since then, the Bank has been in active discussions with the DoJ regarding a potential resolution; however, the Bank has offered HSBC an opportunityalso indicated a willingness to respond.defend itself in the event that formal legal proceedings are commenced. There can be no assurance as to how or when this matter will be resolved, or whether this matter will be resolved prior to the institutioncommencement of formal legal proceedings by the DoJ. Moreover, it is possible that any such resolution could result in significant penalties and other costs. To date, at least one bank has been sued by the DoJ and at least eight other banks have reported settlements of mortgage-backed securities-related matters pursuant to FIRREA. The prior DoJ settlements provide no clear guidance as to how those individual settlement amounts were calculated, and due to the high degree of uncertainty involved, it is not practicable to estimate any possible financial effectimpact of this matter, which could be significant.

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HSBC Holdings plc Annual Report and Accounts 2016


HSBC expects the focus on mortgage securitisations to continue and that it may be subject to additional claims, litigation and governmental or regulatory scrutiny relating to its participation in the US mortgage securitisation market.
Anti-money laundering and sanctions-related matters
In October 2010, HSBC Bank USA entered into a consent cease and desist order with the OCC, and HNAH entered into a consent cease and desist order with the FRBFRB. In 2012, HSBC Bank USA further entered into an enterprise-wide compliance consent order (each an ‘Order’ and together, the ‘Orders’). These Orders required improvements to establish an effective compliance risk management programme across HSBC’s US businesses, including risk management related to the Bank Secrecy Act (‘BSA’) and AML compliance. While these Orders remain open, HSBC Bank USA is not currently inand HNAH believe that they have taken appropriate steps to bring themselves into compliance with the OCC Order. Steps are being taken to address the requirements of the Orders.
In December 2012, HSBC Holdings, HNAH and HSBC Bank USA entered into agreements with US and UK government and regulatory agencies regarding past inadequate compliance with the BSA, AML and sanctions laws. Among those agreements, HSBC Holdings and HSBC Bank USA entered into a five-year deferred prosecution agreement with, among others, the DoJ (the ‘US‘AML DPA’); and HSBC Holdings consented to a cease-and-desistcease and desist order, and HSBC Holdings and HNAH consented to a civil money penalty order with the FRB. HSBC Holdings also entered into an agreement with the Office of Foreign Assets Control (‘OFAC’) regarding historical transactions involving parties subject to OFAC sanctions, as well as an undertaking with the UK FCA to comply with certain forward-looking AML and sanctions-related obligations. In addition, HSBC Bank USA entered into civil money penalty orders with the Financial Crimes Enforcement Network of the US Treasury Department (‘FinCEN’) and the OCC.
Under these agreements, HSBC Holdings and HSBC Bank USA made payments totalling $1.9bn to US authorities and undertook various further obligations, including, among others, to continue to cooperate fully with the DoJ in any and all investigations, not to commit any crime under US federal law subsequent to the signing of the agreement, and to retain an independent compliance monitor (who is, for FCA purposes, a ‘skilled person’ under section 166 of the Financial Services and Markets Act) to produce annual assessments of the Group’s AML and sanctions compliance programme (the ‘Monitor’). Under the cease and desist order issued by the FRB in 2012, the Monitor also serves as an independent consultant to conduct annual assessments. In February 2017,2018, the Monitor delivered his thirdfourth annual follow-up review report.
Through his country-level reviews, the Monitor identified potential anti-money laundering and sanctions compliance issues that HSBC is reviewing further with the DoJ, FRB and/or FCA. In particular, the DoJ is investigating HSBC’s handling of a corporate customer’s accounts. In addition, FinCEN as well as the Civil Division of the US Attorney’s Office for the Southern District of New York are investigating the collection and HSBC are reviewing further. Additionally, as discussed elsewheretransmittal of third-party originator information in this Note, HSBCcertain payments instructed over HSBC’s proprietary payment systems. The FCA is the subject of other ongoing investigations and reviews by the DoJ. also conducting an investigation into HSBC Bank plc is also the subject of an investigation by the FCA into itsplc’s compliance with UK money laundering regulations and financial crime systems and controls requirements. HSBC is cooperating with all of these investigations.
In December 2017, the AML DPA expired and the charges deferred by the AML DPA were dismissed. The potential consequencesMonitor will continue working in his capacity as a skilled person and independent consultant for a period of breachingtime at the US DPA, as well as theFCA’s and FRB’s discretion. The role of the Monitor and his thirdfourth annual follow-up review report, as well as the AML DPA and related agreements and consent orders are discussed on page 115.pages 97 and 118.
Concurrent with entry into the AML DPA, HSBC Bank USA also entered into two consent orders with the OCC. TheseThe first, discussed above, required HSBC Bank USA to adopt an enterprise-wide compliance programme. The second required HSBC Bank USA to correct the circumstances noted in the OCC’s report and to adopt an enterprise-wide compliance programme, and imposed restrictions on HSBC Bank USA acquiring control of, or holding an interest in, any new financial subsidiary, or commencing a new activity in its existing financial subsidiary, without the OCC’s prior approval.
These settlements with US and UK authorities have led to private litigation, and do not preclude further private litigation related to HSBC’s compliance with applicable BSA, AML and sanctions laws or other regulatory or law enforcement actions for BSA, AML, sanctions or other matters not covered by the various agreements.
In May 2014, a shareholder derivative action was filed by a shareholder of HSBC Holdings purportedly on behalf of HSBC Holdings, HSBC Bank USA, HNAH and HSBC USA Inc. (the ‘Nominal Corporate Defendants’) in New York state court against certain current and former directors and officers of those HSBC companies (the ‘Individual Defendants’). The complaint alleges that the Individual Defendants breached their fiduciary duties to the Nominal Corporate Defendants and caused a waste of corporate assets by allegedly permitting and/or causing the conduct underlying the USAML DPA. In November 2015, the New York state court granted the Nominal Corporate Defendants’ motion to dismiss. The plaintiff has appealed that decision.
In July 2014, a claim was filed in the Ontario Superior Court of Justice against HSBC Holdings and a former employee purportedly on behalf of a class of persons who purchased HSBC common shares and American Depositary Shares between July 2006 and July 2012. The complaint, which seeks monetary damages of up to CA$20bn, alleges that the defendants made statutory and common law misrepresentations in documents released by HSBC Holdings and its wholly owned indirect subsidiary, HSBC Bank Canada, relating to

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HSBC’s compliance with BSA, AML, sanctions and other laws. In September 2017, the Ontario Superior Court of Justice dismissed the statutory claims against HSBC Holdings and the former employee for lack of jurisdiction, and stayed the common law misrepresentation claim against HSBC Holdings on the basis of forum non-conveniens. In October 2017, the plaintiff appealed to the Court of Appeal for Ontario, where the matter is pending.
Since November 2014, fourfive lawsuits have been filed in federal court in New York, Illinois and Texas, against various HSBC companies and others, on behalf of plaintiffs who are, or are related to, victims of terrorist attacks in Iraq and Jordan andor of cartel violence in Mexico. In each case, it is alleged that the defendants aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. TheseOne action was voluntarily dismissed in October 2017. The remaining actions are pending in federal court in New York and are at an early stage.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these lawsuits,matters, including the timing or any possible impact on HSBC, which could be significant.
Tax-related investigations
Various tax administration, regulatory and law enforcement authorities around the world, including in the US, France, Belgium, Argentina, India and India,Spain are conducting investigations and reviews of HSBC Private Bank (Suisse) SA (‘HSBC Swiss Private Bank’) and other HSBC companies, in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation.
HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether certain HSBC companies and employees, including those associated with HSBC Swiss Private Bank and an HSBC company in India, acted appropriately in relation to certain customers who may have had US tax reporting obligations. In connection with these investigations, HSBC Swiss Private Bank, with due regard for Swiss law, has produced records and other documents to the DoJ. In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for the ‘Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks’ since a formal investigation had previously been authorised.
In November 2014, HSBC Swiss Private Bank was placed under formal criminal examination in BelgiumFrance for alleged tax-related offences. In November 2014, HSBC Swiss Private Bank was also placed under formal criminal examination in France for allegedtax-related offences in 2006 and 2007 and, required to pay bail of €50m. Inin April 2015, HSBC Holdings was informed that it had been placed under formal criminal examination in France in connection with the conduct of HSBC Swiss Private Bank, and a €1bn bail was imposed. HSBC Holdings appealed the bail decision and, in June 2015, bail was reduced to €100m. The ultimate financial impact of these matters could differ significantly, however, from the bail amounts of €150m.Bank. In March 2016, HSBC was informed that the

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French magistrates had completed their investigation with respect toNovember 2017, HSBC Swiss Private Bank and HSBC Holdings, and have referred the matter toreached an agreement with the French public prosecutor for a recommendation on any potential charges. In October 2016,to resolve its investigation. Under the terms of the settlement, HSBC Swiss Private Bank agreed to pay
€300 million in fines and damages. The investigation into HSBC Holdings received the French public prosecutor`s brief in which the prosecutor recommended the judge to refer the cases to trial, andwas dismissed without further proceedings.
In November 2014, HSBC Swiss Private Bank was also placed under formal criminal examination in Belgium for alleged tax-related offences. In June 2017, Belgian authorities placed HSBC Holdings and HSBC Private Bank Holdings have responded to the prosecutor’s brief.(Suisse) SA, a Swiss holding company, under formal criminal examination.
In November 2014, the Argentine tax authority initiated a criminal action against various individuals, including current and former HSBC employees. The criminal action includes allegations of tax evasion, conspiracy to launder undeclared funds and an unlawful association among HSBC Swiss Private Bank, HSBC Bank Argentina, HSBC Bank USA and certain HSBC employees, which allegedly enabled numerous HSBC customers to evade their Argentine tax obligations.
In February 2015, the Indian tax authority issued a summons and request for information to an HSBC company in India. In August 2015 and November 2015, HSBC companies received notices issued by two offices of the Indian tax authority, alleging that the Indian tax authority had sufficient evidence to initiate prosecution against HSBC Swiss Private Bank and an HSBC company in Dubai for allegedly abetting tax evasion of four different Indian individuals and/or families and requesting that the HSBC companies show why such prosecution should not be initiated. HSBC Swiss Private Bank and the HSBC company in Dubai have responded to the show cause notices.
HSBC is cooperating with the relevant authorities.As at
At 31 December 2016,2017, HSBC has recognised a provision for these various matters in the amount of $773m.$604m. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these investigations and reviews. Based on the information currently available, management’s estimate of the possible aggregate penalties that might arise as a result of the matters in respect of which it is practicable to form estimates is up to or exceeding $1.5bn, including amounts for which a provision has been recognised. Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from the amount provided.this amount.
In light of the media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings.
Mossack Fonseca & Co.
HSBC has received requests for information from various regulatory and law enforcement authorities around the world concerning persons and entities believed to be linked to Mossack Fonseca & Co., a service provider of personal investment companies. HSBC is cooperating with the relevant authorities.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
London interbank offered rates, European interbank offered rates and other benchmark interest rate investigations and litigation
Various regulators and competition and law enforcement authorities around the world, including in the UK, the US, the EU and Switzerland, are conducting investigations and reviews related to certain past submissions made by panel banks and the processes for making submissions in connection with the setting of Libor, Euribor and other benchmark interest rates. Asrates and screens used to price certain HSBC companies are members of such panels,derivative products. HSBC has been the subject of regulatory demands for information and is cooperating with those investigations and reviews.
In December 2016, the European Commission (the ‘Commission’) issued a decision finding that HSBC, among other banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives in early 2007. The Commission determined that the duration of HSBC’s infringement was 1 month and fined HSBC. imposed a fine on HSBC based on a one-month infringement. HSBC has appealed the decision.
US dollar Libor:Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US with respect to the setting of US dollar Libor. The complaints assert claims under various US laws, including US antitrust and racketeering laws, the US Commodity Exchange Act (‘US CEA’), and state law. The lawsuits include individual and putative class actions, most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court.

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The New York District Court has issued decisions dismissing certain of the claims in response to motions filed by the defendants. Those decisions resulted in the dismissal of the plaintiffs’ federal and state antitrust claims, racketeering claims and unjust enrichment claims. DismissalThe dismissal of certain of thesethe antitrust claims was appealed to the US Court of Appeals for the Second Circuit, which reversed the New York District Court’s dismissal of plaintiffs’ antitrust claimsdecisions in May 2016. In July 2016, the defendants filed a joint motion to dismiss allthe antitrust claims on additional grounds not previously addressed by the court and, in December 2016, the New York District Court granted in part and denied in part the motion, leaving only certain antitrust claims to be litigated. Certain plaintiffs have appealed the December 2016 order to the US Court of Appeals for the Second Circuit. Separately, in October 2016, the New York District Court granted a motion to dismiss claims brought by ancertain individual plaintiffplaintiffs for lack of personal jurisdiction, which dismissal is currentlyalso on appeal to the Second Circuit. Finally, in January 2017, the District Court granted the defendants’ motion to dismiss certain of the remaining antitrust claims against defendants that did not serve on the US dollar Libor submission panel.
Euroyen Tokyo interbank offered rate (‘Tibor’) and/or Japanese yen Libor: In April 2012 and July 2015, HSBC and other panel banks were named as defendants in putative class actions filed in the New York District Court, the cases with remaining claims against HSBC have been stayed while the court considers motions to certify classes in several putative class actions that are pending against HSBC’s co-defendants.
In 2017, HSBC reached agreements with plaintiffs to resolve three putative class actions brought on behalf of persons who transacted in financialpurchased US dollar Libor-indexed bonds, persons who purchased US Libor-indexed-exchange-traded instruments allegedly related to the euroyen Tibor and/and US based lending institutions that made or Japanese yen Libor. The complaints allege, among other things, misconduct related to euroyen Tibor, although HSBC is not a member of the Japanese Bankers Association’s euroyen Tibor panel, as well as Japanese yen Libor, in violation ofpurchased US antitrust laws, the US CEA, and state law.dollar Libor-indexed loans. In May 2016,February 2018, HSBC reached an agreement in principle with plaintiffs to resolve botha putative class action brought on behalf of these actions,persons who purchased US dollar Libor-indexed interest rate swaps and other instruments directly from the settlement was granted finaldefendant banks and their affiliates. These settlements are subject to court approval in November 2016.approval.
Euribor: In November 2013, HSBC and other panel banks were named as defendants in a putative class action filed in the New York District Court on behalf of persons who transacted in euro futures contracts and other financial instruments allegedly related to Euribor. The complaint alleges, among other things, misconduct related to Euribor in violation of US antitrust laws, the US CEA and state law. In MayDecember 2016, HSBC reached an agreement in principle with plaintiffs to resolve this action, subject to court approval. The court issued an order granting preliminary approval in January 2017, and has scheduled the final approval hearing in May 2018.
Singapore Interbank Offered Rate (‘SIBOR’), Singapore Swap Offer Rate (‘SOR’) and Australia Bank Bill Swap Rate ('BBSW'(‘BBSW’): InIn July 2016 and August 2016, HSBC and other panel banks were named as defendants in two putative class actions filed in the New York District Court on behalf of persons who transacted in products related to the SIBOR, SOR and BBSW benchmark rates. The complaints allege, among other things, misconduct related to these benchmark rates in violation of US antitrust, commodities and racketeering laws, and state law. These matters are at an early stage.In August 2017, the defendants moved to dismiss the SIBOR and SOR case, and this motion remains pending. The defendants moved to dismiss the BBSW case in February 2017 and this motion also remains pending.

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US dollar International Swaps and Derivatives Association fix (‘ISDAfix’):In September 2014, HSBC and other panel banks were named as defendants in a number of putative class actions consolidated in the New York District Court on behalf of persons who transacted in interest rate derivatives or purchased or sold financial instruments that were either tied to ISDAfix rates or were executed shortly before, during, or after the time of the daily ISDAfix setting window. The consolidated complaint alleges, among other things, misconduct related to these activities in violation of US antitrust laws, the US CEA and state law. HSBC’s motion to dismiss the complaint was denied in March 2016. In June 2017, HSBC reached an agreement with plaintiffs to resolve this consolidated action, subject to court approval. The court issued an order granting preliminary approval in July 2017, but has not yet set a date for the final approval hearing.
Canadian Dealer Offered Rate:In January 2018, various HSBC entities and other banks were named as defendants in a putative class action filed in the New York District Court in relation to the Canadian Dealer Offered Rate. The claim, which is at an early stage, asserts various breaches of US laws, including US antitrust and racketeering laws, the US CEA, and common law.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.
Supranational, sovereign and agency bonds
In April 2017, various HSBC companies, among other banks, were added as defendants in a putative class action alleging a conspiracy to manipulate the market for US dollar-denominated supranational, sovereign and agency bonds between 2005 and 2015 in violation of US antitrust laws. In November 2017, plaintiffs filed an amended consolidated complaint which omitted certain HSBC defendants. The remaining HSBC defendants moved to dismiss the amended consolidated complaint, and this motion remains pending.
In November 2017, various HSBC companies and other financial institutions were named as defendants in a putative class action issued in Canada making similar allegations under Canadian law. The claim has not yet been served.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.
Foreign exchange rate investigations and litigation
Various regulators and competition and law enforcement authorities around the world, including in the US, the EU, Switzerland, Brazil, South Korea and South Africa, are conducting civil and criminal investigations and reviews into trading by HSBC and others on the foreign exchange markets. HSBC is cooperating with these investigations and reviews.
In May 2015, the DoJ resolved its investigations with respect to five non-HSBC financial institutions, four of whom agreed to plead guilty to criminal charges of conspiring to manipulate prices in the foreign exchange spot market, and resulting in the imposition of criminal fines in the aggregate of more than $2.5bn. Additional penalties were imposed at the same time by the FRB and other banking regulators. HSBC was not a party to these resolutions. In August2016, the DoJ indicted one current and one formertwo now-former HSBC employeeemployees and charged them with wire fraud and conspiracy relating to a 2011 foreign exchange transaction. The trial is currently scheduled to begin in September 2017.In October 2017, one of the former employees was found guilty after trial. In January 2018, HSBC was not named asHoldings entered into a defendant inthree-year deferred prosecution agreement with the indictment,and investigations into HSBC byCriminal Division of the DoJ (the ‘FX DPA’), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. This concluded the DoJ’s investigation into HSBC’s historical foreign exchange activities. Under the terms of the FX DPA, HSBC has a number of ongoing obligations, including continuing to cooperate with authorities and implementing enhancements to its internal controls and procedures in its Global Markets business, which will be the subject of annual reports to the DoJ. In addition, HSBC agreed to pay a financial penalty and restitution.
In September 2017, HSBC Holdings and HNAH consented to a civil money penalty order with the FRB in connection with its investigation into HSBC’s foreign exchange activities. Under the terms of the order, HSBC Holdings and others continue.HNAH agreed to undertake certain remedial steps and to pay a civil money penalty to the FRB.
In December 2016, HSBC Bank plc entered into a settlement with Brazil’s Administrative Council of Economic Defense (‘CADE’) in connection with its investigation into 15 banks, including HSBC Bank plc, as well as 30 individuals, relating to practices in the offshore foreign exchange market. Under the terms of the settlement, HSBC Bank plc agreed to pay a financial penalty to CADE. CADE has also publicly announced that it is initiating a separate investigation into the onshore foreign exchange market and has identified a number of banks, including HSBC, as subjects of its investigation.

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In February 2017, the Competition Commission of South Africa referred a complaint for proceedings before the South African Competition Tribunal against 18 financial institutions, including HSBC Bank plc, for alleged misconduct related to the foreign exchange market in violation of South African antitrust laws. In April 2017, HSBC filed an exception to the complaint, based on a lack of jurisdiction and statute of limitations. In January 2018, theSouth African Competition Tribunal approved the provisional referral of additional financial institutions, including HSBC Bank USA, to the proceedings.These proceedings are at an early stage.
In late 2013 and early 2014, HSBC and other banks were named as defendants in various putative class actions consolidated in the New York District Court. The consolidated complaint alleged, among other things, that the defendants conspired to manipulate manipulate��the WM/Reuters foreign exchange benchmark rates. In September 2015, HSBC reached an agreement with plaintiffs to resolve the consolidated action, subject to court approval. In December 2015, the court granted preliminary approval of the settlement, and HSBC made payment of the agreed settlement amount into an escrow account. The settlement remains subject to final settlement approval hearing is scheduled for October 2017.by the court.
In June 2015, a putative class action was filed in the New York District Court making similar allegations on behalf of Employee Retirement Income Security Act of 1974 (‘ERISA’) plan participants, and another complaint was filed in the US District Court for the Northern District of California in May 2015. participants. The court dismissed the claims in the ERISA action, and the plaintiffs have appealed to the US Court of Appeals for the Second Circuit. In May 2015, another complaint was filed in the US District Court for the Northern District of California making similar allegations on behalf of retail customers. HSBC filed a motion to transfer thethat action from California action to New York, which was granted in November 2015. In September 2016, aMarch 2017, the New York District Court dismissed the retail customers’ complaint in response to the defendants’ joint motion to dismiss. In August 2017, the retail customer plaintiffs filed an amended complaint and the defendants moved to dismiss. The motion remains pending. In April and June 2017, putative class actionactions making similar allegations on behalf of purported ‘indirect’ purchasers of foreign exchange products waswere filed in New York. This action is at an early stage.Those plaintiffs subsequently filed a consolidated amended complaint. HSBC’s motion to dismiss the consolidated amended complaint was filed in August 2017 and remains pending.
In September 2015, two additional putative class actions making similar allegations under Canadian law were issued in Canada against various HSBC companies and other financial institutions. In June 2017, HSBC reached an agreement with the plaintiffs to resolve these actions. The settlement received final court approval in October 2017.
As atAt 31 December 2016,2017, HSBC has recognised a provision for these variousand similar matters in the amount of $1.2bn.$511m. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters. Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from the amount provided.
Precious metals fix-related investigations and litigation
Various regulators and competition and law enforcement authorities, including in the US and the EU, are conducting investigations and reviews relating to HSBC’s precious metals operations and trading. HSBC is cooperating with these investigations and reviews. In November 2014, the Antitrust Division and Criminal Fraud Section of the DoJ issued a document request to HSBC Holdings, seeking the voluntary production of certain documents in connection with a criminal investigation that the DoJ is conducting of alleged anti-competitive and manipulative conduct in precious metals trading. In January 2016, the Antitrust Division of the DoJ informed HSBC that it was closing its investigation; however,investigation. In January 2018, HSI reached an agreement with the Criminal Fraud Section’sUS Commodity Futures Trading Commission (‘CFTC’) to resolve its investigation remains ongoing.of HSBC’s precious metals activities. Under the terms of the settlement, HSBC Securities (USA) Inc. agreed to pay a financial penalty to the CFTC.
Gold: Beginning in March 2014, numerous putative class actions were filed in the New York District Court and the US District Courts for the District of New Jersey and the Northern District of California, naming HSBC and other members of The London Gold MarketFixing Limited as defendants. The complaints allege that, from January 2004 to the present,June 2013, defendants conspired to manipulate the price of gold and gold derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. Defendants'The defendants’ motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted plaintiffs leave to file a third amended complaint, which names a new defendant. The court has denied the pre-existing defendants’ request for leave to file a joint motion to dismiss. HSBC and the other pre-existing defendants have requested a stay of discovery.
InBeginning in December 2015, anumerous putative class actionactions under Canadian law waswere filed in the Ontario and Quebec Superior CourtCourts of Justice against various HSBC companies and other financial institutions. PlaintiffsThe plaintiffs allege that, among other things, from January 2004 to March 2014, defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. This action isThese actions are at an early stage.
Silver:Beginning in July 2014, numerous putative class actions were filed in the US District Courts for the Southern and Eastern Districts of New York, naming HSBC and other members of The London Silver Market Fixing Ltd as defendants. The complaints allege that, from January 19992007 to December 2013, the present, defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. Defendants’The defendants’ motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted plaintiffs leave to file a third amended complaint, which names several new defendants. The court has denied the pre-existing defendants’ request for leave to file a joint motion to dismiss. HSBC and the other pre-existing defendants have requested a stay of discovery.
In April 2016, two putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. Plaintiffs in both actions allege that, from January 1999 to August 2014,

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defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. The Ontario action is at an early stage. The Quebec action has been temporarily stayed.
Platinum and palladium:Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from January 2008 to November 2014, the present, defendants conspired to manipulate the price of platinum group metals (‘PGM’) and PGM-based financial products for their collective benefit in violation of US antitrust laws and the US CEA. Defendants have movedIn March 2017, the defendants’ motion to dismiss the action.second amended consolidated complaint was granted in part and denied in part. In June 2017, plaintiffs filed a third amended complaint. The defendants filed a joint motion to dismiss, which remains pending.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.
Credit default swap litigation
Various HSBC companies, among other financial institutions, ISDA, and Markit, were named as defendants in numerous putative class actions filed in
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Notes on the New York District Court and the Illinois District Court. The actions alleged that the defendants violated US antitrust laws by, among other things, conspiring to restrict access to credit default swap pricing exchanges and block new entrants into the exchange market. The actions were subsequently consolidated in the New York District Court. In September 2015, the HSBC defendants reached an agreement with the plaintiffs to resolve the consolidated action, and final court approval of that settlement was granted in April 2016.Financial Statements

Treasury auctions
Beginning in July 2015, HSI, amongstamong other financial institutions, was named as a defendant in several putative class actions filed in the New York District Court. The complaints generally allege that the defendants violated US antitrust laws and theUS CEAby colluding
to manipulate prices of US Treasury securities sold at auction. The cases have been consolidated in the New York District Court. This matter is atIn November 2017, the plaintiffs filed an early stage.amended consolidated complaint that focused on a sub-group of primary dealer defendants, and dropped several of the financial institutions named in the original consolidated complaint, including HSBC. In December 2017 the court dismissed the consolidated class claims against those defendants, including HSBC, not named in the consolidated amended complaint.
The DoJ has also requested information from HSBC and reportedly other banks regarding US Treasury securities trading practices. HSBC is cooperating with this ongoing investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.
Interest rate swap and credit default swap litigation
In February 2016, various HSBC companies, among others, were namedadded as defendants in a putative class action filed in the New York District Court. The complaint alleged that the defendants violated US antitrust laws by, among other things, conspiring to boycott and eliminate various entities and practices that would have brought exchange trading to buy‐sidebuy-side investors in the interest rate swaps marketplace. In June 2016, this action along with other complaints filed in the New York District Court and the Illinois District Court were consolidated in the New York District Court and, in January 2017, the defendants filed a motion to dismiss. This matter is at an early stage.In July 2017, the court granted HSBC’s motion to dismiss.
In June 2017, certain plaintiffs in the consolidated action brought a separate individual action in the New York District Court against most of the same defendants, alleging similar violations of federal and state antitrust laws and breaches of common law in relation to the credit default swap market.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter,these matters, including the timing or any possible impact on HSBC, which could be significant.
Fédération Internationale de Football Association (‘FIFA’) related investigations
HSBC has received inquiriesenquiries from the DoJ regarding its banking relationships with certain individuals and entities that are or may be associated with FIFA. The DoJ is investigating whether multiple financial institutions, including HSBC, permitted the processing of suspicious or otherwise improper transactions, or failed to observe applicable AML laws and regulations. HSBC is cooperating with the DoJ’s investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
Hiring practices investigation
The US Securities and Exchange Commission (the ‘SEC’) is investigating multiple financial institutions, including HSBC, in relation to hiring practices of candidates referred by or related to government officials or employees of state-owned enterprises in Asia-Pacific. HSBC has received various requests for information and is cooperating with the SEC’s investigation.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.
Stanford litigation
In January 2018, HSBC Bank plc received a letter of claim from the Antiguan Joint Liquidators of Stanford International Bank Ltd (‘SIB’) asserting various claims in connection with HSBC Bank plc’s role as a correspondent bank to SIB from 2003 to 2009. HSBC Bank plc denies the allegations and is preparing its response.
HSBC Bank plc continues to defend putative class action lawsuits in the US District Court for the Northern District of Texas against HSBC Bank plc and other bank and individual defendants. The complaints, filed by the Official Stanford Investors Committee and a putative class of persons who held monies on deposit and/or certificates of deposit issued by SIB, allege various fraudulent transfer, statutory and tort claims. In November 2017, the court denied the class plaintiffs' motion for class certification. Permission to appeal that ruling has been requested by the class plaintiffs.
Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.
36    35Related party transactions
Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC employees, Key Management Personnel ('KMP'(‘KMP’) as defined by IAS 24, close family members of KMP and entities which are controlled or jointly controlled by KMP or their close family members. KMP are defined as those persons having authority and responsibility for planning, directing and controlling the activities of HSBC Holdings. These individuals also constitute 'senior management'‘senior management’ for the purposes of the Hong Kong Listing Rules. Following a review of the application of IAS 24, it was determined that the roles of Chief Legal Officer, Group Head of Internal Audit and Group Head of Human Resources did not meet the criteria for KMP as provided for in the standard.
Particulars of transactions with related parties are tabulated below. The disclosure of the year-end balance and the highest amounts outstanding during the year is considered to be the most meaningful information to represent the amount of the transactions and outstanding balances during the year.
Key Management Personnel
Details of Directors’ remuneration and interest in shares are disclosed in the Directors’ remuneration reportRemuneration Report on pages 191186 to 208.
202. IAS 24 ‘Related party disclosures’ requires the following additional information for key management compensation.

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Compensation of Key Management Personnel
2016
2015
2014
2017
2016
2015
$m
$m
$m
$m
$m
$m
Short-term employee benefits41
40
41
43
41
40
Post-employment benefits—
1
1
—
—
1
Other long-term employee benefits5
9
7
5
5
9
Share-based payments37
51
54
35
37
51
Year ended 31 Dec83
101
103
83
83
101
Shareholdings, options and other securities of Key Management Personnel
2016
2015
2017
2016
(000s)
(000s)
(000s)
(000s)
Number of options held over HSBC Holdings ordinary shares under employee share plans18
29
15
18
Number of HSBC Holdings ordinary shares held beneficially and non-beneficially22,283
18,961
22,609
22,283
At 31 Dec22,301
18,990
22.624
22,301
Transactions and balances during the year with Key Management Personnel
 20162015
20172016
 Balance at 31 Dec
Highest amounts outstanding
during year

Balance
at 31 Dec

Highest amounts outstanding
during year


Balance at 31 DecHighest amounts outstanding
during year		Balance
at 31 Dec
Highest amounts outstanding
during year
Footnote$m
$m
$m
$m
Footnotes$m$m
$m
Key Management Personnel   1




Advances and credits1215
220
218
411
2329334215
220
Guarantees 55
63
67
91

65255
63
Deposits 229
677
387
768

300893229
677
1Includes Key Management Personnel, close family members of Key Management Personnel and entities which are controlled or jointly controlled by Key Management Personnel or their close family members.
2Advances and credits entered into by subsidiaries of HSBC Holdings during 20162017 with Directors, disclosed pursuant to Section 413 of the Companies Act 2006, totalled $2m (2015: $4m)(2016: $2m).
Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock Exchange of Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. The above transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and security,as for comparable transactions with persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other unfavourable features.
Associates and joint ventures
The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest and non-interest bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 17.
Transactions and balances during the year with associates and joint ventures
2016201520172016
Highest balance
during the year

Balance at
31 Dec

Highest balance
during the year

Balance at
31 Dec

Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
Balance at
31 Dec
$m
$m
$m
$m
$m
$m
$m
$m
Unsubordinated amounts due from joint ventures126
113
195
151
138
119
126
113
Unsubordinated amounts due from associates3,136
2,881
4,209
2,035
3,104
2,537
3,136
2,881
Subordinated amounts due from associates411
411
—
—
Amounts due to associates1,112
576
1,047
92
2,617
1,232
1,112
576
Guarantees and commitments776
594
905
904
654
665
776
594
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
Post-employment benefit plans
At 31 December 2016, $4.4bn (2015: $4.3bn)2017, $5.3bn (2016: $4.4bn) of HSBC post-employment benefit plan assets were under management by
HSBC companies, earning management fees of $6m$8m in 2016 (2015: $8m)2017 (2016: $6m). At 31 December 20162017, HSBC’s post-employment
benefit plans had placed deposits of $710m (2015: $811m)$875m (2016: $710m) with its banking subsidiaries, earning interest payable to the schemes
of $1m (2015: nil)nil (2016: $1m). The above outstanding balances arose from the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
The HSBC Bank (UK) Pension Scheme and International Staff Retirement Benefit Scheme enter into swap transactions with HSBC to manage inflation and interest rate sensitivity of its liabilities and selected assets. At 31 December 20162017, the gross notional value of the swaps with HSBC Bank (UK) Pension Scheme was $10.5bn (2015: $13.3bn)$11.3bn (2016: $10.5bn); these swaps had a positive fair value to the scheme of $0.9bn (2015: $0.5bn)$1.0bn (2016: $0.9bn); and HSBC had delivered collateral of $0.9bn (2015: $1.1bn)$1.0bn (2016: $0.9bn) to the scheme in respect of these arrangements.
At 31 December 2016, the gross notional value of the swaps with2017, the International Staff Retirement Benefit Scheme was
$1.2bn (2015: $1.7bn) andno longer held any swaps. In the prior year, it held swaps (gross notional value in 2016: $1.2bn) which had a net negative fair value to the scheme of(2016: $85m (2015: $96m negative). All swaps were executed at prevailing market rates and within standard market bid/offer spreads.

HSBC Holdings plc Annual Report and Accounts 2016
295  287


Notes on the Financial Statements

HSBC Holdings
Details of HSBC Holdings’ subsidiaries are shown in Note 38.37.
Transactions and balances during the year with subsidiaries
2016201520172016
Highest balance
during the year

Balance at
31 Dec

Highest balance
during the year

Balance at
31 Dec

Highest balance
during the year
Balance at
31 Dec
Highest balance
during the year
Balance at
31 Dec
$m
$m
$m
$m
$m
$m
$m
$m
Assets  

Cash at bank997
247
620
242
Cash and balances with HSBC undertakings1,985
1,985
997
247
Loans and advances to HSBC undertakings designated at fair value11,944
11,944
—
—
Derivatives4,494
2,148
3,409
2,466
2,796
2,388
4,494
2,148
Loans and advances77,732
77,421
47,229
44,350
Financial investments4,314
3,590
4,427
4,285
Loans and advances to HSBC undertakings89,810
76,627
77,732
77,421
Financial investments in HSBC undertakings4,264
4,264
4,314
3,590
Investments in subsidiaries97,827
95,850
97,770
97,770
95,850
92,930
97,827
95,850
Total related party assets at 31 Dec185,364
179,256
153,455
149,113
206,649
190,138
185,364
179,256
Liabilities















Amounts owed to HSBC undertakings3,823
2,157
2,892
2,152
2,906
2,571
3,823
2,157
Derivatives5,025
5,025
2,459
2,277
4,904
3,082
5,025
5,025
Subordinated liabilities1,749
891
2,652
1,746
892
892
1,749
891
Total related party liabilities at 31 Dec10,597
8,073
8,003
6,175
8,702
6,545
10,597
8,073
Guarantees and commitments63,719
7,619
68,349
68,333
9,692
7,778
63,719
7,619
The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.
Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group company. HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf. Disclosure in relation to the scheme is made in Note 5.
37    36Events after the balance sheet date
A fourth interim dividend for 20162017 of $0.21$0.21 per ordinary share (a distribution of approximately $4,172m)$4,199m) was declared by the Directors after 31 December 2016.2017.
On 21 February 2017, the Board approved a share buy-back programme of up to $1.0bn.
These accounts were approved by the Board of Directors on 2120 February 20172018 and authorised for issue.



296  37
HSBC Holdings plc Annual Report and Accounts 2016


38    HSBC Holdings’ subsidiaries, joint ventures and associates
In accordance with Sectionsection 409 of the Companies Act 2006 a list of HSBC Holdings plc’splc subsidiaries, joint ventures and associates, the registered office address and the effective percentage of equity owned at 31 December 20162017 is disclosed below.
Unless otherwise stated, the share capital comprises ordinary or common shares which are held by Group subsidiaries. The ownership percentage is provided for each undertaking. The undertakings below are consolidated by HSBC unless otherwise indicated.

288HSBC Holdings plc


Subsidiaries

Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
ACN 087 652 113 Pty Limited100.00
15
Almacenadora Banpacifico S.A. (in liquidation)99.99
9, 16
Assetfinance December (F) Limited100.00
17
Assetfinance December (H) Limited100.00
17
Assetfinance December (M) Limited100.00
17
Assetfinance December (P) Limited100.00
17
Assetfinance December (R) Limited100.00
17
Assetfinance June (A) Limited100.00
17
Assetfinance June (D) Limited100.00
17
Assetfinance Limited100.00
17
Assetfinance March (B) Limited100.00
18
Assetfinance March (D) Limited100.00
17
Assetfinance March (F) Limited100.00
17
Assetfinance September (F) Limited100.00
17
Assetfinance September (G) Limited100.00
17
B&Q Financial Services Limited100.00
19
Banco Nominees (Guernsey) Limited100.00
9, 20
Banco Nominees 2 (Guernsey) Limited100.00
20
Banco Nominees Limited100.00
21
Bank of Bermuda (Cayman) Limited100.00
22
Beau Soleil Limited Partnershipn/a 7, 9, 23
Beijing Miyun HSBC Rural Bank Company Limited100.00
12, 24
Beneficial Company LLC100.00
25
Beneficial Consumer Discount Company100.00
26
Beneficial Financial I Inc.100.00
27
Beneficial Florida Inc.100.00
25
Beneficial Homeowner Service Corporation100.00
25
Beneficial Kentucky Inc.100.00
25
Beneficial Loan & Thrift Co.100.00
25
Beneficial Louisiana Inc.100.00
25
Beneficial Maine Inc.100.00
25
Beneficial Massachusetts Inc.100.00
25
Beneficial Michigan Inc.100.00
25
Beneficial New Hampshire Inc.100.00
25
Beneficial Oregon Inc.100.00
25
Beneficial Rhode Island Inc.100.00
25
Beneficial South Dakota Inc.100.00
25
Beneficial Tennessee Inc.100.00
28
Beneficial West Virginia, Inc.100.00
29
Beneficial Wyoming Inc.100.00
30
BFC Insurance Agency of Nevada100.00
223
Billingsgate Nominees Limited100.00
17
Cal-Pacific Services, Inc.100.00
27
Canada Crescent Nominees (UK) Limited100.00
17
Canada Square Nominees (UK) Limited100.00
17
Canada Square Property Participations Limited100.00
17
Canada Water Nominees (UK) Limited100.00
17
Capco/Cove, Inc.100.00
31
Card-Flo #1, Inc.100.00
32
Card-Flo #3, Inc.100.00
25
Cayman International Finance Limited100.00
33
CC&H Holdings LLC100.00
34
CCF Charterhouse GmbH & Co Asset Leasing KG (In Liquidation)100.00(99.99)35
CCF Charterhouse GmbH (in Liquidation)100.00(99.99)
4, 35


CCF Holding (LIBAN) S.A.L. (in liquidation)74.99
1, 36


CCF & Partners Asset Management Limited99.99
17
Charterhouse Administrators ( D.T.) Limited100.00(99.99)9, 17
Charterhouse Development Limited100.00
17
Charterhouse Management Services Limited100.00(99.99)9, 17
Charterhouse Pensions Limited100.00
17
SubsidiariesGroup interest %Footnotes SubsidiariesGroup interest %Footnotes
ACN 087 652 113 Pty Limited100.00182 Card-Flo #1, Inc.100.0036
AEA Investors (Cayman) IA L.P.100.001,19, 130 Card-Flo #3, Inc.100.00127
Allblack Investments Limited100.0016, 162 Cayman International Finance Limited100.00166
Almacenadora Banpacifico S.A.99.99201 Cayman Nominees Limited100.00228
AMP Client HSBC Custody Nominee (UK) Limited100.001, 94 CBS/Holdings, Inc.100.00101
Assetfinance December (F) Limited100.0094 CC&H Holdings LLC100.0010, 133
Assetfinance December (H) Limited100.0094 CCF & Partners Asset Management Limited100.0094
Assetfinance December (M) Limited100.0094 CCF Charterhouse GmbH100.004, 233
Assetfinance December (P) Limited100.0094 CCF Charterhouse GmbH & Co Asset Leasing KG100.009, 233
Assetfinance December (R) Limited100.0094 CCF Holding (LIBAN) S.A.L. (in liquidation)74.991, 220
Assetfinance December (W) Limited100.0094 Charterhouse Administrators ( D.T.) Limited100.0094
Assetfinance June (A) Limited100.0094 Charterhouse Development Limited100.0094
Assetfinance June (D) Limited100.0094 Charterhouse Management Services Limited100.0094
Assetfinance June (E) Limited100.0094 Charterhouse Pensions Limited100.001, 94
Assetfinance Limited100.0094 Chongqing Dazu HSBC Rural Bank Company Limited100.0022, 190
Assetfinance March (B) Limited100.0084 Chongqing Fengdu HSBC Rural Bank Company Limited100.0022, 191
Assetfinance March (D) Limited100.0094 
Assetfinance March (F) Limited100.0094 Chongqing Rongchang HSBC Rural Bank Company Limited100.0022, 195
Assetfinance September (F) Limited100.0094 
Assetfinance September (G) Limited100.0094 CL Residential Limited100.0094
B&Q Financial Services Limited100.00131 COIF Nominees Limited100.001, 8, 94
Banco Nominees (Guernsey) Limited99.981, 108 Cordico Management AG100.00109
Banco Nominees 2 (Guernsey) Limited100.00108 Corhold Limited100.00151
Banco Nominees Limited100.0087 Dalian Pulandian HSBC Rural Bank Company Limited100.0022, 147
Bank of Bermuda (Cayman) Limited100.00166 Decision One Mortgage Company, LLC100.0010, 139
Beau Soleil Limited Partnership99.9919, 27 Dem 5100.004, 74
Beijing Miyun HSBC Rural Bank Company Limited100.0022, 148 Dem 9100.004, 74
Beneficial Company LLC100.0010, 127 Dempar 1100.004, 29
Beneficial Consumer Discount Company100.00135 Dempar 4100.004, 29
Beneficial Financial I Inc.100.00142 Desarrollo Turistico, S.A. de C.V.100.00201
Beneficial Florida Inc.100.00127 Eagle Rock Holdings, Inc.100.00101
Beneficial Homeowner Service Corporation100.00127 Ellenville Holdings, Inc.100.00101
Beneficial Kentucky Inc.100.00127 Elysees GmbH100.006, 233
Beneficial Loan & Thrift Co.100.00127 Elysées Immo Invest100.004, 89
Beneficial Louisiana Inc.100.00127 Emerging Growth Real Estate II GP Limited100.00108
Beneficial Maine Inc.100.00127 EMTT Limited100.001, 94
Beneficial Massachusetts Inc.100.00127 Endeavour Personal Finance Limited100.00153
Beneficial Michigan Inc.100.00127 Equator Holdings Limited100.0094
Beneficial New Hampshire Inc.100.00127 Eton Corporate Services Limited100.00200
Beneficial Oregon Inc.100.00127 Far East Leasing SA100.001, 189
Beneficial Rhode Island Inc.100.00127 Fdm 5 SAS100.004, 74
Beneficial South Dakota Inc.100.00127 FEPC Leasing Ltd.100.0016, 234
Beneficial Tennessee Inc.100.00141 Finanpar 2100.004, 89
Beneficial West Virginia, Inc.100.00143 Finanpar 7100.004, 89
Beneficial Wyoming Inc.100.00136 First Corporate Director Inc.100.00151
BerCay Holdings Limited100.00166 First Direct Investments (UK) Limited100.0094
Bermuda International Securities Limited100.0087 Flandres Contentieux S.A.100.001, 4, 44
BFC Insurance Agency of Nevada100.0061 Foncière Elysées100.004, 29
Billingsgate City Securities Limited100.0094 Forward Trust Rail Services Limited100.0016, 94
Billingsgate Nominees Limited100.0094 Fujian Yongan HSBC Rural Bank Company Limited100.0022, 192
Cal-Pacific Services, Inc.100.00142 Fulcher Enterprises Company Limited62.1496
Canada Crescent Nominees (UK) Limited100.001, 94 Fundacion HSBC, A.C.60.001, 20, 201
Canada Square Nominees (UK) Limited100.0094 G.M. Gilt-Edged Nominees Limited100.001, 94
Canada Square Property Participations Limited100.001, 94 Gesellschaft fur Industrielle Beteiligungen und Finanzierung mbH100.00176
Canada Water Nominees (UK) Limited100.001, 94 
Capco/Cove, Inc.100.00101 Gesico International SA100.00113
Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
Chongqing Dazu HSBC Rural Bank Company Limited(100.00) 12, 37
Chongqing Fengdu HSBC Rural Bank Company Limited100.00
12, 38
Chongqing Rongchang HSBC Rural Bank Company Limited100.00
12, 39
CL Residential Limited (in liquidation)100.00
40
COIF Nominees Limited100.00
17
Cordico Management AG100.00
41
Corhold Limited (in liquidation)100.00
42
Dalian Pulandian HSBC Rural Bank Company Limited100.00
12, 43
Decision One Mortgage Company, LLC100.00
44
Dem 5100.00(99.99)4, 9, 45
Dem 9100.00(99.99)4, 9, 45
Dempar 1100.00(99.99)4, 9, 46
Dempar 4100.00(99.99)9, 46
Desarrollo Turistico, S.A. de C.V.99.99
9, 16
Ellenville Holdings, Inc.100.00
31
Elysees GmbH (in Liquidation)100.00(99.99)35
Elysées Immo Invest100.00(99.99)4, 47
EMTT Limited (in liquidation)100.00
17
Equator Holdings Limited (in liquidation)100.00
17
Eton Corporate Services Limited100.00
20
Far East Leasing SA100.00
48
Fdm 5 SAS100.00(99.99)4, 9, 45
FEPC Leasing Ltd.100.00
49
Finanpar 2100.00(99.99)4, 9, 47
Finanpar 7100.00(99.99)4, 9, 47
Flandres Contentieux S.A.100.00(99.99)1, 4, 9, 50
Foncière Elysées100.00(99.99)4, 9, 46
Forward Trust Rail Services Limited100.00
17
Fujian Yongan HSBC Rural Bank Company Limited100.00
12, 51
Fulcher Enterprises Company Limited100.00(62.14)52
Fundacion HSBC, A.C.99.99
1, 9, 11, 16
Gesellschaft fur Industrielle Beteiligungen und Finanzierung mbH100.00(80.67)9, 53
Gesico International SA (in liquidation)100.00
54
Giller Ltd.100.00 31
GPIF Co-Investment, LLC80.00
25
GPIF-I Equity Co., Ltd.100.00
8, 22
GPIF-I Finance Co., Ltd100.00 8, 22
Griffin International Limited100.00 17
Grupo Financiero HSBC, S. A. de C. V.99.99
9, 16
Guangdong Enping HSBC Rural Bank Company Limited100.00
12, 55
GZ Guyerzeller Corporation (in liquidation)100.00 129
Hang Seng (Nominee) Limited100.00(62.14)52
Hang Seng Bank (China) Limited100.00(62.14)12, 57
Hang Seng Bank (Trustee) Limited100.00(62.14)52
Hang Seng Bank Limited62.14
52
Hang Seng Bullion Company Limited100.00(62.14)52
Hang Seng Credit Limited100.00(62.14)52
Hang Seng Data Services Limited100.00(62.14)52
Hang Seng Finance Limited100.00(62.14)52
Hang Seng Financial Information Limited100.00(62.14)52
Hang Seng Futures Limited100.00(62.14)52
Hang Seng Indexes Company Limited100.00(62.14)52
Hang Seng Insurance Company Limited100.00(62.14)52
Hang Seng Investment Management Limited100.00(62.14)52
Hang Seng Investment Services Limited100.00
52
Hang Seng Life Limited100.00 52
Hang Seng Real Estate Management Limited100.00 52
Hang Seng Securities Limited100.00 52

HSBC Holdings plc Annual Report and Accounts 2016
297  


Notes on the Financial Statements

SubsidiariesGroup interest %Footnotes SubsidiariesGroup interest %Footnotes
Giller Ltd.100.00101 HSBC Administradora de Inversiones S.A.100.00111
GPIF Co-Investment, LLC80.0010, 127 HSBC AFS (USA) LLC100.0010, 101
GPIF-I Equity Co., Ltd.100.001, 11, 118 HSBC Agency (India) Private Limited100.0085
GPIF-I Finance Co., Ltd100.001, 11, 118 HSBC Alpha Funding (UK) Holdings100.00166
Griffin International Limited100.0094 HSBC Alternative Investments Limited100.0094
Grundstuecksgesellschaft Trinkausstrasse Kommanditgesellschaft100.00176 HSBC Amanah Malaysia Berhad100.0094
 HSBC Americas Corporation (Delaware)100.00127
Grupo Financiero HSBC, S. A. de C. V.100.00201 HSBC Argentina Holdings S.A.100.00150
Guangdong Enping HSBC Rural Bank Company Limited100.0022, 196 HSBC Asia Holdings (UK) Limited100.0094
 HSBC Asia Holdings B.V.100.0016,94
GZ Trust Corporation100.00151 HSBC Asia Pacific Holdings (UK) Limited100.0016,94
Hang Seng (Nominee) Limited62.1496 HSBC Asset Finance (UK) Limited100.0094
Hang Seng Bank (China) Limited62.1422, 71 HSBC Asset Finance Holdings Limited100.0094
Hang Seng Bank (Trustee) Limited62.1496 HSBC Asset Finance M.O.G. Holdings (UK) Limited100.0094
Hang Seng Bank Limited62.1496 HSBC Asset Management (India) Private Limited100.0076
Hang Seng Bullion Company Limited62.1496 HSBC Assurances Vie (France)100.004, 44
Hang Seng Credit Limited62.1496 HSBC Australia Holdings Pty Limited100.0016, 182
Hang Seng Data Services Limited62.1496 HSBC Bank (Chile)100.00171
Hang Seng Finance Limited62.1496 HSBC Bank (China) Company Limited100.0022, 157
Hang Seng Financial Information Limited62.1496 HSBC Bank (General Partner) Limited100.00163
Hang Seng Futures Limited62.1496 HSBC Bank (Mauritius) Limited72.9691
Hang Seng Indexes Company Limited62.1496 HSBC Bank (RR) (Limited Liability Company)100.0023, 57
Hang Seng Insurance Company Limited62.1496 HSBC Bank (Singapore) Limited100.0058
Hang Seng Investment Management Limited62.1496 HSBC Bank (Taiwan) Limited100.0038
Hang Seng Investment Services Limited62.1496 HSBC Bank (Uruguay) S.A.100.00211
Hang Seng Life Limited62.1496 HSBC Bank (Vietnam) Ltd.100.00227
Hang Seng Real Estate Management Limited62.1496 HSBC Bank A.S.100.00146
Hang Seng Securities Limited62.1496 HSBC Bank Argentina S.A.99.99149
Hang Seng Security Management Limited62.1496 HSBC Bank Armenia cjsc70.0090
Haseba Investment Company Limited62.1496 HSBC Bank Australia Limited100.00182
HBL Nominees Limited100.001, 94 HSBC Bank Bermuda Limited100.0087
HDSAP GP Limited100.00108 HSBC Bank Canada100.0016, 98
HFC Bank Limited100.0094 HSBC Bank Capital Funding (Sterling 1) LP100.0019, 163
HFC Company LLC100.0010, 127 HSBC Bank Capital Funding (Sterling 2) LP100.0019, 163
High Meadow Management, Inc.100.00101 HSBC Bank Egypt S.A.E94.5369
High Time Investments Limited62.1496 HSBC Bank International Limited100.00162
HITG Administration GmbH100.0034 HSBC Bank Malaysia Berhad100.0031
Honey Green Enterprises Ltd.100.00103 HSBC Bank Malta p.l.c.70.0335
Hongkong International Trade Finance (Holdings) Limited100.0094 HSBC Bank Middle East Limited100.0016, 177
 HSBC Bank Middle East Limited, Representative Office Morocco SARL100.00229
Household Capital Markets LLC100.0010, 127 
Household Commercial Financial Services, Inc.100.00127 HSBC Bank Nominee (Jersey) Limited100.00162
Household Finance Consumer Discount Company100.00127 HSBC Bank Oman S.A.O.G.51.00105
Household Finance Corporation II100.00127 HSBC Bank Pension Trust (UK) Limited100.0094
Household Finance Corporation III100.00127 HSBC Bank plc100.002, 16, 94
Household Finance Corporation of Alabama100.00137 HSBC Bank Polska S.A.100.0016, 214
Household Finance Corporation of California100.00127 HSBC Bank USA, National Association100.0016, 52
Household Finance Corporation of West Virginia100.00143 HSBC Branch Nominee (UK) Limited100.001, 94
Household Finance Industrial Loan Company of Iowa100.00138 HSBC Brasil Holding S.A.100.00216
Household Finance Realty Corporation of Nevada100.00127 HSBC BRASIL S.A. BANCO DE INVESTIMENTO100.00216
Household Finance Realty Corporation of New York100.00127 HSBC Broking Forex (Asia) Limited100.0027
Household Financial Center Inc.100.00141 HSBC Broking Futures (Asia) Limited100.0014, 27
Household Industrial Finance Company100.00126 HSBC Broking Futures (Hong Kong) Limited100.0027
Household Industrial Loan Company of Kentucky100.00140 HSBC Broking Nominees (Asia) Limited100.0027
Household Insurance Group Holding Company100.0086 HSBC Broking Securities (Asia) Limited100.0027
Household International Europe Limited100.0016, 94 HSBC Broking Securities (Hong Kong) Limited100.0027
Household Pooling Corporation100.00226 HSBC Broking Services (Asia) Limited100.0027
Household Realty Corporation100.00127 HSBC Canada Holdings (UK) Limited100.0094
HPUT A Limited100.001,94 HSBC Capital (Canada) Inc.100.0068
HPUT B Limited100.001,94 HSBC Capital (USA), Inc.100.00127
HRMG Nominees Limited100.00108 HSBC Capital Funding (Dollar 1) L.P.100.0019,163
HSBC (BGF) Investments Limited100.0094 HSBC Capital Limited100.0027
HSBC (General Partner) Limited100.002, 163 HSBC Card Services Inc.100.00127
HSBC (Kuala Lumpur) Nominees Sdn Bhd100.0031 HSBC Casa de Bolsa, S.A. de C.V., Grupo Financiero HSBC100.00201
HSBC (Malaysia) Trustee Berhad100.0040 
HSBC (Singapore) Nominees Pte Ltd100.0058 HSBC Cayman Services Limited100.00166

298  
HSBC Holdings plc Annual Report and Accounts 2016


SubsidiariesGroup interest %Footnotes SubsidiariesGroup interest %Footnotes
HSBC City Funding Holdings100.0094 HSBC Global Asset Management (Japan) K. K.100.00155
HSBC Client Holdings Nominee (UK) Limited100.001, 94 HSBC Global Asset Management (Malta) Limited70.0395
HSBC Client Share Offer Nominee (UK) Limited100.001, 94 HSBC Global Asset Management (México), S.A. de C.V., Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC100.00201
HSBC Columbia Funding, LLC100.0010, 127 
HSBC Consumer Lending (USA) Inc.100.00127 
HSBC Corporate Advisory (Malaysia) Sdn Bhd100.0031 HSBC Global Asset Management (Oesterreich) GmbH100.006, 152
HSBC Corporate Finance (Hong Kong) Limited100.0027 HSBC Global Asset Management (Singapore) Limited100.0058
HSBC Corporate Trustee Company (UK) Limited100.0094 HSBC Global Asset Management (Switzerland) AG100.004, 109
HSBC Credit Center, Inc.100.00127 HSBC Global Asset Management (Taiwan) Limited100.0063
HSBC Custody Nominees (Australia) Limited100.00182 HSBC Global Asset Management (UK) Limited100.0094
HSBC Custody Services (Guernsey) Limited100.00108 HSBC Global Asset Management (USA) Inc.100.0080
HSBC Daisy Investments (Mauritius) Limited100.00123 HSBC Global Asset Management Holdings (Bahamas) Limited100.00187
HSBC Electronic Data Processing (Guangdong) Limited100.0022, 77 
 HSBC Global Asset Management Limited100.0094
HSBC Electronic Data Processing (Malaysia) Sdn Bhd100.00222 HSBC Global Custody Nominee (UK) Limited100.001, 94
HSBC Electronic Data Processing (Philippines), Inc.100.00169 HSBC Global Custody Proprietary Nominee (UK) Limited100.001, 94
HSBC Electronic Data Processing India Private Limited100.00165 
 HSBC Global Services (UK) Limited100.0094
HSBC Electronic Data Processing Lanka (Private) Limited100.0079 HSBC Global Services Limited100.002, 94
 HSBC Global Shared Services (India) Private Limited100.001, 85
HSBC Electronic Data Service Delivery (Egypt) S.A.E.100.00219 HSBC Group Management Services Limited100.0094
HSBC Enterprise Investment Company (UK) Limited100.0094 HSBC Group Nominees UK Limited100.001, 2, 94
HSBC Epargne Entreprise (France)100.004,44 HSBC Guyerzeller Trust Company100.0082
HSBC Equator (UK) Limited100.0094 HSBC Holdings B.V.100.0016, 94
HSBC Equipment Finance (UK) Limited100.0094 HSBC Home Equity Loan Corporation II100.00127
HSBC Equities (Luxembourg) S.a r.l.100.001,45 HSBC IM Pension Trust Limited100.001, 94
HSBC Equity (UK) Limited100.0094 HSBC Infrastructure Limited100.0094
HSBC Europe B.V.100.0094 HSBC INKA Investment-AG TGV100.0024, 112
HSBC European Clients Depositary Receipts Nominee (UK) Limited100.001, 94 HSBC Inmobiliaria (Mexico), S.A. de C.V.99.96201
 HSBC Institutional Trust Services (Asia) Limited100.0027
HSBC Executor & Trustee Company (UK) Limited100.0094 HSBC Institutional Trust Services (Bermuda) Limited100.0087
HSBC Factoring (France)100.004,29 HSBC Institutional Trust Services (Ireland) DAC100.0026
HSBC Finance (Brunei) Berhad100.00230 HSBC Institutional Trust Services (Mauritius) Limited100.00160
HSBC Finance (Netherlands)100.002,94 HSBC Institutional Trust Services (Singapore) Limited100.0058
HSBC Finance Corporation100.0016, 127 HSBC Insurance (Asia) Limited100.0053
HSBC Finance Limited100.0094 HSBC Insurance (Asia-Pacific) Holdings Limited100.0016, 181
HSBC Finance Mortgages Inc.100.00224 HSBC Insurance (Bermuda) Limited100.0087
HSBC Finance Transformation (UK) Limited100.002, 94 HSBC Insurance (Singapore) Pte. Limited100.0058
HSBC Financial Services (Middle East) Limited100.00158 HSBC Insurance Agency (USA) Inc.100.0080
HSBC Financial Services (Lebanon) s.a.l.99.70158 HSBC Insurance Brokers (Philippines) Inc100.00102
HSBC Financial Services (Uruguay) S.A.100.00237 HSBC Insurance Brokers (Taiwan) Limited100.0046
HSBC Fondo 1, S.A. de C.V., Sociedad de Inversion de Renta Variable100.001, 201 HSBC Insurance Holdings Limited100.002,94
 HSBC Insurance Management Services Limited100.0094
HSBC Fondo 3, S.A. de C.V., Sociedad de Inversion de Renta Variable100.001, 201 HSBC Insurance Services (Lebanon) S.A.L.100.00158
 HSBC Insurance Services Holdings Limited100.0094
HSBC Fondo 4, S.A. de C.V., Sociedad de Inversion de Renta Variable100.001, 201 HSBC International Finance Corporation (Delaware)100.0066
 HSBC International Financial Services (UK) Limited100.0015, 94
HSBC Fondo 5, S.A. de C.V., Sociedad de Inversion de Renta Variable100.001, 201 HSBC International Holdings (Jersey) Limited100.00162
 HSBC International Nominees Limited100.001, 208
HSBC Fondo 6, S.A. de C.V., Sociedad de Inversion de Renta Variable100.001, 201 HSBC International Trade Finance Limited100.0094
 HSBC International Trustee (BVI) Limited100.0017, 235
HSBC Fondo Global 1, S.A. de C.V., Sociedad de Inversion de Renta Variable100.001, 201 HSBC International Trustee (Holdings) Pte. Limited100.0058
 HSBC International Trustee Limited100.00208
HSBC France99.9924, 29 HSBC Inversiones S.A.100.00171
HSBC Fund Administration (Jersey) Limited100.00162 HSBC Inversiones y Servicios Financieros Limitada100.00171
HSBC Fund Services (Korea) Limited92.961, 178 HSBC InvestDirect (India) Limited99.54100
HSBC Funding (UK) Holdings100.0094 HSBC InvestDirect Financial Services (India) Limited100.00100
HSBC Funds Nominee (Jersey) Limited100.00162 HSBC InvestDirect Sales & Marketing (India) Limited99.0085
HSBC Germany Holdings GmbH100.00176 HSBC InvestDirect Securities (India) Private Limited100.0016, 100
HSBC Gestion (Monaco) SA99.8048 HSBC Investment Asia Holdings Limited100.0027
HSBC Global Asset Management (Bermuda) Limited100.0016,87 HSBC Investment Bank Holdings B.V.100.0094
HSBC Global Asset Management (Canada) Limited100.0064 HSBC Investment Bank Holdings Limited100.002, 94
HSBC Global Asset Management (Deutschland) GmbH100.00176 HSBC Investment Company (Egypt) S.A.E100.001,65
HSBC Global Asset Management (France)100.004,170 HSBC Investment Funds (Canada) Inc.100.0016, 64
HSBC Global Asset Management (Hong Kong) Limited100.0027 HSBC Investment Funds (Hong Kong) Limited100.0027
 HSBC Investment Funds (Luxembourg) SA100.0045
HSBC Global Asset Management (International) Limited100.00168 HSBC Investment Holdings (Guernsey) Limited100.00200
 HSBC Investment Services (Africa) (Pty) Limited100.0056

HSBC Holdings plc Annual Report and Accounts 2016
299  


Notes on the Financial Statements

SubsidiariesGroup interest %Footnotes SubsidiariesGroup interest %Footnotes
HSBC Investments (Bahamas) Limited100.00188 HSBC Provident Fund Trustee (Hong Kong) Limited100.0027
HSBC Invoice Finance (UK) Limited100.0059 HSBC Quest Trustee (UK) Limited100.001, 2, 94
HSBC Iris Investments (Mauritius) Ltd100.00123 HSBC Rail (UK) Limited100.0094
HSBC Issuer Services Common Depositary Nominee (UK) Limited100.001, 94 HSBC Real Estate Leasing (France)100.004, 44
 HSBC Realty Credit Corporation (USA)100.0016, 127
HSBC Issuer Services Depositary Nominee (UK) Limited100.001, 94 HSBC REIM (France)100.004, 44
 HSBC Representative Office (Nigeria) Limited100.00221
HSBC Land Title Agency (USA) LLC55.0010, 70 HSBC Republic Management Services (Guernsey) Limited100.00200
HSBC Latin America B.V.100.0094 
HSBC Latin America Holdings (UK) Limited100.002, 94 HSBC Retail Services Inc.100.00127
HSBC Leasing (Asia) Limited100.0027 HSBC Retirement Benefits Trustee (UK) Limited100.001, 2, 94
HSBC Leasing (France)100.004, 74 HSBC Saudi Arabia Limited69.401, 156
HSBC Life (International) Limited100.0087 HSBC Savings Bank (Philippines) Inc.100.00231
HSBC Life (UK) Limited100.0094 HSBC Securities (Asia) Limited100.0014, 27
HSBC Life Assurance (Malta) Limited70.0395 HSBC Securities (B) Berhad100.001, 161
HSBC Life Insurance Company Limited50.0051 HSBC Securities (Canada) Inc.100.0093
HSBC Lodge Funding (UK) Holdings100.0094 HSBC Securities (Egypt) S.A.E.94.5369
HSBC London Holdings Limited100.001, 2, 94 HSBC Securities (Japan) Limited100.0094
HSBC LU Nominees Limited100.0094 HSBC Securities (Philippines) Inc.100.001, 12, 92
HSBC Management (Guernsey) Limited100.00108 HSBC Securities (Singapore) Pte Limited100.0012, 58
HSBC Markets (Asia) Limited (In Liquidation)100.0025 HSBC Securities (South Africa) (Pty) Limited100.0056
HSBC Markets (USA) Inc.100.00127 HSBC Securities (Taiwan) Corporation Limited100.0038
HSBC Marking Name Nominee (UK) Limited100.001, 94 HSBC Securities (USA) Inc.100.00127
HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC99.99201 HSBC Securities and Capital Markets (India) Private Limited100.0016, 85
 
HSBC Middle East Finance Company Limited80.00218 HSBC Securities Asia International Nominees Limited100.00199
HSBC Middle East Holdings B.V.100.0016, 94 HSBC Securities Asia Nominees Limited100.0027
HSBC Middle East Leasing Partnership100.0019, 183 HSBC Securities Brokers (Asia) Limited100.0027
HSBC Middle East Securities L.L.C49.00154 HSBC Securities Investments (Asia) Limited100.0027
HSBC Mortgage Corporation (Canada)100.0016, 98 HSBC Securities Services (Bermuda) Limited100.0087
HSBC Mortgage Corporation (USA)100.00127 HSBC Securities Services (Guernsey) Limited100.00108
HSBC Mortgage Services Inc.100.00127 HSBC Securities Services (Ireland) DAC100.0026
HSBC Nominees (Asing) Sdn Bhd100.0031 HSBC Securities Services (Luxembourg) S.A.100.0045
HSBC Nominees (Hong Kong) Limited100.0027 HSBC Securities Services (USA) Inc.100.00134
HSBC Nominees (New Zealand) Limited100.00164 HSBC Securities Services Holding Limited100.00208
HSBC Nominees (Tempatan) Sdn Bhd100.0031 HSBC Securities Services Holdings (Ireland) DAC100.0026
HSBC North America Holdings Inc.100.0016, 127 HSBC Seguros de Retiro (Argentina) S.A.100.00150
HSBC Odeme Sistemleri Bilgisayar Teknolojileri Basin Yayin Ve Musteri Hizmetleri99.99115 HSBC Seguros de Vida (Argentina) S.A.100.00150
 HSBC Seguros, S.A de C.V., Grupo Financiero HSBC100.00202
HSBC Overseas Holdings (UK) Limited100.002, 94 HSBC Service Delivery (Polska) Sp. z o.o.100.00174
HSBC Overseas Investments (UK) Limited100.002, 94 HSBC Services (France)100.004, 29
HSBC Overseas Investments Corporation (New York)100.00128 HSBC Services Japan Limited100.00188
HSBC Overseas Nominee (UK) Limited100.001, 94 HSBC Servicios Financieros, S.A. de C.V100.00201
HSBC Participaciones (Argentina) S.A.100.00150 HSBC Servicios, S.A. DE C.V., Grupo Financiero HSBC100.00201
HSBC PB Corporate Services 1 Limited100.00167 HSBC SFH (France)100.004,44
HSBC PB Services (Suisse) SA100.00210 HSBC Software Development (Canada) Inc100.00223
HSBC Pension Trust (Ireland) DAC100.0026 HSBC Software Development (Guangdong) Limited100.0022, 215
HSBC Pensiones, S.A.100.00202 HSBC Software Development (India) Private Limited100.00159
HSBC PI Holdings (Mauritius) Limited100.00160 HSBC Software Development (Malaysia) Sdn Bhd100.00222
HSBC Portfoy Yonetimi A.S.100.00114 HSBC South Point Investments (Barbados) LLP100.0019, 42
HSBC Preferential LP (UK)100.0094 HSBC Specialist Investments Limited100.0016, 94
HSBC Private Bank (C.I.) Limited100.00200 HSBC Stockbroker Services (Client Assets) Nominees Limited100.001, 94
HSBC Private Bank (Luxembourg) S.A.100.0045 
HSBC Private Bank (Monaco) SA100.004, 48 HSBC Stockbrokers Nominee (UK) Limited100.001, 94
HSBC Private Bank (Suisse) SA100.00210 HSBC Structured Funds (Asia) Limited100.0027
HSBC Private Bank (UK) Limited100.0094 HSBC Taxpayer Financial Services Inc.100.00127
HSBC Private Bank International100.0041 HSBC Technology & Services (China) Limited100.0022, 179
HSBC Private Banking Holdings (Suisse) SA100.00210 HSBC Technology & Services (USA) Inc.100.00127
HSBC Private Banking Nominee 3 (Jersey) Limited100.00167 HSBC TFS I 2005 LLC100.0010, 36
HSBC Private Equity Advisors LLC100.0010, 127 HSBC TKM Limited100.001, 94
HSBC Private Equity Investments (UK) Limited100.0094 HSBC Transaction Services GmbH80.656, 238
HSBC Private Trustee (Hong Kong) Limited100.0027 HSBC Trinkaus & Burkhardt (International) S.A.80.651, 45
HSBC Private Wealth Services (Canada) Inc.100.0016, 64 HSBC Trinkaus & Burkhardt AG80.6524, 176
HSBC Professional Services (India) Private Limited100.0085 HSBC Trinkaus & Burkhardt Gesellschaft fur Bankbeteiligungen mbH80.65176
HSBC Property (UK) Limited100.0094 
HSBC Property Funds (Holding) Limited100.0094 HSBC Trinkaus Consult GmbH80.65176
HSBC Property Funds Investment Limited100.00153 HSBC Trinkaus Europa Immobilien-Fonds Nr. 5 GmbH80.65176

300  
HSBC Holdings plc Annual Report and Accounts 2016


SubsidiariesGroup interest %Footnotes SubsidiariesGroup interest %Footnotes
HSBC Trinkaus Family Office GmbH80.656, 176 James Capel (Custodian) Nominees Limited100.0094
HSBC Trinkaus Immobilien Beteiligungs KG80.65176 James Capel (Nominees) Limited100.0094
HSBC Trinkaus Real Estate GmbH80.656, 176 James Capel (Second Nominees) Limited100.0094
HSBC Trust Company (BVI) Limited100.00151 James Capel (Taiwan) Nominees Limited100.0094
HSBC Trust Company (Canada)100.0098 James Capel (Third Nominees) Limited100.0094
HSBC Trust Company (Delaware), National Association100.001,67 John Lewis Financial Services Limited100.0094
 Katonah Close Corp.100.00101
HSBC Trust Company (UK) Limited100.0094 Keyser Ullmann Limited100.0094
HSBC Trust Company AG100.00109 Kings Meadow Nominees Limited100.00175
HSBC Trustee (C.I.) Limited100.00167 Legend Estates Limited100.0094
HSBC Trustee (Cayman) Limited100.00207 Lemasco Nominees Limited100.00168
HSBC Trustee (Guernsey) Limited100.00200 Lion Corporate Services Limited100.001, 27
HSBC Trustee (Hong Kong) Limited100.0027 Lion International Corporate Services Limited100.00208
HSBC Trustee (Mauritius) Limited100.00122 Lion International Management Limited100.00208
HSBC Trustee (Singapore) Limited100.0058 Lion Management (Hong Kong) Limited100.001, 27
HSBC UK RFB Limited100.001, 2, 94 Lyndholme Limited100.0027
HSBC USA Inc.100.0016, 119 MAGIM Client HSBC GIS Nominee (UK) Limited100.001, 94
HSBC Valores S.A.100.00110 Marks and Spencer Financial Services plc100.00175
HSBC Violet Investments (Mauritius) Limited100.00123 Marks and Spencer Retail Financial Services Holdings Limited100.00175
HSBC Wealth Advisory Israel Ltd100.001, 107 
HSBC Wealth Client Nominee Limited100.001, 94 Marks and Spencer Savings and Investments Limited100.00175
HSBC Yatirim Menkul Degerler A.S.100.00114 Marks and Spencer Unit Trust Management Limited100.00175
HSBC-D1, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 Maxima S.A. AFJP100.00150
 Mercantile Company Limited100.0014, 94
HSBCD10, S. A. de C. V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 Mexicana de Fomento, S.A. de C.V.99.99201
 Midcorp Limited100.002, 16, 94
HSBC-D2, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 Midland Australia Pty Limited100.00182
 Midland Bank (Branch Nominees) Limited100.001, 94
HSBC-D7, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 Midland Nominees Limited100.001, 94
 MIL (Cayman) Limited100.00166
HSBC-D9, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 MM Mooring #2 Corp.100.00101
 MW Gestion SA100.00150
HSBC-DE, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 Oakwood Holdings, Inc.100.00101
 Promocion en Bienes Raices, S.A. de C.V.100.0016, 201
HSBC-DG, S. A. de C. V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 ProServe Bermuda Limited50.00125
 Prudential Client HSBC GIS Nominee (UK) Limited100.001, 94
HSBC-DH, S. A. de C. V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 PT Bank HSBC Indonesia98.94236
 PT HSBC Securities Indonesia85.0083
HSBC-DL, S. A. de C. V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 PTC New LLC100.0010, 127
 R/CLIP Corp.100.00127
HSBC-E2, S.A. de C. V., Sociedad de Inversion de Renta Variable100.001, 201 Real Estate Collateral Management Company100.00127
 Republic Nominees Limited100.00200
HSBC-E3, S.A. de C.V., Sociedad de Inversion en Instrumentos de Deuda100.001, 201 Republic Overseas Capital Corporation100.0080
 S.A.P.C. - Ufipro Recouvrement99.9820, 74
HSBC-FF, S.A. de C.V., Sociedad de Inversion de Renta Variable100.001, 201 Saf Baiyun100.004, 89
 Saf Chang Jiang100.004, 89
HSBC-V2, S.A. de C.V., Sociedad de Inversion de Renta Variable100.001, 201 Saf Chang Jiang Shi Liu100.004, 89
 Saf Chang Jiang Shi Wu100.001, 4, 89
HSBC-V3, S.A. de C.V., Sociedad de Inversion de Renta Variable100.001, 201 Saf Chang Jiang Shi'Er100.004, 89
 Saf Chang Jiang Shiyi100.001, 4, 89
HSI Asset Securitization Corporation100.00127 Saf Guangzhou100.004, 89
HSI International Limited62.1496 Saf Zhu Jiang100.004, 89
HSIL Investments Limited100.0094 Saf Zhu Jiang Yi100.004, 89
Hubei Macheng HSBC Rural Bank Company Limited100.0022, 197 Saf Zhu Jiang Ba100.004, 89
Hubei Suizhou Cengdu HSBC Rural Bank Company Limited100.0022, 194 Saf Zhu Jiang Er100.004, 89
 Saf Zhu Jiang Jiu100.004, 89
Hubei Tianmen HSBC Rural Bank Company Limited100.0022, 99 Saf Zhu Jiang Liu100.004, 89
Hunan Pingjiang HSBC Rural Bank Company Limited100.0022, 213 Saf Zhu Jiang Qi100.004, 89
Imenson Limited62.1496 Saf Zhu Jiang San100.004, 89
INKA Internationale Kapitalanlagegesellschaft mbH80.65238 Saf Zhu Jiang Shi100.004, 89
Inmobiliaria Banci, S.A. de C.V.99.99201 Saf Zhu Jiang Shi Ba100.004, 89
Inmobiliaria Bisa, S.A. de C.V.99.99201 Saf Zhu Jiang Shi Er100.004, 89
Inmobiliaria Grufin, S.A. de C.V.99.99201 Saf Zhu Jiang Shi Jiu100.004, 89
Inmobiliaria Guatusi, S.A. de C.V.99.99201 Saf Zhu Jiang Shi Liu100.004, 89
IRERE Property Investments (French Offices) Sarl100.001, 88 Saf Zhu Jiang Shi Qi100.004, 89
James Capel & Co. Limited100.0094 Saf Zhu Jiang Shi Wu100.004, 89
James Capel (Channel Islands) Nominees Limited100.00168 Saf Zhu Jiang Shiyi100.004, 89

HSBC Holdings plc Annual Report and Accounts 2016
301  


Notes on the Financial Statements

SubsidiariesGroup interest %Footnotes SubsidiariesGroup interest %Footnotes
Saf Zhu Jiang Wu100.004, 89 Tempus Management AG100.00109
Samada Limited100.00167 Thasosfin100.004, 44
Samuel Montagu & Co. Limited100.001, 94 The Hongkong and Shanghai Banking Corporation Limited100.0013, 27
SAS Bosquet -Audrain94.901, 4, 43 
SAS Cyatheas Pasteur94.931, 4, 74 The Venture Catalysts Limited100.0094
SAS Orona94.931,4,28 Timberlink Settlement Services (USA) Inc.100.00127
SCI Hervet Mathurins100.0020,89 TKM International Limited100.0094
SCI HSBC Assurances Immo100.001, 20, 44 Tooley Street View Limited100.001, 94
Secondary Club Deal I GP Limited100.00108 Tower Investment Management100.0032
Secondary Club Deal II GP Limited100.00108 Trinkaus Australien Immobilien Fonds Nr. 1 Brisbane GmbH & Co. KG80.65176
SFSS Nominees (Pty) Limited100.0056 
Shandong Rongcheng HSBC Rural Bank Company Limited100.0022, 198 Trinkaus Australien Immobilien-Fonds Nr. 1 Treuhand-GmbH80.656, 176
 
Shenfield Nominees Limited100.001, 94 Trinkaus Canada Immobilien-Fonds Nr. 1 Verwaltungs-GmbH80.65176
Sico Limited100.00235 
SNC Dorique100.001, 20, 78 Trinkaus Europa Immobilien-Fonds Nr.3 Objekt Utrecht Verwaltungs-GmbH80.65176
SNC Kerouan100.001, 20, 89 
SNC Les Mercuriales100.001, 20, 89 Trinkaus Immobilien-Fonds Geschaeftsfuehrungs-GmbH80.656, 176
SNC Les Oliviers D'Antibes60.0020, 89 
SNC Makala100.001, 20, 89 Trinkaus Immobilien-Fonds Verwaltungs-GmbH80.656, 176
SNC Nuku-Hiva Bail100.001, 20, 89 Trinkaus Private Equity Management GmbH80.65176
SNCB/M6 - 2008 A100.001, 4, 89 Trinkaus Private Equity Verwaltungs GmbH80.656, 176
SNCB/M6-2007 A100.001, 4, 89 Tropical Nominees Limited100.00166
SNCB/M6-2007 B100.001, 4, 89 Trumball Management, Inc.100.00101
Societe CCF Finance Moyen-Orient S.A.L. (in liquidation)99.901, 220 Turnsonic (Nominees) Limited100.001, 94
 Vadep Holding AG100.00203
Société Financière et Mobilière100.004, 29 Valeurs Mobilières Elysées100.004, 30
Société Française et Suisse100.004, 89 Vintage 2016 HV GP Limited100.00108
Societe Immobiliere Atlas S.A.100.00210 Vintage 2016 KKR GP Limited100.00108
Somers & Co100.0019, 121 Vintage 2017 Athyrium GP Limited100.001, 108
Somers Dublin DAC100.0026 Vintage I Secondary GP Limited100.00108
Somers Nominees (Far East) Limited100.0087 Vintage III Special Situations GP Limited100.00108
Sopingest100.004, 89 Wardley Limited100.0027
South Yorkshire Light Rail Limited100.001, 94 Wayfoong Credit Limited100.0027
SPE 1 2005 Manager Inc.100.0036 Wayfoong Finance Limited100.0027
St Cross Trustees Limited100.001, 94 Wayfoong Nominees Limited100.0027
Sterling Credit Limited100.00131 Wayhong (Bahamas) Limited100.00187
Sun Hung Kai Development (Lujiazui III) Limited100.0022, 212 Westminster House, LLC100.0010, 127
Swan National Leasing (Commercials) Limited100.0094 Woodex Limited100.0087
Swan National Limited100.0094 Yan Nin Development Company Limited62.1496
Tasfiye Halinde HSBC Internet ve Telekomunikasyon Hizmetleri Anonim Sirketi96.0012, 116    
    
Tayside Holdings Limited (In liquidation)100.001, 12, 187    


302  
HSBC Holdings plc Annual Report and Accounts 2016


Joint Ventures
The undertakings below are Joint Ventures and equity accounted.
Joint VenturesGroup interest %Footnotes
GSI Retail Property Holdings Limited50.001, 217
HCM Holdings Limited51.00153
HOUSe Network Sdn Bhd25.001, 225
HSBC Jintrust Fund Management Company Limited49.001, 22, 50
HSBC Kingdom Africa Investments (Cayman) Limited50.001, 186
Vaultex UK Limited50.0060
Vaultex Isle of Man Insurance Limited50.0055

Associates
The undertakings below are associates and equity accounted.
AssociatesGroup interest %Footnotes
AREIT Management Ltd41.901, 206
Ashwood Energy Limited25.001, 129
Bank of Communications Co., Ltd.19.03193
Barrowgate Limited15.3181
Business Growth Fund plc24.3137
Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited26.00232
CFAC Payment Scheme Limited33.331, 21, 47
Chemi & Cotex (Rwanda) Limited33.33173
Chemi & Cotex Kenya Limited34.00185
Chemi and Cotex Industries Limited34.001, 204
Electronic Payment Services Company
(Hong Kong) Limited
19.331, 27
EPS Company (Hong Kong) Limited38.661, 27
GIE GNIFI25.001, 7, 73
GZHS Research Co Ltd20.511, 10, 33
Hang Seng Qianhai Fund Management Company Limited43.5022, 62
HSBC Amanah Takaful (Malaysia) Berhad49.0031
HSBC Middle East Securities L.L.C49.00154
HSBC Mortgage LLP33.301, 19, 72
HSBC TFS II 2005 LLC20.0010, 36
Icon Brickell LLC24.901, 10, 117
Intercede Holdco Limited29.921, 106
Jeppe Star Limited34.001, 129
MENA Infrastructure Fund (GP) Ltd33.331, 180
NAS Holding Limited22.131, 129
NAS United Healthcare Services LLC22.131, 10, 39
Northstar Trade Finance Inc.17.8997
Novo Star Limited34.001, 172
SABB Takaful45.50209
SCI Karuvefa33.331, 20, 184
sino AG20.165, 145
The Headland Asian Ventures Fund 3 Limited32.591, 16, 166
The London Gold Market Fixing Limited25.001, 8, 120
The Saudi British Bank40.00104
Trinkaus Europa Immobilien-Fonds Nr. 7 Frankfurt Mertonviertel KG33.221, 9, 176




HSBC Holdings plc Annual Report and Accounts 2016
303  289


Notes on the Financial Statements

Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
Hang Seng Security Management Limited100.00 52
Haseba Investment Company Limited100.00 52
HFC Bank Limited (in liquidation)100.00
40
HFC Company LLC100.00
25
High Time Investments Limited100.00(62.14)52
HITG Administration GmbH100.00 58
Honey Green Enterprises Ltd.100.00 59
Hongkong International Trade Finance (Holdings) Limited (in liquidation)100.00 17
Household Capital Markets LLC100.00 25
Household Commercial Financial Services, Inc.100.00 26
Household Finance Consumer Discount Company100.00 25
Household Finance Corporation II100.00 25
Household Finance Corporation III100.00
25
Household Finance Corporation of Alabama100.00 224
Household Finance Corporation of California100.00 25
Household Finance Industrial Loan Company of Iowa

100.00 225
Household Finance Realty Corporation of Nevada100.00 25
Household Finance Realty Corporation of New York100.00 25
Household Financial Center Inc.100.00 25
Household Industrial Finance Company100.00 226
Household Insurance Group Holding Company100.00 227
Household International Europe Limited (in liquidation)100.00 3, 40
Household Pooling Corporation100.00 60
Household Realty Corporation100.00 25
HRMG Nominees Limited100.00 20
HSBC (BGF) Investments Limited100.00 17
HSBC (BVI) Limited (in liquidation)100.00 56
HSBC (General Partner) Limited100.00 2, 61
HSBC (Guernsey) GP PCC Limited100.00 1, 20
HSBC (Kuala Lumpur) Nominees Sdn Bhd100.00 62
HSBC (Malaysia) Trustee Berhad100.00 63
HSBC (Singapore) Nominees Pte Ltd100.00
64
HSBC Administradora de Inversiones S.A.100.00(99.65)65
HSBC Agency (India) Private Limited100.00 66
HSBC Alpha Funding (UK) Holdings LP (in liquidation)n/a 7, 67
HSBC Alternative Investments Limited100.00
17
HSBC Amanah Malaysia Berhad100.00 62
HSBC Amanah Takaful (Malaysia) Berhad49.00
56, 62
HSBC Americas Corporation (Delaware)100.00
25
HSBC Argentina Holdings S.A.100.00 68
HSBC Asia Holdings (UK) Limited100.00 17
HSBC Asia Holdings B.V.100.00 3, 17
HSBC Asia Holdings Limited100.00 2, 69
HSBC Asia Pacific Holdings (UK) Limited100.00 17
HSBC Asset Finance (UK) Limited100.00 17
HSBC Asset Finance Holdings Limited100.00 17
HSBC Asset Finance M.O.G. Holdings (UK) Limited100.00
17
HSBC Asset Management (India) Private Limited100.00(99.99)3, 9, 70
HSBC Assurances Vie (France)100.00(99.99)4, 9, 50
HSBC Australia Holdings Pty Limited100.00
15
HSBC Bank (Chile)100.00(99.99)9, 71
HSBC Bank (China) Company Limited100.00 12, 72
HSBC Bank (General Partner) Limited100.00 61
HSBC Bank (Mauritius) Limited72.95
73
HSBC Bank (RR) (Limited Liability Company)100.00
13, 74
HSBC Bank (Singapore) Limited100.00 64
HSBC Bank (Taiwan) Limited100.00 75
Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
HSBC Bank (Uruguay) S.A.100.00 76
HSBC Bank (Vietnam) Ltd.100.00 77
HSBC Bank A.S.100.00 78
HSBC Bank Argentina S.A.100.00(99.99)79
HSBC Bank Armenia cjsc70.00
80
HSBC Bank Australia Limited100.00
15
HSBC Bank Bermuda Limited100.00 21
HSBC Bank Canada100.00 81
HSBC Bank Capital Funding (Sterling 1) LP100.00 7, 61
HSBC Bank Capital Funding (Sterling 2) LP100.00 7, 61
HSBC Bank Egypt S.A.E94.54
82
HSBC Bank International Limited100.00
83
HSBC Bank Malaysia Berhad100.00
62
HSBC Bank Malta p.l.c.70.03
84
HSBC Bank Middle East Limited100.00
5, 85
HSBC Bank Middle East Limited, Representative Office Morocco SARL100.00
86
HSBC Bank Nominee (Jersey) Limited100.00
83
HSBC Bank Oman S.A.O.G.51.00
87
HSBC Bank Pension Trust (UK) Limited100.00
17
HSBC Bank plc100.00
2, 17
HSBC Bank Polska S.A.100.00
3, 88
HSBC Bank USA, National Association100.00
3, 89
HSBC Branch Nominee (UK) Limited100.00
17
HSBC Brasil Holding S.A.100.00
90
HSBC Brasil S.A. Banco De Investimento100.00
90
HSBC Broking Forex (Asia) Limited100.00
69
HSBC Broking Futures (Asia) Limited100.00
69
HSBC Broking Futures (Hong Kong) Limited100.00
69
HSBC Broking Nominees (Asia) Limited100.00
69
HSBC Broking Securities (Asia) Limited100.00
69
HSBC Broking Securities (Hong Kong) Limited100.00
69
HSBC Broking Services (Asia) Limited100.00
69
HSBC Canada Holdings (UK) Limited100.00
17
HSBC Canadian Covered Bond (Legislative) GP Inc100.00
199
HSBC Capital (Canada) Inc.100.00
91
HSBC Capital (USA), Inc.100.00
25
HSBC Capital Funding (Dollar 1) L.P.100.00
61
HSBC Capital Limited100.00
69
HSBC Card Services Inc.100.00
25
HSBC Casa de Bolsa, S.A. de C.V., Grupo Financiero HSBC99.99
9, 16
HSBC Cayman Services Limited100.00
33
HSBC City Funding Holdings100.00
17
HSBC Client Holdings Nominee (UK) Limited100.00
17
HSBC Client Share Offer Nominee (UK) Limited100.00
17
HSBC Columbia Funding, LLC100.00
25
HSBC Corporate Advisory (Malaysia) Sdn Bhd100.00
62
HSBC Corporate Finance (Hong Kong) Limited100.00
69
HSBC Corporate Trustee Company (UK) Limited100.00
17
HSBC Credit Center, Inc.100.00
25
HSBC Custody Nominees (Australia) Limited100.00
15
HSBC Custody Services (Guernsey) Limited100.00
20
HSBC Daisy Investments (Mauritius) Limited100.00
92
HSBC Diversified Loan Fund General Partner Sarl100.00
93
HSBC Electronic Data Processing (Guangdong) Limited100.00
12, 94
HSBC Electronic Data Processing (Malaysia) Sdn Bhd100.00
95
HSBC Electronic Data Processing (Philippines), Inc.100.00
96
HSBC Electronic Data Processing India Private Limited100.00
97

290HSBC Holdings plc


Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
HSBC Electronic Data Processing Lanka (Private) Limited100.00
98
HSBC Electronic Data Service Delivery (Egypt) S.A.E.100.00
99
HSBC Enterprise Investment Company (UK) Limited100.00
17
HSBC Epargne Entreprise (France)100.00(99.99)4, 9, 50
HSBC Equator (UK) Limited (in liquidation)100.00
17
HSBC Equipment Finance (UK) Limited100.00
17
HSBC Equities (Luxembourg) S.a r.l. (in liquidation)100.00
1, 100
HSBC Equity (UK) Limited100.00
17
HSBC Europe B.V.100.00
17
HSBC European Clients Depositary Receipts Nominee (UK) Limited (in liquidation)100.00
17
HSBC Executor & Trustee Company (UK) Limited100.00
17
HSBC Factoring (France)100.00(99.99)4, 9, 46
HSBC Finance (Brunei) Berhad100.00
101
HSBC Finance (Netherlands)100.00
2, 17
HSBC Finance Corporation100.00
25
HSBC Finance Limited100.00
17
HSBC Finance Mortgages Inc.100.00
102
HSBC Finance Transformation (UK) Limited100.00
2, 17
HSBC Financial Services (Lebanon) s.a.l.99.70
103
HSBC Financial Services (Middle East) Limited (In Liquidation)100.00
104
HSBC Financial Services (Uruguay) S.A. (in liquidation)100.00
105
HSBC France99.99
4, 46
HSBC Fund Services (Korea) Limited92.95
1, 106
HSBC Funding (UK) Holdings100.00
17
HSBC Germany Holdings GmbH100.00
53
HSBC Gestion (Monaco) SA99.80
107
HSBC Global Asset Management (Bermuda) Limited100.00
21
HSBC Global Asset Management (Canada) Limited100.00
108
HSBC Global Asset Management (Deutschland) GmbH100.00(80.67)9, 53
HSBC Global Asset Management (France)100.00(99.99)4, 9, 109
HSBC Global Asset Management   
(Hong Kong) Limited100.00
23
HSBC Global Asset Management (International) Limited100.00
110
HSBC Global Asset Management 
 
(Japan) K. K.100.00
111
HSBC Global Asset Management (Malta) Limited100.00(70.02)112
HSBC Global Asset Management (México), S.A. de C.V., Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC99.99
9, 16
HSBC Global Asset Management (Oesterreich) GmbH100.00(80.67)6, 9, 222
HSBC Global Asset Management (Singapore) Limited100.00
64
HSBC Global Asset Management (Switzerland) AG100.00(90.33)4, 9, 113
HSBC Global Asset Management (Taiwan) Limited100.00
114
HSBC Global Asset Management (UK) Limited100.00
17
HSBC Global Asset Management (USA) Inc.100.00
115
HSBC Global Asset Management Holdings (Bahamas) Limited100.00
116
HSBC Global Asset Management Limited100.00
17
HSBC Global Custody Nominee (UK) Limited100.00
17
HSBC Global Custody Proprietary Nominee (UK) Limited100.00
17
HSBC Global Services (Hong Kong) Limited100.00
69
Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
HSBC Global Services (UK) Limited100.00
17
HSBC Global Services Limited100.00
2, 17
HSBC Global Shared Services (India) Private Limited (in liquidation)100.00(99.99)9, 66
HSBC Group Management Services Limited100.00
17
HSBC Group Nominees UK Limited100.00
1, 2, 17
HSBC Holdings B.V.100.00
17
HSBC Home Equity Loan Corporation II100.00
25
HSBC IM Pension Trust Limited100.00
1, 17
HSBC Infrastructure Limited100.00
17
HSBC INKA Investment-AG TGV100.00(80.67)9, 14, 117
HSBC Inmobiliaria (Mexico), S.A. de C.V.99.99
9, 16
HSBC Institutional Trust Services (Asia) Limited100.00
69
HSBC Institutional Trust Services (Bermuda) Limited100.00
118
HSBC Institutional Trust Services (Ireland) DAC100.00
119
HSBC Institutional Trust Services (Mauritius) Limited100.00
120
HSBC Institutional Trust Services (Singapore) Limited100.00
64
HSBC Insurance (Asia) Limited100.00
121
HSBC Insurance (Asia-Pacific) Holdings Limited100.00
122
HSBC Insurance (Bermuda) Limited100.00
21
HSBC Insurance (Singapore) Pte. Limited100.00
64
HSBC Insurance Agency (USA) Inc.100.00
123
HSBC Insurance Brokers (Philippines) Inc100.00(99.99)9, 124
HSBC Insurance Brokers (Taiwan) Limited100.00
125
HSBC Insurance Holdings Limited100.00
2, 17
HSBC Insurance Management Services Limited (in liquidation)100.00
126
HSBC Insurance Services (Lebanon) S.A.L. (in liquidation)97.70
9, 127
HSBC Insurance Services Holdings Limited100.00
17
HSBC International Finance Corporation (Delaware)100.00
128
HSBC International Financial Services (UK) Limited (in liquidation)100.00
17
HSBC International Holdings (Jersey) Limited100.00
83
HSBC International Nominees Limited100.00
1, 129
HSBC International Trade Finance Limited (in liquidation)100.00
40
HSBC International Trustee (BVI) Limited100.00
10, 130
HSBC International Trustee (Holdings) Pte. Limited100.00
64
HSBC International Trustee Limited100.00
129
HSBC Inversiones S.A.99.99
9, 71
HSBC Inversiones y Servicios Financieros Limitada100.00(99.99)9, 71
HSBC InvestDirect (India) Limited99.99(99.54)131
HSBC InvestDirect Financial Services (India) Limited100.00(99.54)9, 131
HSBC InvestDirect Sales & Marketing (India) Limited99.99(98.54)9, 66
HSBC InvestDirect Securities (India) Private Limited99.99(99.61)9, 131
HSBC Investment Bank Holdings B.V.100.00
17
HSBC Investment Bank Holdings Limited100.00
17
HSBC Investment Funds (Canada) Inc.100.00
108
HSBC Investment Funds (Hong Kong) Limited100.00
23
HSBC Investment Funds (Luxembourg) SA100.00
100
HSBC Investments (Bahamas) Limited (in liquidation)100.00
133
HSBC Invoice Finance (UK) Limited100.00
134
HSBC Iris Investments (Mauritius) Ltd100.00
92
HSBC Issuer Services Common Depositary Nominee (UK) Limited100.00
17

HSBC Holdings plc291


Notes on the Financial Statements

Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
HSBC Issuer Services Depositary Nominee (UK) Limited100.00
17
HSBC Land Title Agency (USA) LLC100.00(55.00)135
HSBC Latin America B.V.100.00
17
HSBC Latin America Holdings (UK) Limited100.00 2, 17
HSBC Leasing (Asia) Limited100.00
69
HSBC Leasing (France)100.00(99.99)4, 9, 45
HSBC Life (International) Limited100.00 118
HSBC Life (UK) Limited100.00 17
HSBC Life Assurance (Malta) Limited100.00(70.02)112
HSBC Lodge Funding (UK) Holdings100.00
17
HSBC LU Nominees Limited100.00 17
HSBC Management (Guernsey) Limited100.00 20
HSBC Markets (USA) Inc.100.00 25
HSBC Marking Name Nominee (UK) Limited100.00 17
HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC99.99
16
HSBC Middle East Finance Company Limited100.00(80.00)136
HSBC Middle East Holdings B.V.100.00
2, 17
HSBC Middle East Leasing Partnershipn/a 7, 9, 137
HSBC Middle East Securities L.L.C49.00
56, 138
HSBC Mortgage Corporation (Canada)100.00
81
HSBC Mortgage Corporation (USA)100.00
25
HSBC Mortgage Services Inc.100.00
25
HSBC Nominees (Asing) Sdn Bhd100.00
62
HSBC Nominees (Hong Kong) Limited100.00
69
HSBC Nominees (New Zealand) Limited100.00
139
HSBC Nominees (Tempatan) Sdn Bhd100.00
62
HSBC North America Holdings Inc.100.00
25
HSBC Odeme Sistemleri Bilgisayar Teknolojileri Basin Yayin Ve Musteri Hizmetleri100.00(99.99)140
HSBC Overseas Holdings (UK) Limited100.00
2, 17
HSBC Overseas Investments Corporation (New York)100.00 141
HSBC Overseas Nominee (UK) Limited100.00
17
HSBC Participaciones (Argentina) S.A.100.00(99.99)9, 68
HSBC PB Corporate Services 1 Limited100.00 142
HSBC PB Services (Suisse) SA100.00 143
HSBC Pension Trust (Ireland) DAC100.00 119
HSBC Pensiones, S.A.99.99
9, 144
HSBC PI Holdings (Mauritius) Limited100.00
120
HSBC Portfoy Yonetimi A.S.100.00(99.98)9, 145
HSBC Preferential LP (UK)100.00
17
HSBC Private Bank (C.I.) Limited100.00
20
HSBC Private Bank (Luxembourg) S.A.100.00
100
HSBC Private Bank (Monaco) SA100.00
4, 107
HSBC Private Bank (Suisse) SA100.00
143
HSBC Private Bank (UK) Limited100.00
17
HSBC Private Bank International100.00
132
HSBC Private Banking Holdings (Suisse) SA100.00
143
HSBC Private Banking Nominee 3 (Jersey) Limited100.00
142
HSBC Private Equity Advisors LLC100.00
25
HSBC Private Equity Investments (UK) Limited100.00
17
HSBC Private Trustee (Hong Kong) Limited100.00
69
HSBC Private Wealth Services (Canada) Inc.100.00
108
HSBC Professional Services (India) Private Limited100.00
66
HSBC Property (UK) Limited100.00
17
HSBC Property Funds (Holding) Limited100.00
17
HSBC Property Funds Investment Limited (in liquidation)100.00
40
HSBC Provident Fund Trustee (Hong Kong) Limited100.00
69
HSBC Qianhai Securities Limited100.00(51.00)1, 12, 146
HSBC Rail (UK) Limited100.00
17
HSBC Real Estate Leasing (France)99.00
4, 9, 50
HSBC Realty Credit Corporation (USA)100.00
25
Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
HSBC REIM (France)100.00(99.99)4, 9, 50
HSBC Representative Office (Nigeria) Limited100.00
147
HSBC Retail Services Inc.100.00
25
HSBC Retirement Benefits Trustee (UK) Limited100.00
1, 2, 17
HSBC Savings Bank (Philippines) Inc.99.99
148
HSBC Securities (Asia) Limited100.00
69
HSBC Securities (B) Berhad100.00
1, 101
HSBC Securities (Canada) Inc.100.00
149
HSBC Securities (Egypt) S.A.E.100.00(94.65)82
HSBC Securities (Japan) Limited100.00
17
HSBC Securities (Philippines) Inc.99.99
1, 9, 150
HSBC Securities (Singapore) Pte Limited100.00
64
HSBC Securities (South Africa) (Pty) Limited100.00
151
HSBC Securities (Taiwan) Corporation Limited100.00
75
HSBC Securities (USA) Inc.100.00
25
HSBC Securities and Capital Markets (India) Private Limited99.99
9, 66
HSBC Securities Asia International Nominees Limited100.00
152
HSBC Securities Asia Nominees Limited100.00
69
HSBC Securities Brokers (Asia) Limited100.00
69
HSBC Securities Investments (Asia) Limited100.00
69
HSBC Securities Services (Bermuda) Limited100.00
118
HSBC Securities Services (Guernsey) Limited100.00
20
HSBC Securities Services (Ireland) DAC100.00
119
HSBC Securities Services (Luxembourg) S.A.100.00
100
HSBC Securities Services (USA) Inc.100.00
153
HSBC Securities Services Holding Limited100.00
129
HSBC Securities Services Holdings (Ireland) DAC100.00
119
HSBC Seguros de Retiro (Argentina) S.A.100.00(99.99)9, 68
HSBC Seguros de Vida (Argentina) S.A.100.00(99.99)9, 68
HSBC Seguros, S.A de C.V., Grupo Financiero HSBC99.99
3, 9, 144
HSBC Service Delivery (Polska) Sp. z o.o.100.00
154
HSBC Services (France)100.00(99.99)4, 9, 46
HSBC Services Japan Limited100.00
133
HSBC Servicios Financieros, S.A. de C.V.99.99
9, 16
HSBC Servicios, S.A. DE C.V., Grupo Financiero HSBC99.99
9, 16
HSBC SFH (France)100.00(99.99)4, 9, 50
HSBC Software Development (Canada) Inc100.00
155
HSBC Software Development (Guangdong) Limited100.00
12, 156
HSBC Software Development (India) Private Limited100.00
157
HSBC Software Development (Malaysia) Sdn Bhd100.00
95
HSBC Specialist Investments Limited100.00
17
HSBC Stockbroker Services (Client Assets) Nominees Limited100.00
17
HSBC Stockbrokers Nominee (UK) Limited100.00
17
HSBC Taxpayer Financial Services Inc.100.00
25
HSBC Technology & Services (China) Limited100.00
12, 158
HSBC Technology & Services (USA) Inc.100.00
25
HSBC TFS I 2005 LLC100.00
32
HSBC Transaction Services GmbH100.00
6, 159
HSBC Trinkaus & Burkhardt (International) S.A.100.00(80.67)100
HSBC Trinkaus & Burkhardt AG100.00(80.67)14, 53
HSBC Trinkaus & Burkhardt Gesellschaft fur Bankbeteiligungen mbH100.00(80.67)53
HSBC Trinkaus Europa Immobilien-Fonds Nr. 5 GmbH100.00(80.67)53
HSBC Trinkaus Family Office GmbH100.00(80.67)6, 53
HSBC Trinkaus Immobilien Beteiligungs KG100.00(80.67)53
HSBC Trinkaus Real Estate GmbH100.00(80.67)6, 53
HSBC Trust Company (Canada)100.00
81

292HSBC Holdings plc


Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
HSBC Trust Company (Delaware), National Association100.00 1, 160
HSBC Trust Company (UK) Limited100.00
17
HSBC Trust Company AG100.00
41
HSBC Trustee (C.I.) Limited100.00
142
HSBC Trustee (Cayman) Limited100.00
161
HSBC Trustee (Guernsey) Limited100.00
20
HSBC Trustee (Hong Kong) Limited100.00
69
HSBC Trustee (Mauritius) Limited (in liquidation)100.00
162
HSBC Trustee (Singapore) Limited100.00
64
HSBC UK Bank plc100.00
17
HSBC UK Holdings Limited100.00
2, 17
HSBC USA Inc.100.00
141
HSBC Valores S.A.100.00(99.99)9, 163
HSBC Violet Investments (Mauritius) Limited100.00 92
HSBC Wealth Client Nominee Limited100.00
17
HSBC Yatirim Menkul Degerler A.S.99.99(99.98)9, 145
HSI Asset Securitization Corporation100.00
25
HSI International Limited100.00(62.14)52
HSIL Investments Limited100.00
17
Hubei Macheng HSBC Rural Bank Company Limited100.00 12, 164
Hubei Suizhou Cengdu HSBC Rural Bank Company Limited100.00 12, 165
Hubei Tianmen HSBC Rural Bank Company Limited100.00 12, 166
Hunan Pingjiang HSBC Rural Bank Company Limited100.00 12, 167
Imenson Limited100.00(62.14)52
INKA Internationale Kapitalanlagegesellschaft mbH100.00(80.67)159
Inmobiliaria Banci, S.A. de C.V.100.00(98.91)3, 16
Inmobiliaria Bisa, S.A. de C.V.100.00(99.99)9, 16
Inmobiliaria Grufin, S.A. de C.V.100.00(99.99)9, 16
Inmobiliaria Guatusi, S.A. de C.V.100.00(99.99)3, 9, 16
IRERE Property Investments (French Offices) Sarl100.00
168
James Capel & Co. Limited100.00
17
James Capel (Channel Islands) Nominees Limited100.00
110
James Capel (Nominees) Limited100.00
17
James Capel (Second Nominees) Limited (in liquidation)100.00
17
James Capel (Taiwan) Nominees Limited100.00
17
John Lewis Financial Services Limited100.00
17
Keyser Ullmann Limited100.00(99.99)9, 17
Kings Meadow Nominees Limited100.00
169
Legend Estates Limited100.00 17
Lion Corporate Services Limited100.00 69
Lion International Corporate Services Limited100.00 129
Lion International Management Limited100.00 129
Lion Management (Hong Kong) Limited100.00 69
Lyndholme Limited100.00 69
Marks and Spencer Financial Services plc100.00 169
Marks and Spencer Retail Financial Services Holdings Limited100.00 169
Marks and Spencer Savings and Investments Limited100.00 169
Marks and Spencer Unit Trust Management Limited100.00
169
Maxima S.A. AFJP (in liquidation)100.00(99.98)68
Mercantile Company Limited100.00 17
Mexicana de Fomento, S.A. de C.V.99.80
16
Midcorp Limited100.00
17
Midland Bank (Branch Nominees) Limited100.00 17
Midland Nominees Limited100.00 17
MIL (Cayman) Limited100.00 33
MW Gestion SA100.00
68
Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
Promocion en Bienes Raices, S.A. de C.V.100.00(99.19)3, 9, 16
Prudential Client HSBC GIS Nominee (UK) Limited100.00
17
PT Bank HSBC Indonesia100.00(98.93)170
PT HSBC Sekuritas Indonesia100.00(85.00)171
R/CLIP Corp.100.00
25
Republic Nominees Limited100.00
20
Republic Overseas Capital Corporation100.00 123
RLUKREF Nominees (UK) One Limited100.00 17
RLUKREF Nominees (UK) Two Limited100.00
17
S.A.P.C. - Ufipro Recouvrement100.00(99.97)11, 45
Saf Baiyun100.00(99.99)4, 9, 47
Saf Chang Jiang100.00(99.99)4, 9, 47
Saf Chang Jiang Shi Liu100.00(99.99)4, 9, 47
Saf Chang Jiang Shi Wu100.00(99.99)1, 4, 9, 47
Saf Guangzhou100.00(99.99)4, 9, 47
Saf Zhu Jiang100.00(99.99)4, 9, 47
Saf Zhu Jiang Yi100.00(99.99)4, 9, 47
Saf Zhu Jiang Ba100.00(99.99)4, 9, 47
Saf Zhu Jiang Er100.00(99.99)4, 9, 47
Saf Zhu Jiang Jiu100.00(99.99)4, 9, 47
Saf Zhu Jiang Liu100.00(99.99)4, 9, 47
Saf Zhu Jiang Qi100.00(99.99)4, 9, 47
Saf Zhu Jiang San100.00(99.99)4, 9, 47
Saf Zhu Jiang Shi100.00(99.99)4, 9, 47
Saf Zhu Jiang Shi Ba100.00(99.99)4, 9, 47
Saf Zhu Jiang Shi Er100.00(99.99)4, 9, 47
Saf Zhu Jiang Shi Jiu100.00(99.99)4, 9, 47
Saf Zhu Jiang Shi Liu100.00(99.99)4, 9, 47
Saf Zhu Jiang Shi Qi100.00(99.99)4, 9, 47
Saf Zhu Jiang Shi Wu100.00(99.99)4, 9, 47
Saf Zhu Jiang Shiyi100.00(99.99)4, 9, 47
Saf Zhu Jiang Wu100.00(99.99)4, 9, 47
Samada Limited100.00 142
SAS Bosquet-Audrain100.00(94.90)1, 4, 221
SAS Cyatheas Pasteur100.00(94.93)1, 4, 45
SAS Orona100.00(94.92)1, 4, 220
SCI HSBC Assurances Immo100.00(99.99)1, 9, 11, 50
Secondary Club Deal I GP Limited100.00
20
Secondary Club Deal II GP Limited100.00
20
SFSS Nominees (Pty) Limited100.00
151
Shandong Rongcheng HSBC Rural Bank Company Limited100.00
12, 172
Sico Limited100.00
173
SNC Dorique100.00(99.99)1,9,11,174
SNC Kerouan100.00(99.99)1, 9, 11, 47
SNC Les Mercuriales100.00(99.99)1, 9, 11, 47
SNC Les Oliviers D'Antibes59.99
11, 50
SNC Makala100.00(99.99)1,9,11,47
SNC Nuku-Hiva Bail100.00(99.99)1,9,11,47
SNCB/M6 - 2008 A100.00(99.99)1, 4, 9, 47
SNCB/M6-2007 A100.00(99.99)1, 4, 9, 47
SNCB/M6-2007 B100.00(99.99)1, 4, 9, 47
Societe CCF Finance Moyen-Orient S.A.L.96.64(99.99)4, 9, 36
Société Financière et Mobilière100.00(99.99)4, 9, 46
Société Française et Suisse100.00(99.99)4, 9, 47
Societe Immobiliere Atlas S.A.100.00
143
Somers Dublin DAC100.00
119
Somers Nominees (Far East) Limited100.00 118
Sopingest100.00(99.99)4, 9, 47
South Yorkshire Light Rail Limited100.00
17
SPE 1 2005 Manager Inc.100.00 32
St Cross Trustees Limited100.00 17
Sun Hung Kai Development (Lujiazui III) Limited100.00 12, 175
Swan National Leasing (Commercials) Limited100.00 17
Swan National Limited100.00 17

HSBC Holdings plc293


Notes on the Financial Statements

Subsidiaries% of share class held by immediate parent company (or by the Group where this varies)Footnotes
Tasfiye Halinde HSBC Internet ve Telekomunikasyon Hizmetleri Anonim Sirketi (in liquidation)100.00(99.99)176
Tempus Management AG (in liquidation)100.00
41
Thasosfin100.00(99.99)4, 9, 50
The Hongkong and Shanghai Banking Corporation Limited100.00
69
The Venture Catalysts Limited100.00 17
Timberlink Settlement Services (USA) Inc.100.00 25
TKM International Limited (in liquidation)100.00 17
Tooley Street View Limited100.00 1, 2, 17
Tower Investment Management100.00
177
Trinkaus Australien Immobilien Fonds Nr. 1 Brisbane GmbH & Co. KG100.00(80.67)53
Trinkaus Australien Immobilien-Fonds Nr. 1 Treuhand-GmbH100.00(80.67)6, 53
Trinkaus Canada Immobilien-Fonds Nr. 1 Verwaltungs-GmbH100.00(80.67)53
Trinkaus Europa Immobilien-Fonds Nr.3 Objekt Utrecht Verwaltungs-GmbH100.00(80.67)53
Trinkaus Immobilien-Fonds Geschaeftsfuehrungs-GmbH100.00(80.67)6, 53
Trinkaus Immobilien-Fonds Verwaltungs-GmbH100.00(80.67)6, 53
Trinkaus Private Equity Management GmbH100.00(80.67)53
Trinkaus Private Equity Verwaltungs GmbH100.00(80.67)6, 53
Tropical Nominees Limited100.00
33
Turnsonic (Nominees) Limited100.00 17
Vadep Holding AG (in liquidation)100.00 178
Valeurs Mobilières Elysées100.00(99.99)4, 9, 179
Vintage 2016 HV GP Limited (in liquidation)100.00
20
Vintage 2016 KKR GP Limited (in liquidation)100.00 20
Vintage 2017 Athyrium GP Limited (in liquidation)100.00 20
Vintage I Secondary GP Limited (in liquidation)100.00 20
Vintage III Special Situations GP Limited (in liquidation)100.00 20
Wardley Limited100.00 69
Wayfoong Credit Limited100.00 69
Wayfoong Finance Limited100.00 69
Wayfoong Nominees Limited100.00 69
Wayhong (Bahamas) Limited (in liquidation)100.00 116
Westminster House, LLC100.00 25
Woodex Limited100.00 21
Yan Nin Development Company Limited62.14
52
Joint Ventures
The undertakings below are Joint Ventures and equity accounted.
Joint Ventures
% of share class held by immediate
parent company
(or by the Group
where this varies)
Footnotes
HCM Holdings Limited50.99
40
House Network Sdn Bhd25.00
180
HSBC Jintrust Fund Management Company Limited49.00
12, 181
HSBC Kingdom Africa Investments (Cayman) Limited50.00
182
HSBC Life Insurance Company Limited50.00
183
ProServe Bermuda Limited50.00
184
Vaultex UK Limited50.00
186
HSBC Saudi Arabia49.40(69.40)201

Associates
The undertakings below are associates and equity accounted.
Associates
% of share class held by immediate
parent company
(or by the Group
where this varies)
Footnotes
Bank of Communications Co., Ltd.19.03
56, 188
Barrowgate Limited24.64
189
BGF Group Limited24.38
190
Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited26.00
191
CFAC Payment Scheme Limited33.33
192
Chemi and Cotex Industries Limited33.99
195
Corsair IV Financial Services Capital Partnersn/a
7, 219
Electronic Payment Services Company (Hong Kong) Limited19.33
56, 69
EPS Company (Hong Kong) Limited

40.58
69
Guangzhou GuangZheng Hang Seng Securities Advisory Co. Ltd.33.00
217
GZHS Research Co Ltd20.50
197
Hang Seng Qianhai Fund Management Company Limited43.50
9, 12, 198
HSBC Mortgage LLPn/a
7, 200
HSBC TFS II 2005 LLC20.00
32
InfraRed NF China Real Estate Investments LPn/a
7, 214
Jeppe Star Limited33.99
187
MENA Infrastructure Fund (GP) Ltd33.33
203
Northstar Trade Finance Inc.20.88
205
Novo Star Limited33.99
206
PEF 2005 (A) & (D) Limited Partnershipn/a
7, 216
PEF 2010 (A) Limited Partnershipn/a
7, 216
Peregrine Capital Services Ltd33.46
218
Quantexa Limited10.00
56, 212
Services Epargne Entreprise SAS14.35
56, 215
The London Gold Market Fixing Limited25.00
210
The Saudi British Bank40.00
211
Vizolution Limited17.95
56, 213

294HSBC Holdings plc


Footnotes for Note 3837

1Management has determined that these undertakings are excluded from consolidation in the Group accounts as these entities do not meet the definition of subsidiaries in accordance with IFRSs.IFRS. HSBC’s consolidation policy is described in Note 1.2(a).
2Directly held by HSBC Holdings plc
3Entity is incorporated in The NetherlandsPreference Shares
Description of sharesShares
4Actions shares
5Aktiengesellschaft (AG) sharesRedeemable Preference Shares
6GmbH Anteil
7Groupement D'intérêt Economique shares
This undertaking is a partnership and does not have share capital

8Guarantee sharesLiquidating Share Class
9Kommanditgesellschaft (KG) shares
In the prior period the Group disclosed the immediate parent company’s interest in this undertaking
10Limited Liability Company – no sharesNon-Participating Voting Shares
11Liquidating sharesParts
12Nominal sharesRegistered Capital Shares
13Ordinary and Cumulative Irredeemable and Non-cumulative Irredeemable Preference sharesRussian Limited Liability Company Shares
14Ordinary and Deferred shares
15Ordinary and Non-Voting Redeemable shares
16Ordinary and Preference shares
17Ordinary Non-Participating, Non Voting shares
18Ordinary Redeemable Non Participating shares
19Partnership shares
20Parts shares
21Preference shares
22Registered Capital shares
23Russian limited liability company shares
24Stückaktien
Registered Offices
2515(Liquidator's address) 62/F One Island East 18 Westlands Road, Island East Hong KongLevel 36 Tower 1 International Towers Sydney, 100 Barangaroo Avenue, Sydney, New South Wales, Australia, 2000
26161 Grand Canal Square, Grand Canal Harbour, Dublin 2, D02 P820, IrelandPaseo de la Reforma 347, Col. Cuauhtemoc, Mexico, 06500
27178 Canada Square, London, United Kingdom, E14 5HQ
185 Donegal Square South, Belfast, Northern Ireland, BT1 5JP
19Camden House West The Parade, Birmingham, United Kingdom, B1 3PY
20Arnold House St Julians Avenue, St Peter Port, Guernsey, GY1 3NF
2137 Front Street, Hamilton, Bermuda, HM 11
22PO Box 513 HSBC House, 68 West Bay Road, George Town, Grand Cayman, Cayman Islands, KY1-1106
23HSBC Main Building 1 Queen's Road Central, Hong Kong
24First Floor, Xinhua Bookstore Xindong Road (SE of roundabout), Miyun District, Beijing, China
25c/o The Corporation Trust Company 1209 Orange Street, Wilmington, Delaware, United States, 19801
26CT Corporation System 1515 Market Street, Registered Office, Philadelphia, Pennsylvania, United States, 19102
27CT Corporation System 800 S. Figueroa, Los Angeles, California, United States, 90017
2810, Rue Jean Jaurès BP Q5 Noumea 98845 Nouvelle CalédonieCT Corporation System 530 Gay Street, Knoxville, Tennessee, United States, 37902
29103, Avenue des Champs-Elysées, 75008, Paris, FranceCT Corporation System Secretary of State, 707 Virginia Street East, Charleston, West Virginia, United States, 25301
30109,CT Corporation System 1720 Carey Avenue, des Champs-Elysees, 75008, Paris, FranceCheyenne, Wyoming, United States, 82001
3110th Floor, North Tower 2, Leboh Ampang 50100, Kuala Lumpur, Malaysia95 Washington Street, Buffalo, New York, United States, 14203
3211 Dr. Roy’s Drive PO Box 694GT Grand Cayman KY1-1107 Cayman Islands
331101-J46, 11/F, Nansha Financial Building 171 Haibin Road, Nansha District Guangzhou China
3411-17, Ludwig-Erhard-Str., 20459, Hamburg, Germany
35116 Archbishop Street Valletta Malta
361209 Orange Street, Wilmington, Delaware, 19899, United States, 19801
373313-15 York Buildings, London, Great Britain, WC2N 6JU, United KingdomPO Box 1109 HSBC House, 68 West Bay Road, George Town, Grand Cayman, Cayman Islands, KY1-1102
3834Corporation Service Company 251 Little Falls Drive, Wilmington, Delaware, United States, 19808
35
13F-14F, 333 Keelung Road, Sec.1 Taipei 110 Taiwan, Province of ChinaUnsoeldstrasse 2, Munich, Germany, 80538

393613th Floor, Lulu Center Building, Salam Street,Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, PO Box 44505, Abu Dhabi, United Arab Emirates17 5476 Mar Michael 11042040, Beyrouth, Lebanon
37No 1, Bei Huan East Road Dazu County, Chongqing, China
38No 107, Ping Du Avenue (E), Sanhe Town, Fengdu County, Chongqing, China
39No. 3, 5, 7, Haitang Erzhi Road Changyuan, Rongchang, Chongqing, China, 402460
4013th Floor, South Tower 2, Leboh Ampang, 50100 Kuala Lumpur, MalaysiaHill House 1 Little New Street, London, United Kingdom, EC4A 3TR
411441 Brickell Avenue, Miami FL 33131, United StatesBederstrasse 49, Zurich, Switzerland, CH-8002
4215 Canada Square, London E14 5GL, United KingdomRawlinson and Hunter Limited Woodbourne Hall, PO Box 3162, Road Town, Tortola, British Virgin Islands, VG1110
4315 Rue GuynemerGFirst & Second Floor, No.3 Nanshan Road, Pulandian, Dalian, Liaoning, China uynemer BP 412 Noumea 98845 Nouvelle Calédonie
4415, Rue Vernet, 75008, Paris FranceCT Corporation System 225 Hillsborough Street, Raleigh, North Carolina, United States, 27603
4516 Boulevard d'Avranches, L-1160, Luxembourg39 rue de Bassano, Paris, France, 75008
4616F, 369 Zhongxiao East Road, Section 7 Nangang District, Taipei 115, Taiwan103 avenue des Champs-Elysées, Paris, France, 75008
4717 Rochester Row, London SW1P 1QT, United Kingdom
4817, Avenue d'Ostende, 98000, Monaco
49171, Old Bakery Street, Valletta VLT 1455, Malta
5017F, HSBC Building, Shanghai IFC, 8 Century Avenue, Pudong, Shanghai, China
5118/F, HSBC Building, 8 Century Avenue, China (Shanghai) Pilot Free Trade Zone, 200120, China
521800 Tysons Boulevard, Suite 50, McLean, Virginia 22102, United States
5318th Floor, Tower 1, HSBC Centre, 1 Sham Mong Road, Kowloon, Hong Kong
54192 Old Bakery Street, Valletta, Malta
551st Floor Rose House, 51-59 Circular Road, Douglas IM1 1RE, Isle of Man
562 Exchange Square, 85 Maude Street, Sandown, Sandton 2196, South Africa
572 Paveletskaya square, building 2, 115054 Moscow, Russia
5821 Collyer Quay, #13-02, HSBC Building, 49320, Singapore
5921 Farncombe Road, Worthing, Sussex BN11 2BW, England
6021, Garlick Hill, London, EC4V 2AU, United Kingdom
612156 Horse Prairie Drive, Henderson, NV 89052, United States64 rue Galilée, Paris, France, 75008
 
62Registered Offices
482-3/F, Unit 21A, Qianhai Enterprise Dream Park, MMG Tower, 23 floor Ave. Paseo del Mar Urbanizacion Costa del Este, Panama
49Walkers Corporate Services Limited, Walker House, 87 Mary Street, George Town, Grand Cayman KY1-9005, Cayman Islands
5015 rue Vernet, Paris, France, 75008
51No. 63 Qian Wan Yi1 1211 Yanjiang Zhong Road, Qianhai Shenzhen-Hongkong Cooperation Zone, ShenzhenYongan, Fujian, China
635224th Fl., 99, Sec.2, Tunhwa S. Rd., Taipei, Taiwan, R.O.C.83 Des Voeux Road Central, Hong Kong
64532910 Virtual Way, Vancouver BC, V5M 0B2, CanadaKönigsallee 21/23, Düsseldorf, Germany, 40212
65543, Aboul Feda Street, Zamalek, Cairo EgyptBufete Tapia, PO Box 7412, Panama, Panama, 5
6655300 Delaware Avenue, Suite 1400, Wilmington, DE 19801, United StatesNo. 44, Xin Ping Road Central, Encheng, Enping, Guangdong, China, 529400
6756300 Delaware Avenue, Suite 1401, Wilmington, DE 19801, United StatesHSBC Holdings plc exercises control or significant influence over this undertaking notwithstanding its equity interest
68300, 885 West Georgia Street Vancouver BC V6C 3E9 Canada
69306 Corniche El Nil Maadi, Cairo 11728, Egypt
703303 Express Drive North Islandia NY 11749 United States
715734/F and 36/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road 27/F, Shanghai Stock Exchange Bldg, 528 Pudong South Road, Shanghai, Shanghai, China, 200120 China
5811-17 Ludwig-Erhard-Str., Hamburg, Germany, 20459
59Akara Bldg. 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands
60The Corporation Trust Company of Nevada 311 S. Division Street, Carson City, Nevada, United States, 89703
61HSBC House Esplanade, St. Helier, Jersey, JE4 8UB
6210th Floor, North Tower 2 Leboh Ampang, Kuala Lumpur, Malaysia, 50100
6313th Floor, South Tower 2 Leboh Ampang, Kuala Lumpur, Malaysia, 50100
6421 Collyer Quay #13-02 HSBC Building, Singapore, 049320
65Bouchard 557, Piso 18°, Cdad. Autónoma de Buenos Aires, Argentina, 1106
6652/60 M G Road, Fort, Mumbai, India, 400 001
67PO Box 513 HSBC House, 68 West Bay Road, George Town, Grand Cayman, Cayman Islands, KY1-1102
68Florida 229, 10°, Ciudad de Buenos Aires, Argentina, C1005AAE
691 Queen's Road Central, Hong Kong
703rd Floor, Merchantile Bank Chamber 16, Veer Nariman Road, Fort, Mumbai, India, 400001
71Isidora Goyenechea 2800, 23rd floor, Las Condes, Santiago, Chile, 7550647
7235 Great St Helens, London EC3A 6AP, United KingdomHSBC Building Shanghai ifc, 8 Century Avenue, Pudong, Shanghai, China, 200120
7337 Avenue Henri Lafleur Nouméa, BP K3 98849, New Caledonia6th floor, HSBC Centre, 18, Cybercity, Ebene, Mauritius
7439, Rue de Bassano, 75008, Paris, France2 Paveletskaya square, building 2, Moscow, Russian Federation, 115054
7513F-14F, 333 Keelung Road, Sec.1, Taipei, 110
76Rincon 391, Montevideo, Uruguay, 11000
77The Metropolitan 235 Dong Khoi Street, District 1, Ho Chi Minh City, Vietnam
78Esentepe mah. Büyükdere Caddesi No.128 Istanbul 34394, Turkey
79Florida 201, 10°, Ciudad de Buenos Aires, Argentina, C1005AAE
8066 Teryan street, Yerevan, Armenia, 0009
81885 West Georgia Street Suite 300, Vancouver, British Columbia, Canada, V6C 3E9
82306 Corniche El Nil, Maadi, Egypt, 11728
83HSBC House Esplanade, St. Helier, Jersey, JE1 1HS
84116 Archbishop Street, Valletta, Malta
85Level 1, Building No. 8, Gate Village Dubai International Financial Centre, PO Box 502601, United Arab Emirates
86Tour Crystal 1 10EME Etage BD Al Mohades, Casablanca, Morocco
87Al Khuwair Office PO Box 1727 PC111 CPO Seeb, Muscat, Oman
88Rondo ONZ 1, Warsaw, Poland, 00-124
891800 Tysons Boulevard Suite 50, McLean, Virginia, United States, 22102
90Rua Funchal, nº 160, SP Corporate Towers, Torre Norte, 19° andar, cj 191A - Parte, São Paulo, Brazil, 04551-060
91300, 885 West Georgia Street, Vancouver, British Columbia, Canada, V6C 3E9
92c/o Kross Border Trust Services Limited St. Louis Business Centre, Cnr Desroches & St Louis Streets, Port Louis, Mauritius
9349 avenue J.F. Kennedy, Luxembourg, Luxembourg, 1855
944-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian He District, Guangzhou, Guangdong, China
95Suite 1005, 10th Floor, Wisma Hamzah Kwong Hing No. 1, Leboh Ampang, Kuala Lumpur, Malaysia, 50100
96HSBC, Filinvest One Bldg, Northgate Cyberzone, Filinvest Corporate City, Alabang, Muntinlupa City, Philippines
97HSBC House Plot No.8, Survey No.64 (Part), Hightec City Layout Madhapur, Hyderabad, India, 500081
98439, Sri Jayawardenapura Mawatha Welikada, Rajagiriya, Colombo, Sri Lanka

HSBC Holdings plc295


Notes on the Financial Statements

Registered Offices
99Smart Village 28th Km Cairo- Alexandria Desert Road Building, Cairo, Egypt
10016 Boulevard d'Avranches, Luxembourg, L-1160
101HSBC Chambers, Corner of Jalan Sultan / Jalan Pemancha , Bandar Seri Begawan, Brunei Darussalam, BS8811
102Suite 300, 3381 Steeles Avenue East, Toronto, Ontario, Canada, M2H 3S7
103Centre Ville 1341 Building - 4th Floor Patriarche Howayek Street (facing Beirut Souks), PO Box Riad El Solh, Lebanon, 9597
1043rd Floor, HSBC Bank Middle East Limited Building Al Souq Road, Bur Dubai, PO Box 4604, Dubai, United Arab Emirates
761053rd Floor, Merchantile Bank Chamber 16, Veer Nariman Road Fort Mumbai Maharashtra 400001 IndiaWorld Trade Center Montevideo Avenida Luis Alberto de Herrera 1248, Torre 1, Piso 15, Oficina 1502, Montevideo, Uruguay, CP 11300
771064-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian He District Guangzhou GuangdongLevel 12, HSBC Building 37, Chilpae-ro, Jung-gu, Seoul, Korea, Republic of
10717 avenue d'Ostende, Monaco, 98000
1082910 Virtual Way, Vancouver, British Columbia, Canada, V5M 0B2
109Immeuble Coeur Défense 110, Esplanade du Général de Gaulle- La défense 4, Courbevoie, France, 92400
110HSBC House Esplanade, St. Helier, Jersey, JE4 8WP
111HSBC Building 11-1, Nihonbashi 3-chome, Chuo-ku, Tokyo, Japan, 103-0027
11280 Mill Street, Qormi, Malta, QRM 3101
113Gartenstrasse 26, Zurich, Switzerland
11424th Fl., 99, Sec.2, Tunhwa S. Rd., Taipei, Taiwan, Province of China
7811543, Rue de Paris, Saint Denis 97400, Reunion452 Fifth Avenue 7th floor, New York NY10018, United States
79116439, Sri Jayawardenapura Mawatha Welikada, Rajagiriya, Colombo, Sri LankaMareva House 4 George Street, Nassau, Bahamas
80117Breite Str. 29/31, Düsseldorf, Germany, 40213
11837 Front Street, Hamilton, Bermuda, HM 11
1191 Grand Canal Square Grand Canal Harbour, Dublin 2, D02 P820, Ireland
120HSBC Centre Eighteen, Cybercity, Ebene, Mauritius
121
18th Floor, Tower 1 HSBC Centre, 1 Sham Mong Road, Kowloon, Hong Kong

122Level 32, HSBC Main Building 1 Queen's Road Central, Hong Kong
123452 Fifth Avenue, New York NY10018, United States
8149/F, The Lee Gardens, 33 Hysan Avenue Hong Kong
824th Floor, Harbour Place 103 South Church Street George Town Grand Cayman KY1-1002 Cayman Islands
834th Floor, World Trade Center, J1, Jend. Sudirman Kav. 29-31 Jakarta 12920 Indonesia
845 Donegal Square South Belfast BT1 5JP Northern Ireland
8552/60, M G Road Fort, Mumbai, Maharashtra 400 001 India
86545 Washington Blvd., 11th Floor Jersey City NJ 07310 United States
876 Front Street, Hamilton HM 11, Bermuda
886, Rue Adolphe Grand-Duchy of Luxembourg L-1116 Luxembourg
8964, Rue Galilée, 75008, Paris, France
9066 Teryan street Yerevan 9 Armenia
916th Floor, HSBC Centre, 18, Cybercity, Ebene Mauritius
927/F The Enterprise Centre - Tower I, 6766 Ayala Avenue corner Paseo De Roxas, Makati City, Philippines
9370 York Street, 7th Floor, Toronto ON, M5J 1S9 Canada
948 Canada Square, London E14 5HQ, United Kingdom
9580, Mill Street, Qormi, QRM 3101, Malta
9683 Des Voeux Road, Central, Hong Kong SAR
97833 Three Bentall Centre, 595 Burrard Street, Vancouver BC V7X 1C4, Canada
98885 West Georgia Street, Suite 300, Vancouver BC, V6C 3E9, Canada
9989 Jingling Hongjian Avenue Tianmen Hubei Province 431700 China
1009-11 Floors, NESCO IT Park Building No. 3, Western Express Highway, Goregaon (East), Mumbai, Maharashtra 400063, India
10195 Washington Street, Buffalo NY, 14203, United States
1021249th Floor, HSBC Centre 3058 Fifth Avenue West, Bonifacio Global City, Taguig City, Philippines
103Akara Bldg. 24 De Castro Street Wickhams Cay I, Road Town Tortola Virgin Islands, British
104Al Amir Abdulaziz Ibn Mossaad Ibn Jalawi Street Riyadh Saudi Arabia
105Al Khuwair Office PO Box 1727 PC111 CPO Seeb Muscat Oman
106Alderflat Drive, Newstead Industrial Estate, Trentham Stoke on Trent, ST4 8HX, United Kingdom
107Amot Atrium Tower, 30th Floor, 2 Jabotinsky St,. Ramat Gan 5250501, Israel
108Arnold House, St Julians Avenue, St Peter Port, GY1 3NF, Guernsey
109Bederstrasse 49, CH-8002, Zurich, Switzerland
110Bouchard 680, 11° Ciudad de Buenos Aires 1106 Argentina
111Bouchard 680, 9° Ciudad de Buenos Aires 1106 Argentina
112Breite Str. 29/31 40213 Düsseldorf Germany
113Bufete Tapia, PO Box 7412 Panama 5 Panama
114Büyükdere Cad. No.128 D Blok Esentepe, Sisli Istanbul, Turkey
115Büyükdere Cad. No:124 B Blok Kat 9 Oda:1, Esentepe, Sisli, I Turkey
116Buyukdere Cad. No:124 B Blok Kat 9 Oda:2 34394 , Sisli / Ese Turkey
117C T Corporation System 1200 South Pine Island Road Plantation FL 33324 United States
118C/O Bank of Bermuda (Cayman) Limited, PO Box 513, HSBC House, 68 West Bay Road, Grand Cayman KY1-1106, Cayman Islands
119C/O Corporation Trust Incorporated, 351 West Camden Street, Baltimore MD 21201, United States
120C/O Hackwood Secretaries Limited, One Silk Street, London EC2Y 8HQ, United Kingdom
121
C/O HSBC AFS (USA) LLC, 452 Fifth Avenue, New York, NY 10018, United States

122C/O HSBC Bank (Mauritius) Limited 6th Floor, HSBC Centre, 18 Cyber City, Ebene, Mauritius
123C/O Kross Border Trust Services Limited, St. Louis Business Centre, Cnr Desroches & St Louis Streets, Port Louis, Mauritius


304  
HSBC Holdings plc Annual Report and Accounts 2016


124C/O Morrison & Foerster (UK) LLP, City Point, 1 Ropemake Street, London EC2Y 9AW, United Kingdom
125C/O MUFG Fund Services (Bermuda) Limited The Belvedere Building 69 Pitts Bay16F 369 Zhongxiao East Road, Pembroke HM08 BermudaSection 7 , Nangang District , Taipei, Taiwan, Province of China, 115
126
C/O The Corporation Trust Company 100 S. 5th Street-Suite 1075 Minneapolis MN 554011 More London Place, London, United StatesKingdom, SE1 2AF

127C/O The Corporation Trust Company, 1209 Orange Street, Wilmington DE 19801, United States
128C/O The Corporation Trust Incorporated 351 West Camden Street Baltimore MD 21201 United States
129C/O Trident Trust Company, Trident Chambers, PO Box 146, Tortola, British Virgin Islands
130C/O Walkers SPV Limited, Walker House 87 Mary Street, PO Box 908GT George Town Grand Cayman Cayman Islands
131Camden House West, The Parade, Birmingham, B1 3PY, United Kingdom
132City Gate House 22 Southwark Bridge Road London SE1 9HB
133Corporation Service Company 2711 Centerville Road Suite 400 Wilmington DE 19808 United States
134Corporation Service Company 830 Bear Tavern Road West Trenton NJ 08628 United States
135
CT Corporation System 1515 Market Street Registered Office Philadelphia PA 19102 United States

136CT Corporation System 1720 Carey Avenue Cheyenne WY 82001 United States
137CT Corporation System 2 North Jackson Street Suite 605 Montgomery AL 36104 United States
138
CT Corporation System 2222 Grand Avenue Des Moines IA 50312 United States

139CT Corporation System 225 Hillsborough Street Raleigh NC 27603 United States
140CT Corporation System Kentucky Home Life Building Louisville KY 40202 United States
141CT Corporation System, 530 Gay Street, Knoxville, TN 37902, United States
142CT Corporation System, 800 S. Figueroa, Los Angeles, California 90017, United States
143
CT Corporation System, Secretary of State, 707 Virginia Street, East Charleston, WV 25301, United States

144Drake House, Three Rivers Court, Homestead Road, Rickmansworth, Hertfordshire, WD3 1FX, United Kingdom
145Ernst-Schneider-Platz 1 40212 Duesseldorf Germany
146Esentepe Mah. Büyükdere Caddesi No.128 Istanbul 34394 Turkey
147First & Second Floor, No.3 Nanshan Road, Pulandian Dalian Liaoning Province China
148First Floor, Xinhua Bookstore Xindong Road (SE of roundabout) Miyun District Beijing China
149Florida 201 10°, Ciudad de Buenos Aires C1005AAE Argentina
150Florida 229, 10° Ciudad de Buenos Aires, C1005AAE, Argentina
151Harneys Corporate Services Limited, Craigmuir Chambers, PO Box 71, Road Town, Tortola, British Virgin Islands
152Herrengasse 1-3 1010 Wien Austria
153Hill House, 1 Little New Street, London EC4A 3TR, United Kingdom
154HSBC Bank Middle East Building - level 5, building 5, Emaar Dubai 502601 United Arab Emirates
155HSBC Building 11-1, Nihonbashi 3-Chome Chuo-ku Tokyo 103-0027 Japan
156HSBC Building 7267 Olaya - Al Murrooj Riyadh 12283 - 2255 Saudi Arabia
157
HSBC Building Shanghai IFC 8 Century Avenue, Pudong Shanghai 200120 China

158HSBC Building Minet El Hosn, Riad el Solh, Beirut 1107-2080, PO Box 11-1380, Lebanon
159128HSBC Centre River Side, West300 Delaware Avenue 25B Raheja woods Kalyaninagar Pune Maharashtra 411006 IndiaSuite 1400, Wilmington, Delaware, United States, 19801
160129HSBC Centre, Eighteen Cybercity Ebene, Mauritius
161HSBCCraigmuir Chambers, Corner of Jalan Sultan and Jalan Pemancha Bandar Seri Begawan BS8811 Brunei Darussalam
162HSBC House Esplanade, St. Helier, JE1 1HS, Jersey
163HSBC House Esplanade, St. Helier, JE4 8UB, Jersey
164HSBC House, Level 9, One Queen Street, Auckland 1010, New Zealand
165HSBC House Plot No.8, Survey No.64 (Part) Hightec City Layout Madhapur Hyderabad Andhra Pradesh 500081 India
166HSBC House, 68 West Bay Road, PO Box 1109, George Town, Grand Cayman KY1-1102, Cayman Islands
167HSBC House, Esplanade, St. Helier, JE1 1GT, Jersey
168HSBC House, Esplanade, St. Helier, JE4 8WP, Jersey
169HSBC, Filinvest One Bldg, Northgate Cyberzone, Filinvest Corporate City Alabang, Muntinlupa City Philippines
170Immeuble Coeur Défense 110, Esplanade du Général de Gaulle- La Défense 4 92400 Courbevoie France
171Isidora Goyenechea 2800, 23rd Floor, Las Condes, Santiago 7550647, Chile
172Jayla Place Wickhams Cay I PO Box 319071, Road Town, Tortola, British Virgin Islands
173130Kacyiru BP 3094 Kigali Rwanda
174Kapelanka 42A 30-347 Krakow Poland
175Kings Meadow, Chester Business Park, Chester, Cheshire CH99 9FB, United Kingdom
176Königsallee 21/23, 40212, Düsseldorf Germany
177Level 1, Building No. 8, Gate Village Dubai International Financial CentreWoodbourne Hall, Road Town PO Box 502601 United Arab Emirates
178Level 12, HSBC Building 37, Chilpae-ro Jung-gu Seoul Korea, Republic of
179Level 19, HSBC Building, Shanghai IFC 8 Century Avenue Pudong Shanghai China
180Level 3 Building 4, Gate District Dubai International Financial Centre Dubai MENA United Arab Emirates
181Level 32, HSBC Main Building 1 Queen's Road Central Hong Kong SAR Hong Kong
182Level 36, Tower 1, International Towers Sydney, 100 Barangaroo Avenue, Sydney, NSW 2000, Australia
183Level 4, Building 4, The Gate Dubai International Financial Centre PO Box 506553 Dubai United Arab Emirates
184Lot n°5, la Rocade , Grand Camp LES ABYMES 97142 Guadeloupe
185LR No. 1758/13 Grevella Grove Road Kalamu House PO Box 47323-00100 Nairobi Kenya
186Maples Corporate Services Limited, PO Box 309, Ugland House, South Church Street, George Town, Grand Cayaman, KY1-1104, Cayman916, Tortola, British Virgin Islands
187131Mareva House, 4 George Street, Nassau, Bahamas9-11 Floors, NESCO IT Park Building No. 3 Western Express Highway, Goregaon (East), Mumbai, India, 400063
1881321441 Brickell Avenue, Miami, Florida, United States 33131
133MB&H Corporate Services Ltd Mareva House, 4 George Street, Nassau, New Providence, Bahamas
189134MMG Tower, 23 Floor Ave. Paseo del Mar Urbanizacion Costa del Este Panama21 Farncombe Road, Worthing, United Kingdom, BN11 2BW
190135No 1, Bei Huan East Road Dazu County Chongqing China
3303 Express Drive North, Islandia, New York, United States, 11749

191No 107, Ping Du Avenue (E), Sanhe Town, Fengdu County Chongqing China
192No. 1 1211 Yanjiang Zhong Road Yongan Fujian China
193No. 188 Yincheng Zhong Lu, Pudong New District Shanghai 200120 China
194No. 205, Lie Shan Road Suizhou Hubei China
195No. 3, 5, 7, Haitang Erzhi Road Changyuan, Rongchang Chongqing 402460 China
196No. 44, Xin Ping Road Central, Encheng, Enping Guangdong 529400 China
197No. 56, Yu Rong Street Macheng Hubei Province 438300 China
198No.198-2, Chengshan Avenue (E) Rongcheng Shangdong 264300 China
199Palm Grove House PO Box 438 Road Town Tortola British Virgin Islands
200Park Place, Park Street, St Peter Port, GY1 1EE, Guernsey
201Paseo de la Reforma 347, Col. Cuauhtemoc, 6500, Mexico
202Paseo de la Reforma 359, 6th Floor, D.F. 6500, Mexico
203Philippe Kaiser Baarerstrasse 8 6300 Zug Switzerland
204Plot No. 89-90 Mbezi Industrial Area Box 347 Dar es Salaam City United Republic of Tanzania
205PO Box 1109, HSBC House 68 West Bay Road Grand Cayman KY1-1102 Cayman Islands
206PO Box 309 Ugland House, South Church Street George Town Grand Cayman KY1 - 1104 Cayman Islands
207PO Box 484, Ground Floor, HSBC House 68 West Bay Road Grand Cayman, KY1-1106 Cayman Islands
208PO Box 71, Craigmuir Chambers, Road Town, Tortola, British Virgin Islands
209PO Box 9086 Riyadh 11413 Saudi Arabia
210Quai des Bergues 9-17, 1201, Geneva, Switzerland
211Rincon 391 Montevideo 11000 Uruguay
212RM 2112, HSBC Building, Shanghai IFC No. 8 Century Road, Pudong Shanghai 200120 China
213RM101, 102 & 106 Sunshine Fairview, Sunshine Garden Pedestrian Walkway Pingjiang Hunan China
214Rondo ONZ 1 00-124 Warsaw Poland
215Room 305 No.886 Tianhe Bei Road, Tianhe District, Guangzhou Guangdong China
216Rua Funchal, nº 160, SP Corporate Towers, Torre Norte, 19° Andar, cj 191A - Parte, São Paulo 04551-060, Brazil
217Second Floor, St Peters House, Le Bordage, St Peter Port, GY1 1B, Guernsey
218136Shop 4 & 5 Ground Floor & Mezzanine, Bldg. of Hilal Salim Bin Tarraf, Al Wasel Area, Sheikh Zayed Road, PO Box 1956 Dubai, United Arab Emirates
219137Smart Village 28th Km Cairo- Alexandria Desert RoadPrecinct Building Cairo Egypt4, Level 3 Dubai International Financial Centre, Dubai, United Arab Emirates, PO BOX 506553
220138SolidereHSBC Bank Middle East Building - Rue Saad Zaghloul Immeuble - 170 Marfaa, PO Box 17, 5476 Mar Michael, 11042040 Beyrouth, Lebanonlevel 5, building 5, Emaar, Dubai, United Arab Emirates, 502601
221139HSBC House Level 9, One Queen Street, Auckland, New Zealand, 1010
140Büyükdere Cad. No.122 D Blok Esentepe Sisli Istanbul, Turkey
141c/o The Corporation Trust Incorporated 351 West Camden Street, Baltimore, Maryland, United States, 21201
142HSBC House Esplanade, St. Helier, Jersey, JE1 1GT
143
Quai des Bergues 9-17, Geneva, Switzerland, 1201

144Paseo de la Reforma 359, 6th Floor, Mexico, 06500
145Büyükdere Cad. No.128 D Blok Esentepe Sisli Istanbul, Turkey
146Block 27 A&B, Qianhai Enterprise Dream Park No. 63 Qianwan Yi Road, Shenzhen-Hong Kong Cooperation Zone, Shenzhen, China, 518052
147St Nicholas House, 10th Floor Catholic Mission St Lagos, Nigeria
222Suite 1005, 10th Floor, Wisma Hamzah Kwong Hing No. 1, Leboh Ampang 50100, Kuala Lumpur, Malaysia
223Suite 2400, 745 Thurlow Street, Vancouver BC V6E 0C5 Canada
224Suite 300, 3381 Steeles Avenue East Toronto ON M2H 3S7 Canada
225Suite 8-3A, Menara RA, No. 18, Jalan Dataran SD2, Dataran SD, PJU 9, Bandar Sri Damansara 52200 Wilayah Persekutuan Malaysia
226The Corporation Trust Company of Nevada 311 S. Division Street Carson City NV 89703 United States
227The Metropolitan 235 Dong Khoi Street District 1, Ho Chi Minh City Viet Nam
228The R&H Trust Co. Ltd. Windward 1, Regatta Office Park PO Box 897 Grand Cayman KY1-1103 Cayman Islands
229Tour Crystal 1 10EME Etage BD Al Mohades 20000 Casablanca, ANFA Morocco
230Unit 04A-04B, 1F, Bangunan Gadong Properties Jalan Gadong Bandar Seri Begawan BE4119 Brunei Darussalam
231148Unit 1 GF The Commercial Complex Madrigal Avenue Ayala Alabang Village, Muntinlupa City, Philippines, 1770
14970 York Street 7th Floor, Toronto, Ontario, Canada, M5J 1S9
1507/F The Enterprise Centre - Tower I, 6766 Ayala Avenue corner Paseo De Roxas, Makati City, Philippines
2321512 Exchange Square 85 Maude Street, Sandown, Sandton, South Africa, 2196
Registered Offices
152Palm Grove House PO Box 438, Road Town, Tortola, British Virgin Islands
153The Corporation Trust Company 820 Bear Tavern Road, West Trenton, New Jersey, United States, 08628
154Kapelanka 42A, Krakow, Poland, 30-347
155Suite 2400, 745 Thurlow Street, Vancouver, Canada, BC V6E 0C5
156L22, Office Tower 2, Taikoo Hui, 381 Tianhe Road, Tianhe District, Guangzhou, Guangdong, China
157HSBC Centre River Side, West Avenue, 25B Raheja woods, Kalyaninagar, Pune, India, 411006
158Level 19, HSBC Building, Shanghai ifc 8 Century Avenue Pudong, Shanghai, China
159Yorckstraße 21 - 23 40476, Duesseldorf, Germany
160300 Delaware Avenue Suite 1401, Wilmington, Delaware, United States, 19801
161PO Box 484, Ground Floor, HSBC House 68 West Bay Road, Grand Cayman, KY1-1106, Cayman Islands
162c/o HSBC Bank (Mauritius) Limited 6th Floor, HSBC Centre, 18 Cyber City, Ebene, Mauritius
163Bouchard 680, 11°, Ciudad de Buenos Aires, Argentina, 1106
164No. 56, Yu Rong Street, Macheng, China, 438300
165No. 205, Lie Shan Road Suizhou, Hubei, China
166Building 3, Yin Zuo Di Jing Wan Tianmen New City，Tianmen, Hubei Province, China
167RM101, 102 & 106 Sunshine Fairview, Sunshine Garden, Pedestrian Walkway, Pingjiang, China
1686 rue Adolphe, Luxembourg, L-1116
169Kings Meadow Chester Business Park, Chester, United Kingdom, CH99 9FB
170World Trade Center 1, Floor 8-9 Jalan Jenderal Sudirman Kavling 29-31, Jakarta, Indonesia, 12920
1714th Floor, World Trade Center, J1, Jend. Sudirman Kav. 29-31, Jakarta, Indonesia, 12920
172No.198-2, Chengshan Avenue (E), Rongcheng, China, 264300
173Woodbourne Hall, Road Town PO Box 3162, Tortola, British Virgin Islands
17443 rue de Paris, Saint Denis, 97400
175RM 2112, HSBC Building, Shanghai ifc No. 8 Century Road, Pudong, Shanghai, China, 200120
176
Büyükdere Cad. No 124 kat 9 Oda 2 Esentepe ªiºli Istanbul, Turkey

177
11 Dr. Roy’s Drive PO Box 694GT, Grand Cayman, Cayman Islands, KY1-1107

178
Philippe Kaiser Baarerstrasse 8, Zug, Switzerland, 6300

179
109 avenue des Champs-Elysees, Paris, France, 75008

180Suite 8-3A, Menara RA, No. 18, Jalan Dataran SD2,, Dataran SD, PJU 9, Bandar Sri Damansara, 52200, Malaysia
181
17F, HSBC Building, Shanghai ifc 8 Century Avenue, Pudong, Shanghai, China

182
Maples Corporate Services Limited PO Box 309, Ugland House, South Church Street, George Town, Cayman Islands, KY1-1104

183
18/F, HSBC Building, 8 Century Avenue China (Shanghai) Pilot Free Trade Zone, China, 200120

184c/o MUFG Fund Services (Bermuda) Limited The Belvedere Building, 69 Pitts Bay Road, Pembroke, Bermuda, HM08
186
21 Garlick Hill, London, United Kingdom, EC4V 2AU

187
c/o Trident Trust Company Trident Chambers, PO Box 146, Tortola, British Virgin Islands

188
No.188, Yin Cheng Zhong Road China (Shanghai) Pilot Free Trade Zone, Shanghai, China

189
49/F, The Lee Gardens, 33 Hysan Avenue, Hong Kong

19013-15 York Buildings, London, United Kingdom, WC2N 6JU
191Unit No. 208, 2nd Floor, Kanchenjunga Building 18 Barakhamba Road, New Delhi - 110001, India
233192Unsoeldstrasse 2, 80538, Munich, Germany
6th Floor 65 Gresham Street, London EC2V 7NQ

234195Walkers Corporate Services Limited, Walker House, 87 Mary Street, George Town, Grand Cayman KY1-9005, Cayman Islands
Plot No. 89-90 Mbezi Industrial Area Box 347, Dar es Salaam City

235196Woodbourne Hall, Road Town, PO Box 916, Tortola, British Virgin Islands
37 avenue Henri Lafleur, Nouméa, New Caledonia, BP K3 98849

236197World Trade Center 1, Floor 8-9 Jalan Jenderal Sudirman Kavling 29 - 31 Jakarta 12920 Indonesia1101-J46, 11/F, Nansha Financial Building 171 Haibin Road, Nansha District, Guangzhou, China
237198World Trade Center Montevideo Avenida Luis Alberto de Herrera 1248 Torre 1, Piso 15, Oficina 1502 Montevideo CP 11300 Uruguay2-3/F, Unit 21A, Qianhai Enterprise Dream Park, No. 63 Qian Wan Yi Road,, Qianhai Shenzhen-Hongkong Cooperation Zone, Shenzhen, China
238199Yorckstraße 21
66 Wellington Street West, Suite 5300, Toronto, Ontario, Canada, M5K 1E6

200
35 Great St Helens, London, United Kingdom, EC3A 6AP

201
HSBC Building 7267 Olaya - 23, 40476, Duesseldorf, GermanyAl Murrooj, Riyadh, Kingdom of Saudi Arabia, 12283 - 2255

203Level 3 Building 4, Gate District, Dubai International Financial Centre, Dubai, United Arab Emirates



296
HSBC Holdings plc Annual Report and Accounts 2016305  


Notes on the Financial Statements

39    Registered Offices
204
13th Floor, Lulu Center Building Salam Street, PO Box 44505, United Arab Emirates

205
833 Three Bentall Centre 595 Burrard Street, Vancouver, British Columbia, Canada, V7X 1C4

206Jayla Place Wickhams Cay I, PO Box 3190, Road Town, British Virgin Islands
210
c/o Hackwood Secretaries Limited One Silk Street, London, United Kingdom, EC2Y 8HQ

211Prince Abdulaziz Ibn Mossaad Ibn Jalawi Street, Riyadh, Kingdom of Saudi Arabia
212
75 Park Lane, Croydon, Surrey, United Kingdom, CR9 1XS

213
Ground Floor, Office Block A Bay Studio Business Park, Fabian Way, Swansea, Wales, United Kingdom, SA1 8QB

214Ground Floor, Dorey Court, Admiral Park, St Peter Port Guernsey GY1 2HT
21532 Rue du Champ de Tir, 44300 NANTES
2161020-885 West Georgia Street, Vancouver BC, V6C3E8
217
11/F, J46 of Room1101,Nansha Financial Mansion, No.171 Haibin Road, Nansha Area, Guangzhou, China

218
Rahejas, 4th Floor, Corner of Main Avenue & V.P Road, Santacruz (West) Mumbai - 400 054

219717 Fifth Avenue, New York, NY 10022
22010 rue Jean Jaurès BP Q5 Noumea 98845 Nouvelle Calédonie
22115 rue Guynemer BP 412 Noumea 98845 Nouvelle Calédonie
222Herrengasse 1-3, 1010 Wien, Austria
2232156 Horse Prairie Drive, Henderson NV 89052 United States
2242 North Jackson Street, Suite 605, Montgomery AL, 36104 United States
2252222 Grand Avenue, Des Moines IA 50312 United States
226c/o The Corporation Trust Company, 100 S. 5th Street-Suite 1075 Minneapolis MN 55401, United States
227545 Washington Blvd., 11th Floor Jersey City NJ 07310 United States
38Non-statutory accounts
The information set out in these accounts does not constitute the Company'sCompany’s statutory accounts for the years ended 31 December 20162017 or 2015.2016. Those accounts have been reported on by the Company'sCompany’s auditors: their reports were unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. The accounts for 20152016 have been delivered to the Registrar of Companies and those for 20162017 will be delivered in due course.


306  
HSBC Holdings plc Annual Report and Accounts 2016
297

 

Shareholder information

Shareholder information
 Page
Fourth interim dividend for 20162017307
298
Interim dividends for 2017307
298
20162017 Annual General Meeting307
298
Earnings Releases and Interim Results307
298
Shareholder enquiries and communications308
299
Stock symbols309
299
Investor relations309
300
Where more information about HSBC is available309
300
Taxation of shares and dividends310
301
Information about the enforceability of judgements made in the US312
302
Exchange controls and other limitations affecting equity security
holders
312302
Dividends on the ordinary shares of HSBC Holdings312302
American DepositoryDepositary Shares312303
Nature of trading market313303
Memorandum and Articles of Association313304
History and development of HSBC313304
Differences in HSBC Holdings/New York Stock Exchange corporate
governance practices
314304
Glossary of accounting terms and US equivalents315
306
20162017 HSBC 20-F reconciliation table316
307
Abbreviations318309

A glossary of terms used in this Annual Report and Accounts can be found in
the Investor Relations section of www.hsbc.com.
Fourth interim dividend for 20162017
The Directors have declared a fourth interim dividend for 20162017 of $0.21 per ordinary share. Information on the scrip dividend scheme and currencies in which shareholders may elect to have the cash dividend paid will be sent to shareholders on or about 87 March 2017.2018. The timetable for the dividend is:
 Footnote 
Announcement 2120 February 20172018
American Depositary Shares (‘ADSs’) quoted ex-dividend in New York22 February 2017
Shares quoted ex-dividend in London, Hong Kong, Paris and Bermuda and American Depositary Shares (‘ADS’) quoted ex-dividend
in New York
 2322 February 20172018
Record date – London, Hong Kong, New York, Paris, Bermuda124
23 February 20172018

Mailing of Annual Report and Accounts 20162017 and/or Strategic Report 20162017 and dividend documentation
 8
7 March 20172018

Final date for receipt by registrars of forms of election, Investor Centre electronic instructions and revocations of standing instructions for scrip dividends 2322 March 20172018
Exchange rate determined for payment of dividends in sterling and Hong Kong dollars 2726 March 20172018
Payment date: dividend warrants, new share certificates or transaction advices and notional tax vouchers mailed and shares credited to stock accounts in CREST 6 April 20172018
1Removals to and from the Overseas Branch register of shareholders in Hong Kong will not be permitted on this date.
Interim dividends for 20172018
The Board has adopted a policy of paying quarterly interim dividends on ordinary shares. Under this policy it is intended to have a pattern of three equal interim dividends with a variable fourth interim dividend. It is envisaged that the first interim dividend in respect of 20172018 will be $0.10 per ordinary share.
Dividends are declared in US dollars and, at the election of the shareholder, paid in cash in one of, or in a combination of, US dollars, pounds sterling and Hong Kong dollars, or, subject to the Board’s determination that a scrip dividend is to be offered in respect of that dividend, may be satisfied in whole or in part by the issue of new shares in lieu of a cash dividend.
20162017 Annual General Meeting
All resolutions considered at the 20162017 Annual General Meeting held at 11.00am on 2228 April 20162017 at the Queen Elizabeth II Conference Centre, London SW1P 3EE were passed on a poll.
Earnings Releases and Interim Results
Earnings Releases are expected to be issued on or around 4 May 20172018 and 3029 October 2017.2018. The Interim Resultsinterim results for the six months to 30 June 20172018 are expected to be issued on 31 July 2017.6 August 2018.


307298
HSBC Holdings plc Annual Report and Accounts 2016

Shareholder enquiries and communications
Enquiries
Any enquiries relating to shareholdings on the share register (for example, transfers of shares, changes of name or address, lost share certificates or dividend cheques) should be sent to the Registrars at the address given below. The Registrars offer an online facility, Investor Centre, which enables shareholders to manage their shareholding electronically.
Principal Register: Hong Kong Overseas Branch Register: Bermuda Overseas Branch Register:
     
Computershare Investor Services PLC Computershare Hong Kong Investor Investors Relations Team
The Pavilions Services Limited HSBC Bank Bermuda Limited
Bridgwater Road 
Rooms 1712-1716, 17th Floor
 6 Front Street
Bristol BS99 6ZZ Hopewell Centre Hamilton HM 11
United Kingdom 183 Queen’s Road East Bermuda
Telephone: +44 (0) 370 702 0137 Hong Kong SAR Telephone: +1 441 299 6737
Email via website: Telephone: +852 2862 8555 Email: hbbm.shareholder.services@hsbc.bm
www.investorcentre.co.uk/contactus Email: hsbc.ecom@computershare.com.hk  
     
Investor Centre: Investor Centre: Investor Centre:
www.investorcentre.co.uk www.investorcentre.com/hk www.investorcentre.com/bm
Any enquiries relating to ADSs should be sent to the depositary:
The Bank of New York Mellon
Depositary ReceiptsShareowner Services
PO Box 30170505000
College Station, TX 77842-3170Louisville, KY 40233-5000
USA
Telephone (US): +1 877 283 5786
Telephone (International): +1 201 680 6825
Email: shrrelations@bnymellon.comshrrelations@cpushareownerservices.com
Website: www.computershare.com/us/contact/Pages/default.aspxwww.mybnymdr.com
Any enquiries relating to shares held through Euroclear France, the settlement and central depositary system for NYSE Euronext Paris, should be sent to the paying agent:
HSBC FranceCACEIS Corporate Trust
103, avenue des Champs Elysées14, rue Rouget de Lisle
75419 Paris Cedex 0892130 Issy-Les-Moulineaux
France
Telephone: +33 1 40 70 22 5657 78 34 28
Email: ct-service-ost@caceis.com
Website: www.hsbc.frwww.caceis.com
If you have elected to receive general shareholder communications directly from HSBC Holdings, it is important to remember that your main contact for all matters relating to your investment remains the registered shareholder, or custodian or broker, who administers the investment on your behalf. Therefore any changes or queries relating to your personal details and holding (including any administration of it) must continue to be directed to your existing contact at your investment manager or custodian or broker. HSBC Holdings cannot guarantee dealing with matters directed to it in error.
Further copies of this Annual Report and Accounts 20162017 may be obtained by writing to the following departments:
For those in Europe, the Middle East
and Africa:
For those in Asia:For those in the Americas:
External AffairsGlobal CommunicationsCommunications (Asia)US Communications
HSBC Holdings plcThe Hongkong and Shanghai BankingHSBC Bank USA, N.A.
8 Canada SquareCorporation Limited1 West 39th Street, 9th Floor
London E14 5HQ1 Queen’s Road CentralNew York, NY 10018
United KingdomHong KongUSA
Electronic communications
Shareholders may at any time choose to receive corporate communications in printed form or to receive notifications of their availability on HSBC’s website. To receive notifications of the availability of a corporate communication on HSBC’s website by email, or revoke or amend an instruction to receive such notifications by email, go to www.hsbc.com/ecomms. If you provide an email address to receive electronic communications from HSBC, we will also send notifications of your dividend entitlements by email. If you received a notification of the availability of this document on HSBC’s website and would like to receive a printed copy, or if you would like to receive future corporate communications in printed form, please write or send an email (quoting your shareholder reference number) to the appropriate Registrars at the address given above. Printed copies will be provided without charge.


HSBC Holdings plcAnnual Report and Accounts 2016
308299

Shareholder information

Chinese translation
A Chinese translation of this Annual Report and Accounts 20162017 will be available upon request after 87 March 20172018 from the Registrars:
Computershare Hong Kong Investor Services Limited Computershare Investor Services PLC
Rooms 1712-1716, 17th Floor The Pavilions
Hopewell Centre Bridgwater Road
183 Queen’s Road East Bristol BS99 6ZZ
Hong Kong United Kingdom
Please also contact the Registrars if you wish to receive Chinese translations of future documents, or if you have received a Chinese translation of this document and do not wish to receive them in future.
chinesetextp2722716feb.jpgchinesetextforaraavailableaf.jpg
Stock symbols
HSBC Holdings ordinary shares trade under the following stock symbols:
London Stock ExchangeHSBAEuronext ParisHSB
Hong Kong Stock Exchange5Bermuda Stock ExchangeHSBC.BH
New York Stock Exchange (ADS)HSBC  
Investor relations
Enquiries relating to HSBC’s strategy or operations may be directed to:
Richard O’Connor, Global Head of Investor RelationsHugh Pye, Head of Investor Relations, Asia-Pacific
HSBC Holdings plcThe Hongkong and Shanghai Banking
8 Canada SquareCorporation Limited
London E14 5HQ1 Queen’s Road Central
United KingdomHong Kong
Telephone: +44 (0) 20 7991 6590Telephone: 852 2822 4908
Email: investorrelations@hsbc.com Telephone: 852 2822 4908
Where more information about HSBC is available
ThisAnnual Report and Accounts 20162017, and other information on HSBC, may be viewed ondownloaded from HSBC’s website: www.hsbc.com.
Reports, statements and information that HSBC Holdings files with the Securities and Exchange Commission are available at www.sec.gov. Investors can also request hard copies of these documents upon payment of a duplicating fee by writing to the SEC at the Office of Investor Education and Advocacy, 100 F Street N.E., Washington, DC 20549-0213 or by emailing PublicInfo@sec.gov. Investors should call the Commission at (1) 202 551 8090 if they require further assistance. Investors may also obtain the reports and other information that HSBC Holdings files at www.nyse.com (telephone number (1) 212 656 3000).
HM Treasury has transposed the requirements set out under CRD IV and issued the Capital Requirements Country-by-Country Reporting Regulations 2013. The legislation requires HSBC Holdings to publish additional information in respect of the year ended 31 December 20162017 by 31 December 2017.2018. This information will be available on HSBC’s website: www.hsbc.com/tax.

309300
HSBC Holdings plc Annual Report and Accounts 2016

Shareholder information

Taxation of shares and dividends
Taxation – UK residents
The following is a summary, under current law, of certain UK tax considerations that are likely to be material to the ownership and disposition of HSBC Holdings ordinary shares. The summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a holder of shares. In particular, the summary deals with shareholders who are resident solely in the UK for UK tax purposes and only with holders who hold the shares as investments and who are the beneficial owners of the shares, and does not address the tax treatment of certain classes of holders such as dealers in securities. Holders and prospective purchasers should consult their own advisers regarding the tax consequences of an investment in shares in light of their particular circumstances, including the effect of any national, state or local laws.
Taxation of dividends
Currently, no tax is withheld from dividends paid by
HSBC Holdings.
UK resident individuals
With effect for the tax year beginning 6 April 2016, UK resident individuals are given angenerally entitled to a tax-free annual tax-free allowance in respect of dividends received. The amount of the allowance is currently £5,000, on dividend income.but will be reduced to £2,000 from 6 April 2018. To the extent that dividend income received
by an individual in the relevant tax year does not exceed the allowance, a nil tax rate will apply. Dividend income in excess of this allowance will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
UK resident companies
Shareholders that are within the charge to UK corporation tax should generally be entitled to an exemption from UK corporation tax on any dividends received from HSBC Holdings. However, the exemptions are not comprehensive and are subject to anti-avoidance rules.
If the conditions for exemption are not met or cease to be satisfied, or a shareholder within the charge to UK corporation tax elects for an otherwise exempt dividend to be taxable, the shareholder will be subject to UK corporation tax on dividends received from HSBC Holdings at the rate of corporation tax applicable to that shareholder.
Scrip dividends
Information on the taxation consequences of the HSBC Holdings scrip dividends offered in lieu of the 20152016 fourth interim dividend and the first, second and third interim dividends for 20162017 was set out in the Secretary’s letters to shareholders of 188 March, 32 June, 2517 August and 3 November 2016.25 October 2017. In no case was the difference between the cash dividend forgone and the market value of the scrip dividend in excess of 15% of the market value. Accordingly, for individual shareholders, the amount of the dividend income chargeable to tax, and the acquisition price of the HSBC Holdings ordinary shares for UK capital gains tax purposes, was the cash dividend forgone.
Taxation of capital gains
The computation of the capital gains tax liability arising on disposals of shares in HSBC Holdings by shareholders subject to UK tax on capital gains can be complex, partly depending on whether, for example, the shares were purchased since April 1991, acquired in 1991 in exchange for shares in The Hongkong and Shanghai Banking Corporation Limited, or acquired subsequent to 1991 in exchange for shares in other companies.
For capital gains tax purposes, the acquisition cost for ordinary shares is adjusted to take account of subsequent rights and capitalisation issues. Any capital gainCapital gains arising on a disposal by a UK company may also be adjusted to take account of indexation allowance. For assets acquired on or before 1 January 2018, legislation proposed in Finance Bill 2017-18 freezes the level of
 
allowance.indexation allowance that is given in calculating a company’s chargeable gains at the value that would apply to the disposal of an asset in December 2017. For assets acquired from 1 January 2018 onwards, legislation proposed in Finance Bill 2017-18 removes any indexation allowance on disposal. If in doubt, shareholders are recommended to consult their professional advisers.
Stamp duty and stamp duty reserve tax
Transfers of shares by a written instrument of transfer generally will be subject to UK stamp duty at the rate of 0.5% of the consideration paid for the transfer (rounded up to the next £5), and such stamp duty is generally payable by the transferee. An agreement to transfer shares, or any interest therein, normally will give rise to a charge to stamp duty reserve tax at the rate of 0.5% of the consideration. However, provided an instrument of transfer of the shares is executed pursuant to the agreement and duly stamped before the date on which the stamp duty reserve tax becomes payable, under the current published practice of UK HM Revenue and Customs (‘HMRC’) it will not be necessary to pay the stamp duty reserve tax, nor to apply for such tax to be cancelled. Stamp duty reserve tax is generally payable by the transferee.
Paperless transfers of shares within CREST, the UK’s paperless share transfer system, are liable to stamp duty reserve tax at the rate of 0.5% of the consideration. In CREST transactions, the tax is calculated and payment made automatically. Deposits of shares into CREST generally will not be subject to stamp duty reserve tax, unless the transfer into CREST is itself for consideration. Following the case HSBC pursued before the European Court of Justice (Case C-569/07 HSBC Holdings plc and Vidacos Nominees Ltd v The Commissioners for HM Revenue & Customs) and a subsequent case in relation to depositary receipts, HMRC now accepts that the charge to stamp duty reserve tax at 1.5% on the issue of shares (and transfers integral to capital raising) to a depositary receipt issuer or a clearance service is prohibited.incompatible with European Union law, and will not be imposed.
Taxation – US residents
The following is a summary, under current law, of the principal UK tax and US federal income tax considerations that are likely to be material to the ownership and disposition of shares or American Depositary Shares (‘ADS’s)ADSs’) by a holder that is a resident of the US for US federal income tax purposes (a ‘US holder’)holder, as defined below, and who is not resident in the UK for UK tax purposes.
The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a holder of shares or ADSs. In particular, the summary deals only with US holders that hold shares or ADSs as capital assets, and does not address the tax treatment of holders that are subject to special tax rules, such as banks, tax-exempt entities, insurance companies, dealers in securities or currencies, persons that hold shares or ADSs as part of an integrated investment (including a ‘straddle’ or ‘hedge’) comprised of a share or ADS and one or more other positions, and persons that own, directly or indirectly, 10% or more of the voting stock of HSBC Holdings. This discussion is based on laws, treaties, judicial decisions and regulatory interpretations in effect on the date hereof, all of which are subject to change.
For the purposes of this discussion, a ‘US holder’ is a beneficial holder that is a citizen or resident of the United States, a US domestic corporation or otherwise is subject to US federal income taxes on a net income basis in respect thereof.
Holders and prospective purchasers should consult their own advisers regarding the tax consequences of an investment in shares or ADSs in light of their particular circumstances, including the effect of any national, state or local laws.
Any US federal tax advice included in this Annual Report and Accounts 2017 is for informational purposes only; it was not intended or written to be used, and cannot be used, for the purpose of avoiding US federal tax penalties.

HSBC Holdings plc301

Shareholder information

Taxation of dividends
Currently, no tax is withheld from dividends paid by HSBC Holdings. For US tax purposes, a US holder must include cash dividends paid on the shares or ADSs in ordinary income on the date that such holder or the ADS depositary receives them, translating dividends paid in UK pounds sterling into US dollars using the exchange rate in effect on the date of receipt. A US holder that elects to receive shares in lieu of a cash dividendmust include in ordinary income the fair market value of such


310
HSBC Holdings plc Annual Report and Accounts 2016

shares on the dividend payment date, and the tax basis of those shares will equal such fair market value.
Subject to certain exceptions for positions that are held for less than 61 days, or are hedged, and subject to a foreign corporation being considered a ‘qualified foreign corporation’ (which includes not being classified for US federal income tax purposes as a passive foreign investment company), certain dividends (‘qualified dividends’) received by an individual US holder generally will be subject to US taxation at preferential rates. Based on the company’s audited financial statements and relevant market and shareholder data, HSBC Holdings was not and does not anticipate being classified as a passive foreign investment company. Accordingly, dividends paid on the shares or ADSs generally should be treated as qualified dividends.
Taxation of capital gains
Gains realised by a US holder on the sale or other disposition of shares or ADSs normally will not be subject to UK taxation unless at the time of the sale or other disposition the holder carries on a trade, profession or vocation in the UK through a branch or agency or permanent establishment and the shares or ADSs are or have been used, held or acquired for the purposes of such trade, profession, vocation, branch or agency or permanent establishment. Such gains will be included in income for US tax purposes, and will be long- termlong-term capital gains if the shares or ADSs were held for more than one year. A long-term capital gain realised by an individual US holder generally will be subject to US tax at preferential rates.
Inheritance tax
Shares or ADSs held by an individual whose domicile is determined to be the US for the purposes of the United States-United Kingdom Double Taxation Convention relating to estate and gift taxes (the ‘Estate Tax Treaty’) and who is not for such purposes a national of the UK will not, provided any US federal estate or gift tax chargeable has been paid, be subject to UK inheritance tax on the individual’s death or on a lifetime transfer of shares or ADSs except in certain cases where the shares or ADSs (i) are comprised in a settlement (unless, at the time of the settlement, the settlor was domiciled in the US and was not a national of the UK), (ii) are part of the business property of a UK permanent establishment of an enterprise, or (iii) pertain to a UK fixed base of an individual used for the performance of independent personal services. In such cases, the Estate Tax Treaty generally provides a credit against US federal tax liability for the amount of any tax paid in the UK in a case where the shares or ADSs are subject to both UK inheritance tax and to US federal estate or gift tax.
Stamp duty and stamp duty reserve tax – ADSs
If shares are transferred to a clearance service or American Depositary Receipt (‘ADR’) issuer (which will include a transfer of shares to the Depositary) under the current published HMRC practice, UK stamp duty and/or stamp duty reserve tax will be payable. The stamp duty or stamp duty reserve tax is generally payable on the consideration for the transfer and is payable at the aggregate rate of 1.5%.
The amount of stamp duty reserve tax payable on such a transfer will be reduced by any stamp duty paid in connection with the same transfer.
No stamp duty will be payable on the transfer of, or agreement to transfer, an ADS, provided that the ADR and any separate instrument of transfer or written agreement to transfer remain at all times outside the UK, and provided further that any such transfer or written agreement to transfer is not executed in the UK. No stamp duty reserve tax will be payable on a transfer of, or agreement to transfer, an ADS effected by the transfer of an ADR.
US backup withholding tax and information reporting
Distributions made on shares or ADSs and proceeds from the sale of shares or ADSs that are paid within the US, or through certain financial intermediaries to US holders, are subject to information reporting and may be subject to a US ‘backup’ withholding tax unless, in general, the US holder complies with certain certification procedures or is a corporation or other person exempt from such withholding. Holders that are not US personstaxpayers generally are not subject to information reporting or backup withholding tax, but may be required to comply with applicable certification procedures to establish that they are not US personstaxpayers in order to avoid the application of such information reporting requirements or backup withholding tax to payments received within the US or through certain financial intermediaries.



HSBC Holdings plc Annual Report and Accounts 2016
311

Shareholder information

Information about the enforceability of
judgementsjudgments made in the US
HSBC Holdings is a public limited company incorporated in England and Wales. Most of the Directors and executive officers live outside the US. As a result, it may not be possible to serve process on such persons or HSBC Holdings in the US or to enforce judgementsjudgments obtained in US courts against them or HSBC Holdings based on civil liability provisions of the securities laws of the US. There is doubt as to whether English courts would enforce:
civil liabilities under US securities laws in original actions; or
judgementsjudgments of US courts based upon these civil liability provisions.
In addition, awards of punitive damages in actions brought in the US or elsewhere may be unenforceable in the UK. The enforceability of any judgementjudgment in the UK will depend on the particular facts of the case as well as the laws and treaties in effect at the time.
Exchange controls and other limitations
affecting equity security holders
Other than certain economic sanctions that may be in force from time to time, there are currently no UK laws, decrees or regulations that would prevent the import or export of capital or remittance of distributable profits by way of dividends and other payments to holders of HSBC HoldingsHoldings’ equity securities who are not residents of the UK. There are also no restrictions under the laws of the UK or the terms of the Memorandum and Articles of Association concerning the right of non-resident or foreign owners to hold HSBC HoldingsHoldings’ equity securities or, when entitled to vote, to do so.
Dividends on the ordinary shares of
HSBC Holdings
HSBC Holdings has paid dividends on its ordinary shares every year without interruption since it became the HSBC Group holding company by a scheme of arrangement in 1991. The dividends declared, per ordinary share, in respect of each of the last five years were:

302HSBC Holdings plc

 
First
interim

Second
interim

Third
interim

Fourth
interim1

Total2

2017$0.10
0.10
0.10
 
£0.079
0.076
0.076
 
 
First
interim

Second
interim

Third
interim

Fourth
interim1
Total2
HK$0.780
0.781
0.780
 
2016$0.100
0.100
0.100
0.2100.510$0.100
0.100
0.100
0.210
0.510
£0.075
0.077
0.080
0.1710.403£0.075
0.077
0.080
0.171
0.403
HK$0.776
0.776
0.776
1.6283.956HK$0.776
0.776
0.776
1.628
3.956
2015$0.100
0.100
0.100
0.2100.510$0.100
0.100
0.100
0.210
0.510
£0.064
0.064
0.066
0.1420.336£0.064
0.064
0.066
0.142
0.336
HK$0.775
0.775
0.775
1.6283.953HK$0.775
0.775
0.775
1.628
3.953
2014$0.100
0.100
0.100
0.2000.500$0.100
0.100
0.100
0.200
0.500
£0.059
0.062
0.064
0.1280.313£0.059
0.062
0.064
0.128
0.313
HK$0.775
0.777
0.776
1.5513.879HK$0.775
0.777
0.776
1.551
3.879
2013$0.100
0.100
0.100
0.1900.490$0.100
0.100
0.100
0.190
0.490
£0.066
0.064
0.062
0.1140.306£0.066
0.064
0.062
0.114
0.306
HK$0.776
0.775
0.775
1.4733.799HK$0.776
0.775
0.775
1.473
3.799
2012$0.090
0.090
0.090
0.1800.450
£0.058
0.056
0.056
0.1110.281
HK$0.698
0.698
0.698
1.3953.489
1The fourth interim dividends have been translated into pounds sterling and Hong Kong dollars at the closing rate on 31 December. The fourth interim dividend for 20162017 of $0.21 per ordinary share will be paid on 6 April 2017.2018.
2
The above dividends declared are accounted for as disclosed in Note 8 on the Financial Statements.
American Depositary Shares
A holder of HSBC HoldingsHoldings’ American Depositary Shares (‘ADSs’) may have to pay, either directly or indirectly (via the intermediary through whom their ADSs are held) fees to the Bank of New York Mellon as depositary. Fees may be paid or
 

recovered in several ways: by deduction from amounts distributed; by selling a portion of distributable property; by deduction from dividend distributions; by directly invoicing the holder; or by charging the intermediaries who act for them. Fees for the holders of the HSBC ADSs include:

For:HSBC ADS holders must pay:
Each issuance of HSBC ADSs, including as a result of a distribution of shares (including through a stock dividend, stock split or distribution of rights or other property)$5.00 (or less) per 100 HSBC ADSs or portion thereof
Each cancellation of HSBC ADSs, including if the deposit agreement terminates$5.00 (or less) per 100 HSBC ADSs or portion thereof
Transfer and registration of shares on our share register to/from the holder’s name to/from the name of The Bank of New York Mellon or its agent when the holder deposits or withdraws sharesRegistration or transfer fees (of which there currently are none)
Conversion of non-US currency to US dollarsCharges and expenses incurred by The Bank of New York Mellon with respect to the conversion
Each cash distribution to HSBC ADS holders$0.02 or less per ADS
Transfers of HSBC ordinary shares to the depositary in exchange for HSBC ADSsAny applicable taxes and/or other governmental charges
Distribution of securities by the Depositorydepository to HSBC ADS holdersA fee equivalent to the fee that would be payable if securities distributed to you had been shares and those shares had been deposited for issuance of ADSs
Any other charges incurred by the depositary or its agents for servicing shares or other securities depositedAs applicable
The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
The depositary has agreed to reimburse us for expenses we incur, and to pay certain out-of-pocket expenses and waive certain fees, in connection with the administration, servicing and maintenance of our ADS programme. There are limits on the amount of expenses for which the depositary will reimburse
us. The amount of reimbursement available is not tied to the amount of fees the depositary collects from holders of ADSs. During the year ended 31 December 2016,2017, the depositary reimbursed, paid and/or waived fees and expenses totalling $449,108$106,980 in connection with the administration, servicing and maintenance of the programme.


312
HSBC Holdings plc Annual Report and Accounts 2016

Nature of trading market
HSBC Holdings ordinary shares are listed or admitted to trading on the London Stock Exchange (‘LSE’), the Hong Kong Stock Exchange (‘HKSE’), Euronext Paris, the Bermuda Stock Exchange, and on the New York Stock Exchange (‘NYSE’) in the form of ADSs. HSBC Holdings maintains its principal share register in England and overseas branch share registers in Hong Kong and Bermuda (collectively, the ‘share register’).
As at 31 December 2016,2017, there were a total of 204,784200,751 holders of record of HSBC Holdings ordinary shares on the share register.
As at 31 December 2016,2017, a total of 19,401,18724,173,525 of the HSBC Holdings ordinary shares were registered in the HSBC HoldingsHoldings’ share register in the name of 13,98514,007 holders of record with addresses in the US. These shares represented 0.10%0.12% of the total HSBC Holdings ordinary shares in issue.
As at 31 December 2016,2017, there were 6,6226,157 holders of record of ADSs holding approximately 160.4m161.3m ADSs, representing approximately 801.8m806.7m HSBC Holdings ordinary shares, 6,4846,045 of these holders had addresses in the US, holding approximately 160.3m161.3m ADSs, representing 801.6m806.6m HSBC Holdings ordinary shares. At 31 December 2016,2017, approximately 4.0% of the HSBC Holdings ordinary shares were represented by ADSs held by holders of record with addresses in the US.
The following table shows, for the years, calendar quarters and months indicated, the highest and lowest prices for the HSBC Holdings ordinary shares and ADSs. These are based on mid-market closing prices at close of business on the LSE, HKSE, Euronext Paris, NYSE and the Bermuda Stock Exchange. Past share price performance should not be regarded as a guide to future performance.

High and low mid-market prices
 LondonHong KongNew YorkParisBermuda
 $0.50 shares$0.50 shares
ADSs1
$0.50 shares$0.50 shares
 High
Low
High
Low
High
Low
High
Low
High
Low
 pence
pence
HK$
HK$
$
$
euro
euro
$
$
2016680
416
65.8
45.8
43.0
29.3
8.0
5.1
8.1
5.8
2015649
486
77.5
57.1
50.2
37.0
9.1
6.6
9.6
7.6
2014681
589
86.1
72.2
56.0
46.5
8.4
7.1
11.0
9.4
2013770
647
90.4
79.3
58.6
50.7
9.1
7.7
11.4
10.5
2012655
491
82.0
59.5
53.1
38.3
8.0
5.8
10.5
7.6
           
2016          
4th Quarter680
588
65.8
57.5
43.0
37.0
8.0
6.7
8.1
7.5
3rd Quarter589
462
60.0
46.8
38.7
30.0
6.9
5.4
7.6
6.0
2nd Quarter472
416
52.9
45.8
34.4
29.3
6.0
5.1
6.7
5.8
1st Quarter523
420
60.4
47.8
38.6
30.7
7.2
5.4
7.6
5.9
2015          
4th Quarter545
494
63.3
58.9
40.8
37.9
7.7
6.7
8.1
7.6
3rd Quarter595
486
71.4
57.1
46.2
37.0
8.5
6.6
9.2
8.5
2nd Quarter649
570
77.5
66.6
50.2
42.9
9.1
7.9
9.6
8.6
1st Quarter627
560
74.0
64.7
47.3
41.6
8.4
7.5
9.2
8.3
           
2017          
January688
662
66.8
63.0
43.0
40.7
8.0
7.6
8.4
8.4
           
2016          
December680
627
65.8
61.2
43.0
39.5
8.0
7.4
8.1
7.9
November643
595
61.7
57.5
40.0
37.0
7.6
6.7
8.1
7.5
October628
588
59.4
57.8
38.6
37.4
7.0
6.7
7.8
7.5
September589
559
60.0
57.2
38.7
36.8
6.9
6.5
7.6
7.6
August564
483
57.5
50.8
37.2
32.2
6.7
5.7
7.0
6.7
July498
462
50.8
46.8
32.8
30.0
5.9
5.4
6.0
6.0
1HSBC Holdings plcIn New York each ADS represents five underlying ordinary shares.303

Shareholder information

High and low mid-market closing prices
 LondonHong KongNew YorkParisBermuda
 $0.50 shares $0.50 shares 
ADSs1
 $0.50 shares $0.50 shares 
 High
Low
High
Low
High
Low
High
Low
High
Low
 pence
pence
HK$
HK$
$
$
euro
euro
$
$
2017770
621
80.0
62.1
51.7
39.7
8.7
7.4
10.3
7.9
2016680
416
65.8
45.8
43.0
29.3
8.0
5.1
8.1
5.8
2015649
486
77.5
57.1
50.2
37.0
9.1
6.6
9.6
7.6
2014681
589
86.1
72.2
56.0
46.5
8.4
7.1
11.0
9.4
2013770
647
90.4
79.3
58.6
50.7
9.1
7.7
11.4
10.5
2017          
4th Quarter769
725
80.0
75.1
51.7
48.1
8.7
8.2
10.3
9.6
3rd Quarter770
708
79.4
72.7
50.8
46.4
8.6
7.9
9.9
8.7
2nd Quarter716
621
72.8
62.1
46.5
39.7
8.1
7.4
8.8
7.9
1st Quarter712
646
69.0
62.3
44.1
40.2
8.4
7.5
8.6
7.9
2016          
4th Quarter680
588
65.8
57.5
43.0
37.0
8.0
6.7
8.1
7.5
3rd Quarter589
462
60.0
46.8
38.7
30.0
6.9
5.4
7.6
6.0
2nd Quarter472
416
52.9
45.8
34.4
29.3
6.0
5.1
6.7
5.8
1st Quarter523
420
60.4
47.8
38.6
30.7
7.2
5.4
7.6
5.9
2018          
January796
751
85.8
79.9
55.6
51.6
8.9
8.5
10.8
10.3
2017          
December769
725
80.0
76.1
51.7
48.5
8.7
8.2
10.3
9.6
November745
730
78.0
75.1
49.8
48.1
8.5
8.2
9.9
9.6
October763
734
78.6
76.0
50.6
48.7
8.5
8.3
9.9
9.8
September750
708
76.7
74.2
49.4
47.5
8.4
7.9
9.9
9.5
August770
734
79.4
73.8
50.8
47.2
8.6
8.0
9.9
9.5
July757
712
78.5
72.7
50.1
46.4
8.5
8.1
9.8
8.7
In New York each ADS represents five underlying ordinary shares.
Memorandum and Articles of Association
The disclosure under the caption ‘Memorandum and Articles of Association’ contained in Form 20F for the years ended 31 December 2000, 2001 and 2014 is incorporated by reference herein.
History and development of HSBC
20162017In February we announced our decisionWe became the first foreign bank to remain headquarteredwin permission for a majority-owned securities joint venture in the UK.mainland China.
20162017In July weWe returned a total of $3bn to shareholders through share buy-backs.
2017We completed the salewind-down of our entire businessUS consumer and mortgage lending (‘CML’) run-off portfolio with asset sales of $7.0bn in Brazil to Banco Bradesco S.A. for $4.8bn in cash.2017.
20162017In August we commenced a share buy-back onOur five-year Deferred Prosecution Agreement with the ordinary sharesUS Department of $0.50 each for up to a maximum consideration of $2.5bn.
2016In November we announced the sale of our businessJustice expired in Lebanon.December.


HSBC Holdings plc Annual Report and Accounts 2016
313

Shareholder information

Differences in HSBC Holdings/New York Stock
Stock Exchange corporate governance
practices
Under the NYSE’s corporate governance rules for listed companies and the applicable rules of the SEC, as a NYSE-listed foreign private issuer, HSBC Holdings must disclose any significant ways in which its corporate governance practices differ from those followed by US companies subject to NYSE listing standards. HSBC Holdings believes the following to be the significant differences between its corporate governance practices and NYSE corporate governance rules applicable to US companies.
US companies listed on the NYSE are required to adopt and disclose corporate governance guidelines. The Listing Rules of the FCA require each listed company incorporated in the UK to include in its Annual Report and Accounts a statement of how it has applied the principles of The UK Corporate Governance Code issued by the Financial Reporting Council and a statement as to whether or not it has complied with the code provisions of The UK Corporate Governance Code throughout the accounting period
covered by the Annual Report and Accounts. A company that has not complied with the code provisions, or complied with only some of the code provisions or (in the case of provisions whose requirements are of a continuing nature) complied for only part of an accounting period covered by the report, must specify the code provisions with which it has not complied, and (where relevant) for what part of the reporting period such non-compliance continued, and give reasons for any non-compliance. As stated above, HSBC Holdings complied throughout 20162017 with the applicable code provisions of The UK Corporate Governance Code. The UK Corporate Governance Code does not require HSBC Holdings to disclose the full range of corporate governance guidelines with which it complies.
Under NYSE standards, companies are required to have a nominating/corporate governance committee composed entirely of directors determined to be independent in accordance with the NYSE’s corporate governance rules. All of the members of the Nomination Committee during 20162017 were independent non-executive Directors, as determined in accordance with the UK Corporate Governance Code. The terms of reference of our Nomination Committee, which comply with the UK Corporate Governance Code, require a majority of members to be independent non-executive Directors. In addition to identifying individuals qualified to become Board members, a nominating/corporate governance committee must develop and recommend to the Board a set of corporate governance principles. The Nomination Committee’s terms of reference do not require it to develop and recommend corporate governance principles for HSBC Holdings, as HSBC Holdings is subject to the corporate governance principles of The UK Corporate Governance Code. The Board of Directors is responsible under its terms of reference for the development and review of Group policies and practices on corporate governance.
Under the NYSE standards, companies are required to have a compensation committee composed entirely of directors determined to be independent in accordance with the NYSE’s corporate governance rules. All of the members of the Group Remuneration Committee during 20162017 were independent non-executive Directors, as determined in accordance with the UK Corporate Governance Code. The terms of reference of our Group Remuneration Committee, which comply with the UK Corporate

304HSBC Holdings plc

Governance Code, require at least three members to be independent non-executive Directors. A compensation committee must review and approve corporate goals and objectives relevant to chief executive officer compensation and evaluate a chief executive officer’s performance in light of these goals and objectives. The Group Remuneration Committee’s terms of reference require it to review and approve performance-based remuneration of the executive Directors by reference to corporate goals and objectives that are set by the Board of Directors.
Pursuant to NYSE listing standards, non-management directors must meet on a regular basis without management present and independent directors must meet separately at least once per year.
During 2016,The Group Chairman meets with the independent non-executive Directors and the Group Chairman met seven times without the other executive Directors. The non-executive Directors also met seven times without the Group Chairman, including to appraise the Group Chairman’s performance.in attendance after each Board meeting and otherwise, as necessary. HSBC Holdings’ practice, in this regard, complies with The UK Corporate Governance Code.
In accordance with the requirements of The UK Corporate Governance Code, HSBC Holdings discloses in its Annual Report and Accounts how the Board, its committees and the Directors are evaluated (on page 170)185) and provides extensive information regarding Directors’ compensation in the Directors’ Remuneration Report (on page 191)186). The terms of reference of HSBC Holdings’ Group Audit, Group Nomination, Group Remuneration and Group Risk Committees are available at www.hsbc.com/investor-relations/governance/board-committees.
NYSE listing standards require US companies to adopt a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.
In 2009, the Board endorsed three HSBC Values statements underpinned by the continued use of our Business Principles, in replacement of the Group Business Principles and Values. In addition to the HSBC Values statements and Business Principles (and previously the Group Business Principles and Values), which apply to the employees of all our companies, pursuant to the requirements of the Sarbanes-Oxley Act the Board of HSBC Holdings has adopted a Code of Ethics applicable to the Group Chairman and the Group Chief Executive, as the principal executive officers, and to the Group Finance Director and Group Chief Accounting Officer. HSBC Holdings’ Code of Ethics is available on www.hsbc.com/about-hsbc/corporate-governance/
obligations-of-senior-financial-officers or from the Group Company Secretary at 8 Canada Square, London E14 5HQ. If the Board amends or waives the provisions of the Code of Ethics, details of the amendment or waiver will appear at the same website address. During 2016,2017, HSBC Holdings made no amendments to its Code of Ethics and granted no waivers from its provisions. The references to the standards to be followed by all employees reflect the Board’s endorsement of HSBC Values statements underpinned by the continued use of our Business Principles. The HSBC Values statements and Business Principles are available on www.hsbc.com/citizenship/our-approach/our-values.
Under NYSE listing rules applicable to US companies, independent directors must comprise a majority of the board of directors. Currently, more than three-quarters of HSBC Holdings’ Directors are independent.
Under The UK Corporate Governance Code the HSBC Holdings Board determines whether a Director is independent in character and judgement and whether there are relationships or circumstances that are likely to affect, or could appear to affect, the Director’s judgement. Under the NYSE rules a director cannot qualify as independent unless the board affirmatively determines that the director has no material relationship with the listed company; in addition the NYSE rules prescribe a list of circumstances in which a director cannot be independent. The UK Corporate Governance Code requires a company’s board to assess director independence by affirmatively concluding that the director is independent of management and free from any business or other relationship that could materially interfere with the exercise of independent judgement. Lastly, a chief executive officer of a US company listed on the NYSE must annually certify that he or she is not aware of any violation by the company of NYSE corporate governance standards. In accordance with NYSE listing rules applicable to foreign private issuers, HSBC Holdings’ Group Chief Executive is not required to provide the NYSE with this annual compliance certification. However, in accordance with rules applicable to both US companies and foreign private issuers, the Group Chief Executive is required promptly to notify the NYSE in writing after any executive officer becomes aware of any material non-compliance with the NYSE corporate governance standards applicable to HSBC Holdings.
HSBC Holdings is required to submit annual and interim written affirmations of compliance with applicable NYSE corporate governance standards, similar to the affirmations required of NYSE-listed US companies.



314
HSBC Holdings plc Annual Report and Accounts 2016
305

Shareholder information

Glossary of accounting terms and US equivalents
Accounting termUS equivalent or brief description
AccountsFinancial Statements
Articles of AssociationArticles of incorporation
Called up share capitalShares issued and fully paid
CreditorsPayables
DebtorsReceivables
Deferred taxDeferred income tax
Finance leaseCapital lease
FreeholdOwnership with absolute rights in perpetuity
Interests in associates
and joint ventures
Interests in entities over which we have significant influence or joint control, which are accounted for using the equity method
Loans and advancesLoans
Loan capitalLong-term debt
Nominal valuePar value
One-offNon-recurring
Ordinary sharesCommon stock
OverdraftA line of credit, contractually repayable on demand unless a fixed-term has been agreed, established through a customer’s current account
Preference sharesPreferred stock
PremisesProperty
ProvisionsLiabilities of uncertain timing or amount
Share premium accountAdditional paid-in capital
Shares in issueShares outstanding
Write-offsCharge-offs


306
HSBC Holdings plcAnnual Report and Accounts 2016315

A
Reconciliations
Form 20-F Item Number and CaptionLocationPage
   
PART I  
1. Identity of Directors, Senior Management and AdvisersNot required for Annual Report—
2. Offer Statistics and Expected TimetableNot required for Annual Report—
3. Key Information  
A. Selected Financial DataReport of the Directors:Consolidated income statement, Consolidated balance sheet33, 47
Shareholder informationInformation31, 44, 307298
Note 8 on the Financial Statements - Dividends242
Note 9 on the Financial Statements – Earnings per share242-243
B. Capitalisation and IndebtednessNot required for Annual Report—
C. Reasons for the Offer and use of ProceedsNot required for Annual Report—
D. Risk FactorsReport of the Directors: Risk91-10198-106
4. Information on the Company  
A. History and Development of the CompanyShareholder information298
Strategic Report10-252-32
 Report of the Directors: Financial Review30-8832-166
B. Business OverviewShareholder InformationStrategic Report276, 285, 3142-32
 Report of the Directors: Financial Review:Review - Regulation and Supervision81-8886-93
Report of the Directors: Financial Review - Global businesses and geographical regions18-22
 Report of the Directors: Financial Review30-8832-166
C. Organisational StructureStrategic Report18-212-32
 Note 18 on the Financial Statements – Investments in subsidiaries285260-261
D. Property, Plants and EquipmentNot Applicable—
4 A. Unresolved Staff CommentsNot Applicable—
5. Operating and Financial Review and Prospects  
A. Operating ResultsReport of the Directors: Financial Review30-8832-166
B. Liquidity and Capital Resources
Report of the Directors: Risk – Liquidity and Funding
Report of the Directors: Risk – Financial Review–Risk–Liquidity and Funding Risk Profile
Report of the Directors: Risk – Financial Review– Risk–Insurance Manufacturing Operations Risk Profile


108-110113-117
145-151
162-163118-120

Note 28 on the Financial Statements – Maturity analysis of assets, liabilities and off-balance commitments271-275
Note 32 on the Financial Statements – Contingent liabilities, contractual commitments and guarantees279
C. Research and Development, Patents and Licences, etc.Not Applicable—
D. Trend InformationStrategic Report122-32
 Report of the Directors: Financial Review30-8832-166
Report of the Directors: Financial Review–Risk–Top and emerging risks, Areas of special interest95-98, 106
E. Off-Balance Sheet Arrangements
Note 19 – Notes28 on the Financial Statements – Maturity analysis of assets, liabilities and offbalance sheet commitment

268-270271-275
 Note 29 – Notes on the Financial Statements – Offsetting of financial assets and financial liabilities279-283275-276
 
Note 33 – Notes32 on the Financial Statements – Contingent liabilities, contractual commitments and guarantees

287279
F. Tabular disclosure of Contractual ObligationsReport of the Directors: Financial Review - Contractual obligations54
6. Directors, Senior Management and Employees  
A. Directors and Senior ManagementReport of the Directors: Corporate Governance Report170-179166-185
B. CompensationReport of the Directors: Directors’ Remuneration Report191-212186-209
C. Board PracticesReport of the Directors: Corporate Governance Report170-175, 179-180, 144-182166-185
 
Report of the Directors: Directors’ Remuneration Report

193-194186-209
D. EmployeesStrategic
Report of the Directors: Corporate Governance Report

24183
Note 5 on the Financial Statements – Employee compensation and benefits233-238
E. Share OwnershipReport of the Directors: Corporate Governance Report188-190, 203-204179-182
 
Report of the Directors: Directors’ Remuneration Report
Note 5 – Notes on the Financial Statements – Employee compensation and benefits
Note 32 – Notes31 on the Financial Statements – Called up share capital and other equity instruments

193-210198
238-244233-238
285-287
277-278

7. Major Shareholders and Related Party Transactions  
A. Major ShareholdersReport of the Directors: Corporate Governance Report187-188181-182
B. Related Party TransactionsNote 36 – Notes35 on the Financial StatementsStatements: – Related party transactions294-296286-288
C. Interests of Experts and CounselNot required for Annual Report—
8. Financial Information  
A. Consolidated Statements and Other Financial InformationFinancial Statements213-306211-297
Report of the Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of HSBC Holdings plc210
 Shareholder Information307298

HSBC Holdings plc307

Shareholder information

Form 20-F Item Number and CaptionLocationPage
B. Significant ChangesNot ApplicableNote 36 on the Financial Statements – Events after the balance sheet date—
298
9. The Offer and Listing  
A. Offer and Listing DetailsShareholder Information312-313
300
B. Plan of DistributionNot required for Annual Report—
C. MarketsShareholder Information312-313
300
D. Selling ShareholdersNot required for Annual Report—
E. DilutionNot required for Annual Report—
F. Expenses of the IssueNot required for Annual Report—
HSBC HOLDINGS PLC

HSBC Holdings plc Annual Report and Accounts 2016
316

Reconciliations (continued)
Form 20-F Item Number and CaptionLocationPage
10. Additional Information
A. Share CapitalNot required for Annual Report—
B. Memorandum and Articles of AssociationShareholder Information313304
C. Material ContractsNote 35 – Notes on
Report of the Financial StatementsDirectors: Directors’ Remuneration Report

257-263189
D. Exchange ControlsShareholder Information312302
E. TaxationShareholder Information279-280301
F. Dividends and Paying AgentsNot required for Annual Report—
G. Statements by ExpertsNot required for Annual Report—
H. Documents on DisplayShareholder Information278300
I. Subsidiary InformationNot Applicable—
11. Quantitative and Qualitative Disclosures About Market Risk
Report of the Directors: Financial ReviewReview–Risk–Market risk profile

30-43150-156
 Note 14 – Notes on the Financial Statements - Derivatives227-229253-255
Note 15 on the Financial Statements – Financial investment255-256
12. Description of Securities Other than Equity Securities  
A. Debt SecuritiesNot required for Annual Report—
B. Warrants and RightsNot required for Annual Report—
C. Other SecuritiesNot required for Annual Report—
D. American Depositary SharesShareholder Information312303
PART II  
13. Defaults, Dividends Arrearages and DelinquenciesNot Applicable—
14. Material Modifications to the Rights of Securities Holders and Use of ProceedsNot Applicable—
15. Controls and ProceduresReport of Independent Registered Public Accounting Firm to the Board of Directors and Shareholders of HSBC Holdings plc213-214210
 Report of the Directors: Financial ReviewOther information79
16. [Reserved]  
A.16A. Audit Committee Financial ExpertReport of the Directors: Corporate Governance141174
B.16B. Code of EthicsShareholder Information—
C.16C. Principal Accountant Fees and ServicesReport ofNote 6 on the Directors: Corporate GovernanceFinancial Statements - Auditors’ remuneration141239
Note 6 – Notes on the Financial Statements212
D.16D. Exemptions from the Listing Standards for Audit CommitteesNot Applicable—
E.16E. Purchases of Equity Securities by the Issuer and Affiliated PurchasersReport of the Directors: Corporate Governance147181
F.16F. Change in Registrant’s Certifying AccountantNot Applicable—
G.16G. Corporate GovernanceShareholder Information314304
PART III  
17. Financial StatementsNot Applicable—
18. Financial StatementsFinancial Statements183-275211-297
19. Exhibits (including Certifications) *
HSBC HOLDINGS PLC


308
HSBC Holdings plcAnnual Report and Accounts 2016317


Other Information

Abbreviations
Currencies 
CA$Canadian dollar
EGPEgyptian pound
€Euro
HK$Hong Kong dollar
MXNMexican peso
RMBChinese renminbi
S$SGDSingapore dollar
$United States dollar
A 
ABS1
ABS¹		Asset-backed security
ADRAmerican Depositary Receipt
ADSAmerican Depositary Share
AFSAvailable for sale
AGMAnnual General Meeting
AIEAAverage interest-earning assets
ALCMAsset, Liability and Capital Management
ALCOAsset and Liability Management Committee
AMLAnti-money laundering
ARM1
AML DPA		Adjustable-rate mortgageFive-year deferred prosecution agreement with the US Department of Justice, entered into in December 2012
ARSAPEArgentine pesoAnnual Premium Equivalent
ASEANAssociation of Southeast Asian Nations
AT1Additional tier 1
B 
BarionBarion Funding Limited, a term-funding vehicle
Basel CommitteeBasel Committee on Banking Supervision
Basel II1
II¹		2006 Basel Capital Accord
Basel III1
III¹		Basel Committee’s reforms to strengthen global capital and liquidity rules
BBABritish Bankers’ Association
BEPSThe OECD Base Erosion and Profit Shifting initiative
BoComBank of Communications Co., Limited, one of China’s largest banks
BoEBank of England
Bps1
Bps¹
Basis points. One basis point is equal to
one-hundredth of a percentage point
BRRDBank Recovery and Resolution Directive (EU)
BSABank Secrecy Act (US)
BSMBalance Sheet Management
BVIBritish Virgin Islands
C 
CapmC&LCapital asset pricing modelCredit and Lending
CCAConsumer Credit Act (UK)
CAPMCapital asset pricing model
CCARFederal Reserve Comprehensive Capital Analysis and Review
CCPCentral Counterparty
CDOsCollaterisedCollateralised debt obligations
CDS1
CDS¹		Credit default swap
CEACommoditiesCommodity Exchange Act (US)
CET11
CET1¹		Common equity tier 1
CFPBConsumer Financial Protection Bureau
CGUsCash-generating units
CIUsCollective investment undertakings
CMAUK Competition and Markets Authority
CMBCommercial Banking, a global business
CMCCapital maintenance charge
CML1
CML¹		Consumer and Mortgage Lending (US)
CODMChief Operating Decision Maker
COSO2013 Committee of the Sponsors of the Treadway Commission (US)
CP1
CP¹		Commercial paper
CRD1
CRD¹		Capital Requirements Directive
CRR1
CRR¹		Customer risk rating
CRR/CRD IVCapital Requirements Regulation and Directive
CSACredit Support Annex
CVA1
CSA		Credit Support Annex
CVA¹Credit valuation adjustment
CVCConduct & Values Committee
D 
Decision OneDecision One Mortgage Company LLC
Deferred SharesAwards of deferred shares define the number of HSBC Holdings ordinary shares to which the employee will become entitled, generally between one and three years from the date of the award, and normally subject to the individual remaining in employment
DFASTDodd-Frank Act Stress Testing
Dodd-FrankDodd-Frank Wall Street Reform and Consumer Protection Act (US)
DoJUS Department of Justice (US)
DPADeferred Prosecution Agreement (US)
DPFDiscretionary participation feature of insurance and investment contracts
DVA1
DVA¹		Debit valuation adjustment
E 
EAD¹Exposure at default
EBAEuropean Banking Authority
ECEuropean Commission
ECBEuropean Central Bank
ECLExpected credit losses
EL1
EL¹		Expected loss
ERISAEmployee Retirement Income Security Act of 1974 (US)
ESGEnvironmental, Social and Governance
EUEuropean Union
EuriborEuro interbank offered rate
EVEEconomic value of equity
F 
FCAFinancial Conduct Authority (UK)
FCA DirectionUndertaking originally with the Financial Services Authority (subsequently with the Financial Conduct Authority) to comply with certain forward-looking obligations with respect to AML and sanctions requirements
FCRFinancial Crime Risk function
FDIAFederal Deposit Insurance Act
FDICFederal Deposit Insurance Corporation
FFVAFunding fair value adjustment estimation methodology on derivative contracts
FintechFinancial technology
FPCFinancial Policy Committee (UK)
FRBFederal Reserve Board (US)
FSBFinancial Stability Board
FSCSFinancial Services Compensation Scheme
FSMAFinancial Services and Markets Act 2000
FSVCFinancial System Vulnerabilities Committee
FTEFull-time equivalent staff
FTSEFinancial Times – Stock Exchange index
FuMFunds under management
FOVCIFVOCI¹Fair value through other comprehensive income
FVPLFVPL¹Fair value through profit or loss
FX DPA
Three-year deferred prosecution agreement with the US Department of Justice, entered into in January 2018

G 
GAAPGenerally accepted accounting principles
GACGroup Audit Committee
GB&MGlobal Banking and Markets, a global business
GCCThe Group Change Committee
GDPGross domestic product
GLB ActGramm-Leach-Bliley Act
GLCMGlobal Liquidity and Cash Management
Global MarketsHSBC’s capital markets services in Global Banking and Markets
GMBGroup Management Board
GPBGlobal Private Banking, a global business

309HSBC Holdings plc

GPSPGroup Performance Share Plan
GRCGroup Risk Committee
GroupHSBC Holdings together with its subsidiary undertakings
G-SIB1
GRRC		Group Reputational Risk Committee
G-SIB¹Global systemically important bank


HSBC Holdings plc Annual Report and Accounts 2016
318

GSMThe Group’s Global Standards Manual
GTRFGlobal Trade and Receivables Finance
H 
Hang Seng BankHang Seng Bank Limited, one of Hong Kong’s largest banks
HKExThe Stock Exchange of Hong Kong Limited
HKMAHong Kong Monetary Authority
HMRCHM Revenue and Customs
HNAHHSBC North America Holdings Inc.
Holdings ALCOHSBC Holdings Asset and Liability Management Committee
Hong KongHong Kong Special Administrative Region of the People’s Republic of China
HQLAHigh-quality liquid assets
HSBCHSBC Holdings together with its subsidiary undertakings
HSBC BankHSBC Bank plc
HSBC Bank
Middle East		HSBC Bank Middle East Limited
HSBC Bank USA
HSBC Bank USA, N.A., HSBC’s retail bank
in the US
HSBC CanadaThe sub-group, HSBC Bank Canada, HSBC Trust Company Canada, HSBC Mortgage Corporation Canada and HSBC Securities Canada, consolidated for liquidity purposes
HSBC ColombiaHSBC Bank (Colombia) S.A.
HSBC FinanceHSBC Finance Corporation, the US consumer finance company (formerly Household International, Inc.)
HSBC FranceHSBC’s French banking subsidiary, formerly CCF S.A.
HSBC HoldingsHSBC Holdings plc, the parent company of HSBC
HSBC Private Bank (Suisse)HSBC Private Bank (Suisse) SA, HSBC’s private bank in Switzerland
HSBC USAThe sub-group, HSBC USA Inc (the holding company of HSBC Bank USA) and HSBC Bank USA, consolidated for liquidity purposes
HSIHSBC Securities (USA) Inc.
HSSLHSBC Securities Services (Luxembourg)
HTCDHSBC Trust Company (Delaware), N.A., Wlimington, Delaware
HTIEHSBC International Trust Services (Ireland) Limited
HTMHeld to maturity
I 
IAInsurance Authority
IASInternational Accounting Standards
IASBInternational Accounting Standards Board
ICAAPInternal capital adequacy assessment process
IFRSsInternational Financial Reporting Standards
IHCIntermediate holding company
ILAAILAAPIndividual liquidity adequacy assessment process
ILRInherent liquidity risk
Industrial BankIndustrial Bank Co. Limited, a national joint-stock bank in mainland China in which Hang Seng Bank Limited has a shareholding
Investor UpdateThe Investor Update in June 2015
IRB1
IRB¹		Internal ratings-based
IRRBBInterest rate risk in the banking book
ISDAInternational Swaps and Derivatives Association
K 
KPMGKPMG Audit Plc and its affiliates
L 
LCRLiquidity coverage ratio
LFRFLiquidity and funding risk management framework
LGBT+Lesbian, gay, bisexual and transgender. The plus sign denotes other non-mainstream groups on the spectrums of sexual orientation and gender identity
LGD1
LGD¹		Loss given default
LiborLondon interbank offered rate
LICsLoan impairment charges and other credit risk provisions
LTILong-term incentive
LTV1
LTV¹		Loan-to-value ratio
M 
Madoff SecuritiesBernard L. Madoff Investment Securities LLC
Mainland ChinaPeople’s Republic of China excluding Hong Kong
MalachiteMalachite Funding Limited, a term-funding vehicle
MazarinMazarin Funding Limited, an asset-backed CP conduit
MBSUS mortgage-backed security
MENAMiddle East and North Africa
MOCsModel Oversight Committees
MonolineMonoline insurance company
MRELEU minimum requirements for own funds and eligible liabilities
MRTMRT¹Material risk taker
N 
NGONon-governmental organisation
NIINet interest income
NSFRNet stable funding ratio
NYSENew York Stock Exchange
O 
OCCOffice of the Comptroller of the Currency (US)
OCIOther comprehensive income
ORMFOperational risk management framework
OTC1
OTC¹		Over-the-counter
P 
PD1
PD¹		Probability of default
Performance shares1
shares¹		Awards of HSBC Holdings ordinary shares under employee share plans that are subject to corporate performance conditions
Ping AnPing An Insurance (Group) Company of China, Ltd, the second-largest life insurer in the PRC
POCIPurchased or originated credit impaired financial assets
PPIPayment protection insurance
PRAPrudential Regulation Authority (UK)
PRCPeople’s Republic of China
Principal planHSBC Bank (UK) Pension Scheme
PVIF
Present value of in-force long-term insurance business and long-term investment contracts
with DPF
PwC
The member firms of the PwC network, including PricewaterhouseCoopers LLP

R 
RASRisk appetite statement
RBWMRetail Banking and Wealth Management, a global business
RCThe Regulatory Compliance sub-function
Repo1
Repo¹		Sale and repurchase transaction
RRCSReputational Risk and Client Selection team
Reverse repoSecurity purchased under commitments to sell
RMBSResidential mortgage-backed securities
RMMRisk Management Meeting of the Group Management Board
RNIVRisk not in VaR
RoEReturn on equity
RoRWAReturn on risk-weighted assets
RoTEReturn on Tangible Equity
RQFIIRenminbi qualified foreign institutional investor
RRCSReputational Risk and Client Selection team
RWA1
RWA¹		Risk-weighted asset
S 
SBSSecurity-based swap
SE1
SE¹		Structured entity
SECSecurities and Exchange Commission (US)
ServCo groupSeparately incorporated group of service companies planned in response to UK ring-fencing proposals
SFCSiborSecurities and Futures CommissionSingapore Interbank Offered Rate
SICSecurities investment conduit
SIDSenior Independent Director
SMESmallSmall- and medium-sized enterprise
SolitaireSolitaire Funding Limited, a special purpose entity managed by HSBC
SPE1
SPE¹		Special purpose entity
SRRA special resolution regime created by the Banking Act 2009, as amended
SSMThe EU’s Single Supervisory Mechanism

HSBC Holdings plc310

Other Information

T 
T1Tier 1
T2Tier 2
TDRTCFD¹Troubled debt restructuringTask Force on Climate-related Financial Disclosures
TLAC1
TLAC¹		Total loss-absorbing capacity
TSRTSR¹Total shareholder return
U 
UAEUnited Arab Emirates
UKUnited Kingdom
USUnited States of America
US DPAFive-year deferred prosecution agreement with the Department of Justice and others (US)


HSBC Holdings plc Annual Report and Accounts 2016
319

Other Information

US run-off portfolioIncludes our CML, vehicle finance and Taxpayer Financial Services businesses and insurance, commercial, corporate and treasury activities in HSBC Finance on an IFRSs management basis
V 
VaR1
VaR¹		Value at risk
VIUValue in use
1
A full definition is included in the glossary to the Annual Report and Accounts 20162017 which is available at www.hsbc.com/investor-relations.

HSBC HOLDINGS PLCHoldings plc
 
Incorporated in England on 1 January 1959 with
limited liability under the UK Companies Act
Registered in England: number 617987
REGISTERED OFFICE AND
GROUP HEAD OFFICERegistered Office and Group Head Office
 
8 Canada Square
London E14 5HQ
United Kingdom
Telephone: 44 020 7991 8888
Facsimile: 44 020 7992 4880
Web: www.hsbc.com
REGISTRARSRegistrars
 
Principal Register
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
United Kingdom
Telephone: 44 0370 702 0137
Email: via website
Web: www.investorcentre.co.uk/contactus
 
Hong Kong Overseas Branch Register
Computershare Hong Kong Investor Services
Limited
Rooms 1712-1716, 17th floor
Hopewell Centre
183 Queen’s Road East
Hong Kong
Telephone: 852 2862 8555
Email: hsbc.ecom@computershare.com.hk
Web: www.computershare.com/hk/investorswww.investorcentre.com/hk
 
Bermuda Overseas Branch Register
Investor Relations Team
HSBC Bank Bermuda Limited
6 Front Street
Hamilton HM11
Bermuda
Telephone: 1 441 299 6737
Email: hbbm.shareholder.services@hsbc.bm
Web: www.computershare.com/investor/www.investorcentre.com/bm
ADR Depositary
The Bank of New York Mellon
Depositary ReceiptsShareowner Services
PO Box 30170505000
College Station, TX 77842-3170Louisville, KY 40233-5000
USA
Telephone (US): 1 877 283 5786
Telephone (International): 1 201 680 6825
Email: shrrelations@bnymellon.comshrrelations@cpushareownerservices.com
Web: www.computershare.com/us/contact/ Pages/www.mybnymdr.com
default.aspx
Paying Agent (France)
HSBC FranceCACEIS Corporate Trust
103 avenue des Champs Elysées14, rue Rouget de Lisle
75419 Paris Cedex 0892130 Issy-Les-Moulineaux
France
Telephone: 33 1 40 70 22 5657 78 34 28
Email: ost-agence-des-titres-hsbc-reims.hbfr-do@hsbc.frct-service-ost@caceis.com
Web: www.hsbc.frwww.caceis.com

311HSBC Holdings plc

Shareholder information

STOCKBROKERSStockbrokers
 
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
United Kingdom
 
Credit Suisse Securities (Europe) Limited
1 Cabot Square
London E14 4QT
United Kingdom
 
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom


© Copyright HSBC Holdings plc 2018
All rights reserved
No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Holdings plc.
Published by Global Finance, HSBC Holdings plc, London
Designed by Superunion (formerly Addison Group), London (Strategic Report) and by Global Finance with Superunion (rest of Annual Report and Accounts)

Photography
Cover, inside front cover-page 1, page 27: Getty Images
Pages 2-3: Terry Tam, The Hongkong and Shanghai Banking Corporation Limited, Hong Kong
Pages 4 (Group Chairman), 7 (Group Chief Executive): Charles Best
Pages 10-13: David George, HSBC Bank Egypt S.A.E., Cairo, Egypt
Pages 18-21: Ramit Soni, The Hongkong and Shanghai Banking Corporation Limited, Mumbai, India
Pages 22-23: Arunabha Hajra, The Hongkong and Shanghai Banking Corporation Limited, Mumbai, India
Pages 28-29: Global Communications, HSBC Holdings plc
Pages 167-170: Directors and Group Company Secretary by Charles Best; Group Chief Executive Designate by Global Communications, HSBC Holdings plc
Inside back cover: Laurie Mae Gucilatar, HSBC Electronic Data Processing (Philippines), Inc., Quezon City, Philippines


320312
HSBC Holdings plc Annual Report and Accounts 2016

Item 19. Exhibits
Documents files as exhibits to this Form 20-F:
Exhibit NumberDescription
1.1Memorandum and Articles of Association of HSBC Holdings plc (incorporated by reference to Exhibit 1.1 to HSBC Holdings plc’s Form 20-F filed with the Securities and Exchange Commission on March 8, 2011).
2.1The total amount of long-term debt securities of HSBC Holdings plc authorized under any instrument does not exceed 10 percent of the total assets of the Group on a consolidated basis. HSBC Holdings plc hereby agrees to furnish to the Commission, upon its request, a copy of any instrument defining the rights of holders of long-term debt of HSBC Holdings plc or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.
4.1Service Agreement dated December 9, 2010 between HSBC Holdings plc and Marc Moses, as amended by a letter agreement dated November 1, 2013 by HSBC Holdings plc (incorporated by reference to Exhibit 4.1 to HSBC Holdings plc’s Form 20-F filed with the Securities and Exchange Commission on February 28, 2014).
4.2Deferred Prosecution Agreement dated December 11, 2012, between HSBC Holdings plc, HSBC Bank USA, N.A., HSBC North America Holdings, Inc., the United States Department of Justice, the United States Attorney’s Office for the Eastern District of New York and the United States Attorney’s Office for the Northern District of West Virginia (incorporated by reference to Exhibit 99.1 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.3Consent to the Assessment of a Civil Money Penalty dated December 11, 2012, of the United States Department of Treasury Financial Crimes Enforcement Network in the Matter of HSBC Bank USA, N.A. (incorporated by reference to Exhibit 99.2 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.4Undertaking by HSBC Holdings plc to the Financial Services Authority (incorporated by reference to Exhibit 99.3 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012), as replaced by the Direction by the Financial Conduct Authority to HSBC Holdings plc (incorporated by reference to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on April 12, 2013).
4.5Cease and Desist Order issued by the Board of Governors of the United States Federal Reserve System in the Matter of HSBC Holdings plc (incorporated by reference to Exhibit 99.5 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.6Order of Assessment of a Civil Money Penalty Issued Upon Consent Issued by the Board of Governors of the U.S. Federal Reserve System in the Matter of HSBC Holdings plc and HSBC North America Holdings, Inc. (incorporated by reference to Exhibit 99.6 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.7Settlement Agreement between HSBC Holdings plc, and the United States Department of the Treasury’s Office of Foreign Assets Control (incorporated by reference to Exhibit 99.7 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.8Consent Order dated December 11, 2012, of the Comptroller of the Currency of the United States in the Matter of HSBC Bank USA, N.A. (incorporated by reference to Exhibit 99.8 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.9Consent Order for the Assessment of a Civil Money Penalty dated December 11, 2012, of the Comptroller of the Currency of the United States in the Matter of HSBC Bank USA, N.A. (incorporated by reference to Exhibit 99.9 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.10Agreement by and between HSBC Bank USA, N.A. McLean, Virginia and the Office of the Comptroller of the Currency dated December 11, 2012 (incorporated by reference to Exhibit 99.10 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.11Final Notice from the Financial Conduct Authority to HSBC Bank plc dated November 11, 2014 (incorporated by reference to Exhibit 99.1 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on November 13, 2014).
4.12Order Instituting Proceedings Pursuant to Sections 6(c)(4)(A) and 6(d) of the Commodity Exchange Act, Making Findings, and Imposing Remedial Sanctions dated 11 November 2014 of the CFTC in the Matter of HSBC Bank plc (incorporated by reference to Exhibit 99.2 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on November 13, 2014).
7.1Computation of ratios of earnings to combined fixed charges (and preference share dividends).
8.1Subsidiaries of HSBC Holdings plc (set forth in Note 21 to the consolidated financial statements included in this Form 20-F).
12.1Certificate of HSBC Holdings plc’s Group Chief Executive pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2Certificate of HSBC Holdings plc’s Group Finance Director pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1Annual Certification of HSBC Holdings plc’s Group Chief Executive and Group Finance Director pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1Consent of PricewaterhouseCoopers LLP
15.2Consent of KPMG Audit Plc.
15.3Pages of HSBC Holdings plc’s 2000 Form 20-F/A dated February 26, 2001 relating to the Memorandum and Articles of Association of HSBC Holdings plc (incorporated by reference to Exhibit 14.2 to HSBC Holdings plc’s Form 20-F filed with the Securities and Exchange Commission on March 20, 2006).
15.4Pages of HSBC Holdings plc’s 2001 Form 20-F dated March 13, 2002 relating to the Memorandum and Articles of Association of HSBC Holdings plc (incorporated by reference to Exhibit 14.3 to HSBC Holdings plc’s Form 20-F filed with the Securities and Exchange Commission on March 20, 2006).
15.5Consent of C G Singer.

Exhibit Number                    Description    
1.1    Memorandum and Articles of Association of HSBC Holdings plc (incorporated by reference to Exhibit 1.1 to HSBC Holdings plc’s Form 20-F filed with the Securities and Exchange Commission on March 8, 2011).
2.1    The total amount of long-term debt securities of HSBC Holdings plc authorized under any instrument does not exceed 10 percent of the total assets of the Group on a consolidated basis. HSBC Holdings plc hereby agrees to furnish to the Commission, upon its request, a copy of any instrument defining the rights of holders of long-term debt of HSBC Holdings plc or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.
4.1    Undertaking by HSBC Holdings plc to the Financial Services Authority (incorporated by reference to Exhibit 99.3 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012), as replaced by the Direction by the Financial Conduct Authority to HSBC Holdings plc (incorporated by reference to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on April 12, 2013).
4.2    Cease and Desist Order issued by the Board of Governors of the United States Federal Reserve System in the Matter of HSBC Holdings plc (incorporated by reference to Exhibit 99.5 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.3    Settlement Agreement between HSBC Holdings plc, and the United States Department of the Treasury’s Office of Foreign Assets Control (incorporated by reference to Exhibit 99.7 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.4    Consent Order dated December 11, 2012, of the Comptroller of the Currency of the United States in the Matter of HSBC Bank USA, N.A. (incorporated by reference to Exhibit 99.8 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.5    Agreement by and between HSBC Bank USA, N.A. McLean, Virginia and the Office of the Comptroller of the Currency dated December 11, 2012 (incorporated by reference to Exhibit 99.10 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on December 12, 2012).
4.6    Order Instituting Proceedings Pursuant to Sections 6(c)(4)(A) and 6(d) of the Commodity Exchange Act, Making Findings, and Imposing Remedial Sanctions dated 11 November 2014 of the CFTC in the Matter of HSBC Bank plc (incorporated by reference to Exhibit 99.2 to HSBC Holdings plc’s Form 6-K filed with the Securities and Exchange Commission on November 13, 2014).
4.7    Deferred Prosecution Agreement dated January 17, 2018, between HSBC Holdings plc and the United States Department of Justice.
4.8    Service Agreement dated February 4, 2011 between HSBC Holdings plc and Iain Mackay (incorporated by reference to Exhibit 4.4 to HSBC Holdings plc’s Form 20-F filed with the Securities and Exchange Commission on March 8, 2011).
4.9    Service Agreement dated December 9, 2010 between HSBC Holdings plc and Marc Moses, as amended by a letter agreement dated November 1, 2013 by HSBC Holdings plc (incorporated by reference to Exhibit 4.1 to HSBC Holdings plc’s Form 20-F filed with the Securities and Exchange Commission on February 28, 2014).
4.10    Service Agreement dated October 12, 2017, between HSBC Group Management Services Limited and John Flint.
4.11    Engagement Letter dated March 12, 2017, between HSBC Holdings plc and Mark Tucker.
7.1    Computation of ratios of earnings to combined fixed charges (and preference share dividends).
8.1    Subsidiaries of HSBC Holdings plc (set forth in Note 37 to the consolidated financial statements included in this Form 20-F).
12.1    Certificate of HSBC Holdings plc’s Group Chief Executive pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2    Certificate of HSBC Holdings plc’s Group Finance Director pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1    Annual Certification of HSBC Holdings plc’s Group Chief Executive and Group Finance Director pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1    Consent of PricewaterhouseCoopers LLP
15.2    Pages of HSBC Holdings plc’s 2000 Form 20-F/A dated February 26, 2001 relating to the Memorandum and Articles of Association of HSBC Holdings plc (incorporated by reference to Exhibit 14.2 to HSBC Holdings plc’s Form 20-F filed with the Securities and Exchange Commission on March 20, 2006).
15.3    Pages of HSBC Holdings plc’s 2001 Form 20-F dated March 13, 2002 relating to the Memorandum and Articles of Association of HSBC Holdings plc (incorporated by reference to Exhibit 14.3 to HSBC Holdings plc’s Form 20-F filed with the Securities and Exchange Commission on March 20, 2006).
15.4    Consent of C G Singer.


HSBC Holdings plcAnnual Report and Accounts 2016
321313

Shareholder information

SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
     
 HSBC Holdings plc
 		 
 By:/s/ Iain J Mackay 
  Name:Iain J Mackay 
  Title:Group Finance Director 
 
Dated: 2120 February 20172018


314
HSBC Holdings plcAnnual Report and Accounts 2016322
 

20F Specific Disclosures


Exhibit 7.1
Computation of ratios of earnings to combined fixed charges (and preference share
dividends)
For the purpose of calculating the ratios, earnings consist of income from continuing operations before taxation and non-controlling interests, plus fixed charges, and after deduction of the unremitted pre-tax income of associated undertakings. Fixed charges consist of total interest expense, including or excluding interest on deposits, as appropriate, dividends on preference shares and other equity instruments, as applicable, and the proportion of rental expense deemed representative of the interest factor.
  2016
2015
2014
2013
2012
 Footnotes$m
$m
$m
$m
$m
Profit before tax 7,112
18,867
18,680
22,565
20,649
– dividends received from associates 751
879
757
694
489
– share of profit in associates and joint ventures (2,354)(2,556)(2,532)(2,325)(3,557)
Fixed charges 15,063
17,250
19,667
19,238
23,056
– interest on deposits 8,127
10,846
12,581
11,874
14,413
– rental expense and other charges16,936
6,404
7,086
7,364
8,643
Earnings2




– excluding interest on deposits 12,445
23,594
23,991
28,298
26,224
– including interest on deposits 20,572
34,440
36,572
40,172
40,637
Preference share dividends32,563
1,334
728
726
759
Combined fixed charges and preference share dividends 




– excluding interest on deposits 9,499
7,738
7,814
8,090
9,402
– including interest on deposits 17,626
18,584
20,395
19,964
23,815
1Includes an estimate of the interest in rental expense, charges incurred in respect of subordinated liabilities and interest on preference shares.
2Includes profit before tax, dividends received from associates and fixed charges, less share of profit in associates and joint ventures.
3Dividends on preference shares and other equity instruments.



1HSBC Holdings plc SEC Specific disclosures



Section 302 Certification for Group Chief Executive

I, Stuart T Gulliver, certify that:

1.I have reviewed this annual report on Form 20-F of HSBC Holdings plc;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules l 3a-l 5(i) and l 5d-l 5(f)) for the company and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure

d)Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and

5.The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.


Dated:21 February 2017/s/ Stuart T Gulliver
Stuart T Gulliver, Group Chief Executive





Section 302 Certification for Group Finance Director

I, Iain J Mackay, certify that:

1.I have reviewed this annual report on Form 20-F of HSBC Holdings plc;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.


Dated:21 February 2017/s/ Iain J Mackay
Iain J Mackay, Group Finance Director





Annual Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of HSBC Holdings plc (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 20-F for the year ended 31 December 2015 of the Company fully complies with the requirements of section 13(a) and 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:21 February 2017/s/ Stuart T Gulliver
Stuart T Gulliver, Group Chief Executive
Dated:21 February 2017/s/ Iain J Mackay
Iain J Mackay, Group Finance Director





CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 (Nos. 333-92024, 333-135007, 333-158065, 333-180288, 333-202420), Registration Statement on Form F-4 (No. 333-126531) and Registration Statements on Form S-8 (Nos. 333-103887, 333-104203, 333-109288, 333-113427, 333-127327, 333-143639, 333-145859, 333-155338, 333-162565, 333-170525, 333-176732, 333-183806, 333-197839) of HSBC Holdings plc of our report dated 21 February 2017 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 20-F.
/s/ PricewaterhouseCoopers LLP
London, United Kingdom
21 February 2017





Consent of Independent Registered Public Accounting Firm to the Board of Directors of HSBC Holdings plc            



We consent to the incorporation by reference in the registration statements (Numbers: 333-92024, 333-103887, 333-104203, 333-109288, 333-113427, 333-127327, 333-126531, 333-135007, 333-143639, 333-145859, 333-155338, 333-158065, 333-162565, 333-170525, 333-176732, 333-180288, 333-183806, 333-197839, 333-202420) of our report dated 23 February 2015 on page 214 of the 31 December 2016 Annual Report on Form 20-F (2016 20-F) with respect to, before the retrospective change in presentation of the segment information described on pages 59 to 62,  the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity of HSBC Holdings plc and its subsidiary undertakings for the year ended 31 December 2014 in the 2016 20-F. 




Our report refers to the retrospective change in presentation of the segment information described on pages 59 to 62. However, we were not engaged to audit, review, or apply any procedures with respect to such adjustments.            




KPMG Audit Plc          


London, England         


21 February 2017




wtw_logo.jpg






21 February 2017

The Board of Directors
HSBC Holdings plc










I, C G Singer, consent to be named as valuation actuary of the HSBC Bank (UK) Pension Scheme in the Annual Report on Form 20-F for the year ended December 31, 2016 of HSBC Holdings plc and to the incorporation by reference of references to us in the registration statements (nos. 333-92024, 333-103887,
333-104203, 333-109288, 333-113427, 333-127327, 333-126531, 333-135007, 333-143639, 333-145859,
333-155338, 333-158065, 333-162565, 333-170525, 333-176732, 333-180288, 333-183806, 333-197839 and 333-202420).

Sincerely,


/s/ C G Singer
C G Singer
Fellow of the Institute and Faculty of Actuaries





C G Singer
Consulting Actuary

Watson House London Road Reigate
Surrey R H2 9PQ UK

T +44 1737 241144
D +44 1737 274192
M +44 7711 927212
F +44 1737 241496
E colin.singer@willistowerswatson.com
W willistowerswatson.com

Towers Watson Limited is regis tered in England and Wales
Regis tration number: 5379716, Regis tered address : Watson House, London Road, Reigate, Surrey RH2 9PQ, UK. Authorised and regulated by the Financial Conduct Authority.

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