This is an edited extract from a statement issued by HSBC responding to revelations of misconduct at its Swiss bank
In the past, the Swiss private banking industry operated very differently to the way it does today. Private banks, including HSBC’s Swiss private bank, assumed that responsibility for payment of taxes rested with individual clients, rather than the institutions that banked them. Swiss private banks were typically used by wealthy individuals to manage their wealth in a discreet manner.
Although there are numerous legitimate reasons to have a Swiss bank account, in some cases individuals took advantage of bank secrecy to hold undeclared accounts. This resulted in private banks, including HSBC’s Swiss private bank, having a number of clients that may not have been fully compliant with their applicable tax obligations. We acknowledge and are accountable for past compliance and control failures.
We have taken significant steps over the past several years to implement reforms and exit clients who did not meet strict new HSBC standards. HSBC’s Swiss private bank has reduced its client base by almost 70% since 2007.
Major regulatory reform is under way in numerous jurisdictions to ensure … that in the near future, an individual wishing to “hide” assets from tax authorities will be unable to do so. HSBC fully welcomes and supports these reforms.
[HSBC acquired] the Republic National Bank of New York and Safra Republic Holdings SA, a US private bank in 1999. The Swiss private bank was largely acquired through this transaction. The Republic/Safra business focused on a very different client base and had a significantly different culture to HSBC. The business acquired was not fully integrated into HSBC, allowing different cultures and standards to persist. Too many small and high-risk accounts were maintained. We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today. At the same time, HSBC was run in a more federated way than it is today and decisions were frequently taken at a country level.
In January 2011, new group management fundamentally changed the way HSBC is structured, managed and controlled. HSBC completely overhauled its entire private banking business, adding to initiatives it had previously taken in connection with US clients beginning in 2008. Today, the management team inSwitzerland which is carrying out these reforms is substantially different to the period before 2011.
Beginning in 2012, Global Private Banking [GPB] developed a tax transparency policy, stating that it will close accounts and refuse any new business where it has reason to believe the client or potential client is not in full compliance with relevant tax obligations. Under the tax transparency initiative, a review was conducted of existing accounts. If not satisfactorily resolved, the account was closed or put in the process to be closed as soon as practicable.
We also enhanced both our “know-your-customer” procedures, including an independent validation by auditors, and our anti-money laundering procedures to ensure a more complete consideration of a new client’s source of wealth. We amended our standard terms and conditions to require the client to affirm they are in compliance with their tax obligations.
The amended terms and conditions allowed the private bank to refuse a cash withdrawal request, and placed strict controls on withdrawals over $10,000 [£6,600]. We discontinued the hold mail service and we implemented a new policy to remediate [register the owners of] any bearer shares in non-individual accounts. In addition, we have withdrawn from markets where we are unable to conduct due diligence to a satisfactory standard on our clients. We review all Politically Exposed Persons annually at the highest levels within the group.
The number of accounts and total client assets of the Swiss private bank have been actively managed down by this intensive de-risking exercise, where we have put compliance and tax transparency ahead of profitability:
• In 2007, the Swiss private bank had 30,412 accounts. At the end of 2014, we had reduced that number to 10,343.
• In 2007, the Swiss private bank had total client assets of [about £78bn]. At the end of 2014, that number has been actively managed down to [£45bn].
In April 2012 HSBC chief executive, Stuart Gulliver, announced HSBC’s commitment to implement the highest or most effective standards across the group to combat financial crime. HSBC is following through on that commitment to Global Standards, and is now just over two years into a five-year programme to transform the way that HSBC manages financial crime risk. The steps HSBC has taken globally to de-risk and the comprehensive reforms the group is putting in place will ensure that HSBC has a robust, sustainable anti-money laundering and sanctions compliance programme.
HSBC has cooperated and continues to cooperate to the extent that it can with requests for information from governments regarding account holders. However, providing client data to foreign authorities would itself constitute a criminal offence under Swiss law.
• HSBC’s statement has been edited for length and clarity
