City watchdog investigating HSBC over potential financial crime


HSBC has revealed it is being investigated by the City regulator over potential breaches of money laundering rules.

Britain’s biggest bank said the Financial Conduct Authority’s enforcement action – which could lead to fines or public censures if wrongdoing is uncovered – was triggered by evidence uncovered last year.

The investigation has been launched on the back of work by an anti-crime monitor installed at the bank five years ago. American lawyer Michael Cherkasy was appointed after US authorities imposed a £1.2bn fine on HSBC in 2012 for poor anti-money laundering controls and flouting US sanctions.

Stuart Gulliver, HSBC’s chief executive, said the bank was unearthing more regulatory problems due to higher-quality internal policing, adding that the business had “been able to identify more bad actors in out 37m customer base”.

As the bank reported a 62% slump in annual profits on Tuesday, it said Cherkasky’s criticism that the bank had been too slow in tackling potential financial crime had been taken into account when handing out bonuses to its top executives.

The bank’s shares, which have risen 55% since theEU referendum, fell 6.5% to 665p after the results were published, as analysts expressed disappointment about HSBC’s payouts to shareholders and slow revenue growth.

However, the consequences of the US money laundering scandal, which saw Cherkasy installed as part of a deferred prosecution agreement (DPA) with the US Department of Justice (DoJ), continue to loom over the bank.

Gulliver said: “Our monitor has raised certain concerns but we have continued to progress and our commitment remains unwavering. By the end of this year, we are on track to have our anti-money laundering and sanctions policy framework in place and to have introduced major compliance IT systems across the group”.

The bank, which employs 240,000 people around the world and operates in 70 countries, flagged up the UK investigation in its annual report, admitting it was “the subject of an investigation by the FCA into its compliance with UK money laundering regulations and financial crime systems and controls requirements”.

Gulliver, who said the bank was working “tirelessly” to improve its compliance programmes, described it as a section 166 report. This means a review would be carried out by an independent firm for the FCA.

Part of Gulliver’s pay is measured against compliance with financial crime and this year his performance on that measure received a 65% rating from the remuneration committee, compared with 75% a year earlier. Other executives also received lower ratings on this measure.

Sam Laidlaw, the non-executive director who chairs the remuneration committee, said this followed “feedback received from the monitor, matters arising from risk and compliance incidents, and a number of unsatisfactory internal audits covering anti-money laundering (AML) and sanctions-related issues”.

HSBC revealed the monitor had expressed concerns a year ago and on Tuesday it again highlighted concerns about the pace of progress and “instances of potential finance crime that the DoJ and HSBC are reviewing further and ongoing systems and control deficiencies that in his view raised questions as to whether HSBC is adhering to all its obligations under the US DPA”.

Even so, Gulliver’s overall bonus rose because of other performance measures and while the bank said his overall pay was on track to rise from £7.3m to £7.7m – despite the compliance problems – because of a change in the bank’s overall pay structure.

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