HSBC Holdings Regulatory News (HSBA)

Funds under management and assets held in custody

Funds under management48

For footnote, see page 99.

Funds under management ('FuM') represents assets managed, either actively or passively, on behalf of our customers. At 31 December 2015, FuM amounted to $896bn, a decrease of 6% primarily due to adverse foreign exchange movements as the US dollar strengthened against all major currencies. Excluding currency translation, FuM was broadly unchanged compared with 31 December 2014 as a reduction in GPB and other FuM was broadly offset by an increase in Global Asset Management FuM.

Global Asset Management FuM decreased by 6% to $419bn compared with 31 December 2014. Excluding currency translation, FuM increased by 2% as we attracted $8bn of net new money, notably in fixed income products from our customers in Asia and net inflows into liquidity funds in North America and Europe.

GPB FuM decreased by 5% to $261bn compared with 31 December 2014. Excluding currency translation, FuM decreased by 1%, reflecting the ongoing repositioning of our client base. This was partly offset by favourable market movements, principally in Europe, and from positive net new money in areas targeted for growth.

Other FuM, of which the main element is a corporate trust business in Asia, decreased by 7% to $212bn, primarily due to net outflows.

Assets held in custody48 and under administration

Custody is the safekeeping and servicing of securities and other financial assets on behalf of clients. At 31 December 2015, we held assets as custodian of $6.2 trillion, 3% lower than the $6.4 trillion held at 31 December 2014. This decrease was driven by adverse foreign exchange movements, primarily in Europe and Asia. Excluding this, assets held as custodian increased by 2% compared with 31 December 2014, due to incremental net asset inflows in Asia and Europe, partly offset by adverse market movements, particularly in the second half of 2015.

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 2015, the value of assets held under administration by the Group amounted to $3.2 trillion. This was broadly unchanged compared with 31 December 2014, which included adverse foreign exchange movements, primarily in Europe. Excluding the impact of currency translation, assets held under administration increased by 4% driven by net asset inflows in Europe and Asia.

Our disclosure philosophy

HSBC strives to maintain the highest standards of disclosure in our reporting.

It has long been our policy to provide disclosures that help investors and other stakeholders understand the Group's performance, financial position and changes thereto.

In accordance with this policy, 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 particular, we provide additional disclosures having regard to the recommendations of two Enhanced Disclosures Task Force reports. Enhancing the Risk Disclosures of Banks, issued in October 2012, aims to help financial institutions identify areas that investors had highlighted as needing better and more transparent information about banks' risks, and how these risks relate to performance measurement and reporting. We have complied with all 32 recommendations in this report and in our Pillar 3 Disclosures 2015 document. The 'Risk', 'Capital' and 'Corporate Governance' sections of this report and the financial statements are accompanied by detailed tables of contents to assist the reader to navigate through the disclosures. Impact of Expected Credit Loss Approaches on Bank Risk Disclosures, issued in December 2015, provides further guidance on the application of the existing recommendations in the context of an Expected Credit Loss ('ECL') framework which we have considered in developing the commentary under 'Future accounting developments' on page 347. In addition, we continue to enhance our disclosures in line with good practice recommendations issued by relevant regulators and standard setters and in response to feedback received from users of our financial statements.

Taxes paid by region and country

The following tables reflect a geographical view of HSBC's operations.

Breakdown of tax paid by region49

For footnote, see page 99.

Taxes paid by country49

For footnote, see page 99.

Conduct-related matters

Conduct-related costs included in significant items

The table above provides a summary of conduct-related costs incurred and included within significant items (see pages 66 and 77).

HSBC defines 'conduct' as ensuring that we deliver fair outcomes for our customers and that we 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 doing the right thing. This includes ensuring that the lessons of unexpected outcomes, mistakes and control failings are both acknowledged and responded to in a timely and effective manner.

Board oversight of conduct matters is provided by the Conduct & Values Committee, which oversees the promotion and embedding of HSBC Values and our required global conduct outcomes, and the Remuneration Committee, which considers conduct and compliance-related matters relevant to remuneration. The reports of these committees may be found on pages 270 to 273.

An overview of our conduct framework is set out in page 41. The management of conduct of business and the steps taken to raise standards and deal with historical incidents are described on page 178.

'Regulatory focus on conduct of business and financial crime' is one of the Group's top and emerging risks which is discussed on page 112.

Total conduct-related costs within significant items were $2.4bn, a decrease of $1.3bn compared with 2014. Provisions raised in 2015 resulted from the on-going consequences of a small number of significant historical events.

Operating expenses included significant items related to conduct matters of $2.4bn, including $1.8bn in respect of legal proceedings and regulatory matters, of which $0.2bn related to regulatory matters in our private banking operations and $1.6bn was in respect of settlements and provisions in connection with legal matters. These are discussed in Note 40 on the Financial Statements.

Customer remediation costs charged to operating expenses included $0.5bn in respect of the mis-selling of payment protection insurance ('PPI'). Cumulative PPI provisions made since the Judicial Review ruling in the first half of 2011 totalled $4.7bn, of which $3.6bn had been paid as at 31 December 2015 (see Note 29 on the Financial Statements).

Carbon dioxide emissions

HSBC's carbon dioxide emissions are calculated on the basis of the energy used in our buildings and employee business travel from over 28 countries (covering about 91% of our operations by FTE).

The data, gathered on energy consumption and distance travelled, are converted to carbon dioxide emissions using conversion factors from the following sources, if available, in order of preference:

1. electricity attribute certificates or equivalent instruments;

2. contracts for electricity, such as Power Purchase Agreements;

3. supplier/utility emission rates;

4. residual mix (sub-national or national);

5. other grid-average emission factors (sub-national or national); and

6. for other types of energy than electricity and travel, if no specific factors can be obtained, we use the latest available factors provided by the UK Department for Environment, Food and Rural Affairs and/or the Department of Energy and Climate Change in the UK.

This is the market-based methodology recommended by the revised guidelines of the Greenhouse Gas Protocol for 2015 disclosure onwards.

To incorporate all of the operations over which we have financial (management) control, the calculated carbon dioxide emissions are scaled up on the basis of the FTE coverage rate to account for any missing data (typically less than 10% of FTEs). In addition, emission uplift rates are applied to allow for uncertainty on the quality and coverage of emission measurement and estimation. The rates are 4% for electricity, 10% for other energy and 6% for business travel, based on the Intergovernmental Panel on Climate Change Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories, and our internal analysis of data coverage and quality.

Carbon dioxide emissions in tonnes

Carbon dioxide emissions in tonnes per FTE

For footnote, see page 99.

Our greenhouse gas reporting year runs from October to September. For the year from 1 October 2014 to 30 September 2015, carbon dioxide emissions from our global operations were 771,000 tonnes.

Independent assurance of our carbon dioxide emissions will be available in the first half of 2016 on our website.

Property

At 31 December 2015, we operated from some 6,860 operational properties worldwide.

Approximately 1,840 were located in Europe, 1,760 in Asia, 430 in North America, 2,590 in Latin America and 240 in Middle East and North Africa. These properties had an area of approximately 51.9m square feet (2014: 54.3m square feet).

Our freehold and long leasehold properties, together with all our leasehold land in Hong Kong, were valued in 2015. The value of these properties was $11.3bn (2014: $10.8bn) in excess of their carrying amount in the consolidated balance sheet on an historical cost based measure. In addition, properties with a net book value of $1.4bn (2014: $1.6bn) were held for investment purposes.

Our operational properties are stated at cost, being historical cost or fair value at the date of transition to IFRSs (their deemed cost) less any impairment losses, and are depreciated on a basis calculated to write off the assets over their estimated useful lives. Properties owned as a consequence of an acquisition are recognised initially at fair value.