Annual Financial Report - 7b of 8

RNS Number : 0931S

HSBC Holdings PLC

06 March 2019

Notes on the financial statements

Hedges of net investments in foreign operations

The Group applies hedge accounting in respect of certain consolidated net investments. Hedging is undertaken using forward foreign exchange contracts or by financing with foreign currency borrowings. At 31 December 2018, the fair values of outstanding financial instruments designated as hedges of net investments in foreign operations were assets of $163m (2017: $4m), liabilities of nil (2017: $71m) and notional contract values of $5,000m (2017: $5,000m). Ineffectiveness recognised in 'Net income from financial instruments held for trading or managed on a fair value basis' in the year ended 31 December 2018 was nil (2017: nil).

16 Financial investments

Carrying amount of financial investments

Financial investments measured at fair value through other comprehensive income	344,767	N/A
- treasury and other eligible bills	96,642 246,371 1,657 97	N/A N/A N/A N/A
- debt securities
- equity securities
- other instruments 1
Debt instruments measured at amortised cost 2	62,666	N/A
- treasury and other eligible bills	679 61,987	N/A N/A
- debt securities	679 61,987	N/A N/A
Available-for-sale securities at fair value	N/A	336,157
- treasury and other eligible bills	N/A N/A N/A	78,851 253,389 3,917
- debt securities
- equity securities
Held to maturity securities at amortised cost	N/A	52,919
- debt securities 2	N/A	52,919
At 31 Dec 3, 4	407,433	389,076

1 'Other instruments' comprises of loans and advances.

2 Fair value $62.1bn (2017: $54.1bn).

3 Categories of financial instruments are disclosed under IFRS 9 at 31 December 2018. These are not directly comparable with 31 December 2017, where the instruments were categorised in accordance with IAS 39.

4 Information regarding the effects of adoption of IFRS 9 can be found in Note 37.

Equity instruments measured at fair value through other comprehensive income

Financial investments at amortised cost and fair value

1 Included within 'fair value' figures are debt securities issued by banks and other financial institutions of $56bn (2017: $67bn), of which $8bn (2017: $15bn) are guaranteed by various governments.

2 Includes securities that are supported by an explicit guarantee issued by the US Government.

3 Excludes asset-backed securities included under US Government agencies and sponsored entities.

263 HSBC Holdings plc Annual Report and Accounts 2018

Notes on the financial statements

Financial assets pledged as collateral which the counterparty has the right to sell or repledge

The fair value of assets accepted as collateral, relating primarily to standard securities lending, reverse repurchase agreements, swaps of securities and derivative margining, that HSBC is permitted to sell or repledge in the absence of default was $482,818m (2017: $387,678m). The fair value of any such collateral sold or repledged was $350,848m (2017: $243,531m).

HSBC is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard securities lending, reverse repurchase agreements and derivative margining.

Assets transferred

The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt securities held by counterparties as collateral under repurchase agreements and equity securities lent under securities lending agreements, as well as swaps of equity and debt securities. For secured borrowings, the transferred asset collateral continues to be recognised in full and a related liability, reflecting the Group's obligation to repurchase the assets for a fixed price at a future date, is also recognised on the balance sheet. Where securities are swapped, the transferred asset continues to be recognised in full. There is no associated liability as the non-cash collateral received is not recognised on the balance sheet. The Group is unable to use, sell or pledge the transferred assets for the duration of the transaction, and remains exposed to interest rate risk and credit risk on these pledged assets. With the exception of 'Other sales' in the table below, the counterparty's recourse is not limited to the transferred assets.

Transferred financial assets not qualifying for full derecognition and associated financial liabilities

Repurchase agreements 55,510 52,093

Securities lending agreements 33,878 3,324

Other sales (recourse to transferred assets only) 2,387 2,388 2,377 2,378 (1)

18 Interests in associates and joint ventures

Associates

At 31 December 2018, the carrying amount of HSBC's interests in associates was $22,244m (2017: $22,577m).

Principal associates of HSBC

Bank of Communications Co., Limited

The Saudi British Bank

2018

Carrying amount	Fair value¹
$m $m
17,754 10,991
3,557 5,222

$m $m

18,057 10,491

3,618 4,320

1 Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the fair value hierarchy).

	Footnotes		At 31 Dec 2018
	Footnotes	Country of incorporation and principal place of business	Principal activity	HSBC's interest %
Bank of Communications Co., Limited		People's Republic of China	Banking services	19.03
The Saudi British Bank	1	Saudi Arabia	Banking services	40.00

1 In 2018, The Saudi British Bank announced a merger agreement with Alawwal Bank in Saudi Arabia. The merger, subject to shareholder and regulatory approval, is expected to be completed

in 2019 and would dilute HSBC's shareholding in the merged bank from 40% to 29.2%.

265 HSBC Holdings plc Annual Report and Accounts 2018

A list of all associates and joint ventures is set out on page 302.

Bank of Communications Co., Limited ('BoCom')

The Group's investment in BoCom is classified as an associate. Significant influence in BoCom was established via representation on BoCom's Board of Directors and participation in a technical cooperation and exchange programme ('TCEP'). Under the TCEP, a number of HSBC staff have been seconded to assist in the maintenance of BoCom's financial and operating policies. Investments in associates are recognised using the equity method of accounting in accordance with IAS 28, whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the Group's share of BoCom's net assets. An impairment test is required if there is any indication of impairment.

Impairment testing

At 31 December 2018, the fair value of HSBC's investment in BoCom had been below the carrying amount for approximately 80 months. As a result, the Group performed an impairment test on the carrying amount of the investment in BoCom, which confirmed there was no impairment at 31 December 2018 as the recoverable amount as determined by a value-in-use ('VIU') calculation was higher than the carrying value.

	At 31 Dec 2018			At 31 Dec 2017
		Fair			Fair
VIU	Carrying value	value	VIU	Carrying value	value
$bn	$bn	$bn	$bn	$bn	$bn

Bank of Communications Co., Limited

18.0 17.8 11.0

18.3 18.1 10.5

In future periods, the VIU may increase or decrease depending on the effect of changes to model inputs. The main model inputs are described below and are based on factors observed at the period-end. The factors that could result in a change in the VIU and an impairment include a short-term underperformance by BoCom, a change in regulatory capital requirements, or an increase in uncertainty regarding the future performance of BoCom resulting in a downgrade of the future asset growth or profitability. An increase in the discount rate as a result of an increase in the risk premium or risk-free rates could also result in a reduction of VIU and an impairment. At the point where the carrying value exceeds the VIU, impairment would be recognised.

If the Group did not have significant influence in BoCom, the investment would be carried at fair value rather than the current carrying value. Basis of recoverable amount

The impairment test was performed by comparing the recoverable amount of BoCom, determined by a VIU calculation, with its carrying amount. The VIU calculation uses discounted cash flow projections based on management's estimates of future earnings available to ordinary shareholders prepared in accordance with IAS 36. Significant management judgement is required in arriving at the best estimate. There are two main components to the VIU calculation. The first component is management's best estimate of BoCom's earnings which is based on management's explicit forecasts over the short to medium term. This results in forecast earnings growth that is lower than recent historical actual growth and also reflects the uncertainty arising from the current economic outlook. Earnings beyond the short to medium term are then extrapolated in perpetuity using a long-term growth rate to derive a terminal value, which comprises the majority of the VIU. The second component is the capital maintenance charge ('CMC') which is management's forecast of the earnings that need to be withheld in order for BoCom to meet regulatory capital requirements over the forecast period (i.e. CMC is deducted when arriving at management's estimate of future earnings available to ordinary shareholders). The principal inputs to the CMC calculation include estimates of asset growth, the ratio of risk-weighted assets to total assets, and the expected minimum regulatory capital requirements. An increase in the CMC as a result of a change to these principal inputs would reduce VIU. Additionally, management considers other factors (including qualitative factors) to ensure that the inputs to the VIU calculation remain appropriate.

Key assumptions in value-in-use calculation

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

· Long-term profit growth rate: 3% (2017: 3%) for periods after 2022, which does not exceed forecast GDP growth in mainland China and is consistent with forecasts by external analysts.

· Long-term asset growth rate: 3% (2017: 3%) for periods after 2022, which is the rate that assets are expected to grow to achieve long-term profit growth of 3%.

· Discount rate: 11.82% (2017: 11.85%), which is based on a capital asset pricing model ('CAPM') calculation for BoCom, using market data. Management also compares rates derived from the CAPM with discount rates from external sources. The discount rate used was within the range of 10.4% to 15.0% (2017: 10.2% to 13.4%) indicated by external sources.

· Loan impairment charge as a percentage of customer advances: an increased range from 0.73% to 0.79% (2017: 0.66% to 0.82%) in the short to medium term reflect US-China trade tensions. For periods after 2022, the ratio is 0.70% (2017: 0.70%), which is slightly higher than the historical average.

· Risk-weighted assets as a percentage of total assets: 62% (2017: 62%) for all forecast periods. This is slightly higher than BoCom's actual results and slightly lower than the forecasts disclosed by external analysts.

· Cost-income ratio: ranges from 38.7% to 39.0% (2017: 37.1% to 38.0%) in the short to medium term. This is consistent with the forecasts disclosed by external analysts.

· Effective tax rate: ranges from 13.8% to 22.3% (2017: 18.2% to 22.5%) in the short to medium term, reflecting an expected increase towards the long-term assumption. For periods after 2022, the rate is 22.5% (2017: 22.5%), which is slightly higher than the historical average.

· Regulatory capital requirements: capital adequacy ratio of 11.5% (2017:11.5%) and tier 1 capital adequacy ratio of 9.5% (2017: 9.5%), based on the minimum regulatory requirements.

HSBC Holdings plc Annual Report and Accounts 2018 266

Notes on the financial statements

The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom to nil.

Key assumption Changes to key assumption to reduce headroom to nil

· Long-term profit growth rate • decreases by 13 basis points

· Long-term asset growth rate • increases by 12 basis points

· Discount rate • increases by 16 basis points

· Loan impairment charge as a percentage of customer advances • increases by 2 basis points

· Risk-weighted assets as a percentage of total assets • increases by 77 basis points

· Cost-income ratio • increases by 50 basis points

· Long-term effective tax rate • increases by 123 basis points

· Regulatory capital requirements - capital adequacy ratio • increases by 14 basis points

· Regulatory capital requirements - tier 1 capital adequacy ratio • increases by 75 basis points

The following table further illustrates the impact on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of the VIU to each key assumption on its own and it is possible that more than one favourable and/or unfavourable change will occur at the same time. The selected rates of reasonably possible changes to key assumptions are largely based on external analysts' forecasts, which can change from period to period.

Sensitivity of VIU to reasonably possible changes in key assumptions

Favourable change Unfavourable change

Increase Decrease

in VIU VIU in VIU VIU

bps $bn $bn bps $bn $bn

At 31 Dec 2018

Loan impairment charge as a percentage of customer advances

Risk-weighted assets as a percentage of total assets

Cost-income ratio

Long term effective tax rate

Earnings in short to medium term - compound annual growth rate¹

Regulatory capital requirements - capital adequacy ratio

Regulatory capital requirements - tier 1 capital adequacy ratio

At 31 Dec 2017

Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is $15.5bn to $19.6bn (2017: $14.7bn to $21.1bn). In 2018, the range is based on the favourable/unfavourable change in the earnings in the short to medium-term and long-term LICs set out in the table above. All other long-term assumptions, the discount rate and the basis of the CMC have been kept unchanged when determining the reasonably possible range of the VIU.

Selected financial information of BoCom

The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2018, HSBC included the associate's results on the basis of the financial statements for the 12 months ended 30 September 2018, taking into account changes in the subsequent period from 1 October 2018 to 31 December 2018 that would have materially affected the results.

267 HSBC Holdings plc Annual Report and Accounts 2018

Selected balance sheet information of BoCom

At 30 Sep

1 Due to the adoption of IFRS9, the opening equity of BoCom at 1 January 2018 was reduced by $4,053m.

Reconciliation of BoCom's total shareholders' equity to the carrying amount in HSBC's consolidated financial statements

At 30 Sep

Selected income statement information of BoCom

For the 12 months ended 30 Sep

HSBC Holdings plc Annual Report and Accounts 2018 268

Subsidiaries with significant non-controlling interests

Hang Seng Bank Limited

Proportion of ownership interests and voting rights held by non-controlling interests

Place of business

Profit attributable to non-controlling interests

Accumulated non-controlling interests of the subsidiary

Dividends paid to non-controlling interests

Summarised financial information:

- total assets

- total liabilities

- net operating income before changes in expected credit losses and other credit impairment charges

- profit for the year

- total comprehensive income for the year

20 Structured entities

HSBC is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets, conduits and investment funds, established either by HSBC or a third party.

Consolidated structured entities

Total assets of HSBC's consolidated structured entities, split by entity type

Conduits

$bn

Securitisations

$bn

HSBC

managed funds

$bn

Other
$bn

Total $bn

At 31 Dec 2018

9.2

5.7

6.5

4.4

25.8

At 31 Dec 2017 12.9

4.8

7.0

3.2

27.9

Conduits

HSBC has established and manages two types of conduits: securities investment conduits ('SICs') and multi-seller conduits.

Securities investment conduits

The SICs purchase highly rated ABSs to facilitate tailored investment opportunities.

· At 31 December 2018, Solitaire, HSBC's principal SIC, held $2.3bn of ABSs (2017: $3.2bn). These are included within the disclosures of ABSs on page 122. It is currently funded entirely by commercial paper ('CP') issued to HSBC. Although HSBC continues to provide a liquidity facility, Solitaire has no need to draw on it as long as HSBC purchases its issued CP, which HSBC intends to do for the foreseeable future. At 31 December 2018, HSBC held $3.4bn of CP (2017: $4.6bn).

· Mazarin is funded by medium-term notes, and is no longer funded by repurchase agreements. HSBC's primary exposure to Mazarin is represented by the amortised cost of the debt required to support the non-cash assets of the vehicles. At 31 December 2018, this amounted to $0.5bn (2017: $0.9bn). The first loss protection is provided through the capital notes issued by the vehicle, which are held substantially by third parties.

· Barion and Malachite's clean-up redemption conditions were triggered in March 2018 and August 2018 respectively, resulting in the full redemption of these vehicles.

Multi-seller conduit

HSBC's multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, HSBC bears risk equal to the transaction-specific facility offered to the multi-seller conduit, amounting to $16.1bn at 31 December 2018 (2017: $15.7bn). First loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit enhancements. A layer of secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.

Securitisations

HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or synthetically through credit default swaps, and the structured entities issue debt securities to investors.

HSBC managed funds

HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent in its role as investment manager, HSBC controls these funds.

HSBC Holdings plc Annual Report and Accounts 2018 270

Notes on the financial statements

Other

HSBC has entered into a number of transactions in the normal course of business, which include asset and structured finance transactions where it has control of the structured entity. In addition, HSBC is deemed to control a number of third-party managed funds through its involvement as a principal in the funds.

Unconsolidated structured entities

The term 'unconsolidated structured entities' refers to all structured entities not controlled by HSBC. The Group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.

Nature and risks associated with HSBC interests in unconsolidated structured entities

	Total assets in relation to HSBC's interests in the unconsolidated structured entities 3.8 8.3 8.9 4.7 25.7
	- trading assets	- - 3.8 - -			0.1 7.3 - 0.9 -			0.3 7.9 0.3 0.4 -			1.3 - 2.7 0.3 0.4			1.7 15.2 6.8 1.6 0.4
	- financial assets designated and otherwise mandatorily measured at fair value
	- loans and advances to customers
	- financial investments
	- other assets
	Total liabilities in relation to HSBC's interests in the unconsolidated structured entities - - - 0.2 0.2
	- other liabilities -				-			-			0.2			0.2
	Other off-balance sheet commitments 0.8 0.1 3.3 1.0 5.2
HSBC's maximum exposure at 31 Dec 2018				4.6		8.4			12.2			5.5			30.7
Total asset values of the entities ($m)
0-500				78		321			930			210			1,539
500-2,000				6		56			578			3			643
2,000-5,000				-		17			235			-			252
5,000-25,000				2		10			104			1			117
25,000+				-		2			11			-			13
Number of entities at 31 Dec 2017				86		406			1,858			214			2,564
				$bn		$bn			$bn			$bn			$bn
Total assets in relation to HSBC's interests in the unconsolidated structured entities				4.0		9.1			9.3			4.1			26.5
- trading assets		-			0.2			0.2			2.4			2.8
- financial assets designated at fair value		-			8.0			8.3			-			16.3
- loans and advances to banks		-			-			-			0.1			0.1
- loans and advances to customers		4.0			-			-			1.1			5.1
- financial investments		-			0.9			0.8			0.1			1.8
- other assets		-			-			-			0.4			0.4
Total liabilities in relation to HSBC's interests in the unconsolidated structured entities			-				-			-			0.3			0.3
- other liabilities			-				-			-			0.3			0.3
Other off-balance sheet commitments			-				0.1			2.2			0.3			2.6
HSBC's maximum exposure at 31 Dec 2017			4.0				9.2			11.5			4.4			29.1

The maximum exposure to loss from HSBC's interests in unconsolidated structured entities represents the maximum loss it could incur as a result of its involvement with these entities regardless of the probability of the loss being incurred.

· For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential future losses.

· For retained and purchased investments in and loans to unconsolidated structured entities, the maximum exposure to loss is the carrying value of these interests at the balance sheet reporting date.

The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements that HSBC has entered into in order to mitigate the Group's exposure to loss.

Securitisations

HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC has investments in ABSs issued by third-party structured entities, as set out on page 121.

HSBC managed funds

HSBC establishes and manages money market funds and non-money market investment funds to provide customers with investment opportunities. Further information on funds under management is provided on page 65.

271 HSBC Holdings plc Annual Report and Accounts 2018

Impairment testing

The Group's impairment test in respect of goodwill allocated to each cash-generating unit ('CGU') is performed as at 1 July each year. A review for indicators of impairment is undertaken at each subsequent quarter-end and as at 31 December 2018. No indicators of impairment were identified as part of these reviews.

Basis of the recoverable amount

The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use ('VIU') at each respective testing date for 2017 and 2018. For each CGU, the VIU is calculated by discounting management's cash flow projections for the CGU. The key assumptions used in the VIU calculation for each significant CGU are discussed below.

Key assumptions in VIU calculation

Notes on the financial statements

At 1 July 2018, aggregate goodwill of $3,061m (1 July 2017: $3,059m) had been allocated to CGUs that were not considered individually significant. The Group's CGUs do not carry on their balance sheets any significant intangible assets with indefinite useful lives, other than goodwill.

Management's judgement in estimating the cash flows of a CGU

The cash flow projections for each CGU are based on plans approved by the GMB. For the goodwill impairment test conducted at 1 July 2018, management's cash flow projections until the end of 2022 were used.

Discount rate

The rate used to discount the cash flows is based on the cost of capital assigned to each CGU, which is derived using a capital asset pricing model ('CAPM'). CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market's assessment of the economic variables and management's judgement. The discount rates for each CGU are refined to reflect the rates of inflation for the countries within which the CGU operate. In addition, for the purposes of testing goodwill for impairment, management supplements this process by comparing the discount rates derived using the internally generated CAPM, with the cost of capital rates produced by external sources for businesses operating in similar markets.

Nominal long-term growth rate

The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective within the Group of business units making up the CGUs. These growth rates reflect GDP and inflation for the countries within which the CGU operates or from which it derives revenue.

Sensitivities of key assumptions in calculating VIU

At 1 July 2018, none of the CGUs were sensitive to reasonably possible adverse changes in key assumptions supporting the recoverable amount. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each input to the model, such as the external range of discount rates observable, historical performance against forecast and risks attaching to the key assumptions underlying cash flow projections.

Present value of in-force long-term insurance business

When calculating the present value of in-force long-term ('PVIF') insurance business, expected cash flows are projected after adjusting for a variety of assumptions made by each insurance operation to reflect local market conditions and management's judgement of future trends, and uncertainty in the underlying assumptions is reflected by applying margins (as opposed to a cost of capital methodology). Variations in actual experience and changes to assumptions can contribute to volatility in the results of the insurance business.

Actuarial Control Committees of each key insurance entity meet on a quarterly basis to review and approve PVIF assumptions. All changes to non-economic assumptions, economic assumptions that are not observable and model methodologies must be approved by the Actuarial Control Committee.

Movements in PVIF

Change in PVIF of long-term insurance business

- value of new business written during the year

- expected return 1

- assumption changes and experience variances (see below)

- other adjustments

1 'Expected return' represents the unwinding of the discount rate and reversal of expected cash flows for the period.

Assumption changes and experience variances
Included within this line item are:

· $(56)m (2017: $(98)m), directly offsetting regulatory-driven changes to the valuation of liabilities under insurance contracts.

· $455m (2017: $(141)m), reflecting the future expected sharing of returns with policyholders on contracts with discretionary participation features ('DPF'), to the extent this sharing is not already included in liabilities under insurance contracts.

· $(107)m (2017: $(41)m), driven by other assumptions changes and experience variances.
Key assumptions used in the computation of PVIF for main life insurance operations

Economic assumptions are set in a way that is consistent with observable market values. The valuation of PVIF is sensitive to observed market movements and the impact of such changes is included in the sensitivities presented below.

	2018		2017
	Hong Kong %	France¹ %	Hong Kong %	France¹ %
Weighted average risk-free rate	2.29	1.52	2.02	1.50
Weighted average risk discount rate	5.90	2.35	6.20	2.20
Expense inflation	3.00	1.70	3.00	1.48

1 For 2018, the calculation of France's PVIF assumes a risk discount rate of 2.35% (2017: 2.20%) plus a risk margin of $109m (2017: $80m).

273 HSBC Holdings plc Annual Report and Accounts 2018

1 'Deposits by banks' and 'Customer accounts' include repos, stock lending and other amounts.

2 Settlement accounts, cash collateral and margin payables included within 'Deposits by banks' and 'Customer accounts' were reclassified from 'Trading liabilities' to 'Other liabilities' on 1 January 2018. This reclassification is to better reflect the nature of these balances and ensure consistency of presentation. Structured liabilities have moved from 'Trading liabilities' to 'Financial liabilities designated at fair value'. Comparative data was not restated as the reclassification is not significant in the context of other changes to the balance sheet resulting from the adoption of IFRS 9. See Note 37 for further details.

3 Structured deposits placed at HSBC Bank USA and HSBC Trust Company (Delaware) National Association are insured by the Federal Deposit Insurance Corporation, a US government agency, up to $250,000 per depositor.

4 'Other debt securities in issue' comprises structured notes issued by HSBC for which market risks are actively managed as part of trading portfolios.

24 Financial liabilities designated at fair value

HSBC

1 Structured liabilities have moved from 'Trading liabilities' to 'Financial liabilities designated at fair value'. Comparatives have not been restated. See Note 37 for further detail.

HSBC Holdings plc Annual Report and Accounts 2018 274

Notes on the financial statements

The carrying amount of financial liabilities designated at fair value was $11,496m less than the contractual amount at maturity (2017: $5,343m more). The cumulative amount of change in fair value attributable to changes in credit risk was $209m (2017: loss of $4,107m).

HSBC Holdings

2018 2017

$m $m

Debt securities in issue (Note 25) 17,767 17,496

Subordinated liabilities (Note 28) 7,282 13,394

At 31 Dec 25,049 30,890

The carrying amount of financial liabilities designated at fair value was $920m more than the contractual amount at maturity

(2017: $3,370m more). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $812m (2017: loss of $2,209m).

25 Debt securities in issue

HSBC

2018 2017

Footnotes $m $m

162,277 146,539

33,816 23,100

196,093 169,639

1 (1,400) (40,734)

- financial liabilities designated at fair value (Note 24)

At 31 Dec

85,342 64,546

1 Structured liabilities (including debt securities in issue) have moved from 'Trading liabilities' to 'Financial liabilities designated at fair value'. Comparatives have not been restated. See Note 37

for further detail.

HSBC Holdings

2018 2017

$m $m

Debt securities 68,567 51,754

Included within:

- financial liabilities designated at fair value (Note 24) (17,767) (17,496)

At 31 Dec 50,800 34,258

26 Accruals, deferred income and other liabilities

Footnotes

Accruals and deferred income

Settlement accounts 1

Cash collateral and margin payables 1

Endorsements and acceptances

Employee benefit liabilities (Note 6)

Liabilities of disposal groups held for sale

Other liabilities

At 31 Dec

1 Settlement accounts, cash collateral and margin payables were reclassified from 'Trading liabilities', 'Deposits by banks' and 'Customer accounts' to 'Other liabilities' on 1 January 2018. This

reclassification is to better reflect the nature of these balances and ensure consistency of presentation. Comparative data was not restated as the reclassification is not significant in the context of other changes to the balance sheet resulting from the adoption of IFRS 9. See Note 37 for further details.

Accruals, deferred income and other liabilities include $87,390m (2017: $34,048m) of financial liabilities, the majority of which are measured at amortised cost.

27 Provisions

275 HSBC Holdings plc Annual Report and Accounts 2018

Provisions (excluding contractual commitments)

At 31 Dec 2017

Additions

Amounts utilised

Unused amounts reversed

Exchange and other movements

At 31 Dec 2018

Contractual commitments¹

At 31 Dec 2017

Impact on transition to IFRS 9

Net change in expected credit loss provision and other movements

At 31 Dec 2018

Total Provisions

At 31 Dec 2017

At 31 Dec 2018

	Restructuring costs $m	Contractual commitments¹ $m	Legal proceedings and regulatory matters $m	Customer remediation $m	Other provisions $m	Total $m
At 1 Jan 2017	551	298	2,436	1,124	364	4,773
Additions	204	87	829	820	280	2,220
Amounts utilised	(353)	(3)	(850)	(543)	(133)	(1,882)
Unused amounts reversed	(103)	(135)	(980)	(52)	(107)	(1,377)
Exchange and other movements	35	6	66	105	65	277
At 31 Dec 2017	334	253	1,501	1,454	469	4,011

1 The contractual commitments provision at 31 December 2017 represented IAS 37 provisions on off-balance sheet loan commitments and guarantees, for which expected credit losses are provided following transition to IFRS 9 on 1 January 2018. It further includes provisions in respect of insurance contracts.

Further details of 'Legal proceedings and regulatory matters' are set out in Note 35. Legal proceedings include civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim), or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.

Customer remediation refers to HSBC's activities to compensate customers for losses or damages associated with a failure to comply with regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or industry developments in sales practices, and is not necessarily initiated by regulatory action. Further details of customer remediation are set out in this note.

Refer to Note 37 for further information on the impact of IFRS 9 on undrawn loan commitments and financial guarantees, presented in 'Contractual commitments'. This provision results from the adoption of IFRS 9 and has no comparatives. Further analysis of the movement in the expected credit loss provision is disclosed within the 'Reconciliation of allowances for loans and advances to banks and customers including loan commitments and financial guarantees' table on page 100.

Payment protection insurance

At 31 December 2018, $555m (2017: $1,174m) of the customer remediation provision relates to the estimated liability for redress in respect of the possible mis-selling of payment protection insurance ('PPI') policies in previous years.

An increase in provisions of $79m was recognised during the second half of 2018, primarily reflecting an adjustment to expected future complaint volumes as a result of increased levels of observed complaints and of information requests during the year.

The estimated liability for redress is calculated on the basis of the total premiums paid by the customer plus simple interest of 8% per annum (or the rate inherent in the related loan product where higher). The basis for calculating the redress liability is the same for single premium and regular premium policies. Future estimated redress levels are based on the historically observed redress per policy.

A total of 5.4 million PPI policies have been sold since 2000, generating estimated revenue of $3.3bn at 2018. The gross written premiums on these policies were approximately $4.4bn.

At 31 December 2018, the estimated total complaints expected to be received were 2.3 million, representing 42% of total policies sold. It is estimated that contact will be made with regard to 2.6 million policies, representing 49% of total policies sold. This estimate includes inbound complaints as well as the Group's proactive contact exercise on certain policies ('outbound contact').

HSBC Holdings plc Annual Report and Accounts 2018 276

Notes on the financial statements

The following table details the cumulative number of complaints received at 31 December 2018 and the number of claims expected in the future:

Cumulative PPI complaints received to 31 December 2018 and future claims expected

Footnotes

Inbound complaints (000s of policies) 1

Outbound contact (000s of policies)

Response rate to outbound contact

Average uphold rate per claim 2

Average redress per claim ($)

Complaints to Financial Ombudsman Service (000s of policies)

Average uphold rate per Financial Ombudsman Service claim

1 Excludes invalid claims for which no PPI policy exists.

2 Claims include inbound and responses to outbound contact.

A 100,000 increase/decrease in the total inbound complaints would increase/decrease the redress provision by approximately $260m at 2018 average exchange rates.

28 Subordinated liabilities

HSBC's subordinated liabilities

	2018 $m	2017 $m
At amortised cost	22,437	19,826
- subordinated liabilities	20,651 1,786	17,988 1,838
- preferred securities	20,651 1,786	17,988 1,838
Designated at fair value (Note 24)	14,693	24,290
- subordinated liabilities	14,282 411	23,831 459
- preferred securities	14,282 411	23,831 459
At 31 Dec	37,130	44,116
Issued by HSBC subsidiaries	13,168	15,470
Issued by HSBC Holdings	23,962	28,646

Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Capital securities may be called and redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If not redeemed at the first call date, coupons payable may step up or become floating rate based on interbank rates. On capital securities other than floating rate notes, interest is payable at fixed rates of up to 10.176%.

The balance sheet amounts disclosed in the following table are presented on an IFRS basis and do not reflect the amount that the instruments contribute to regulatory capital principally due to regulatory amortisation and regulatory eligibility limits.

277 HSBC Holdings plc Annual Report and Accounts 2018

HSBC's subordinated liabilities in issue

2018

750

500

300

1,850

382

513

757

286

758

4,546

Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Ltd

$400m Primary capital undated floating rate notes (third series) Jul 1991 400

400

Tier 2 securities issued by HSBC Bank Malaysia Berhad

MYR500m 5.05% subordinated bonds Nov 2022 Nov 2027 121

121

Tier 2 securities issued by HSBC USA Inc.

$750m 5.00% subordinated notes - Sep 2020 747

$250m 7.20% subordinated debentures - Jul 2097 221

Other subordinated liabilities each less than $150m 4 269

1,237

Tier 2 securities issued by HSBC Bank USA, N.A.

$1,250m 4.875% subordinated notes - Aug 2020 1,226

$1,000m 5.875% subordinated notes - Nov 2034 1,106

$750m 5.625% subordinated notes - Aug 2035 829

$700m 7.00% subordinated notes - Jan 2039 697

3,858

Tier 2 securities issued by HSBC Finance Corporation

$2,939m 6.676% senior subordinated notes 5 - Jan 2021 507

Tier 2 securities issued by HSBC Bank Canada

Other subordinated liabilities each less than $150m Oct 1996 Nov 2083 29

Securities issued by HSBC Mexico, S.A.

$300m Non-convertible subordinated obligations 6, 7 Jun 2014 Jun 2019 -

Other subordinated liability less than $150m 2, 6 -

Securities issued by other HSBC subsidiaries

Other subordinated liabilities each less than $200m 4 273

Subordinated liabilities issued by HSBC subsidiaries at 31 Dec 8 13,168

1 See paragraph below, 'Guaranteed by HSBC Holdings or HSBC Bank plc'.

2 These securities were redeemed in the first quarter of 2018.

3 The interest rate payable after November 2025 is the sum of the three-month sterling Libor plus 1.50% percentage points.

4 Some securities included here are ineligible for inclusion in the capital base of HSBC.

5 HSBC tendered for these securities in 2017. In January 2018, a further tender was conducted. The principal balance is now $507m. The original notional of these securities is $2,939m.

6 These securities are ineligible for inclusion in the capital base of HSBC.

7 Approximately $60m of these securities were held by HSBC Holdings.

8 Information regarding the effects of adoption of IFRS 9 can be found in Note 37.

HSBC Holdings' subordinated liabilities

	2018	2017
	$m	$m
At amortised cost	17,715	15,877
Designated at fair value (Note 24)	7,282	13,394
At 31 Dec	24,997	29,271

HSBC Holdings plc Annual Report and Accounts 2018 278

Notes on the financial statements

HSBC Holdings' subordinated liabilities in issue

	Footnotes	First call date	Maturity date
Tier 2 securities issued by HSBC Holdings plc
Amounts owed to third parties
$2,000m 4.25% subordinated notes	2,3	-	Mar 2024
$1,500m 4.25% subordinated notes	2	-	Aug 2025
$1,500m 4.375% subordinated notes	2	-	Nov 2026
$488m 7.625% subordinated notes	1	-	May 2032
$222m 7.35% subordinated notes	1	-	Nov 2032
$2,000m 6.5% subordinated notes	1	-	May 2036
$2,500m 6.5% subordinated notes	1	-	Sep 2037
$1,500m 6.8% subordinated notes	1	-	Jun 2038
$1,500m 5.25% subordinated notes	2,3	-	Mar 2044

£650m 5.75% subordinated notes	2	-	Dec 2027
£650m 6.75% subordinated notes	2	-	Sep 2028
£750m 7.0% subordinated notes	2	-	Apr 2038
£900m 6.0% subordinated notes	2	-	Mar 2040

€1,600m 6.25% subordinated notes	2	-	Mar 2018
€1,750m 6.0% subordinated notes	2	-	Jun 2019
€1,500m 3.375% subordinated notes	2,3	Jan 2019	Jan 2024
€1,500m 3.0% subordinated notes	2	-	Jun 2025
€1,000m 3.125% subordinated notes	2	-	Jun 2028

Amounts owed to HSBC undertakings
$900m 10.176% subordinated step-up cumulative notes		Jun 2030	Jun 2040

At 31 Dec

1 Amounts owed to third parties represent securities included in the capital base of HSBC as tier 2 securities in accordance with the grandfathering provisions under CR0 IV rules.

2 These securities are included in the capital base of HSBC as fully CR0 IV-compliant tier 2 securities on an end point basis.

3 These subordinated notes are measured at amortised cost in HSBC Holdings, where the interest rate risk is hedged using a fair value hedge, while they are measured at fair value in the Group.

Additional tier 1 capital securities

Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred or cancelled at the discretion of HSBC. The securities presented in this Note are accounted for as liabilities because HSBC has an obligation to pay dividends in perpetuity. See Note 32 for additional tier 1 capital securities accounted for as equity.

The additional tier 1 securities presented in this section do not meet the identifying criteria in full for recognition as tier 1 capital under CRD IV, but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.

Guaranteed by HSBC Holdings or HSBC Bank plc

Capital securities guaranteed by HSBC Holdings or HSBC Bank plc were issued by the Jersey limited partnerships. The proceeds of these were lent to the respective guarantors by the limited partnerships in the form of subordinated notes. They qualify as additional tier 1 capital for HSBC under CRD IV by virtue of the application of grandfathering provisions, and the two capital securities guaranteed by HSBC Bank plc also qualify as additional tier 1 capital for HSBC Bank plc (on a solo and a consolidated basis) under CRD IV by virtue of the same grandfathering process.

These preferred securities, together with the guarantee, are intended to provide investors with economic rights equivalent to the rights that they would have had if they had purchased non-cumulative perpetual preference shares of the relevant issuer. There are limitations on the payment of distributions if such payments are prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC's capital adequacy requirements, or if HSBC Holdings or HSBC Bank plc has insufficient distributable reserves (as defined).

HSBC Holdings and HSBC Bank plc have individually covenanted that, if prevented under certain circumstances from paying distributions on the preferred securities in full, they will not pay dividends or other distributions in respect of their ordinary shares, or repurchase or redeem their ordinary shares, until the distribution on the preferred securities has been paid in full.

If the consolidated total capital ratio of HSBC Holdings falls below the regulatory minimum required, or if the Directors expect it to do so in the near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Holdings, the holders' interests in the preferred securities guaranteed by HSBC Holdings will be exchanged for interests in preference shares issued by HSBC Holdings that have economic terms which are in all material respects equivalent to the preferred securities and their guarantee.

If any of the two issues guaranteed by HSBC Bank plc are outstanding in April 2049 or November 2048 respectively, or if the consolidated total capital ratio of HSBC Bank plc falls below the regulatory minimum required, or if the Directors expect it to do so in the near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Bank plc, the holders' interests in the preferred securities guaranteed by HSBC Bank plc will be exchanged for interests in preference shares issued by HSBC Bank plc that have economic terms which are in all material respects equivalent to the preferred securities and their guarantee.

Tier 2 capital securities

Tier 2 capital securities are either perpetual or dated subordinated securities on which there is an obligation to pay coupons. These capital securities are included within HSBC's regulatory capital base as tier 2 capital under CRD IV by virtue of the application of grandfathering provisions (with the exception of identified securities that are compliant with CRD IV end point rules). In accordance with CRD IV, the capital contribution of all tier 2 securities is amortised for regulatory purposes in their final five years before maturity.

279 HSBC Holdings plc Annual Report and Accounts 2018

29 Maturity analysis of assets, liabilities and off-balance sheet commitments

The table on page 281 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by residual contractual maturity at the balance sheet date. These balances are included in the maturity analysis as follows:

· Trading assets and liabilities (including trading derivatives but excluding reverse repos, repos and debt securities in issue) are included in the 'Due not more than 1 month' time bucket, because trading balances are typically held for short periods of time.

· Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the 'Due over 5 years' time bucket. Undated or perpetual instruments are classified based on the contractual notice period, which the counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual contracts are included in the 'Due over 5 years' time bucket.

· Non-financial assets and liabilities with no contractual maturity are included in the 'Due over 5 years' time bucket.

· Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the contractual maturity of the underlying instruments and not on the basis of the disposal transaction.

· Liabilities under insurance contracts are included in the 'Due over 5 years' time bucket. Liabilities under investment contracts are classified in accordance with their contractual maturity. Undated investment contracts are included in the 'Due over 5 years' time bucket, however, such contracts are subject to surrender and transfer options by the policyholders.

· Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.

HSBC Holdings plc Annual Report and Accounts 2018 280

Notes on the financial statements

HSBC

Maturity analysis of assets, liabilities and off-balance sheet commitments

Financial assets
Cash and balances at central banks				162,843			-				-			-			-				-				-			-			162,843
Items in the course of collection from other banks				5,787			-				-			-			-				-				-			-			5,787
Hong Kong Government certificates of indebtedness				35,859			-				-			-			-				-				-			-			35,859
Trading assets				235,443			264				707			744			104				197				671			-			238,130
Financial assets designated or otherwise mandatorily measured at fair value				7,743			49				371			145			334				918				2,415			29,136			41,111
Derivatives				206,925			15				57			79			18				69				328			334			207,825
Loans and advances to banks				40,114			10,421				3,486			2,004			3,282				7,158				4,508			1,194			72,167
Loans and advances to customers		178,613 72,072 58,680 38,394 37,333 101,267 219,841 275,496 981,696
- personal		41,967			8,736			8,237				7,581			7,240			24,942				63,061				229,626			391,390
- corporate and commercial		118,294			58,623			45,918				27,001			25,597			67,093				143,959				42,540			529,025
- financial		18,352			4,713			4,525				3,812			4,496			9,232				12,821				3,330			61,281
Reverse repurchase agreements
- non-trading		172,795 41,084 13,308 5,763 3,574 5,253 1,027 - 242,804
Financial investments			40,421			58,731			30,464				15,707			15,357			41,866				92,846				112,041			407,433
Accrued income and other financial assets			62,067			6,893			2,403				561			307			349				731				2,237			75,548
Financial assets at 31 Dec 2018			1,148,610			189,529			109,476				63,397			60,309			157,077				322,367				420,438			2,471,203
Non-financial assets			-			-			-				-			-			-				-				86,921			86,921
Total assets at 31 Dec 2018			1,148,610			189,529			109,476				63,397			60,309			157,077				322,367				507,359			2,558,124
Off-balance sheet commitments received
Loan and other credit-related commitments			73,464			-			-				-			1			3				98				656			74,222
Financial liabilities
Hong Kong currency notes in circulation			35,859			-			-				-			-			-				-				-			35,859
Deposits by banks			42,406			3,457			1,043				784			542			5,558				1,655				886			56,331
Customer accounts¹		1,225,919 66,990 31,315 17,218 13,760 4,122 3,194 125 1,362,643
- personal		612,325			38,132			21,218				11,483			8,282			2,853				2,623				53			696,969
- corporate and commercial		457,661			22,922			8,029				4,599			4,317			1,092				509				29			499,158
- financial		155,933			5,936			2,068				1,136			1,161			177				62				43			166,516
Repurchase agreements
- non-trading		154,383 8,140 1,750 629 73 408 501 - 165,884
Items in the course of transmission to other banks		5,641 - - - - - - - 5,641

Trading liabilities²		82,867 251 326 633 81 235 36 2 84,431
Financial liabilities designated at
fair value²		3,813 4,476 6,878 3,076 3,481 12,545 53,615 60,621 148,505
- debt securities in issue: covered bonds		-			-			205				-			-			1,190				2,721				1,137			5,253
- debt securities in issue: unsecured		981			1,562			2,659				2,290			2,353			9,143				47,443				37,633			104,064
- subordinated liabilities and preferred securities		-			-			2,125				-			-			-				-				12,568			14,693
- other		2,832			2,914			1,889				786			1,128			2,212				3,451				9,283			24,495
Derivatives		203,962 62 135 191 144 560 159 622 205,835
Debt securities in issue		6,777 11,194 12,556 8,075 3,330 10,670 19,713 13,027 85,342
- covered bonds		-			-			-				-			-			-				748				-			748
- otherwise secured		2,166			1,100			30				-			-			394				944				1,412			6,046
- unsecured		4,611			10,094			12,526				8,075			3,330			10,276				18,021				11,615			78,548
Accruals and other financial liabilities		69,958 8,986 3,296 659 1,269 885 1,027 1,300 87,380
Subordinated liabilities	6					89				3			-			-				1,996				1,384			18,959			22,437
Total financial liabilities at 31 Dec 2018	1,831,591					103,645				57,302			31,265			22,680				36,979				81,284			95,542			2,260,288
Non-financial liabilities	-					-				-			-			-				-				-			103,587			103,587
Total liabilities at 31 Dec 2018	1,831,591					103,645				57,302			31,265			22,680				36,979				81,284			199,129			2,363,875
Off-balance sheet commitments given
Loan and other credit-related commitments		769,311 5,281 941 1,972 1,257 361 731 412 780,266
- personal		203,622			974			59				32			201			280				556				331			206,055
- corporate and commercial		441,199			2,694			799				1,895			974			34				150				73			447,818
- financial		124,490			1,613			83				45			82			47				25				8			126,393

281 HSBC Holdings plc Annual Report and Accounts 2018

Notes on the financial statements

HSBC Holdings

Maturity analysis of assets, liabilities and off-balance sheet commitments

Financial liabilities designated at fair value	- - 2,125 - - - 12,306 10,618 25,049
- debt securities in issue	-	-	-	-	-	-	12,306	5,461	17,767
- subordinated liabilities and preferred securities	-	-	2,125	-	-	-	-	5,157	7,282
Derivatives	1,321 - - - - - 339 499 2,159

Undrawn formal standby facilities, credit lines and other commitments to lend	- - - - - - - - -

283 HSBC Holdings plc Annual Report and Accounts 2018

Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)

Due not more than 1 month

Due over 1 month but not more than

3 months

Due over 3 months

but not more than 6 months

Due over 6 months

but not more than 9 months

Due over 9 months

but not more than

1 year

Due over

1 year but not more than

2 years

Due over 2 years but not more than 5 years

Due over

5 years Total

$m $m $m $m $m $m $m $m $m

Financial assets
Cash at bank and in hand:
- balances with HSBC undertakings	1,985	-	-	-	-	-	-	-	1,985
Derivatives	1,952	-	-	-	-	80	-	356	2,388
Loans and advances to HSBC undertakings	4,861	13,039	3,145	5	2	1,134	29,560	24,881	76,627
Loans and advances to HSBC undertakings designated at fair value	-	-	-	-	-	-	2,411	9,533	11,944
Financial investments in HSBC undertakings	17	3	-	-	-	-	1,798	2,446	4,264
Accrued income and other financial assets	-	4	-	-	-	-	-	123	127
Total financial assets at 31 Dec 2017	8,815	13,046	3,145	5	2	1,214	33,769	37,339	97,335
Non-financial assets	-	-	-	-	-	-	-	94,399	94,399
Total assets at 31 Dec 2017	8,815	13,046	3,145	5	2	1,214	33,769	131,738	191,734
Financial liabilities
Amounts owed to HSBC undertakings	120	2,405	46	-	-	-	-	-	2,571
Financial liabilities designated at fair value	-	-	-	-	-	2,349	11,491	17,050	30,890

Derivatives	2,008	-	-	-	-	110	183	781	3,082
Debt securities in issue	-	-	-	-	1,081	-	10,354	22,823	34,258
Accruals and other financial liabilities	439	395	157	39	7	3	1	11	1,052
Subordinated liabilities	-	1,918	-	-	-	-	-	13,959	15,877
Total financial liabilities at 31 Dec 2017	2,567	4,718	203	39	1,088	2,462	22,029	54,624	87,730
Non-financial liabilities	-	-	-	-	-	-	-	217	217
Total liabilities at 31 Dec 2017	2,567	4,718	203	39	1,088	2,462	22,029	54,841	87,947
Off-balance sheet commitments given
Undrawn formal standby facilities, credit lines and other commitments to lend	-	-	-	-	-	-	-	-	-

30 Offsetting of financial assets and financial liabilities

In the following table, the 'Amounts not set off in the balance sheet' include transactions where:

· the counterparty has an offsetting exposure with HSBC and a master netting or similar arrangement is in place with a right to set off only in the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and

· in the case of derivatives and reverse repurchase/repurchase, stock borrowing/lending and similar agreements, cash and non-cash collateral has been received/pledged.

For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the relevant customer agreements are subject to review and updated, as necessary, to ensure the legal right to set off remains appropriate.

HSBC Holdings plc Annual Report and Accounts 2018 284

Notes on the financial statements

1 At 31 December 2018, the amount of cash margin received that had been offset against the gross derivatives assets was $3,935m (2017: $6,324m). The amount of cash margin paid that had been offset against the gross derivatives liabilities was $5,888m (2017: $5,196m).

2 For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within 'Trading assets' $18,280m (2017: $17,120m) and 'Trading liabilities' $12,493m (2017: $10,618m), see the 'Funding sources and uses' table on page 134.

3 At 31 December 2018, the total amount of 'Loans and advances to customers' was $981,696m (2017: $962,964m), of which $28,066m (2017: $31,667m) was subject to offsetting.

4 At 31 December 2018, the total amount of 'Customer accounts' was $1,362,643m (2017: $1,364,462m), of which $27,818m (2017: $32,109m) was subject to offsetting.

5 These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing enforceability of the right of offset.

31 Non-controlling interests
	2018	2017
	$m	$m
Non-controlling interests attributable to holders of ordinary shares in subsidiaries	7,996	7,621
At 31 Dec	7,996	7,621

Hang Seng Bank Limited is the only subsidiary in the Group that gives rise to significant non-controlling interest. For summarised financial information of Hang Seng Bank Limited, see Note 19.

285 HSBC Holdings plc Annual Report and Accounts 2018

32 Called up share capital and other equity instruments

Called up share capital and share premium

HSBC Holdings ordinary shares of $0.50 each, issued and fully paid

Footnotes

At 1 Jan

Shares issued under HSBC employee share plans

Shares issued in lieu of dividends

Less: Shares repurchased and cancelled

At 31 Dec 1

HSBC Holdings 6.20% non-cumulative US Dollar Preference Shares, Series A

HSBC Holdings share premium

	2018 $m
At 31 Dec	13,609

Total called up share capital and share premium
Total called up share capital and share premium	2018 $m
At 31 Dec	23,789

1 All HSBC Holdings ordinary shares in issue, excluding 325,273,407 shares held in treasury, confer identical rights, including in respect of capital, dividends and voting.

2 Included in the capital base of HSBC as additional tier 1 capital in accordance with the CRD IV rules, by virtue of the application of grandfathering provisions.

HSBC Holdings 6.20% non-cumulative US dollar preference shares, Series A of $0.01

HSBC Holdings pays dividends on 6.20% non-cumulative US dollar preference shares, Series A of $0.01 each ('dollar preference shares') quarterly, at the discretion of the Board. The Board will not declare a dividend on them if this would stop the company from meeting the PRA's capital adequacy requirements, or if profit available for distribution as dividends is insufficient to also pay dividends on other shares that are equally entitled and scheduled on the same date.

HSBC Holdings may not declare or pay dividends on shares ranking lower in the right to dividends than dollar preference shares, or redeem or purchase any of its other shares ranking equal or lower than dollar preference shares, unless it has fully paid, or set aside an amount to fully pay, the dividends on the dollar preference shares for the then current dividend period.

The dollar preference shares carry no rights to conversion into ordinary shares. Holders of dollar preference shares are only entitled to attend and vote at shareholder meetings if dividends on these shares have not been paid in full on four consecutive dividend payment dates. In such circumstances, holders of these shares are entitled to vote at shareholder meetings until HSBC Holdings has paid a full dividend on them. These securities can be redeemed by HSBC at any time, subject to prior approval by the PRA.

HSBC Holdings non-cumulative preference share of £0.01

The one non-cumulative sterling preference share of £0.01 ('sterling preference share') has been in issue since 29 December 2010 and is held by a subsidiary of HSBC Holdings. Dividends are paid quarterly at the sole and absolute discretion of the Board. The sterling preference share carries no rights of conversion into ordinary shares of HSBC Holdings and no right to attend or vote at shareholder meetings of HSBC Holdings. These securities can be redeemed by HSBC at any time, subject to prior approval by the PRA.

Other equity instruments

HSBC Holdings includes three types of additional tier 1 capital securities in its tier 1 capital. Two are presented in this Note and are accounted for as equity because HSBC does not have an obligation to transfer cash or a variable number of its own ordinary shares to holders under any circumstances outside its control. See Note 28 for additional tier 1 securities accounted for as liabilities.

Additional tier 1 capital securities

Additional tier 1 capital securities are perpetual subordinated securities on which coupon payments may be deferred at HSBC Holdings' discretion. While any coupon payments are unpaid or deferred, HSBC Holdings will not declare or pay dividends or make distributions or similar periodic payments in respect of any securities of lower or equal rank, or repurchase or redeem them. Such securities do not generally carry voting rights, but rank higher than ordinary shares for coupon payments, and in the event of a winding-up. They do not meet the identifying criteria in full for recognition as tier 1 capital under CRD IV, but are eligible as regulatory capital subject to grandfathering limits and progressive phase-out.

At HSBC Holdings' discretion, and subject to certain conditions being satisfied, the capital securities may be exchanged on any coupon payment date for non-cumulative preference shares to be issued by HSBC Holdings and ranking pari passu with the dollar and sterling preference shares in issue. The preference shares were issued at a nominal value of $0.01 per share and a premium of $24.99 per share, with both amounts being subscribed and fully paid. These securities were redeemed by HSBC in June 2018.

HSBC Holdings plc Annual Report and Accounts 2018 286

33 Contingent liabilities, contractual commitments and guarantees

HSBC HSBC Holdings¹

1 Guarantees by HSBC Holdings are all in favour of other Group entities.

2 'Financial guarantees' to which the impairment requirements in IFRS 9 are applied have been presented separately from other guarantees to align with credit risk disclosures. Comparatives have been re-presented accordingly.

3 The 31 December 2017 balances have been restated to include $44bn of loan commitments (unsettled reverse repurchase agreements) and $3bn of performance and other guarantees not previously identified for disclosure.

4 Includes $592,008m of commitments at 31 December 2018, to which the impairment requirements in IFRS 9 are applied where HSBC has become party to an irrevocable commitment.

The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the Group, which represent the maximum amounts at risk should the contracts be fully drawn upon and the clients default. As a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements. The expected credit loss provision relating to guarantees and commitments under IFRS 9 is disclosed in Note 27.

Approximately half the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to HSBC's annual credit review process.

Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are disclosed in Notes 27 and 35.

Financial Services Compensation Scheme

The Financial Services Compensation Scheme ('FSCS') has provided compensation to consumers following the collapse of a number of deposit takers. The compensation paid out to consumers was funded through loans from HM Treasury, which have now been repaid (2017: $6.3bn (£4.7bn)). The Group could be liable to pay a proportion of any future amounts that the FSCS borrows from HM Treasury. The ultimate FSCS levy to the industry as a result of a collapse cannot currently be estimated reliably, as it is dependent on various uncertain factors, including the potential recoveries of assets by the FSCS and changes in the level of protected deposits and the population of FSCS members at the time.

Associates

HSBC's share of associates' contingent liabilities, contractual commitments and guarantees amounted to $48.5bn at 31 December 2018 (2017: $46.3bn). No matters arose where HSBC was severally liable.

34 Lease commitments
Operating lease commitments

At 31 December 2018, future minimum lease payments under non-cancellable operating leases for land, buildings and equipment were $3,435m (2017: $3,950m).

Finance lease receivables

HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to recover the cost of assets less their residual value, and earn finance income.

Notes on the financial statements

35 Legal proceedings and regulatory matters

HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is determined in accordance with the accounting policies set out in Note 1. While the outcome of legal proceedings and regulatory matters is inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at 31 December 2018 (see Note 27). Where an individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent that doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities.

Bernard L. Madoff Investment Securities LLC

Bernard L. Madoff ('Madoff') was arrested in December 2008 and later pleaded guilty to running a Ponzi scheme. His firm, Bernard L. Madoff Investment Securities LLC ('Madoff Securities'), is being liquidated in the US by a trustee (the 'Trustee').

Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Madoff Securities. Based on information provided by Madoff Securities as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.

Based on information available to HSBC, the funds' actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities' fraud.

US litigation: The Trustee has brought lawsuits against various HSBC companies and others in the US Bankruptcy Court, seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. HSBC and other parties to the actions have moved to dismiss the Trustee's claims. The US Bankruptcy Court granted HSBC's motion to dismiss with respect to certain of the Trustee's claims in November 2016. In September 2017, the Trustee appealed the US Bankruptcy Court's decision, and the case remains pending before the US Court of Appeals for the Second Circuit (the 'Second Circuit Court of Appeals').

Fairfield Sentry Limited, Fairfield Sigma Limited and Fairfield Lambda Limited (together, 'Fairfield') (in liquidation since July 2009) have brought a lawsuit in the US against fund shareholders, including HSBC companies that acted as nominees for clients, seeking restitution of redemption payments. In December 2018, the US Bankruptcy Court issued an opinion, which ruled in favour of the defendants' motion to dismiss in respect of certain claims by the liquidators for Fairfield and granted a motion by the liquidators for Fairfield to file amended complaints.

In December 2014, SPV Optimal SUS Ltd ('SPV OSUS'), the purported assignee of the Madoff-invested company, Optimal Strategic US Equity Ltd, filed a lawsuit in New York state court against various HSBC companies and others, seeking damages on various alleged grounds, including breach of fiduciary duty and breach of trust. In April 2018, HSBC transferred the case to the US District Court for the Southern District of New York (the 'New York District Court'). In February 2019, SPV OSUS withdrew its action with prejudice against HSBC.

UK litigation: The Trustee has filed a claim against various HSBC companies in the High Court of England and Wales, seeking recovery of transfers from Madoff Securities to HSBC in an amount not yet pleaded or determined. The deadline for service of the claim has been extended to September 2019 for UK-based defendants and November 2019 for all other defendants.

Bermuda litigation: In January 2009, Kingate Global Fund Limited and Kingate Euro Fund Limited (together, 'Kingate') brought an action against HSBC Bank Bermuda Limited ('HBBM') for recovery of funds held in Kingate's accounts, fees and dividends. This action is pending, but is not expected to move forward until the resolution of the Trustee's US actions against Kingate and HBBM.

Cayman Islands litigation: In February 2013, Primeo Fund Limited ('Primeo') (in liquidation since April 2009) brought an action against HSBC Securities Services Luxembourg ('HSSL') and Bank of Bermuda (Cayman) Limited, alleging breach of contract and breach of fiduciary duty and claiming damages and equitable compensation. The trial concluded in February 2017 and, in August 2017, the court dismissed all claims against the defendants. In September 2017, Primeo appealed to the Court of Appeal of the Cayman Islands and the defendants cross-appealed in respect of certain of the trial court's findings. The appeals are pending before the court for a decision.

Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald') (in liquidation since July 2013) brought an action against HSSL before the Luxembourg District Court, seeking restitution of cash and securities that Herald purportedly lost because of Madoff Securities' fraud, or money damages. The Luxembourg District Court dismissed Herald's securities restitution claim, but reserved Herald's cash restitution claim and its claim for money damages. Herald has appealed this judgment to the Luxembourg Court of Appeal, where the matter is pending. In late 2018, Herald brought additional claims against HSSL and HSBC Bank plc before the Luxembourg District Court, seeking further restitution and damages.

In October 2009, Alpha Prime Fund Limited ('Alpha Prime') brought an action against HSSL before the Luxembourg District Court, seeking the restitution of securities, or the cash equivalent, or money damages. This action has been temporarily suspended at the plaintiffs' request. In December 2018, Alpha Prime brought additional claims before the Luxembourg District Court seeking damages against various HSBC companies.

In December 2014, Senator Fund SPC ('Senator') brought an action against HSSL before the Luxembourg District Court, seeking restitution of securities, or the cash equivalent, or money damages. In April 2015, Senator commenced a separate action against the Luxembourg branch of HSBC Bank plc asserting identical claims before the Luxembourg District Court. In December 2018, Senator brought additional claims against HSSL and HSBC Bank plc Luxembourg branch before the Luxembourg District Court, seeking restitution of Senator's securities or money damages.

HSSL has also been named as a defendant in various actions by shareholders in Primeo Select Fund, Herald, Herald (Lux) SICAV and Hermes International Fund Limited. Most of these actions have been dismissed, suspended or postponed.

Ireland litigation: In November 2013, Defender Limited brought an action against HSBC Institutional Trust Services (Ireland) Limited ('HTIE') and others, based on allegations of breach of contract and claiming damages and indemnification for fund losses. The trial commenced in October 2018. In December 2018, the Irish High Court issued a judgment in HTIE's favour on a preliminary issue, holding that Defender Limited had no effective claim against HTIE. This judgment concluded the trial without further issues in dispute being heard. In February 2019, Defender Limited appealed the judgment.

In December 2014, SPV OSUS filed an action against HTIE and HSBC Securities Services (Ireland) Limited alleging breach of contract and claiming damages and indemnification for fund losses, which was dismissed on the basis of a preliminary issue by the Irish High Court in October 2015. In July 2018, following further appeals by SPV OSUS, the Irish Supreme Court affirmed the dismissal on a final basis.

There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the information currently available, management's estimate of the possible aggregate damages that might arise as a result of all claims in the various Madoff-related proceedings is up

289 HSBC Holdings plc Annual Report and Accounts 2018

to or exceeding $500m, excluding costs and interest. Due to uncertainties and limitations of this estimate, the ultimate damages could differ significantly from this amount.

US mortgage securitisation activity and litigation

HSBC Bank USA N.A. ('HSBC Bank USA') was a sponsor or seller of loans used to facilitate whole loan securitisations underwritten by HSBC Securities (USA) Inc. ('HSI'). From 2005 to 2007, HSBC Bank USA purchased and sold approximately $24bn of such loans to HSI, which were subsequently securitised and sold by HSI to third parties. The outstanding principal balance was approximately $3.8bn as at 31 December 2018. In addition, HSI served as an underwriter on securitisations issued by HSBC Finance Corporation ('HSBC Finance') or third parties, and HSBC Bank USA served as a trustee on behalf of various mortgage securitisation trusts.

Mortgage trustee matters: Beginning in June 2014, a number of lawsuits were filed in state and federal courts in New York and Virginia against HSBC Bank USA as a trustee of more than 280 mortgage securitisation trusts. These lawsuits are brought on behalf of the trusts by a putative class of investors including, among others, BlackRock and PIMCO funds. The complaints allege that the trusts have sustained losses in collateral value of approximately $38bn. The lawsuits seek unspecified damages resulting from alleged breaches of the US Trust Indenture Act, breach of fiduciary duty, negligence, breach of contract and breach of the common law duty of trust. HSBC's motions to dismiss in several of these lawsuits were, for the most part, denied. In February 2018, one of these matters was dismissed on procedural grounds. The plaintiff in that action has appealed the decision and has also filed another proceeding in New York state court, which is currently stayed pending appeal. The motion for class certification filed by certain plaintiffs has been denied, as has their request for a review of that decision by the Second Circuit Court of Appeals.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters.

Loan repurchase matters: Since 2013, HSBC Bank USA, HSBC Finance and Decision One Mortgage Company LLC ('Decision One'), an indirect subsidiary of HSBC Finance, have been named as defendants in various mortgage loan repurchase actions brought by trustees of mortgage securitisation trusts. One of the two remaining actions against HSBC Bank USA was dismissed on appeal in December 2017; however, the New York Court of Appeals granted the plaintiffs' request for further review in September 2018. The second remaining action is currently pending before the New York state court.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant.

RMBS investigations: Since 2010, various HSBC entities have received subpoenas and requests for information from the US Department of Justice (the 'DoJ') and the Massachusetts Attorney General, seeking the production of documents and information regarding HSBC's involvement in certain residential mortgage-backed securities ('RMBS') transactions as an issuer, sponsor, underwriter, depositor, trustee, custodian or servicer.

In August and October 2018, HSBC resolved the Massachusetts Attorney General's civil investigation, and the DoJ's civil claims, relating to HSBC's legacy RMBS origination and securitisation activities from 2005 to 2007, which entailed a payment to the DoJ of a civil money penalty of $765m.

Anti-money laundering and sanctions-related matters

In 2010, HSBC Bank USA entered into a consent cease-and-desist order with the Office of the Comptroller of the Currency ('OCC'), and HSBC North America Holdings Inc. ('HNAH') entered into a consent cease-and-desist order with the Federal Reserve Board ('FRB'). In 2012, HSBC Bank USA further entered into an enterprise-wide compliance consent order with the OCC (each an 'Order' and together, the 'Orders'). These Orders required improvements to establish an effective compliance risk management programme across HSBC's US businesses, including risk management related to the Bank Secrecy Act ('BSA') and anti-money laundering ('AML') compliance. In 2012, an additional consent order was entered into with the OCC that required HSBC Bank USA to correct the circumstances noted in the OCC's report and imposed restrictions on HSBC Bank USA acquiring control of, or holding an interest in, any new financial subsidiary, or commencing a new activity in its existing financial subsidiary, without the OCC's approval. Between June and September 2018,

following implementation of the required remediation actions by HNAH and HSBC Bank USA, the FRB and OCC terminated each of these orders.

In December 2012, among other agreements, HSBC Holdings plc ('HSBC Holdings') agreed to an undertaking with the UK Financial Conduct Authority ('FCA') and consented to a cease-and-desist order with the FRB, both of which contained certain forward-looking AML and sanctions-related obligations. HSBC also agreed to retain an independent compliance monitor (who is, for FCA purposes, a 'Skilled Person' under section 166 of the Financial Services and Markets Act and, for FRB purposes, an 'Independent Consultant') to produce periodic assessments of the Group's AML and sanctions compliance programme (the 'Skilled Person/Independent Consultant'). In December 2012, HSBC Holdings also entered into an agreement with the Office of Foreign Assets Control ('OFAC') regarding historical transactions involving parties subject to OFAC sanctions. The Skilled Person/Independent Consultant will continue to conduct country reviews and provide periodic reports for a period of time at the FCA's and FRB's discretion. The role of the Skilled Person/Independent Consultant is discussed on page 85.

Through the Skilled Person/Independent Consultant's country-level reviews, as well as internal reviews conducted by HSBC, certain potential AML and sanctions compliance issues have been identified that HSBC is reviewing further with the FRB, FCA and/or OFAC. The Financial Crimes Enforcement Network of the US Treasury Department, as well as the Civil Division of the US Attorney's Office for the Southern District of New York, are investigating the collection and transmittal of third-party originator information in certain payments instructed over HSBC's proprietary payment systems. The FCA is also conducting an investigation into HSBC Bank plc's compliance with UK money laundering regulations and financial crime systems and controls requirements. HSBC is cooperating with all of these investigations.

In May 2014, a shareholder derivative action was filed by a shareholder of HSBC Holdings purportedly on behalf of HSBC Holdings, HSBC Bank USA, HNAH and HSBC USA Inc. (the 'Nominal Corporate Defendants') in New York state court against certain current and former directors and officers of those HSBC companies (the 'Individual Defendants'). The complaint alleges that the Individual Defendants breached their fiduciary duties to the Nominal Corporate Defendants and caused a waste of corporate assets by allegedly permitting and/or causing the conduct underlying the five-year deferred prosecution agreement with the DoJ, entered into in December 2012. In November 2015, the New York state court granted the Nominal Corporate Defendants' motion to dismiss. In November 2018, the appellate court reversed the New York state court's decision and reinstated the action. In December 2018, the Nominal Corporate Defendants filed a motion for reargument or, in the alternative, for leave to appeal to the New York Court of Appeals. In February 2019, the Nominal Corporate Defendants and most of the Individual Defendants filed a motion to dismiss in the New York state court, where the matter is pending.

In July 2014, a claim was filed in the Ontario Superior Court of Justice against HSBC Holdings and a former employee purportedly on behalf of a class of persons who purchased HSBC common shares and American Depositary Shares between July 2006 and July 2012. The complaint, which seeks monetary damages of up to CA$20bn, alleges that the defendants made statutory and common law misrepresentations in documents released by HSBC Holdings and its wholly owned indirect subsidiary, HSBC Bank Canada, relating to HSBC's compliance with BSA, AML, sanctions and other laws. In September 2017, the Ontario Superior Court of Justice dismissed the statutory claims against HSBC Holdings and the former employee for lack of jurisdiction, and stayed the common law misrepresentation claim against HSBC Holdings on the basis of forum non conveniens. In October 2017, the plaintiff appealed to the Court of Appeal for Ontario and, in July 2018, that appeal was dismissed. In October 2018, the plaintiff applied for leave to appeal to the Supreme Court of Canada, where this matter is currently pending.

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Notes on the financial statements

Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on behalf of plaintiffs who are, or are related to, victims of terrorist attacks in the Middle East or of cartel violence in Mexico. In each case, it is alleged that the defendants aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. Nine actions are currently pending in federal court in New York, with one on appeal. In July 2018, in one case, the New York District Court granted HSBC's motion to dismiss, while in a different case, the magistrate judge issued a recommendation that the New York District Court should deny the defendants' motion to dismiss. The plaintiffs appealed the decision in the case granting dismissal and that appeal is pending. Motions to dismiss remain pending in two other cases. In December 2018, three new cases and two cases relating to existing actions were filed in the New York District Court. These new actions are at a very early stage.

In July 2018, a claim was issued against HSBC Holdings in the High Court of England and Wales alleging that HSBC Holdings made untrue and/or misleading statements and/or omissions in public statements between 2007 and 2012 regarding compliance by the HSBC Group with AML, anti-terrorist financing and sanctions laws, regulations and requirements, and the regulatory compliance of the HSBC Group more generally.

Tax-related investigations

Various tax administration, regulatory and law enforcement authorities around the world, including in the US, Belgium, Argentina, India and Spain, are conducting investigations and reviews of HSBC Private Bank (Suisse) SA ('HSBC Swiss Private Bank') and other HSBC companies in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation.

HSBC continues to cooperate in ongoing investigations by the DoJ and the US Internal Revenue Service regarding whether certain HSBC companies and employees, including those associated with HSBC Swiss Private Bank and an HSBC company in India, acted appropriately in relation to certain customers who may have had US tax reporting obligations. In connection with these investigations, HSBC Swiss Private Bank, with due regard for Swiss law, has produced records and other documents to the DoJ. In August 2013, the DoJ informed HSBC Swiss Private Bank that it was not eligible for the 'Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks' since a formal investigation had previously been authorised. These investigations remain pending.

In November 2014, HSBC Swiss Private Bank was placed under formal criminal examination in Belgium for alleged tax-related offences. In June 2017, Belgian authorities also placed HSBC Holdings and HSBC Private Bank Holdings (Suisse) SA, a Swiss holding company, under formal criminal examination. HSBC is cooperating with this ongoing investigation.

In November 2014, the Argentine tax authority initiated a criminal action against various individuals, including current and former HSBC employees. The criminal action includes allegations of tax evasion, conspiracy to launder undeclared funds and an unlawful association among HSBC Swiss Private Bank, HSBC Bank Argentina, HSBC Bank USA and certain HSBC employees, which allegedly enabled numerous HSBC customers to evade their Argentine tax obligations. HSBC is cooperating with this ongoing investigation.

In February 2015, the Indian tax authority issued a summons and request for information to an HSBC company in India. In August 2015 and November 2015, HSBC companies received notices issued by two offices of the Indian tax authority, alleging that the Indian tax authority had sufficient evidence to initiate prosecution against HSBC Swiss Private Bank and an HSBC company in Dubai for allegedly abetting tax evasion of four different Indian individuals and/or families and requesting that the HSBC companies show cause as to why such prosecution should not be initiated. HSBC Swiss Private Bank and the HSBC company in Dubai have responded to the show cause notices. HSBC is cooperating with this ongoing investigation.

As at 31 December 2018, HSBC has recognised a provision for these various matters in the amount of $626m. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these investigations and reviews. Based on the information currently available, management's estimate of the possible aggregate penalties that might arise as a result of the matters in respect of which it is practicable to form estimates is up to or exceeding $800m, including amounts for which a provision has been recognised. Due to uncertainties and limitations of these estimates, the ultimate penalties could differ significantly from this amount.

In light of the media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings.

London interbank offered rates, European interbank offered rates and other benchmark interest rate investigations and litigation

In December 2016, the European Commission (the 'EC') issued a decision finding that HSBC, among other banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives in early 2007. The EC imposed a fine on HSBC based on a one-month infringement. HSBC has appealed the decision.

US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US with respect to the setting of US dollar Libor. The complaints assert claims under various US laws, including US antitrust and racketeering laws, the US Commodity Exchange Act ('US CEA') and state law. The lawsuits include individual and putative class actions, most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court.

In 2017 and 2018, HSBC reached agreements with plaintiffs to resolve putative class actions brought on behalf of the following five groups of plaintiffs: persons who purchased US dollar Libor-indexed bonds; persons who purchased US Libor-indexed exchange-traded instruments; US-based lending institutions that made or purchased US dollar Libor-indexed loans (the 'Lender class'); persons who purchased US dollar Libor-indexed interest rate swaps and other instruments directly from the defendant banks and their affiliates (the 'OTC class'); and persons who purchased US dollar Libor-indexed interest rate swaps and other instruments from certain financial institutions that are not the defendant banks or their affiliates. During 2018, the New York District Court granted final approval of the settlements with the OTC and Lender classes. The remaining settlements are subject to final court approval. Additionally, a number of other US dollar Libor-related actions remain pending against HSBC in the New York District Court and the Second Circuit Court of Appeals.

Intercontinental Exchange ('ICE') Libor: In January 2019, HSBC and other panel banks were named as defendants in a putative class action filed in the New York District Court on behalf of persons who purchased over-the-counter instruments paying interest indexed to ICE Libor from a panel bank. The complaint alleges, among other things, misconduct related to the suppression of this benchmark rate in violation of US antitrust and state law. This matter is at a very early stage.

Singapore interbank offered rate ('Sibor'), Singapore swap offer rate ('SOR') and Australia bank bill swap rate ('BBSW'): In July 2016 and August 2016, HSBC and other panel banks were named as defendants in two putative class actions filed in the New York District Court on behalf of persons who transacted in products related to the Sibor, SOR and BBSW benchmark rates. The complaints allege, among other things, misconduct related to these benchmark rates in violation of US antitrust, commodities and racketeering laws, and state law. Following a decision in October 2018 on the defendants' motion to dismiss in the Sibor/SOR litigation, the claims against a number of HSBC entities were dismissed, and the Hongkong and Shanghai Banking Corporation Limited remains the only HSBC defendant in this action. In October 2018, the Hongkong and Shanghai Banking Corporation Limited filed a motion for reconsideration of the

291 HSBC Holdings plc Annual Report and Accounts 2018

decision based on the issue of personal jurisdiction. The plaintiff filed a third amended complaint in October 2018 naming only the Sibor panel members. In November 2018, the defendants moved to dismiss the third amended complaint, and this motion remains pending.

In November 2018, the court granted in part and denied in part the defendants' motion to dismiss the BBSW case and dismissed all foreign defendants, including all the HSBC entities, on personal jurisdiction grounds. The plaintiff sought leave to file a second amended complaint in January 2019.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Foreign exchange-related investigations and litigation

Various regulators and competition authorities around the world, including in the EU, Switzerland, Brazil and South Africa, are conducting investigations and reviews into trading by HSBC and others on the foreign exchange markets. HSBC is cooperating with these investigations and reviews.

In January 2018, HSBC Holdings entered into a three-year deferred prosecution agreement with the Criminal Division of the DoJ (the 'FX DPA'), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011. This concluded the DoJ's investigation into HSBC's historical foreign exchange activities. Under the terms of the FX DPA, HSBC has a number of ongoing obligations, including implementing enhancements to its internal controls and procedures in its Global Markets business, which will be the subject of annual reports to the DoJ. In addition, HSBC agreed to pay a financial penalty and restitution.

In December 2016, Brazil's Administrative Council of Economic Defense ('CADE') publicly announced that it is initiating an investigation into the onshore foreign exchange market and has identified a number of banks, including HSBC, as subjects of its investigation.

In February 2017, the Competition Commission of South Africa referred a complaint for proceedings before the South African Competition Tribunal against 18 financial institutions, including HSBC Bank plc, for alleged misconduct related to the foreign exchange market in violation of South African antitrust laws. In April 2017, HSBC Bank plc filed an exception to the complaint based on a lack of jurisdiction and statute of limitations. In January 2018, the South African Competition Tribunal approved the provisional referral of additional financial institutions, including HSBC Bank USA, to the proceedings. HSBC Bank USA has objected to the provisional referral. These proceedings are at an early stage.

In October 2018, HSBC Holdings and HSBC Bank plc received an information request from the EC concerning potential coordination in foreign exchange options trading. This matter is at an early stage.

In late 2013 and early 2014, various HSBC companies and other banks were named as defendants in various putative class actions consolidated in the New York District Court. The consolidated complaint alleged, among other things, that the defendants conspired to manipulate the WM/Reuters foreign exchange benchmark rates. In September 2015, HSBC reached an agreement with plaintiffs to resolve the consolidated action, and the court granted final approval of the settlement in August 2018.

A putative class action complaint making similar allegations on behalf of retail customers of foreign exchange products was filed in the US District Court for the Northern District of California in 2015, and was subsequently transferred to the New York District Court where it remains pending. In 2017, putative class action complaints making similar allegations on behalf of purported 'indirect' purchasers of foreign exchange products were filed in New York and were subsequently consolidated in the New York District Court, where they remain pending.

In September 2018, various HSBC companies and other banks were named as defendants in a class action complaint filed in Israel that alleges foreign exchange-related misconduct and, in November and December 2018, complaints alleging foreign exchange-related misconduct were filed in the New York District Court and the High Court of England and Wales against HSBC and other defendants, by certain plaintiffs that opted out of the US class action settlement. These matters are at an early stage. It is possible that additional actions will be initiated against HSBC in relation to its historical foreign exchange activities.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Precious metals fix-related investigations and litigation

In November 2014, the Antitrust Division and Criminal Fraud Section of the DoJ issued a document request to HSBC Holdings, seeking the voluntary production of certain documents in connection with a criminal investigation that the DoJ is conducting of alleged anti-competitive and manipulative conduct in precious metals trading. In January 2019, the DoJ closed its investigation without taking any action against HSBC.

Gold: Beginning in March 2014, numerous putative class actions were filed in the New York District Court and the US District Courts for the District of New Jersey and the Northern District of California, naming HSBC and other members of The London Gold Market Fixing Limited as defendants. The complaints allege that, from January 2004 to June 2013, the defendants conspired to manipulate the price of gold and gold derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. The defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted the plaintiffs leave to file a third amended complaint, naming a new defendant. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss, and discovery is proceeding.

Beginning in December 2015, numerous putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs allege that, among other things, from January 2004 to March 2014, the defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. These actions are at an early stage.

Silver: Beginning in July 2014, numerous putative class actions were filed in the US District Courts for the Southern and Eastern Districts of New York, naming HSBC and other members of The London Silver Market Fixing Ltd as defendants. The complaints allege that, from January 2007 to December 2013, the defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. The actions were consolidated in the New York District Court. The defendants' motion to dismiss the consolidated action was granted in part and denied in part in October 2016. In June 2017, the court granted the plaintiffs leave to file a third amended complaint, which names several new defendants. The court has denied the pre-existing defendants' request for leave to file a joint motion to dismiss, and discovery is proceeding.

In April 2016, two putative class actions under Canadian law were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs in both actions allege that, from January 1999 to August 2014, the defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. The Ontario action is at an early stage. The Quebec action has been temporarily stayed.

Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from January 2008 to November 2014, the defendants conspired to manipulate the price of platinum group metals ('PGM') and PGM-based financial products for their collective benefit in violation of US antitrust laws and the US CEA. In March 2017, the defendants' motion to dismiss the second amended consolidated complaint was granted in part and denied in part. In June 2017, the plaintiffs filed a third amended complaint. The defendants filed a joint motion to dismiss, which remains pending.

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Notes on the financial statements

Film finance litigation

In July and November 2015, respectively, two actions were brought by individuals against HSBC Private Bank (UK) Limited ('PBGB') in the High Court of England and Wales seeking damages on various alleged grounds, including breach of duty to the claimants, in connection with their participation in certain Ingenious film finance schemes. These actions are ongoing.

In December 2018, a further action was brought against PBGB in the High Court of England and Wales by multiple claimants seeking damages for alleged unlawful means conspiracy and dishonest assistance in connection with lending provided by PBGB to third parties in respect of certain Ingenious film finance schemes in which the claimants participated. In February 2019, PBGB received a letter before claim by investors in Eclipse film finance schemes asserting various claims against PBGB and others in connection with their roles in facilitating the design, promotion and operation of such schemes. These matters are at very early stages.

It is possible that additional actions or investigations will be initiated against PBGB as a result of its historical involvement in the provision of certain film finance-related services.

Based on the facts currently known, it is not practicable to predict the resolution of these matters, including the timing or possible aggregate impact, which could be significant.

Other regulatory investigations, reviews and litigation

HSBC Holdings and/or certain of its affiliates are subject to a number of other investigations and reviews by various regulators and competition and law enforcement authorities, as well as litigation, in connection with various matters relating to the firm's businesses and operations, including:

· requests for information from various tax administration or regulatory authorities relating to Mossack Fonseca & Co., or Fédération Internationale de Football Association ('FIFA');

· an investigation by the DoJ regarding US Treasury securities trading practices;

· an investigation by the US Commodity Futures Trading Commission regarding trading screens used to price certain derivative products;

· an investigation by the Swiss Competition Commission in connection with the setting of Euribor and Japanese yen Libor;

· an information request from the UK Competition and Markets Authority concerning the financial services sector;

· an investigation by the US Securities and Exchange Commission of multiple institutions, including HSBC, in relation to hiring practices of candidates referred by or related to government officials or employees of state-owned enterprises in Asia-Pacific;

· putative individual and class actions brought in the New York District Court relating to the Canadian dealer offered rate, the credit default swap market and the Mexican government bond market, and putative class actions brought in the New York District Court and in the Superior and Federal Courts in Canada relating to the market for US dollar-denominated supranational sovereign and agency bonds; and

· putative class actions brought in the US District Court for the Northern District of Texas and a claim issued in the High Court of England and Wales in connection with HSBC Bank plc's role as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

36 Related party transactions

Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC employees, Key Management Personnel ('KMP') as defined by IAS 24, close family members of KMP and entities that are controlled or jointly controlled by KMP or their close family members. KMP are defined as those persons having authority and responsibility for planning, directing and controlling the activities of HSBC Holdings. These individuals also constitute 'senior management' for the purposes of the Hong Kong Listing Rules. Following a review of the application of IAS 24, it was determined that the roles of Chief Legal Officer, Group Head of Internal Audit, Group Chief Human Resources Officer, Group Chief Compliance Officer, Chief Communications Officer and Group Chief of Staff did not meet the criteria for KMP as provided for in the standard.

Particulars of transactions with related parties are tabulated below. The disclosure of the year-end balance and the highest amounts outstanding during the year is considered to be the most meaningful information to represent the amount of the transactions and outstanding balances during the year.

Key Management Personnel

Details of Directors' remuneration and interest in shares are disclosed in the Directors' remuneration report on pages 172 to 206. IAS 24 'Related party disclosures' requires the following additional information for key management compensation.

Compensation of Key Management Personnel

Short-term employee benefits

Other long-term employee benefits

Share-based payments
Year ended 31 Dec

Shareholdings, options and other securities of Key Management Personnel

Number of options held over HSBC Holdings ordinary shares under employee share plans

Number of HSBC Holdings ordinary shares held beneficially and non-beneficially At 31 Dec

293 HSBC Holdings plc Annual Report and Accounts 2018

Transactions and balances during the year with Key Management Personnel

Footnotes

Key Management Personnel 1

Advances and credits 2

Guarantees

Deposits

1 Includes Key Management Personnel, close family members of Key Management Personnel and entities that are controlled or jointly controlled by Key Management Personnel or their close family members.

2 Advances and credits entered into by subsidiaries of HSBC Holdings during 2018 with Directors, disclosed pursuant to Section 413 of the Companies Act 2006, totalled $1m (2017: $2m).

Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock Exchange of Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. The above transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other unfavourable features.

Associates and joint ventures

The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest and non-interest bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 18.

HSBC Holdings plc Annual Report and Accounts 2018 294

Notes on the financial statements

Transactions and balances during the year with associates and joint ventures

2018

Highest balance Balance at

during the year 31 Dec

$m $m

2017

Highest balance during the year $m	Balance at 31 Dec $m

1,985	1,985
11,944	11,944
2,796	2,388
89,810	76,627
4,264	4,264
95,850	92,930
206,649	190,138

2,906	2,571
4,904	3,082
892	892
8,702	6,545
9,692	7,778

The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties.

Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group company. HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf. Disclosure in relation to the scheme is made in Note 6.

37 Effects of reclassification upon adoption of IFRS 9

295 HSBC Holdings plc Annual Report and Accounts 2018

Notes on the financial statements

Reconciliation for consolidated balance sheet at 31 December 2017 and 1 January 2018 (continued)

	Footnotes	Measurement category¹³	IAS 39 carrying amount at 31 Dec 2017 $m	IFRS 9 reclassification to		Carrying amount post- reclassification $m	IFRS 9 remeasurement including expected credit losses⁴ $m	IFRS 9 carrying amount at 1 Jan 2018 $m
	Footnotes	Measurement category¹³	IAS 39 carrying amount at 31 Dec 2017 $m	Fair value Fair value through through other Other changes in profit and comprehensive classification loss income $m $m $m	Amortised cost $m	Carrying amount post- reclassification $m	IFRS 9 remeasurement including expected credit losses⁴ $m	IFRS 9 carrying amount at 1 Jan 2018 $m
Liabilities
Hong Kong currency notes in circulation		Amortised cost	34,186	- - -		-34,186		-34,186
Deposits by banks	1	Amortised cost	69,922	(5,430) - -		-64,492		-64,492
Customer accounts	1	Amortised cost	1,364,462	(4,235) - -		-1,360,227	-	1,360,227
Repurchase agreements - non-trading		Amortised cost	130,002	- - -		-130,002		-130,002
Items in the course of transmission to other banks		Amortised cost	6,850	- - -		-6,850		-6,850
Trading liabilities	1, 11	FVPL	184,361	(103,497) - -		-80,864		-80,864
Financial liabilities designated at fair value	9, 10, 11	FVPL	94,429	59,267 - -(9,699)		143,997	9	144,006
Derivatives		FVPL	216,821	- - -		-216,821		-216,821
Debt securities in issue	10	Amortised cost	64,546	- - -2,095		66,641	(105)	66,536
Accruals, deferred income and other liabilities	1, 10	Amortised cost	45,907	53,895 - -124		99,926		-99,926
Current tax liabilities		N/A	928	- - -		-928		-928
Liabilities under insurance contracts	9	N/A	85,667	- - -		-85,667	(69)	85,598
Provisions		N/A	4,011	- - -		-4,011	284	4,295
Deferred tax liabilities	14	N/A	1,982	- - -		-1,982	(368)	1,614
Subordinated liabilities	10	Amortised cost	19,826	- - -7,480		27,306	(1,445)	25,861
Total liabilities			2,323,900	- - -		-2,323,900	(1,694)	2,322,206

For footnotes, see page 299.

297 HSBC Holdings plc Annual Report and Accounts 2018

Reconciliation of impairment allowance under IAS 39 and provision under IAS 37 to expected credit losses under IFRS 9

			Reclassification to		Remeasurement	Total $m
	IAS 39 measurement category	Fair value through profit and loss $m	Fair value through other comprehensive income $m	Amortised cost $m	Stage 1 & Stage Stage 3 2 $m $m	Total $m
Financial assets at amortised cost
IAS 39 impairment allowance at 31 Dec 2017						7,532
Cash and balances at central banks	Amortised cost (Loans and receivables)	-	-	-	- 3	3
Items in the course of collection from other banks	Amortised cost (Loans and receivables)	-	-	-	- -	-
Hong Kong Government certificates of indebtedness	Amortised cost (Loans and receivables)	-	-	-	- -	-
Loans and advances to banks	Amortised cost (Loans and receivables)	-	-	-	1 22	23
Loans and advances to customers	Amortised cost (Loans and receivables)	(31)	-	-	629 1,261	1,859
Reverse repurchase agreements - non-trading	Amortised cost (Loans and receivables)	-	-	-	- -	-
Financial investments	Amortised cost (Held to maturity)	-	-	3	- 13	16
Prepayments, accrued income and other assets	Amortised cost (Loans and receivables)	-	-	-	- 47	47
Expected credit loss allowance at 1 Jan 2018						9,480
Loan commitments and financial guarantee contracts
IAS 37 provisions at 31 Dec 2017						253
Provisions (loan commitments and financial guarantees)	N/A	N/A	N/A	N/A	74 210	284
Expected credit loss provision at 1 Jan 2018						537

The pre-tax net asset impact of additional impairment allowances on adoption of IFRS 9 is $2,232m; $1,948m in respect of financial assets at amortised cost and $284m related to loan commitments and financial guarantee contracts. Total expected credit loss allowance at 1 January 2018 is $9,480m in respect of financial assets at amortised cost, and $537m related to loan commitments and financial guarantee contracts.

Effects of reclassification upon adoption of IFRS 9

	Footnotes	Carrying amount at 31 Dec 2018 $m	Fair value at 31 Dec 2018 $m
Reclassified from available-for-sale to amortised cost
Other financial assets held at amortised cost		5,781	5,876
Reclassified from fair value through profit and loss to amortised cost or fair value though other comprehensive income
Debt securities in issue	15	1,939	1,823
Subordinated liabilities	16	5,872	6,635
For footnotes, see page 299.

HSBC Holdings plc Annual Report and Accounts 2018 298

Notes on the financial statements

Footnotes to 'Effect of reclassification upon adoption of IFRS 9'

1 Settlement accounts, cash collateral and margin receivables of $37,900m have been reclassified from 'Trading assets' to 'Prepayments, accrued income and other assets' as a result of the assessment of the business model in accordance with IFRS 9.

Settlement accounts, cash collateral and margin receivables previously presented as 'Loans and advances to banks' of $5,939m and 'Loans and advances to customers' of $3,976m have been re-presented in 'Prepayments, accrued income and other assets' to ensure consistent presentation of all such balances. Settlement accounts, cash collateral and margin payables previously presented as 'Trading liabilities' of $44,230m, 'Deposits by banks' of $5,430m and 'Customer accounts' of $4,235m have been re-presented in 'Accruals, deferred income and other liabilities'. This change in presentation for financial liabilities is considered to provide more relevant information, given the change in presentation for the financial assets. These changes in presentation for financial assets and liabilities have had no effect on measurement of these items and therefore on 'Retained earnings'.

2 'Loans and advances to customers' of $3,903m and 'Loans and advances to banks' of $712m did not meet the 'solely payments of principal and interest' ('SPPI') requirement for amortised cost classification under IFRS 9. As a result, these financial assets were reclassified to 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss'.

3 Stock borrowing assets of $4,642m have been reclassified from 'Loans and advances to banks and customers' to 'Trading assets'. The change in measurement is a result of the determination of the global business model for this activity and will align the presentation throughout the Group.

4 IFRS 9 ECL decreased net assets by $2,232m, principally comprising of $1,890m reduction in the carrying value of assets classified as 'Loans and advances to customers' and $284m increase in 'Provisions' relating to expected credit losses on loan commitments and financial guarantee contracts.

5 Debt instruments of $3,131m previously classified as available-for-sale under IAS 39 did not meet the SPPI requirement for FVOCI classification. As a result, these financial assets were classified as 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss' upon adoption of IFRS 9. Debt instruments of $7,026m previously classified as available-for-sale under IAS 39, have been reclassified to amortised cost as a result of 'hold to collect' business model classification under IFRS 9. This resulted in a $441m downward remeasurement of the financial assets now measured at amortised cost excluding expected credit losses.

6 $2,104m of available-for-sale non-traded equity instruments have been reclassified as 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss' in accordance with IFRS 9. The Group has elected to apply the FVOCI option under IFRS 9 for the remaining $1,813m.

7 $214m of other financial assets measured at amortised cost under IAS 39 did not meet the SPPI requirement for amortised cost classification under IFRS 9. As a result, these financial assets were classified as 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss'.

8 'Interests in associates and joint ventures' includes the consequential downward remeasurement of our interests in associates and joint ventures as a result of these entities applying IFRS 9 of $942m. The effect of IFRS 9 on the carrying value of investments in associates has been updated from the estimate disclosed in our Annual Report and Accounts 2017 as a result of those entities publicly reporting their expected transition impacts.

9 Changes in the classification and measurement of financial assets held in our insurance business and the recognition of ECL under IFRS 9 has resulted in secondary impacts on the present value of in-force long-term insurance business ('PVIF') and liabilities to holders of insurance and investment contracts. The gross carrying value of PVIF reported in 'Goodwill and intangible assets' and liabilities reported in 'Liabilities under insurance contracts' has decreased by $79m and $69m respectively. Liabilities reported under 'Financial liabilities designated at fair value' have increased by $9m.

10 As permitted by IFRS 9, fair value designations have been revoked for certain long-dated liabilities where the accounting mismatch will be better mitigated by undertaking fair value hedge accounting, resulting in reclassifications of $7,110m from 'Financial liabilities designated at fair value' to 'Subordinated liabilities' measured at amortised cost and $2,095m from 'Financial liabilities designated at fair value' to 'Debt securities in issue' measured at amortised cost. A further $124m of associated accrued interest has been reclassified to 'Accruals, deferred income and other liabilities'. In addition, as required by IFRS 9, fair value designations have been revoked where accounting mismatches no longer exist, resulting in a further $370m of 'Subordinated liabilities' being measured at amortised cost. Together, these changes result in the financial liabilities now being measured at amortised cost, decreasing 'Debt securities in issue' by $105m and 'Subordinated Liabilities' by $1,445m.

11 We have considered market practices for the presentation of $59,267m of financial liabilities containing both deposit and derivative components. We have concluded that a change in accounting policy and presentation from 'Trading liabilities' would be appropriate, since it would better align with the presentation of similar financial instruments by peers and therefore provide more relevant information about the effect of these financial liabilities on our financial position and performance. As a result, rather than being classified as held for trading, we will designate these financial liabilities as at fair value through profit or loss since they are managed and their performance evaluated on a fair value basis. Consequently, changes in fair value of these instruments attributable to changes in own credit risk are recognised in other comprehensive income rather than profit or loss. For 2017, a restatement would have increased 'Net income from financial instruments held for trading or managed on a fair value basis' by $545m and increased tax expense by $168m, with an equivalent net decrease in other comprehensive income.

12 While IFRS 9 ECL has no effect on the carrying value of FVOCI financial assets, which remain measured at fair value, the adoption of IFRS 9 results in a transfer from the FVOCI reserve (formerly AFS reserve) to retained earnings to reflect the cumulative impairment recognised in profit or loss in accordance with IFRS 9 (net of impairment losses previously recognised in profit or loss under IAS 39). The amount transferred from 'Other reserves' to 'Retained earnings' was $61m. The resulting cumulative expected credit losses recognised in 'Retained earnings' on financial assets measured at FVOCI on adoption of IFRS 9 is $184m. In addition, the cumulative AFS reserve relating to financial investments reclassified to 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss' in accordance with IFRS 9 has been transferred to retained earnings.

13 Measurement refers to that under IAS 39 and IFRS 9. Financial investments measured under fair value through other comprehensive income were measured as available-for-sale instruments under IAS 39.

14 The effect of IFRS 9 remeasurement has been updated from the estimate disclosed

in our Annual Report and Accounts 2017 as a result of our associates publicly reporting their transition impacts.

15 The effective interest rate on the issued debt security reclassified at 1 January 2018 was 4.05%.

16 Effective interest rate on subordinated liabilities reclassified at 1 January 2018 were 3.16%, 5.34%, 6.57% and 7.69%.

299 HSBC Holdings plc Annual Report and Accounts 2018

Reconciliation of HSBC Holdings balance sheet at 31 December 2017 and 1 January 2018

	Footnotes	IAS 39 measurement category	IFRS 9 measurement category	Other IAS 39 carrying changes in amount at classifi- 31 Dec 2017 cation $m $m	IFRS 9 reclassification to	Carrying amount post-reclassifi-cation $m	IFRS 9 remeasur- ment including expected credit losses $m	IFRS 9 carrying amount at 1 Jan 2018 $m
	Footnotes	IAS 39 measurement category	IFRS 9 measurement category		Fair value through Fair value other through compre- profit and hensive Amorti- loss income sed cost $m $m $m	Carrying amount post-reclassifi-cation $m	IFRS 9 remeasur- ment including expected credit losses $m	IFRS 9 carrying amount at 1 Jan 2018 $m
Assets
Cash and balances with HSBC undertakings		Amortised cost	Amortised cost	1,985 -	- - -	1,985	-	1,985
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss	1	FVPL	FVPL	11,944 -	4,264 - -	16,208	-	16,208
Derivatives		FVPL	FVPL	2,388 -	- - -	2,388	-	2,388
Loans and advances to HSBC undertakings		Amortised cost	Amortised cost	76,627 -	- - -	76,627	-	76,627
Financial investments	1	FVOCI (Available for sale - debt instruments)	FVPL	4,264 -	(4,264) - -	-	-	-
		FVOCI (Available for sale - equity instruments)	FVOCI	- -	- - -	-	-	-
		Amortised cost (Debt instruments held to maturity)	Amortised cost	- -	- - -	-	-	-
Prepayments, accrued income and intangible assets		Amortised cost	Amortised cost	662 -	- - -	662	-	662
Current tax assets		N/A	N/A	379 -	- - -	379	-	379
Investment in subsidiaries		N/A	N/A	92,930 -	- - -	92,930	-	92,930
Deferred tax assets		N/A	N/A	555 -	- - -	555	(175)	380
Total assets				191,734 -	- - -	191,734	(175)	191,559

	Footnotes	IAS 39 measurement category	IFRS 9 reclassification to		amount $m cost post-reclassification	IFRS 9 remeasurement including expected credit losses $m	IFRS 9 carrying amount at 1 Jan 2018 $m
	Footnotes	IAS 39 measurement category	Fair value Fair value IAS 39 carrying through through other amount at Other changes in profit and comprehensive 31 Dec 2017 classification loss income $m $m $m $m	Amortised Carrying $m	amount $m cost post-reclassification	IFRS 9 remeasurement including expected credit losses $m	IFRS 9 carrying amount at 1 Jan 2018 $m
Liabilities
Amount owed to HSBC undertakings		Amortised cost	2,571 - - -	-	2,571	-	2,571
Financial liabilities designated at fair value	2	FVPL	30,890 - - -	(5,402)	25,488	-	25,488
Derivatives		Amortised cost	3,082 - - -	-	3,082	-	3,082
Debt securities in issue		Amortised cost	34,258 - - -	-	34,258	-	34,258
Accruals, deferred income and other liabilities	2	Amortised cost	1,269 - - -	75	1,344	-	1,344
Subordinated liabilities	2	Amortised cost	15,877 - - -	5,327	21,204	(1,065)	20,139
Total liabilities			87,947 - - -	-	87,947	(1,065)	86,882

HSBC Holdings plc Annual Report and Accounts 2018 300

Notes on the financial statements

Reconciliation for HSBC Holdings balance sheet at 31 December 2017 and 1 January 2018 (continued)

1 $4,264 of available-for-sale assets have been reclassified as 'Financial assets designated and otherwise mandatorily measured at fair value through profit or loss' in accordance with IFRS 9.

2 As permitted by IFRS 9, fair value designations have been revoked for certain long-dated liabilities where the accounting mismatch will be better mitigated by undertaking fair value hedge accounting, resulting in reclassifications of $5,402m from 'Financial liabilities designated at fair value' to 'Subordinated liabilities' measured at amortised cost.

38 Events after the balance sheet date

In its assessment of events after the balance sheet date, HSBC considered, among others, the events related to the process of the UK's withdrawal from the European Union that occurred between 31 December 2018 and the date when the financial statements were authorised for issue, and concluded that no adjustments to the financial statements were required.

A fourth interim dividend for 2018 of $0.21 per ordinary share (a distribution of approximately $4,205m) was declared by the Directors after 31 December 2018. These accounts were approved by the Board of Directors on 19 February 2019 and authorised for issue.

39 HSBC Holdings' subsidiaries, joint ventures and associates

In accordance with section 409 of the Companies Act 2006 a list of HSBC Holdings plc subsidiaries, joint ventures and associates, the registered office address and the effective percentage of equity owned at 31 December 2018 are disclosed below.

Unless otherwise stated, the share capital comprises ordinary or common shares that are held by Group subsidiaries. The ownership percentage is provided for each undertaking. The undertakings below are consolidated by HSBC unless otherwise indicated.

Subsidiaries

301 HSBC Holdings plc Annual Report and Accounts 2018

	% of share class held by immediate parent company (or by the			% of share class held by immediate parent company (or by the
Subsidiaries	Group where this varies)	Footnotes	Subsidiaries	Group where this varies)	Footnotes
ACN 087 652 113 Pty Limited (in liquidation)	100.00	15	Eton Corporate Services Limited	100.00	22
Almacenadora Banpacifico S.A. (in liquidation)	99.99	18	Far East Leasing SA (in liquidation)	100.00	44
Assetfinance December (F) Limited	100.00	19	Fdm 5 SAS	100.00 (99.99)	4, 41
Assetfinance December (H) Limited	100.00	19	FEPC Leasing Ltd. (in liquidation)	100.00	3, 45
Assetfinance December (M) Limited	100.00	19	Finanpar 2	100.00 (99.99)	4, 43
Assetfinance December (P) Limited	100.00	19	Finanpar 7	100.00 (99.99)	4, 43
Assetfinance December (R) Limited	100.00	19	Flandres Contentieux S.A.	100.00 (99.99)	1, 4, 45
Assetfinance June (A) Limited	100.00	19	Foncière Elysées	100.00 (99.99)	4, 42
Assetfinance June (D) Limited	100.00	19
Assetfinance June (D) Limited	100.00	19	Forward Trust Rail Services Limited (in liquidation)	100.00	19
Assetfinance Limited	100.00	19	Forward Trust Rail Services Limited (in liquidation)	100.00	19
Assetfinance March (B) Limited	100.00	20
Assetfinance March (B) Limited	100.00	20	Fujian Yongan HSBC Rural Bank Company Limited	100.00	12, 47
Assetfinance March (D) Limited	100.00	19	Fujian Yongan HSBC Rural Bank Company Limited	100.00	12, 47
Assetfinance March (F) Limited	100.00	19	Fulcher Enterprises Company Limited	100.00 (62.14)	48
Assetfinance September (F) Limited	100.00	19	Fundacion HSBC, A.C.	99.99	1, 11, 18
Assetfinance September (G) Limited	100.00	19	Giller Ltd.	100.00	27
B&Q Financial Services Limited	100.00	21	Global Payments Technology Mexico		18
B&Q Financial Services Limited	100.00	21	S.A. De C.V.	100.00 (99.99)
Banco Nominees (Guernsey) Limited	100.00	22	S.A. De C.V.	100.00 (99.99)
Banco Nominees 2 (Guernsey) Limited	100.00	22	GPIF Co-Investment, LLC	n/a	7, 29
Banco Nominees Limited	100.00	23	Griffin International Limited	100.00	19
Bank of Bermuda (Cayman) Limited	100.00	24	Grundstuecksgesellschaft Trinkausstrasse		7, 50
Bank of Bermuda (Cayman) Limited	100.00	24	Kommanditgesellschaft	n/a
Beau Soleil Limited Partnership	n/a	7, 25	Kommanditgesellschaft	n/a
Beau Soleil Limited Partnership	n/a	7, 25	Grupo Financiero HSBC, S. A. de C. V.	99.99	18
			Grupo Financiero HSBC, S. A. de C. V.	99.99	18
		12, 25
Beijing Miyun HSBC Rural Bank Company Limited	100.00				12, 51
Beijing Miyun HSBC Rural Bank Company Limited	100.00		Guangdong Enping HSBC Rural Bank Company Limited	100.00
Billingsgate Nominees Limited	100.00	19	Guangdong Enping HSBC Rural Bank Company Limited	100.00
Billingsgate Nominees Limited	100.00	19	Hang Seng (Nominee) Limited	100.00 (62.14)	48
Canada Crescent Nominees (UK) Limited	100.00	19	Hang Seng (Nominee) Limited	100.00 (62.14)	48
Canada Crescent Nominees (UK) Limited	100.00	19	Hang Seng Bank (China) Limited	100.00 (62.14)	12, 54
Canada Square Nominees (UK) Limited	100.00	19	Hang Seng Bank (China) Limited	100.00 (62.14)	12, 54
Canada Square Nominees (UK) Limited	100.00	19	Hang Seng Bank (Trustee) Limited	100.00 (62.14)	48
			Hang Seng Bank (Trustee) Limited	100.00 (62.14)	48
Canada Water Nominees (UK) Limited (in liquidation)	100.00	19	Hang Seng Bank Limited	62.14	48
Capco/Cove, Inc.	100.00	27	Hang Seng Bullion Company Limited	100.00 (62.14)	48
Card-Flo #1, Inc.	100.00	28	Hang Seng Credit Limited	100.00 (62.14)	48
Card-Flo #3, Inc.	100.00	29	Hang Seng Data Services Limited	100.00 (62.14)	48
CC&H Holdings LLC	n/a	7, 30	Hang Seng Finance Limited	100.00 (62.14)	48
CCF & Partners Asset Management Limited	99.99	19	Hang Seng Financial Information Limited	100.00 (62.14)	48
			Hang Seng Futures Limited (in liquidation)	100.00 (62.14)	48
CCF Charterhouse GmbH & Co Asset Leasing KG (in liquidation)	n/a	7, 31	Hang Seng Futures Limited (in liquidation)	100.00 (62.14)	48
	n/a	7, 31	Hang Seng Indexes Company Limited	100.00 (62.14)	48
CCF Charterhouse GmbH (in liquidation)	100.00 (99.99)	4, 31	Hang Seng Insurance Company Limited	100.00 (62.14)	48
CCF Holding (LIBAN) S.A.L. (in liquidation)	74.99	1, 32	Hang Seng Investment Management Limited	100.00 (62.14)	48
Charterhouse Administrators (D.T.) Limited	100.00 (99.99)	19	Hang Seng Investment Services Limited	100.00 (62.14)	48
			Hang Seng Life Limited	100.00 (62.14)	48
Charterhouse Development Limited (in liquidation)	100.00	35	Hang Seng Real Estate Management Limited	100.00 (62.14)	48
Charterhouse Management Services Limited	100.00 (99.99)	19	Hang Seng Securities Limited	100.00 (62.14)	48
Charterhouse Pensions Limited	100.00	19	Hang Seng Security Management Limited	100.00 (62.14)	48
			Hang Seng Qianhai Fund Management Company
Chongqing Dazu HSBC Rural Bank Company Limited	100.00	12, 33	Limited	70.00 (43.49)	12, 189
			Haseba Investment Company Limited	100.00 (62.14)	48
Chongqing Fengdu HSBC Rural Bank Company Limited	100.00	12, 34	Haseba Investment Company Limited	100.00 (62.14)	48
Chongqing Fengdu HSBC Rural Bank Company Limited	100.00	12, 34	HFC Bank Limited (in liquidation)	100.00	35
Chongqing Rongchang HSBC Rural Bank Company		12, 35	Hg Janus A Co-Invest L.P.	n/a	7, 210
Limited	100.00		High Time Investments Limited	100.00 (62.14)	48
CL Residential Limited (in liquidation)	100.00	35	HITG Administration GmbH	100.00	55
COIF Nominees Limited	n/a	7, 19	Honey Green Enterprises Ltd.	100.00	55
Cordico Management AG	100.00	37	Hongkong International Trade Finance (Holdings)
Cordico Management AG	100.00	37	Limited (in liquidation)	100.00	19
Corhold Limited	100.00	38	Limited (in liquidation)	100.00	19
Corsair IV Financial Services Capital Partners	n/a	7, 49	Household Capital Markets LLC	n/a	7, 29
			Household Finance Corporation III	100.00	29
Dalian Pulandian HSBC Rural Bank Company Limited	100.00	12, 39	Household Finance Corporation III	100.00	29
			Household International Europe Limited (in
			liquidation)	100.00	3, 35
Decision One Mortgage Company, LLC	n/a	7, 40	liquidation)	100.00	3, 35
Dem 5	100.00 (99.99)	4, 41	Household Pooling Corporation	100.00	58
Dem 9	100.00 (99.99)	4, 41	HRMG Nominees Limited	100.00	22
Dempar 1	100.00 (99.99)	4, 42	HSBC (BGF) Investments Limited	100.00	19
Dempar 4	100.00 (99.99)	4, 42	HSBC (General Partner) Limited	100.00	2, 50
Desarrollo Turistico, S.A. de C.V. (in liquidation)	99.99	18	HSBC (Guernsey) GP PCC Limited	100.00	22
Elysees GmbH (in liquidation)	100.00 (99.99)	11, 31	HSBC (Kuala Lumpur) Nominees Sdn Bhd	100.00	51
Elysées Immo Invest	100.00 (99.99)	4, 43	HSBC (Malaysia) Trustee Berhad	100.00	52
Equator Holdings Limited (in liquidation)	100.00	19	HSBC (Singapore) Nominees Pte Ltd	100.00	53
			HSBC Administradora de Inversiones S.A.	100.00 (99.65)	54
			HSBC Agency (India) Private Limited	100.00	55
					7, 55
			HSBC Alpha Funding (UK) Holdings LP (in liquidation)	n/a

HSBC Holdings plc Annual Report and Accounts 2018 302

Notes on the financial statements


Subsidiaries	% of share class held by immediate parent company (or by the Group where this varies)	Footnotes	Subsidiaries	% of share class held by immediate parent company (or by the Group where this varies)	Footnotes
HSBC Alternative Investments Limited	100.00	19	HSBC Client Holdings Nominee (UK) Limited	100.00	19
HSBC Amana h Malaysia Berhad	100.00	61	HSBC Client Share Offer Nominee (UK) Limited	100.00	19
HSBC Amana h Takaful (Malaysia) Berhad	49.00	9, 61	HSBC Columbia Funding, LLC	n/a	7, 29
HSBC Americas Corporation (Delaware)	100.00	29	HSBC Corporate Advisory (Malaysia) Sdn Bhd	100.00	61
HSBC Argentina Holdings S.A.	100.00	67	HSBC Corporate Finance (Hong Kong) Limited	100.00	68
HSBC Asia Holdings (UK) Limited	100.00	19	HSBC Corporate Trustee Company (UK) Limited	100.00	19
HSBC Asia Holdings B.V.	100.00	3, 19	HSBC Corporate Trustee Company (UK) Limited	100.00	19
HSBC Asia Holdings Limited	100.00	2, 68	HSBC Custody Nominees (Australia) Limited	100.00	16
HSBC Asia Pacific Holdings (UK) Limited	100.00	5, 19	HSBC Custody Services (Guernsey) Limited	100.00	22
HSBC Asset Finance (UK) Limited	100.00	19	HSBC Daisy Investments (Mauritius) Limited	100.00	94
HSBC Asset Finance Holdings Limited (in liquidation)	100.00	19	HSBC Diversified Loan Fund General Partner Sarl		7, 95
HSBC Asset Finance M.O.G. Holdings (UK) Limited	100.00		^n/a19 HSBC Electronic Data Processing (Guangdong) Limited	100.00	12, 96
HSBC Asset Management (India) Private Limited	100.00 (99.99)	3, 69	HSBC Electronic Data Processing (Malaysia) Sdn Bhd	100.00	97
HSBC Assurances Vie (France)	100.00 (99.99)	4, 46	HSBC Electronic Data Processing (Philippines), Inc.	99.99	98
HSBC Australia Holdings Pty Limited	100.00	3, 5, 16	HSBC Electronic Data Processing (Philippines), Inc.	99.99	98
HSBC Bank (Chile)	100.00	70	HSBC Electronic Data Processing India Private Limited	100.00	99
HSBC Bank (China) Company Limited	100.00	12, 71	HSBC Electronic Data Processing India Private Limited	100.00	99
HSBC Bank (General Partner) Limited	100.00	60	HSBC Electronic Data Processing Lanka (Private) Limited	100.00¹⁰⁰
HSBC Bank (Mauritius) Limited	100.00	72	HSBC Electronic Data Processing Lanka (Private) Limited	100.00¹⁰⁰
HSBC Bank (Mauritius) Limited	100.00	72	HSBC Electronic Data Service Delivery (Egypt) S.A.E.	100.00	101
HSBC Bank (RR) (Limited Liability Company)	100.00	13, 73
HSBC Bank (Singapore) Limited	100.00	63
HSBC Bank (Singapore) Limited	100.00	63	HSBC Enterprise Investment Company (UK) Limited	100.00	19
HSBC Bank (Taiwan) Limited	100.00	74
HSBC Bank (Uruguay) S.A.	100.00	75
HSBC Bank (Uruguay) S.A.	100.00	75	HSBC Epargne Entreprise (France)	100.00 (99.99)	4, 46
HSBC Bank (Vietnam) Ltd.	100.00	76	HSBC Epargne Entreprise (France)	100.00 (99.99)	4, 46
HSBC Bank (Vietnam) Ltd.	100.00	76	HSBC Equator (UK) Limited (in liquidation)	100.00	19
HSBC Bank A.S.	100.00	77	HSBC Equator (UK) Limited (in liquidation)	100.00	19
HSBC Bank A.S.	100.00	77	HSBC Equipment Finance (UK) Limited	100.00	19
HSBC Bank Argentina S.A.	100.00 (99.99)	67	HSBC Equipment Finance (UK) Limited	100.00	19
HSBC Bank Argentina S.A.	100.00 (99.99)	67	HSBC Equity (UK) Limited	100.00	19
HSBC Bank Armenia cjsc	70.00	78	HSBC Equity (UK) Limited	100.00	19
HSBC Bank Armenia cjsc	70.00	78	HSBC Europe B.V.	100.00	19
HSBC Bank Australia Limited	100.00	16	HSBC Europe B.V.	100.00	19
HSBC Bank Australia Limited	100.00	16	HSBC Executor & Trustee Company (UK) Limited	100.00	19
HSBC Bank Bermuda Limited	100.00	23	HSBC Executor & Trustee Company (UK) Limited	100.00	19
HSBC Bank Canada	100.00	3, 79	HSBC Factoring (France)	100.00 (99.99)	4, 42
HSBC Bank Capital Funding (Sterling 1) LP	n/a	7, 60	HSBC Finance (Brunei) Berhad	100.00	102
HSBC Bank Capital Funding (Sterling 2) LP	n/a	7, 60	HSBC Finance (Netherlands)	100.00	2, 19
HSBC Bank Egypt S.A.E	94.54	80	HSBC Finance Corporation	100.00	29
HSBC Bank Malaysia Berhad	100.00	61	HSBC Finance Limited	100.00	19
HSBC Bank Malta p.l.c.	70.03	81	HSBC Finance Mortgages Inc.	100.00	103
HSBC Bank Middle East Limited	100.00	5, 82	HSBC Finance Transformation (UK) Limited	100.00	2, 19
HSBC Bank Middle East Limited, Representative Office Morocco SARL	100.00	83	HSBC Financial Services (Lebanon) s.a.l.	99.60	104
	100.00	83	HSBC Financial Services (Middle East) Limited (in liquidation)	100.00	105
HSBC Bank Nominee (Jersey) Limited	100.00	85		100.00	105
HSBC Bank Oman S.A.O.G.	51.00	86	HSBC Financial Services (Uruguay) S.A. (in liquidation)	100.00	106
HSBC Bank Pension Trust (UK) Limited	100.00	19	HSBC Financial Services (Uruguay) S.A. (in liquidation)	100.00	106
HSBC Bank plc	100.00	3, 19	HSBC France	99.99	4, 42
HSBC Bank Polska S.A.	100.00	3, 87	HSBC Fund Services (Korea) Limited	92.95	108
HSBC Bank USA, National Association	100.00	3, 88	HSBC Funding (UK) Holdings (active proposal to strike off)	100.00	19
HSBC Branch Nominee (UK) Limited	100.00	19	HSBC Funding (UK) Holdings (active proposal to strike off)	100.00	19
HSBC Brasil Holding S.A.	100.00	89	HSBC Germany Holdings GmbH	100.00	50
HSBC Brasil S.A. Banco De Investimento	100.00	89	HSBC Global Asset Management (Bermuda) Limited	100.00	3, 23
HSBC Broking Forex (Asia) Limited	100.00	68	HSBC Global Asset Management (Bermuda) Limited	100.00	3, 23
HSBC Broking Futures (Asia) Limited	100.00	68	HSBC Global Asset Management (Canada) Limited	100.00	79
HSBC Broking Futures (Hong Kong) Limited	100.00	68	HSBC Global Asset Management (Canada) Limited	100.00	79
HSBC Broking Securities (Asia) Limited	100.00	68	HSBC Global Asset Management (Deutschland) GmbH	100.00 (80.67)	50
HSBC Broking Securities (Hong Kong) Limited	100.00	68	HSBC Global Asset Management (Deutschland) GmbH	100.00 (80.67)	50
HSBC Broking Securities (Hong Kong) Limited	100.00	68	HSBC Global Asset Management (France)	100.00 (99.99)	4, 110
HSBC Broking Services (Asia) Limited	100.00	68	HSBC Global Asset Management (France)	100.00 (99.99)	4, 110
HSBC Broking Services (Asia) Limited	100.00	68	HSBC Global Asset Management (Hong Kong) Limited	100.00	25
HSBC Canadian Covered Bond (Legislative) GP Inc	100.00	90	HSBC Global Asset Management (Hong Kong) Limited	100.00	25
HSBC Canadian Covered Bond (Legislative) GP Inc	100.00	90	HSBC Global Asset Management (International) Limited (in liquidation)	100.00	111
HSBC Canadian Covered Bond (Legislative) Guarantor Limited Partnership	n/a	7, 90		100.00	111
	n/a	7, 90	HSBC Global Asset Management (Japan) K. K.	100.00	112
HSBC Capital (USA), Inc.	100.00	29	HSBC Global Asset Management (Japan) K. K.	100.00	112
HSBC Capital (USA), Inc.	100.00	29	HSBC Global Asset Management (Malta) Limited	100.00 (70.03)	113
HSBC Capital Funding (Dollar 1) L.P.	n/a	7, 60
HSBC Capital Limited	100.00	68
HSBC Capital Limited	100.00	68	HSBC Global Asset Management (Mexico), S.A. de C.V., Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC	99.99	18
HSBC Card Services Inc.	100.00	29
HSBC Casa de Bolsa, S.A. de C.V., Grupo Financiero HSBC	99.99	18
HSBC Casa de Bolsa, S.A. de C.V., Grupo Financiero HSBC	99.99	18	HSBC Global Asset Management (Oesterreich) GmbH	100.00 (80.67)	6, 114
HSBC Cayman Services Limited	100.00	92
HSBC City Funding Holdings	100.00	19

303 HSBC Holdings plc Annual Report and Accounts 2018

	% of share class held by immediate parent company (or by the			% of share class held by immediate parent company (or by the
Subsidiaries	Group where this varies)	Footnotes	Subsidiaries	Group where this varies)	Footnotes
		63			3, 133
HSBC Global Asset Management (Singapore) Limited	100.00		HSBC InvestDirect Securities (India) Private Limited	99.99 (99.61)
			HSBC Investment Bank Holdings B.V.	100.00	19
HSBC Global Asset Management (Switzerland) AG	100.00 (90.33)	4, 115	HSBC Investment Bank Holdings B.V.	100.00	19
HSBC Global Asset Management (Switzerland) AG	100.00 (90.33)	4, 115	HSBC Investment Bank Holdings Limited	100.00	19
			HSBC Investment Company (Egypt) S.A.E (in
HSBC Global Asset Management (Taiwan) Limited	100.00	116	liquidation)	100.00 (94.54)	1, 134
HSBC Global Asset Management (UK) Limited	100.00	19	HSBC Investment Funds (Canada) Inc.	100.00	5, 135
HSBC Global Asset Management (USA) Inc.	100.00	117	HSBC Investment Funds (Hong Kong) Limited	100.00	25
HSBC Global Asset Management Holdings (Bahamas)			HSBC Investment Funds (Luxembourg) SA	100.00	136
Limited	100.00	118	HSBC Investment Funds (Luxembourg) SA	100.00	136
Limited	100.00	118	HSBC Invoice Finance (UK) Limited	100.00	138
HSBC Global Asset Management Limited	100.00	2, 19
HSBC Global Custody Nominee (UK) Limited	100.00	19	HSBC Iris Investments (Mauritius) Ltd (in liquidation)	100.00	139
HSBC Global Custody Proprietary Nominee (UK)			HSBC Issuer Services Common Depositary Nominee
Limited	100.00	19	(UK) Limited	100.00	19
HSBC Global Services (Canada) Limited	100.00	3, 119
HSBC Global Services (Canada) Limited	100.00	3, 119	HSBC Issuer Services Depositary Nominee (UK) Limited	100.00	19
HSBC Global Services (China) Holdings Limited	100.00	19	HSBC Issuer Services Depositary Nominee (UK) Limited	100.00	19
HSBC Global Services (Hong Kong) Limited	100.00	68	HSBC Latin America B.V.	100.00	19
HSBC Global Services (UK) Limited	100.00	19	HSBC Latin America Holdings (UK) Limited	100.00	2, 19
HSBC Global Services Limited	100.00	2, 19	HSBC Leasing (Asia) Limited	100.00	68
HSBC Global Shared Services (India) Private Limited (in			HSBC Leasing (France)	100.00 (99.99)	4, 41
liquidation)	100.00 (99.99)	65	HSBC Leasing (France)	100.00 (99.99)	4, 41
liquidation)	100.00 (99.99)	65	HSBC Life (International) Limited	100.00	23
HSBC Group Management Services Limited	100.00	19	HSBC Life (Property) Limited	100.00	124
HSBC Group Nominees UK Limited	100.00	1, 2, 19	HSBC Life (UK) Limited	100.00	19
HSBC Holdings B.V.	100.00	3, 19	HSBC Life Assurance (Malta) Limited	100.00 (70.03)	113
HSBC IM Pension Trust Limited	100.00	1, 19	HSBC Life Insurance Company Limited	50.00	140
HSBC Infrastructure Limited	100.00	19
HSBC Infrastructure Limited	100.00	19	HSBC Lodge Funding (UK) Holdings (active proposal to		19
HSBC INKA Investment-AG TGV	100.00 (80.67)	14, 120	HSBC Lodge Funding (UK) Holdings (active proposal to		19
HSBC INKA Investment-AG TGV	100.00 (80.67)	14, 120	strike off)	100.00
HSBC Inmobiliaria (Mexico), S.A. de C.V.	100.00	18	HSBC LU Nominees Limited	100.00	19
HSBC Institutional Trust Services (Asia) Limited	100.00	68	HSBC Management (Guernsey) Limited	100.00	22
			HSBC Markets (USA) Inc.	100.00	29
HSBC Institutional Trust Services (Bermuda) Limited	100.00	23	HSBC Markets (USA) Inc.	100.00	29
HSBC Institutional Trust Services (Bermuda) Limited	100.00	23	HSBC Marking Name Nominee (UK) Limited	100.00	19
HSBC Institutional Trust Services (Ireland) DAC	100.00 (99.99)	121	HSBC Mexico, S.A., Institucion de Banca Multiple,
			Grupo Financiero HSBC	100.00 (99.99)	18
HSBC Institutional Trust Services (Mauritius) Limited	100.00	122	Grupo Financiero HSBC	100.00 (99.99)	18
HSBC Institutional Trust Services (Mauritius) Limited	100.00	122	HSBC Middle East Finance Company Limited	80.00	141
		63	HSBC Middle East Holdings B.V.	100.00	2, 3, 82
HSBC Institutional Trust Services (Singapore) Limited	100.00		HSBC Middle East Holdings B.V.	100.00	2, 3, 82
HSBC Institutional Trust Services (Singapore) Limited	100.00		HSBC Middle East Leasing Partnership	n/a	7, 142
HSBC Insurance (Asia) Limited	100.00	124	HSBC Middle East Securities L.L.C	49.00	9, 143
		5, 125	HSBC Mortgage Corporation (Canada)	100.00	144
HSBC Insurance (Asia-Pacific) Holdings Limited	100.00		HSBC Mortgage Corporation (Canada)	100.00	144
HSBC Insurance (Asia-Pacific) Holdings Limited	100.00		HSBC Mortgage Corporation (USA)	100.00	29
HSBC Insurance (Bermuda) Limited	100.00	23	HSBC Mortgage Corporation (USA)	100.00	29
HSBC Insurance (Bermuda) Limited	100.00	23	HSBC Nominees (Asing) Sdn Bhd	100.00	61
HSBC Insurance (Singapore) Pte. Limited	100.00	63	HSBC Nominees (Asing) Sdn Bhd	100.00	61
HSBC Insurance (Singapore) Pte. Limited	100.00	63	HSBC Nominees (Hong Kong) Limited	100.00	68
HSBC Insurance Agency (USA) Inc.	100.00	117	HSBC Nominees (Hong Kong) Limited	100.00	68
HSBC Insurance Agency (USA) Inc.	100.00	117	HSBC Nominees (New Zealand) Limited	100.00	145
HSBC Insurance Brokers (Philippines) Inc	100.00 (99.99)	127	HSBC Nominees (New Zealand) Limited	100.00	145
HSBC Insurance Brokers (Philippines) Inc	100.00 (99.99)	127	HSBC Nominees (Tempatan) Sdn Bhd	100.00	61
HSBC Insurance Holdings Limited	100.00	2, 19	HSBC Nominees (Tempatan) Sdn Bhd	100.00	61
HSBC Insurance Holdings Limited	100.00	2, 19	HSBC North America Holdings Inc.	100.00	0, 29
HSBC Insurance Management Services Limited (in			HSBC North America Holdings Inc.	100.00	0, 29
HSBC Insurance Management Services Limited (in			HSBC Odeme Sistemleri Bilgisayar Teknolojileri Basin
liquidation)	100.00	128	HSBC Odeme Sistemleri Bilgisayar Teknolojileri Basin
liquidation)	100.00	128	Yayin Ve Musteri Hizmetleri	99.99	146
HSBC Insurance Services (Lebanon) S.A.L. (in			Yayin Ve Musteri Hizmetleri	99.99	146
HSBC Insurance Services (Lebanon) S.A.L. (in			HSBC Operational Services GmbH	n/a	7, 147
liquidation)	97.70	129	HSBC Operational Services GmbH	n/a	7, 147
liquidation)	97.70	129	HSBC Overseas Holdings (UK) Limited	100.00	2, 19
HSBC Insurance Services Holdings Limited	100.00	19	HSBC Overseas Holdings (UK) Limited	100.00	2, 19
HSBC Insurance Services Holdings Limited	100.00	19
					149
HSBC International Finance Corporation (Delaware)	100.00	130	HSBC Overseas Investments Corporation (New York)	100.00
HSBC International Finance Corporation (Delaware)	100.00	130	HSBC Overseas Nominee (UK) Limited	100.00	19
HSBC International Holdings (Jersey) Limited (in			HSBC Overseas Nominee (UK) Limited	100.00	19
HSBC International Holdings (Jersey) Limited (in			HSBC Participaciones (Argentina) S.A.	100.00 (99.99)	67
liquidation)	100.00	85	HSBC Participaciones (Argentina) S.A.	100.00 (99.99)	67
liquidation)	100.00	85	HSBC PB Corporate Services 1 Limited	100.00	150
HSBC International Limited (in liquidation)	100.00	85	HSBC PB Corporate Services 1 Limited	100.00	150
HSBC International Limited (in liquidation)	100.00	85	HSBC PB Services (Suisse) SA	100.00	151
			HSBC PB Services (Suisse) SA	100.00	151
HSBC International Nominees Limited (in liquidation)	100.00	1, 131	HSBC Pension Trust (Ireland) DAC	100.00	121
HSBC International Trustee (BVI) Limited	100.00	10, 132	HSBC Pensiones, S.A.	99.99	152
			HSBC PI Holdings (Mauritius) Limited	100.00	122
HSBC International Trustee (Holdings) Pte. Limited	100.00	63	HSBC Portfoy Yonetimi A.S.	100.00 (99.98)	153
HSBC International Trustee Limited	100.00	131	HSBC Preferential LP (UK)	100.00	19
HSBC Inversiones S.A.	99.99	70	HSBC Private Bank (C.I.) Limited	100.00	22
HSBC Inversiones y Servicios Financieros Limitada (in			HSBC Private Bank (Luxembourg) S.A.	100.00	136
liquidation)	100.00 (99.99)	70	HSBC Private Bank (Monaco) SA	99.99	3, 155
HSBC InvestDirect (India) Limited	99.99 (99.54)	133	HSBC Private Bank (Suisse) SA	100.00	151
			HSBC Private Bank (UK) Limited	100.00	19
HSBC InvestDirect Financial Services (India) Limited	100.00 (99.54)	133	HSBC Private Bank (UK) Limited	100.00	19
HSBC InvestDirect Financial Services (India) Limited	100.00 (99.54)	133	HSBC Private Bank International	100.00	156
			HSBC Private Banking Holdings (Suisse) SA	100.00	151
HSBC InvestDirect Sales & Marketing (India) Limited	99.99 (98.54)	65	HSBC Private Banking Holdings (Suisse) SA	100.00	151
HSBC InvestDirect Sales & Marketing (India) Limited	99.99 (98.54)	65
			HSBC Private Banking Nominee 3 (Jersey) Limited	100.00	150

HSBC Holdings plc Annual Report and Accounts 2018 304

Notes on the financial statements


	% of share class held by immediate parent company (or by the			% of share class held by immediate parent company (or by the
Subsidiaries	Group where this varies)	Footnotes	Subsidiaries	Group where this varies)	Footnotes
HSBC Private Equity Advisors LLC	n/a	7, 29	HSBC Trinkaus & Burkhardt Gesellschaft fur
HSBC Private Equity Advisors LLC	n/a	7, 29	Bankbeteiligungen mbH	100.00 (80.67)	50
HSBC Private Equity Investments (UK) Limited	100.00	19	Bankbeteiligungen mbH	100.00 (80.67)	50
HSBC Private Trustee (Hong Kong) Limited	100.00	68
HSBC Private Trustee (Hong Kong) Limited	100.00	68	HSBC Trinkaus Europa Immobilien-Fonds Nr. 5 GmbH	100.00 (80.67)	50
HSBC Private Wealth Services (Canada) Inc.	100.00	3, 157	HSBC Trinkaus Europa Immobilien-Fonds Nr. 5 GmbH	100.00 (80.67)	50
			HSBC Trinkaus Family Office GmbH	100.00 (80.67)	6, 50
HSBC Professional Services (India) Private Limited	98.61	65	HSBC Trinkaus Immobilien Beteiligungs KG	100.00 (80.67)	50
HSBC Property (UK) Limited	100.00	19	HSBC Trinkaus Real Estate GmbH	100.00 (80.67)	6, 50
HSBC Property Funds (Holding) Limited	100.00	19	HSBC Trust Company (Canada)	100.00	144
HSBC Provident Fund Trustee (Hong Kong) Limited	100.00	68	HSBC Trust Company (Delaware), National Association	100.00	175
HSBC Qianhai Securities Limited	100.00 (51.00)	12, 158	HSBC Trust Company (UK) Limited	100.00	19
HSBC Rail (UK) Limited (in liquidation)	100.00	19	HSBC Trust Company AG	100.00	37
HSBC Real Estate Leasing (France)	99.00	4, 46	HSBC Trustee (C.I.) Limited	100.00	150
HSBC Realty Credit Corporation (USA)	100.00	3, 29	HSBC Trustee (Cayman) Limited	100.00	176
HSBC REIM (France)	100.00 (99.99)	4, 46	HSBC Trustee (Guernsey) Limited	100.00	22
HSBC Representative Office (Nigeria) Limited	100.00	159	HSBC Trustee (Hong Kong) Limited	100.00	68
HSBC Retirement Benefits Trustee (UK) Limited	100.00	1, 2, 19
HSBC Retirement Benefits Trustee (UK) Limited	100.00	1, 2, 19	HSBC Trustee (Mauritius) Limited (in liquidation)	100.00	177
HSBC Retirement Services Limited	100.00	1, 19	HSBC Trustee (Mauritius) Limited (in liquidation)	100.00	177
HSBC Savings Bank (Philippines) Inc.	99.99	161	HSBC Trustee (Singapore) Limited	100.00	63
HSBC Securities (Asia) Limited	100.00	68	HSBC UK Bank plc	100.00	178
HSBC Securities (Canada) Inc.	100.00	119	HSBC UK Client Nominee Limited	100.00	19
HSBC Securities (Egypt) S.A.E.	100.00 (94.54)	80	HSBC UK Holdings Limited	100.00	2, 19
HSBC Securities (Japan) Limited	100.00	19	HSBC USA Inc.	100.00	3, 149
HSBC Securities (Philippines) Inc.	99.99	1, 162	HSBC Violet Investments (Mauritius) Limited	100.00	94
HSBC Securities (Singapore) Pte Limited	100.00	63	HSBC Wealth Client Nominee Limited	100.00	19
HSBC Securities (South Africa) (Pty) Limited	100.00	163	HSBC Yatirim Menkul Degerler A.S.	99.98	153
HSBC Securities (Taiwan) Corporation Limited	100.00	164	HSI Asset Securitization Corporation	100.00	29
HSBC Securities (USA) Inc.	100.00	29	HSI International Limited	100.00 (62.14)	48
HSBC Securities and Capital Markets (India) Private			HSIL Investments Limited	100.00	19
Limited	99.99	5, 65
Limited	99.99	5, 65	Hubei Macheng HSBC Rural Bank Company Limited	100.00	12, 182
			Hubei Macheng HSBC Rural Bank Company Limited	100.00	12, 182
HSBC Securities Asia International Nominees Limited	100.00	165	Hubei Suizhou Cengdu HSBC Rural Bank Company
HSBC Securities Asia International Nominees Limited	100.00	165	Limited	100.00	12, 183
HSBC Securities Asia Nominees Limited	100.00	68	Limited	100.00	12, 183
HSBC Securities Brokers (Asia) Limited	100.00	68			12, 184
HSBC Securities Brokers (Asia) Limited	100.00	68	Hubei Tianmen HSBC Rural Bank Company Limited	100.00
HSBC Securities Investments (Asia) Limited	100.00	68	Hubei Tianmen HSBC Rural Bank Company Limited	100.00
HSBC Securities Services (Bermuda) Limited	100.00	23			12, 185
HSBC Securities Services (Bermuda) Limited	100.00	23	Hunan Pingjiang HSBC Rural Bank Company Limited	100.00
HSBC Securities Services (Guernsey) Limited	100.00	22	Hunan Pingjiang HSBC Rural Bank Company Limited	100.00
HSBC Securities Services (Guernsey) Limited	100.00	22	Imenson Limited	100.00 (62.14)	48
HSBC Securities Services (Ireland) DAC	100.00	121	Imenson Limited	100.00 (62.14)	48
HSBC Securities Services (Ireland) DAC	100.00	121	InfraRed NF China Real Estate Investments LP	n/a	7, 53
HSBC Securities Services (Luxembourg) S.A.	100.00	136	InfraRed NF China Real Estate Investments LP	n/a	7, 53
HSBC Securities Services (Luxembourg) S.A.	100.00	136			174
HSBC Securities Services Holding Limited	100.00	131			174
HSBC Securities Services Holding Limited	100.00	131	INKA Internationale Ka pita lanlagegesellschaft mbH	100.00 (80.67)
			INKA Internationale Ka pita lanlagegesellschaft mbH	100.00 (80.67)
HSBC Securities Services Holdings (Ireland) DAC	100.00	121	Inmobiliaria Banci, S.A. de C.V.	100.00 (98.91)	18
HSBC Securities Services Holdings (Ireland) DAC	100.00	121	Inmobiliaria Bisa, S.A. de C.V.	100.00 (99.99)	18
HSBC Seguros de Retiro (Argentina) S.A.	100.00 (99.99)	67	Inmobiliaria Bisa, S.A. de C.V.	100.00 (99.99)	18
HSBC Seguros de Retiro (Argentina) S.A.	100.00 (99.99)	67	Inmobiliaria Grufin, S.A. de C.V.	100.00 (99.99)	18
HSBC Seguros de Vida (Argentina) S.A.	100.00 (99.99)	67	Inmobiliaria Grufin, S.A. de C.V.	100.00 (99.99)	18
HSBC Seguros de Vida (Argentina) S.A.	100.00 (99.99)	67	Inmobiliaria Guatusi, S.A. de C.V.	100.00 (99.99)	18
			Inmobiliaria Guatusi, S.A. de C.V.	100.00 (99.99)	18
HSBC Seguros, S.A de C.V., Grupo Financiero HSBC	99.99	3, 152	IRERE Property Investments (French Offices) Sarl (in		186
HSBC Seguros, S.A de C.V., Grupo Financiero HSBC	99.99	3, 152	liquidation)	100.00
HSBC Service Delivery (Polska) Sp. z o.o.	100.00	167	liquidation)	100.00
HSBC Service Delivery (Polska) Sp. z o.o.	100.00	167	James Capel & Co. Limited	100.00	19
HSBC Services (France)	99.99	4, 42	James Capel & Co. Limited	100.00	19
HSBC Services (France)	99.99	4, 42	James Capel (Channel Islands) Nominees Limited (in
HSBC Services Japan Limited	100.00	168	liquidation)	100.00	111
HSBC Services USA Inc.	100.00	169	James Capel (Nominees) Limited	100.00	19
HSBC Servicios Financieros, S.A. de C.V	99.99	18	James Capel (Second Nominees) Limited (in		36
			liquidation)	100.00
HSBC Servicios, S.A. DE C.V., Grupo Financiero HSBC	99.99	18	liquidation)	100.00
HSBC Servicios, S.A. DE C.V., Grupo Financiero HSBC	99.99	18	James Capel (Taiwan) Nominees Limited	100.00	19
HSBC SFH (France)	99.99	4, 46	Jasmine22 Limited	100.00	187
HSBC Software Development (Canada) Inc	100.00	170	John Lewis Financial Services Limited	100.00	19
			Keyser Ullmann Limited	100.00 (99.99)	19
HSBC Software Development (Guangdong) Limited	100.00	12, 171	Keyser Ullmann Limited	100.00 (99.99)	19

			Kings Meadow Nominees Limited (in liquidation)	100.00	188

HSBC Software Development (India) Private Limited	100.00	172
HSBC Software Development (India) Private Limited	100.00	172	Legend Estates Limited (in liquidation)	100.00	19
			Lion Corporate Services Limited	100.00	68
HSBC Software Development (Malaysia) Sdn Bhd	100.00	97	Lion Corporate Services Limited	100.00	68
HSBC Software Development (Malaysia) Sdn Bhd	100.00	97	Lion International Corporate Services Limited	100.00	131
HSBC Specialist Investments Limited	100.00	5, 19	Lion International Management Limited	100.00	131
HSBC Stockbrokers Nominee (UK) Limited	100.00	19	Lion Management (Hong Kong) Limited	100.00	68
HSBC Technology & Services (China) Limited	100.00	12, 173	Lyndholme Limited	100.00	68
HSBC Technology & Services (USA) Inc.	100.00	29	Marks and Spencer Financial Services plc	100.00	188
HSBC Transaction Services GmbH	100.00 (80.67)	6, 174	Marks and Spencer Retail Financial Services Holdings
HSBC Trinkaus & Burkhardt (International) S.A.	100.00 (80.67)	136	Limited (in liquidation)	100.00	188
HSBC Trinkaus & Burkhardt AG	80.67	14, 50

305 HSBC Holdings plc Annual Report and Accounts 2018

	% of share class held by immediate parent company (or by the				% of share class held by immediate parent company (or by the
Subsidiaries	Group where this varies)		Footnotes	Subsidiaries	Group where this varies)	Footnotes
				The Hongkong and Shanghai Banking Corporation
Marks and Spencer Savings and Investments Limited	100.00		188	Limited	100.00	68
				The Venture Catalysts Limited	100.00	19
Marks and Spencer Unit Trust Management Limited	100.00		188	The Venture Catalysts Limited	100.00	19
Marks and Spencer Unit Trust Management Limited	100.00		188	Timberlink Settlement Services (USA) Inc.	100.00	29
Maxima S.A. AFJP (in liquidation)	100.00	(99.98)	67	Tooley Street View Limited	100.00	1, 2, 19
Mercantile Company Limited	100.00		19	Tower Investment Management	100.00	207
Mexicana de Fomento, S.A. de C.V.	99.90		18	Trinkaus Australien Immobilien Fonds Nr. 1 Brisbane
Mexicana de Fomento, S.A. de C.V.	99.90		18	GmbH & Co. KG	100.00 (80.67)	50
Midcorp Limited	100.00		19	GmbH & Co. KG	100.00 (80.67)	50
Midland Bank (Branch Nominees) Limited	100.00		19	Trinkaus Australien Immobilien-Fonds Nr. 1 Treuhand-
Midland Bank (Branch Nominees) Limited	100.00		19	GmbH	100.00 (80.67)	6, 50
Midland Nominees Limited	100.00		19	GmbH	100.00 (80.67)	6, 50
MIL (Cayman) Limited	100.00		193	Trinkaus Europa Immobilien-Fonds Nr.3 Objekt
MIL (Cayman) Limited	100.00		193	Utrecht Verwaltungs-GmbH	100.00 (80.67)	50
MIL (Jersey) Limited	100.00		150	Utrecht Verwaltungs-GmbH	100.00 (80.67)	50
MW Gestion SA	100.00		67	Trinkaus Immobilien-Fonds Geschaeltsluehrungs-		6, 50
Promocion en Bienes Raices, S.A. de C.V.	99.99	(0.99)	3, 18	GmbH	100.00 (80.67)
				Trinkaus Immobilien-Fonds Verwaltungs-GmbH	100.00 (80.67)	6, 50
Prudential Client HSBC GIS Nominee (UK) Limited	100.00		19	Trinkaus Private Equity Management GmbH	100.00 (80.67)	50
PT Bank HSBC Indonesia	100.00	(98.93)	195	Trinkaus Private Equity Verwaltungs GmbH	100.00 (80.67)	6, 50
PT HSBC Sekuritas Indonesia	100.00	(85.00)	196	Tropical Nominees Limited	100.00	193
R/CLIP Corp.	100.00		29	Turnsonic (Nominees) Limited	100.00	19
Real Estate Collateral Management Company	100.00		29	Vadep Holding AG (in liquidation)	100.00	209
Republic Nominees Limited	100.00		22	Valeurs Mobilières Elysées	100.00 (99.99)	4, 52
Republic Overseas Capital Corporation	100.00		117	Wardley Limited	100.00	68
RLUKREF Nominees (UK) One Limited	100.00		19	Wayloong Credit Limited (in liquidation)	100.00	68
RLUKREF Nominees (UK) Two Limited	100.00		19	Wayloong Finance Limited (in liquidation)	100.00	68
S.A.P.C. - Ulipro Recouvrement	99.97		11, 41	Wayloong Nominees Limited	100.00	68
Sal Baiyun	100.00	(99.99)	4, 43	Wayhong (Bahamas) Limited	100.00	118
Sal Chang Jiang	100.00	(99.99)	4, 43	Westminster House, LLC	n/a	7, 29
Sal Guangzhou	100.00	(99.99)	4, 43	Woodex Limited	100.00	23
Sal Zhu Jiang	100.00	(99.99)	4, 43	Yan Nin Development Company Limited	100.00 (62.14)	48
Sal Zhu Jiang Jiu	100.00	(99.99)	4, 43	Joint ventures
Sal Zhu Jiang Shi Ba	100.00	(99.99)	4, 43
Sal Zhu Jiang Shi Ba	100.00	(99.99)	4, 43	The undertakings below are joint ventures and equity accounted.
Sal Zhu Jiang Shi Er	100.00	(99.99)	4, 43
Sal Zhu Jiang Shi Er	100.00	(99.99)	4, 43
Sal Zhu Jiang Shi Jiu	100.00	(99.99)	4, 43
Sal Zhu Jiang Shi Liu	100.00	(99.99)	4, 43		% of share class held by immediate
Sal Zhu Jiang Shi Qi	100.00	(99.99)	4, 43		parent company
Sal Zhu Jiang Shi Qi	100.00	(99.99)	4, 43		(or by the Group
Sal Zhu Jiang Shi Wu	100.00	(99.99)	4, 43		(or by the Group
Sal Zhu Jiang Shi Wu	100.00	(99.99)	4, 43	Joint ventures	where this varies)	Footnotes
SAS Bosquet -Audrain	100.00	(94.90)	4, 199	HCM Holdings Limited	50.99	36
SAS Cyatheas Pasteur	100.00	(94.93)	4, 41	House Network Sdn Bhd	25.00	15
SAS Orona	100.00	(94.92)	1, 4, 200
SAS Orona	100.00	(94.92)	1, 4, 200	HSBC Jintrust Fund Management Company Limited	49.00	12, 93
SCI HSBC Assurances Immo	100.00	(99.99)	11, 46	HSBC Jintrust Fund Management Company Limited	49.00	12, 93
SFM	99.99		4, 42	HSBC Saudi Arabia	49.00 (69.40)	191
SFSS Nominees (Pty) Limited	100.00		163	ProServe Bermuda Limited	50.00	107
Shandong Rongcheng HSBC Rural Bank Company				Sino AG	24.94 (20.11)	208
Limited	100.00		12, 201	Sino AG	24.94 (20.11)	208
Limited	100.00		12, 201	The London Silver Market Fixing Limited	n/a	1, 7, 180
Sico Limited	100.00		202	Vaultex UK Limited	50.00	109
SNC Dorique	100.00	(99.99)	1, 11, 203
SNC Kerouan	100.00	(99.99)	11, 43
SNC Les Mercuriales	100.00	(99.99)	1, 11, 43
SNC Les Oliviers D'Antibes	60.00		11, 46
SNC Makala	100.00	(99.99)	1, 11, 43
SNC Nuku-Hiva Bail	100.00	(99.99)	1, 11, 43
SNCB/M6 - 2008 A	100.00	(99.99)	1, 4, 43
SNCB/M6-2007 A	100.00	(99.99)	1, 4, 43
SNCB/M6-2007 B	100.00	(99.99)	1, 4, 43
Societe CCF Finance Moyen-Orient S.A.L. (in
liquidation)	99.64	(99.08)	1, 32
Société Française et Suisse	100.00	(99.99)	4, 43
Societe Immobiliere Atlas S.A. (in liquidation)	100.00		151
Somers Dublin DAC	100.00	(99.99)	121
Somers Nominees (Far East) Limited	100.00		23
Sopingest	100.00	(99.99)	4, 43
South Yorkshire Light Rail Limited	100.00		19
St Cross Trustees Limited	100.00		19
			12, 206
Sun Hung Kai Development (Lujiazui III) Limited	100.00
Swan National Leasing (Commercials) Limited	100.00		19
Swan National Limited	100.00		19
Thasoslin	100.00	(99.99)	4, 46

HSBC Holdings plc Annual Report and Accounts 2018 306

Notes on the financial statements

Associates Registered offices

The undertakings below are associates and equity accounted. 22 Arnold House St Julians Avenue, St Peter Port, Guernsey, GY1 3NF

23 37 Front Street, Hamilton, Bermuda, HM 11

Associates

% of share class held by
immediate
parent company
(or by the Group

where this varies) Footnotes

PO Box 513, Strathvale House, Ground Floor, 90 North Church Street, George Town,

24 Grand Cayman, Cayman Islands, KY1-1106

25 HSBC Main Building, 1 Queen's Road Central, Hong Kong

First Floor, Xinhua Bookstore Xindong Road (SE of roundabout), Miyun District,

Bank of Communications Co., Ltd. 19.03 9, 126

Barrowgate Limited 24.64 137

BGF Group PLC 24.48 140

Bud Financial Limited 8.02 3, 9, 17
Canara HSBC Oriental Bank of Commerce Life

148

Insurance Company Limited 26.00

CFAC Payment Scheme Limited 33.33 1, 3, 154

Chemi & Cotex (Rwanda) Limited 99.98 (33.99) 1, 160

Chemi & Cotex Kenya Limited 99.99 (33.99) 1, 166

Chemi and Cotex Industries Limited 100.00 (33.99) 1 , 179

EPS Company (Hong Kong) Limited 40.58 68

GZHS Research Co Ltd 33.00 (20.50) 1, 12, 181
HSBC Mortgage Limited Liability Partnership (in

7, 190

liquidation) n/a

Icon Brickell LLC (in liquidation) n/a 7,192

Jeppe Star Limited 100.00 (33.99) 123

MENA Infrastructure Fund (GP) Ltd 33.33 142

Northstar Trade Finance Inc. 20.08 197

Novo Star Limited 33.99 198

PEF 2005 (A) Limited Partnership n/a 7, 57

PEF 2005 (D) Limited Partnership n/a 7, 57

PEF 2010 (A) Limited Partnership n/a 7, 57

Peregrine Capital (India) Private Limited 33.46 91

Prisma Medios de Pago S.A. 7.06 1, 205

Quantexa Limited 10.51 9, 204

Services Epargne Entreprise 14.35 4, 9, 59

The London Gold Market Fixing Limited n/a 1, 7, 180

The Saudi British Bank 40.00 194

Vizolution Limited 17.95 9, 123

26 Beijing, China

27 95 Washington Street, Buffalo, New York, United States Of America, 14203

28 1209 Orange Street, Wilmington, Delaware, United States Of America, 19801

c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware,

29 United States Of America, 19801

Corporation Service Company, 251 Little Falls Drive, Wilmington, Delaware, United

30 States Of America, 19808

31 Unsoeldstrasse 2, Munich, Germany, 80538

Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, PO Box 17 5476 Mar Michael

32 11042040, Beyrouth, Lebanon

33 No 1, Bei Huan East Road Dazu County, Chongqing, China

34 No 107, Ping Du Avenue (E), Sanhe Town, Fengdu County, Chongqing, China

35 No. 3, 5, 7, Haitang Erzhi Road, Changyuan, Rongchang, Chongqing, China, 402460

36 Hill House, 1 Little New Street, London, United Kingdom, EC4A 3TR

37 Bederstrasse 49, Zurich, Switzerland, CH-8002

Rawlinson and Hunter Limited, Woodbourne Hall, PO Box 3162, Road Town, Tortola,

38 British Virgin Islands, VG1110

39 First & Second Floor, No.3 Nanshan Road, Pulandian, Dalian, Liaoning, China

CT Corporation System, 225 Hillsborough Street, Raleigh, North Carolina, United

40 States Of America, 27603

41 39, rue de Bassano, Paris, France, 75008

42 103, avenue des Champs-Elysées, Paris, France, 75008

43 64, rue Galilée, Paris, France, 75008

44 MMG Tower, 23 floor, Ave. Paseo del Mar, Urbanizacion Costa del Este, Panama Walkers Corporate Services Limited, Walker House, 87 Mary Street, George Town,

We Trade Innovation Designated Activity Company 8.52 9, 84 45 Grand Cayman KY1-9005, Cayman Islands

Footnotes for Note 39

1 Management has determined that these undertakings are excluded from consolidation in the Group accounts as these entities do not meet the definition of subsidiaries in accordance with IFRS. HSBC's consolidation policy is described in Note 1.2(a).

2 Directly held by HSBC Holdings plc

Description of shares

3 Preference Shares

4 Actions

5 Redeemable Preference Shares

6 GmbH Anteil

7 This undertaking is a partnership and does not have share capital

8 Liquidating Share Class

9 HSBC Holdings plc exercises control or significant influence over this undertaking notwithstanding its equity interest

10 Non-Participating Voting Shares

11 Parts

12 Registered Capital Shares

13 Russian Limited Liability Company Shares

14 Stückaktien

Registered offices

Lot 6.05, Level 6, KPMG Tower 8 First Avenue, Bandar Utama Petaling Jaya Selangor,

15 Darul Ehsan, Malaysia 47800

Level 36 Tower 1 International Towers Sydney, 100 Barangaroo Avenue, Sydney,

16 New South Wales, Australia, 2000

17 First Floor The Bower, 207 Old Street, London, England, EC1V 9NR

18 Paseo de la Reforma 347, Col. Cuauhtemoc, Mexico, 06500

19 8 Canada Square, London, United Kingdom, E14 5HQ

20 5 Donegal Square South, Belfast, Northern Ireland, BT1 5JP

21 Camden House West, The Parade, Birmingham, United Kingdom, B1 3PY

307 HSBC Holdings plc Annual Report and Accounts 2018

46 15, rue Vernet, Paris, France, 75008

47 No. 1 1211 Yanjiang Zhong Road, Yongan, Fujian, China

48 83 Des Voeux Road Central, Hong Kong

c/o Maples Corporate Services Limited, Ugland House, PO Box 309, Grand Cayman,

49 KY1-1104, Cayman Islands

50 Königsallee 21/23, Düsseldorf, Germany, 40212

51 No. 44, Xin Ping Road Central, Encheng, Enping, Guangdong, China, 529400

52 109 avenue des Champs-Elysees, Paris, France, 75008

53 Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 1WW

34/F and 36/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road,, China (Shanghai)

54 Pilot Free Trade Zone,, Shanghai, China, 200120

55 11-17 Ludwig-Erhard-Str., Hamburg, Germany, 20459

Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town, Tortola, Tortola,

56 British Virgin Islands

57 Suite 1020, 885 West Georgia Street, Vancouver, BC, V6C 3E8

The Corporation Trust Company of Nevada 311 S. Division Street, Carson City,

58 Nevada, United States Of America, 89703

59 32 Rue du Champ de Tir, 44300 Nantes

60 HSBC House Esplanade, St. Helier, Jersey, JE4 8UB

61 10th Floor, North Tower 2 Leboh Ampang, Kuala Lumpur, Malaysia, 50100

62 13th Floor, South Tower 2 Leboh Ampang, Kuala Lumpur, Malaysia, 50100

63 21 Collyer Quay, #13-02 HSBC Building, Singapore, 049320

64 Bouchard 557, Piso 18°, Cdad. Autónoma de Buenos Aires, Argentina, 1106

65 52/60 M G Road, Fort, Mumbai, India, 400 001

PO Box 513 HSBC House, 68 West Bay Road, George Town, Grand Cayman, Cayman

66 Islands, KY1-1102

557 Bouchard, Level 22, Ciudad de Buenos Aires, Capital federal, Argentina,

67 C1106ABG

68 1 Queen's Road Central, Hong Kong

3rd Floor, Merchantile Bank Chamber 16, Veer Nariman Road, Fort, Mumbai, India,

69 400001

70 Isidora Goyenechea 2800, 23rd floor, Las Condes, Santiago, Chile, 7550647


Registered offices		Registered offices
		118	Mareva House, 4 George Street, Nassau, Bahamas
71	HSBC Building Shanghai ifc, 8 Century Avenue, Pudong, Shanghai, China, 200120	119	70 York Street, Toronto, Ontario, Canada, M5H 1S9
72	6th floor, HSBC Centre, 18, Cybercity, Ebene, Mauritius	120	Breite Str. 29/31, Düsseldorf, Germany, 40213
73	2 Paveletskaya square, building 2, Moscow, Russian Federation, 115054	121	1 Grand Canal Square, Grand Canal Harbour, Dublin 2, D02 P820, Ireland
74	13F-14F, 333 Keelung Road, Sec.1, Taipei, 110	122	HSBC Centre Eighteen, Cybercity, Ebene, Mauritius
75	25 de Mayo 471, Montevideo, Uruguay, 11000	123	Office Block A, Bay Studios Business Park, Fabian Way, Swansea, United Kingdom, SA1 8QB
		123
76	The Metropolitan 235 Dong Khoi Street, District 1, Ho Chi Minh City, Viet Nam
77	Esentepe mah. Büyükdere Caddesi, No.128 Istanbul 34394, Turkey	124	18th Floor, Tower 1, HSBC Centre, 1 Sham Mong Road, Kowloon, Hong Kong
78	66 Teryan Street, Yerevan, Armenia, 0009
		125	Level 32, HSBC Main Building, 1 Queen's Road Central, Hong Kong SAR, Hong Kong
79	885 West Georgia Street, 3rd Floor, Vancouver, British Columbia, Canada, V6C 3E9		No.188, Yin Cheng Zhong Road China (Shanghai) Pilot Free Trade Zone, Shanghai,
80	306 Corniche El Nil, Maadi, Egypt, 11728	126	China
81	116 Archbishop Street, Valletta, Malta
	Level 1, Building No. 8, Gate Village Dubai International Financial Centre, PO Box	127	7/F HSBC Centre 3058 Fifth Ave West, Bonifacio Global City, Taguig City, Philippines
82	502601, United Arab Emirates	128	1 More London Place, London, United Kingdom, SE1 2AF
83	Tour Crystal 1 10EME Etage BD Al Mohades 20000, Morocco		HSBC Building Minet El Hosn, Riad el Solh, Beirut 1107-2080, PO Box 11-1380,
84	10 Earlsfort Terrace, Dublin, Ireland D02 T380	129	Lebanon
85	HSBC House Esplanade, St. Helier, Jersey, JE1 1HS		300 Delaware Avenue Suite 1400, Wilmington, Delaware, United States Of America,
85	HSBC House Esplanade, St. Helier, Jersey, JE1 1HS	130	19801
86	Al Khuwair Office, PO Box 1727 PC111 CPO Seeb, Muscat, Oman	130	19801
86	Al Khuwair Office, PO Box 1727 PC111 CPO Seeb, Muscat, Oman
87	Rondo ONZ 1, Warsaw, Poland, 00-124	131	Craigmuir Chambers, PO Box 71, Road Town, Tortola, British Virgin Islands
	1800 Tysons Corner, Boulevard Suite 50, Tysons Corner, Virginia, United States Of	132	Woodbourne Hall, Road Town PO Box 916, Tortola, British Virgin Islands
88	America, 22102		9-11 Floors, NESCO IT Park Building No. 3 Western Express Highway, Goregaon
	Rua Funchal, nº 160, SP Corporate Towers, Torre Norte, 19° andar, cj 191A - Parte,	133	(East), Mumbai, India, 400063
89	São Paulo, Brazil, 04551-060	134	3, Aboul Feda Street, Zamalek, Cairo, Egypt
90	66 Wellington Street West, Suite 5300, Toronto, Ontario, Canada, M5K 1E6	135	300 - 885 West Georgia Street, Vancouver, British Columbia, Canada, V6C 3E9
	Rahejas, 4th Floor, Corner of Main Avenue & V.P. Road, Santacruz (West), Mumbai -	136	16 Boulevard d'Avranches, Luxembourg, L-1160
91	400054	137	49/F, The Lee Gardens, 33 Hysan Avenue, Hong Kong
	90 North Church Street, Strathvale House - Ground Floor, PO Box 1109, George	138	21 Farncombe Rd, Worthing, Sussex, BN11 2BW
92	Town, Grand Cayman, Grand Cayman, Cayman Islands, KY1-1102		c/o Kross Border Trust Services Limited St. Louis Business Centre, Cnr Desroches & St
		139	Louis Streets, Port Louis, Mauritius
93	17F, HSBC Building, Shanghai ifc 8 Century Avenue, Pudong, Shanghai, China	140	13 - 15 York Buildings, London, United Kingdom, WC2N 6JU
94	c/o Rogers Capital, St. Louis Business Centre, Cnr Desroches & St Louis Streets, Port Louis, Mauritius	141	Plot No.312-878 Mezzanine Floor, Bldg. of Sheikh Hamdan Bin Rashid, Dubai Creek, Dubai, United Arab Emirates
95	49 avenue J.F. Kennedy, Luxembourg, Luxembourg, 1855		Precinct Building 4, Level 3 Dubai International Financial Centre, Dubai, United Arab
	4-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian He District,	142	Emirates, PO BOX 506553
96	Guangzhou, Guangdong, China		HSBC Bank Middle East Building - Level 5, building 5, Emaar, Dubai, United Arab
	Suite 1005, 10th Floor, Wisma Hamzah Kwong Hing No. 1, Leboh Ampang, Kuala	143	Emirates, 502601
97	Lumpur, Malaysia, 50100
	HSBC, Filinvest One Bldg, Northgate Cyberzone, Filinvest Corporate City, Alabang,	144	885 West Georgia Street Suite 300, Vancouver, British Columbia, Canada, V6C 3E9
98	Muntinlupa City, Philippines	145	HSBC House, Level 9, One Queen Street, Auckland, New Zealand, 1010
	HSBC House, Plot No.8, Survey No.64 (Part), Hightec City Layout Madhapur,	146	Büyükdere Cad. No.122 D Blok Esentepe Sisli Istanbul, Turkey
99	Hyderabad, India, 500081	146
99	Hyderabad, India, 500081	147	21-23 Yorckstraße, Düsseldorf, Nordrhein-Westfalen, Germany, 40476
		147
100	439, Sri Jayawardenapura Mawatha Welikada, Rajagiriya, Colombo, Sri Lanka		Unit No. 208, 2nd Floor, Kanchenjunga Building 18 Barakhamba Road, New Delhi -
100		148	110001, India
101	Smart Village 28th Km Cairo- Alexandria Desert Road Building, Cairo, Egypt	148	110001, India
			The Corporation Trust Incorporated, 2405 York Road, Suite 201, Lutherville
		149	Timonium, Maryland, United States Of America, 21093
102	HSBC Chambers, Corner of Jalan Sultan / Jalan Pemancha , Bandar Seri Begawan, Brunei Darussalam, BS8811	149	Timonium, Maryland, United States Of America, 21093
		150	HSBC House Esplanade, St. Helier, Jersey, JE1 1GT
		151	Quai des Bergues 9-17, Geneva, Switzerland, 1201
103	Suite 300, 3381 Steeles Avenue East, Toronto, Ontario, Canada, M2H 3S7	151	Quai des Bergues 9-17, Geneva, Switzerland, 1201
103		152	Paseo de la Reforma 359, 6th Floor, Mexico, 06500
	Centre Ville 1341 Building - 4th Floor Patriarche Howayek Street (facing Beirut	152	Paseo de la Reforma 359, 6th Floor, Mexico, 06500
104	Souks), PO Box Riad El Solh, Lebanon, 9597	153	Büyükdere Cad. No.128 D Blok Esentepe Sisli Istanbul, Turkey
		154	6th Floor, 65 Gresham Street, London, United Kingdom, EC2V 7NQ
	First Floor, Building No. 5, Emaar Square, P.O. Box 502601, Dubai, Dubai, United	154
		155	17, avenue d'Ostende, Monaco, 98000
105	Arab Emirates, 00000	155	17, avenue d'Ostende, Monaco, 98000
	World Trade Center Montevideo Avenida Luis Alberto de Herrera 1248, Torre 1, Piso	156	1441 Brickell Avenue, Miami, Florida, United States Of America, 33131
106	15, Oficina 1502, Montevideo, Uruguay, CP 11300	157	2910 Virtual Way, Vancouver, British Columbia, Canada, V5M 0B2
	c/o MUFG Fund Services (Bermuda) Limited, The Belvedere Building, 69 Pitts Bay		Block 27 A&B, Qianhai Enterprise Dream Park No. 63 Qianwan Yi Road, Shenzhen-
107	Road, Pembroke, Bermuda, HM08	158	Hong Kong Cooperation Zone, Shenzhen, China, 518052
		159	St Nicholas House, 10th Floor Catholic Mission St Lagos, Nigeria
108	Level 12, HSBC Building 37, Chilpae-ro, Jung-gu, Seoul, Korea, Republic Of (South)	160	Kacyiru BP 3094, Kigali, Rwanda
109	All Saints Triangle, Caledonian Road, London, United Kingdom, N19UT		Unit 1 GF The Commercial Complex, Madrigal Avenue, Ayala Alabang Village,
110	Immeuble Coeur Défense 110, Esplanade du Général de Gaulle- La défense 4, Courbevoie, France, 92400	161	Muntinlupa City, Philippines, 1770
110			7/F The Enterprise Centre - Tower I, 6766 Ayala Avenue corner Paseo De Roxas,
111	HSBC House Esplanade, St. Helier, Jersey, JE4 8WP	162	Makati City, Philippines
112	HSBC Building 11-1, Nihonbashi 3-chome, Chuo-ku, Tokyo, Japan, 103-0027	163	2 Exchange Square, 85 Maude Street, Sandown, Sandton, South Africa, 2196
113	80 Mill Street, Qormi, Malta, QRM 3101	164	13F 333 Keelung Road, Sec.1, Taipei, Taiwan, 110
114	Herrengasse 1-3, Wien, Austria, 1010	165	Palm Grove House PO Box 438, Road Town, Tortola, British Virgin Islands
115	Gartenstrasse 26, Zurich, Switzerland		R No. 1758/13 Grevella Grove Road, Kalamu House PO Box 47323-00100, Nairobi,
115	Gartenstrasse 26, Zurich, Switzerland	166	Kenya
116	24th Fl., 97-99, Sec.2, Tunhwa S. Rd., Taipei, Taiwan, R.O.C., Taiwan	166	Kenya
117	452 Fifth Avenue, New York NY10018, United States Of America	167	Kapelanka 42A, Krakow, Poland, 30-347

HSBC Holdings plc Annual Report and Accounts 2018 308

Notes on the financial statements

309 HSBC Holdings plc Annual Report and Accounts 2018

HSBC Holdings plc Annual Report and Accounts 2018 310

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