Companies
HSBC

HSBC chairman warns against banking reforms ... Douglas Flint warns that banking reforms due in 2019 could deter banks from taking even the most minor risks

Burgess COMMENTARY

Peter Burgess

HSBC chairman warns against banking reforms ... D ouglas Flint warns that banking reforms due in 2019 could deter banks from taking even the most minor risks HSBC Group chairman Douglas Flint

HSBC chairman Douglas Flint has warned that the deferred banking reforms due in 2019 could deter banks from making most risks. Photograph: Bobby Yip/Reuters Share on Facebook Share on Twitter Share via Email Share on LinkedIn Share on Google+ Shares 138 Comments 102

The chairman of HSBC warned yesterday that fear of hefty fines was forcing banks to become risk averse as they grapple with unprecedented regulatory reforms in the wake of the financial crisis.

As Britain's biggest bank revealed it was putting aside $367m (£218m) to cover compensation for mistakes in loan statements to UK customers, Douglas Flint said there was an 'observable and growing danger of disproportionate risk aversion'.

He warned of 'growing fatigue' in some of the bank's operations, where staff were having to work at weekends to implement systems changes. One concern was that 'there are only 52 weekends in a year'.

He made his remarks as the bank, which makes two-thirds of its profits in Asia, reported a 12% fall in first-half profits to $12.3bn and published 10 pages of warnings about the litigation and regulatory fines it could face on an array of matters ranging from the collapse of the Madoff empire to the fixing of prices in currencies and gold and silver. Some of these fines could be 'significant', the bank added. Flint outlined a list of regulatory changes that the bank was facing, including implementing a ringfence between its retail banking and 'casino' investment arms – demanded by UK regulators from 2019. He would not comment on the letter he has written to the chancellor, George Osborne, calling for a delay to the 2019 deadline, which the bank said involves costs amounting to hundreds of millions of pounds a year. 'I do not think we have ever had to ask so much of so many,' said Flint. 'The demands now being placed on the human capital of the firm and on our operational and systems capabilities are unprecedented.' The bank employs 256,000 people around the world, down from the 300,000 employed three years ago when Stuart Gulliver, - whose motto is 'courageous integrity ' - took over as chief executive. Advertisement Two years ago the bank was fined £1.2bn by the US for breaching US sanctions and allowing Mexican drug lords to launder money through the financial system, making it subject to tougher scrutiny from US authorities. Last week it faced criticism for closing the accounts of three Muslim organisations, including the Finsbury Park mosque in north London, and it has previously closed accounts for diplomatic staff. Flint said the increased focus on conduct and financial crisis was the right response to problems in the past. '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.' He called for clarity from watchdogs over their expectations. '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,' he said. The bank took a $194m hit to cover compensation for customers miss-sold payment protection insurance, the industry's biggest scandal with costs topping £24bn. It also listed the $119m costs incurred from an investigation into potential tax avoidance by US clients. The new $367m charge for failing to comply with the Consumer Credit Act makes HSBC the latest bank to fall foul of this regulation following a warning from the Office of Fair Trading last year about incorrect documents sent to customers who, in HSBC's case, were not told annually that they could make partial repayments of loans. Andrew Tyrie, the Conservative chair of the Treasury select committee, who chaired the parliamentary commission on banking standards that called for the 'electrification' of the ringfence, to break banks up if they failed to comply with the rules, said: 'We must ensure the momentum behind the crucial reforms both on ringfencing and on electrification is not lost. They are in any case half a decade away from completion. 'It is equally important that in implementing them the regulators exercise judgment to minimise the regulatory burden. In the end everyone loses from excessive regulation.' As is usual, the bank held its dividend flat, but because it is set in dollars, which have fallen against the pound, Justin Cooper of Capita Asset Services said: 'UK investors will see their cheque shrink by around 8% when it lands on the doormat in October.' The shares rose 1% to 635p. Gulliver said UK interest rates could start to rise from their historic lows in the fourth quarter of this year, which would help bolster profits. 'Overall, one gets the sense that HSBC is busy tightening the ship – getting costs screwed down, refining their customer propositions, and making sure that their various regulators are happy – so that they are best-positioned for the global recovery,' said Sandy Chen, analyst at Cenkos.