HSBC Chairman: Regulation Could Make Banks Totally Risk-averse
Regulatory reforms enacted since the 2008 financial crisis and the potential for incurring hefty fines mean that banks are becoming increasingly risk-averse, said HSBC’s chairman Douglas Flint.
He said that there was an “observable and growing danger of disproportionate risk aversion” as the UK’s largest bank confirmed that it is putting aside £218m (US$367m) to cover compensation for mistakes in loan statements to British customers.
HSBC, which makes two-thirds of its profits in Asia, reported a 12% fall in first-half profits to US$12.3bn and commented on potential litigation and regulatory fines it could face from a range of issues. They include the collapse of Bernie Madoff’s fraudulent investment firm in 2008 and alleged price fixing in currencies and precious metals.
“I do not think we have ever had to ask so much of so many,” said Flint. “We face growing fatigue within critical functions as well as increased market competition for trained staff from other financial institutions facing similar resource challenges. This is adding to cost pressures both from increased salaries as market rates increase, and from investment in training and systems support to improve productivity.
“The demands now being placed on the human capital of the firm and on our operational and systems capabilities are unprecedented.
“Greater focus on conduct and financial crime risks at all levels of the firm globally is clearly the right response to past shortcomings,” Flint added.
“There is, however, an observable and growing danger of disproportionate risk aversion creeping into decision-making in our businesses as individuals, facing uncertainty as to what may be criticised with hindsight and perceiving a zero-tolerance of error, seek to protect themselves and the firm from future censure.
“Unwarranted risk aversion threatens to restrict access to the formal financial system to many who could benefit from it and risks unwinding parts of the ecosystem of networks and relationships that support global trade and
investment.”
HSBC was fined US$1.92bn by US authorities in December 2012 for breaching the US Office of Foreign Asset Control (OFAC) sanction list and permitting Mexican drug lords to launder money through the financial system.