Half-year Report - Part 3 of 3

RNS Number : 2729H

HSBC Holdings PLC

02 August 2021

Treasury risk

	Page
Overview	91
Treasury risk management	91
Capital risk in the first half of 2021	93
Liquidity and funding risk in the first half of 2021	96
Sources of funding	98
Interest rate risk in the banking book in the first half of 2021	98

Overview

Treasury risk is the risk of having insufficient capital, liquidity or funding resources to meet financial obligations and satisfy regulatory requirements, together with the financial risks arising from the provision of pensions and other post-employment benefits to staff and their dependants. Treasury risk also includes the risk to our earnings or capital due to non-trading book foreign exchange exposures and changes in market interest rates.

Treasury risk arises from changes to the respective resources and risk profiles driven by customer behaviour, management decisions or the external environment.

Approach and policy

Our objective in the management of treasury risk is to maintain appropriate levels of capital, liquidity, funding, foreign exchange and market risk to support our business strategy, and meet our regulatory and stress testing-related requirements.

Our approach to treasury management is driven by our strategic and organisational requirements, taking into account the regulatory, economic and commercial environment. We aim to maintain a strong capital and liquidity base to support the risks inherent in our business and invest in accordance with our strategy, meeting both consolidated and local regulatory requirements at all times.

Our policy is underpinned by our risk management framework, our internal capital adequacy assessment process ('ICAAP') and our internal liquidity adequacy assessment process ('ILAAP'). The risk framework incorporates a number of measures aligned to our assessment of risks for both internal and regulatory purposes. These risks include credit, market, operational, pensions, non-trading book foreign exchange risk and interest rate risk in the banking book.

A summary of our current policies and practices regarding the management of treasury risk is set out on pages 169 to 173 of the Annual Report and Accounts 2020.

Treasury risk management

Key developments in the first half of 2021

• We continued to develop the Treasury Risk Management function, which was established in 2020. This function is a dedicated second line of defence, providing independent oversight of treasury activities across capital risk, liquidity and funding risk, non-trading book foreign exchange risk (including structural and other banking book foreign exchange risk), and interest rate risk in the banking book, together with pension risk.

• We announced the next phase of our strategic plan on 23 February 2021. We intend to maintain a common equity tier 1 ('CET1') ratio above 14%, managing in the range of 14% to 14.5% in the medium term. Our dividend policy aims to deliver sustainable cash dividends, while retaining the flexibility to invest and grow the business in the future, supplemented by additional shareholder distributions, if appropriate. Reflecting the current improved economic outlook and operating environment in many of our markets, we now expect to move to within our target dividend payout ratio range of 40% to 55% of reported earnings per ordinary share ('EPS') in 2021. In line with our dividend policy, we will retain the flexibility to adjust EPS for non-cash significant items.

• We continued to build our recovery and resolution capabilities in line with the Group's resolution strategy to meet requirements from the Bank of England ('BoE') under its Resolvability Assessment Framework ahead of 1 January 2022. We met our compliance deadline of 31 March 2021 for valuation in resolution requirements, and continue to enhance our capabilities in preparation for the submission of a resolvability self-assessment report to the BoE in October 2021.

• The BoE's Financial Policy Committee reconfirmed its guidance on the path for the UK countercyclical capital buffer rate. It expects to maintain the rate at 0% until at least December 2021 and, due to the usual 12‐month implementation lag, any subsequent increase would therefore not be expected to take effect until the end of 2022 at the earliest. The Hong Kong Monetary Authority ('HKMA') has maintained the countercyclical capital buffer rate at 1% for Hong Kong, but it will continue to monitor credit and economic conditions closely. The countercyclical capital buffer rate will be reviewed on a quarterly basis or more frequently.

• The Group's CET1 ratio was 15.6% and the leverage ratio, calculated in accordance with the Capital Requirements Regulation, was 5.3% at 30 June 2021. All of the Group's material operating entities were above capital risk appetite levels. The Group continues to maintain and plan for the appropriate resources required to manage its risks and deliver its strategic objectives, including the potential sale of the retail banking business in France, while supporting local economies.

• All of the Group's material operating entities were above regulatory minimum levels of liquidity and funding at 30 June 2021. The Group and all entities had significant surplus liquidity, and maintained heightened liquidity coverage ratios throughout the first half of 2021.

• We revised the approach to calculate the Group liquidity coverage ratio ('LCR'). The new methodology better reflects free transferability of liquidity from third countries (comprising countries other than the UK and those in the EEA) in consideration with currency convertibility and regulatory intra-Group limits. Based on the consolidation methodology, the Group LCR was 134% at 30 June 2021. A risk appetite has been set against the Group LCR.

• Central bank interest rates remain at historically low levels, although a vaccine-led economic recovery and rising inflation indicators have contributed to an increase in interest rate yields and a steepening of yield curves in our major markets in the first half of 2021. Against a backdrop of high and rising asset valuations, monetary policies have generally remained accommodative, but rising inflation is posing a policy dilemma for some central banks. We continued to monitor our risk profile closely in the context of a possible tightening in monetary policy.

• We maintained a significant focus on the switchover from Ibor index curves to RFRs for in-scope currencies. Despite considerable complexity, we are on track to complete changes to our funds transfer pricing, external issuance and hedging by the end of the year across the Group.

For quantitative disclosures on capital ratios, own funds and RWAs, see pages 87 to 88. For quantitative disclosures on liquidity and funding metrics, see pages 90 to 92. For quantitative disclosures on interest rate risk in the banking book, see pages 92 to 93.

Capital, liquidity and funding risk management processes

Assessment and risk appetite

Our capital management policy is underpinned by a global capital management framework and our ICAAP. The framework incorporates key capital risk appetites for CET1, total capital, minimum requirements for own funds and eligible liabilities ('MREL'), and double leverage. The ICAAP is an assessment of the Group's capital position, outlining both regulatory and internal capital resources and requirements resulting from HSBC's business model, strategy, risk profile and management, performance and planning, risks to capital, and the implications of stress testing. Our assessment of capital adequacy is driven by an assessment of risks. These risks include credit, market, operational, pensions, insurance, structural foreign exchange and interest rate risk in the banking book. Climate risk is also considered as part of the ICAAP, and we are continuing to develop our approach. The Group's ICAAP supports the determination of the consolidated capital risk appetite and target ratios, as well as enables the assessment and determination of capital requirements by regulators. Subsidiaries prepare ICAAPs in line with global guidance while considering their local regulatory regimes to determine their own risk appetites and ratios.

HSBC Holdings is the provider of equity capital and MREL-eligible debt to its subsidiaries and also provides them with non-equity capital where necessary. These investments are funded by HSBC Holdings' own equity capital and MREL-eligible debt.

HSBC Holdings seeks to maintain a prudent balance between the composition of its capital and its investments in subsidiaries, including management of double leverage. Double leverage reflects the extent to which equity investments in operating entities are funded by holding company debt. Where Group capital requirements are less than the aggregate of operating entity capital requirements, double leverage can be used to improve Group capital efficiency provided it is managed appropriately and prudently in accordance with risk appetite. Double leverage is a constraint on managing our capital position, given the complexity of the Group's subsidiary structure and the multiple regulatory regimes under which we operate. As a matter of long-standing policy, the holding company retains a substantial portfolio of high-quality liquid assets ('HQLA'), which at 30 June 2021 was in excess of $13bn. The portfolio of HQLA helps to mitigate holding company cash flow risk, and underpins the strength of support the holding company can offer its subsidiaries in times of stress. Further mitigation is provided by additional tier 1 ('AT1') securities issued in excess of the regulatory requirements of our subsidiaries.

We aim to ensure that management at Group and entity level have oversight of our liquidity and funding risks by maintaining comprehensive policies, metrics and controls. We manage liquidity and funding risk at an operating entity level to make sure that obligations can be met in the jurisdiction where they fall due, generally without reliance on other parts of the Group. Operating entities are required to meet internal minimum requirements and any applicable regulatory requirements at all times. These requirements are assessed through the ILAAP, which ensures that operating entities have robust strategies, policies, processes and systems for the identification, measurement, management and monitoring of liquidity risk over an appropriate set of time horizons, including intra-day. The ILAAP informs the validation of risk tolerance and the setting of risk appetite. It also assesses the capability to manage liquidity and funding effectively in each major entity. These metrics are set and managed locally but are subject to robust global review and challenge to ensure consistency of approach and application of the Group's policies and controls.

Planning and performance

Capital and risk-weighted asset ('RWA') plans form part of the annual operating plan that is approved by the Board. Capital and RWA forecasts are submitted to the Group Executive Committee on a monthly basis, and capital and RWAs are monitored and managed against the plan. The responsibility for global capital allocation principles rests with the Group Chief Financial Officer supported by the Group Capital Management Meeting. This is a specialist forum addressing capital management, reporting into the HSBC Holdings Asset and Liability Management Committee ('Holdings ALCO').

Through our internal governance processes, we seek to strengthen discipline over our investment and capital allocation decisions, and to ensure that returns on investment meet management's objectives. Our strategy is to allocate capital to businesses and entities to support growth objectives where returns above internal hurdle levels have been identified and in order to meet their regulatory and economic capital needs. We evaluate and manage business returns by using a return on average tangible equity measure.

Funding and liquidity plans form part of the annual operating plan that is approved by the Board. The Board-level appetite measures are the LCR and net stable funding ratio ('NSFR'). An internal liquidity metric ('ILM') was introduced in January 2021 to supplement the LCR and NSFR metrics. In addition, we use a wider set of measures to manage an appropriate funding and liquidity profile, including legal entity depositor concentration limits, intra-day liquidity, forward-looking funding assessments and other key measures.

Risks to capital and liquidity

Outside the stress testing framework, other risks may be identified that have the potential to affect our RWAs and/or capital position. Downside and Upside scenarios are assessed against our capital management objectives and mitigating actions are assigned as necessary. We closely monitor future regulatory changes and continue to evaluate the impact of these upon our capital requirements. These include the UK's implementation of amendments to the Capital Requirements Regulation, the Basel III Reforms, and the regulatory impact from the UK's withdrawal from the EU, as well as other regulatory statements including changes to IRB modelling requirements.

Regulatory developments

The Prudential Regulation Authority ('PRA') has confirmed that software assets will need to be deducted in full from CET1 capital from 1 January 2022. This will reverse the beneficial changes to the treatment of software assets that were implemented as part of the EU's response to the Covid-19 pandemic. This change was anticipated and is expected to reduce capital resources and RWAs by $2.6bn.

In parallel with regulatory developments in the EU, the PRA is reviewing the requirements for the capitalisation of structural foreign exchange risk to align to a Pillar 1 approach. There remains a significant degree of uncertainty in the impact of the regulatory changes due to the number of national discretions and the need for further supporting technical standards to be developed. Furthermore, the impact does not take into consideration the possibility of offsets against Pillar 2, which may arise as shortcomings within Pillar 1 are addressed.

Overall we expect RWAs to increase by up to 5% as a result of these developments during 2022 and 2023.

Further impacts will occur with the introduction of a modelled RWA output floor under the Basel III reforms that will commence in 2023 with a five-year transitional provision. We estimate that there will be an additional RWA impact as a result of the output floor with effect from 2027.

Potential disposal of retail banking business in France

In relation to the potential sale of our retail banking business in France, we expect a reduction in the Group's CET1 ratio in the range of 15bps to 20bps, driven by the estimated loss on sale partly offset by the reduction in RWAs upon the estimated completion in 2023.

Regulatory reporting processes and controls

There is an ongoing focus on the quality of regulatory reporting by the PRA and other regulators globally. We continue to strengthen our processes and controls, following the commissioning of independent external reviews of various aspects of regulatory reporting, including at the request of our regulators. As part of the strengthening of our control environment, we are improving global consistency and control standards across a number of our processes. There may be an impact on some of our regulatory ratios such as the CET1 and LCR as a result. We are keeping the PRA and other relevant regulators informed of adverse findings from external and internal reviews.

Stress testing and recovery and resolution planning

The Group uses stress testing to evaluate the robustness of plans and risk portfolios, and to meet the requirements for stress testing set by supervisors. Stress testing also informs the ICAAP and ILAAP and supports recovery planning in many jurisdictions. It is an important output used to evaluate how much capital and liquidity the Group requires in setting risk appetite for capital and liquidity risk. It is also used to re-evaluate business plans where analysis shows capital, liquidity and/or returns do not meet their target.

In addition to a range of internal stress tests, we are subject to supervisory stress testing in many jurisdictions. These include the programmes of the Bank of England, the US Federal Reserve Board, the European Banking Authority, the European Central Bank and the Hong Kong Monetary Authority, as well as stress tests undertaken in other jurisdictions. The results of regulatory stress testing and our internal stress tests are used when assessing our internal capital requirements through the ICAAP. The outcomes of stress testing exercises carried out by the PRA and other regulators feed into the setting of regulatory minimum ratios and buffers.

The Group and subsidiaries have established recovery plans, which set out potential options management could take in a range of stress scenarios that could result in a breach of our internal capital buffers. This is to help ensure that our capital and liquidity position can be recovered even in an extreme stress event. All entities monitor internal and external triggers that could threaten their capital, liquidity or funding positions. Entities have established recovery plans providing detailed actions that management would consider taking in a stress scenario should their positions deteriorate and threaten to breach risk appetite and regulatory minimum levels.

Recovery and resolution plans form part of the integral framework safeguarding the Group's financial stability. The Group is committed to developing its recovery and resolution capabilities further in line with the BoE's Resolvability Assessment Framework requirements.

Measurement of interest rate risk in the banking book processes

Assessment and risk appetite

Interest rate risk in the banking book is the risk of an adverse impact to earnings or capital due to changes in market interest rates. It is generated by our non-traded assets and liabilities, specifically loans, deposits and financial instruments that are not held for trading intent or held in order to hedge positions held with trading intent. Interest rate risk that can be economically hedged may be transferred to the Markets Treasury business. Hedging is generally executed through interest rate derivatives or fixed-rate government bonds. Any interest rate risk that Markets Treasury cannot economically hedge is not transferred and will remain within the global business where the risks originate.

The Asset, Liability and Capital Management ('ALCM') function uses a number of measures to monitor and control interest rate risk in the banking book, including:

• net interest income sensitivity;

• economic value of equity sensitivity; and

• hold-to-collect-and-sell stressed value at risk.

Net interest income sensitivity

A principal part of our management of non-traded interest rate risk is to monitor the sensitivity of expected net interest income ('NII') under varying interest rate scenarios (i.e. simulation modelling), where all other economic variables are held constant. This monitoring is undertaken at an entity level by local ALCOs, where entities forecast both one-year and five-year NII sensitivities across a range of interest rate scenarios.

Projected NII sensitivity figures represent the effect of pro forma movements in projected yield curves based on a static balance sheet size and structure. The exception to this is where the size of the balances or repricing is deemed interest rate sensitive, for example, non-interest-bearing current account migration and fixed-rate loan early prepayment. These sensitivity calculations do not incorporate actions that would be taken by Markets Treasury or in the business that originates the risk to mitigate the effect of interest rate movements.

The NII sensitivity calculations assume that interest rates of all maturities move by the same amount in the 'up-shock' scenario. The sensitivity calculations in the 'down-shock' scenarios reflect no floors to the shocked market rates. However, customer product-specific interest rate floors are recognised where applicable.

Economic value of equity sensitivity

Economic value of equity ('EVE') represents the present value of the future banking book cash flows that could be distributed to equity providers under a managed run-off scenario. This equates to the current book value of equity plus the present value of future NII in this scenario. EVE can be used to assess the economic capital required to support interest rate risk in the banking book. An EVE sensitivity represents the expected movement in EVE due to pre-specified interest rate shocks, where all other economic variables are held constant. Operating entities are required to monitor EVE sensitivities as a percentage of capital resources.

Hold-to-collect-and-sell stressed value at risk

Hold-to-collect-and-sell stressed value at risk ('VaR') is a quantification of the potential losses to a 99% confidence level of the portfolio of securities held under a held-to-collect-and-sell business model in the Markets Treasury business. The portfolio is accounted for at fair value through other comprehensive income together with the derivatives held in designated hedging relationships with these securities. This is quantified based on the worst losses over a one-year period going back to the beginning of 2007 with an assumed holding period of 60 days.

Hold-to-collect-and-sell stressed VaR uses the same models as those used for trading book capitalisation and covers only the portfolio managed by Markets Treasury under this business model.

Capital risk in the first half of 2021

Capital overview

Capital adequacy metrics
	At
	30 Jun	31 Dec
	2021	2020
Risk-weighted assets ('RWAs') ($bn)
Credit risk	702.9	691.9
Counterparty credit risk	39.3	42.8
Market risk	25.5	28.5
Operational risk	94.6	94.3
Total RWAs	862.3	857.5
Capital on a transitional basis ($bn)
Common equity tier 1 capital	134.6	136.1
Tier 1 capital	158.3	160.2
Total capital	181.1	184.4
Capital ratios on a transitional basis (%)
Common equity tier 1 ratio	15.6	15.9
Tier 1 ratio	18.4	18.7
Total capital ratio	21.0	21.5
Capital on an end point basis ($bn)
Common equity tier 1 capital	134.6	136.1
Tier 1 capital	157.0	158.5
Total capital	170.7	173.2
Capital ratios on an end point basis (%)
Common equity tier 1 ratio	15.6	15.9
Tier 1 ratio	18.2	18.5
Total capital ratio	19.8	20.2
Liquidity coverage ratio ('LCR')
Total high-quality liquid assets ($bn)	659.3	677.9
Total net cash outflow ($bn)	493.7	487.3
LCR ratio (%)	133.5	139.1

Following the end of the transition period following the UK's withdrawal from the EU, any reference to EU regulations and directives (including technical standards) should be read as a reference to the version onshored into UK law under the European Union (Withdrawal) Act 2018, as amended. Capital figures and ratios in the table above are calculated in accordance with the revisions to the Capital Requirements Regulation and Directive, as implemented ('CRR II'). The table presents them under the transitional arrangements in CRR II for capital instruments and after their expiry, known as the end point. The end point figures in the table above include the benefit of the regulatory transitional arrangements in CRR II for IFRS 9, which are more fully described below.

Where applicable, they also reflect government relief schemes intended to mitigate the impact of the Covid-19 outbreak.

Regulatory transitional arrangements for IFRS 9 'Financial Instruments'

We have adopted the regulatory transitional arrangements in CRR II for IFRS 9, including paragraph four of article 473a. Our capital and ratios are presented under these arrangements throughout the table above, including in the end point figures. Without their application, our CET1 ratio would be 15.5%.

The IFRS 9 regulatory transitional arrangements allow banks to add back to their capital base a proportion of the impact that

IFRS 9 has upon their loan loss allowances during the first five years of use. The impact is defined as:

• the increase in loan loss allowances on day one of IFRS 9 adoption; and

• any subsequent increase in ECL in the non-credit-impaired book thereafter.

Any add-back must be tax affected and accompanied by a recalculation of deferred tax, exposure and RWAs. The impact is calculated separately for portfolios using the standardised ('STD') and internal ratings-based ('IRB') approaches. For IRB portfolios, there is no add-back to capital unless loan loss allowances exceed regulatory 12-month expected losses.

The EU's CRR 'Quick Fix' relief package enacted in June 2020 increased from 70% to 100% the relief that banks may take for loan loss allowances recognised since 1 January 2020 on the
non-credit-impaired book.

In the current period, the add-back to CET1 capital amounted to $1.0bn under the STD approach with a tax impact of $0.2bn. At 31 December 2020, the add-back to the capital base under the STD approach was $1.6bn with a tax impact of $0.4bn.

Own funds

Own funds disclosure
		At
		30 Jun	31 Dec
		2021	2020
Ref^*		$m	$m
6	Common equity tier 1 capital before regulatory adjustments¹	163,705	163,128
28	Total regulatory adjustments to common equity tier 1¹	(29,099)	(27,078)
29	Common equity tier 1 capital	134,606	136,050
36	Additional tier 1 capital before regulatory adjustments	23,789	24,183
43	Total regulatory adjustments to additional tier 1 capital	(60)	(60)
44	Additional tier 1 capital	23,729	24,123
45	Tier 1 capital	158,335	160,173
51	Tier 2 capital before regulatory adjustments	24,238	25,722
57	Total regulatory adjustments to tier 2 capital	(1,451)	(1,472)
58	Tier 2 capital	22,787	24,250
59	Total capital	181,122	184,423
60	Total risk-weighted assets	862,292	857,520
	Capital ratios	%	%
61	Common equity tier 1 ratio	15.6	15.9
62	Tier 1 ratio	18.4	18.7
63	Total capital ratio	21.0	21.5

* The references identify the lines prescribed in the EBA template.

1 The figures for 31 December 2020 have been restated to reflect the reclassification of the IFRS 9 transitional adjustment from retained earnings (within row 6) to 'Total regulatory adjustments to common equity tier 1' (row 28).

At 30 June 2021, our common equity tier 1 ('CET1') capital ratio decreased to 15.6% from 15.9% at 31 December 2020, reflecting an increase in RWAs and a decrease in CET1 capital of $1.5bn including the impact of foreseeable dividends of $3.5bn. The decrease in CET1 capital was mainly a result of:

• a $1.4bn decrease in the fair value through other comprehensive income reserve;

• a $1.3bn higher threshold deduction for investment in financial sector entities;

• a $1.2bn decline in IFRS 9 transitional add-back; and

•
$0.6bn unfavourable foreign currency translation differences.

These decreases were partly offset by:

• $2.8bn capital generation through profits, net of foreseeable dividend and dividend paid on other equity instruments.

At 30 June 2021, our Pillar 2A requirement, in accordance with the PRA's Individual Capital Requirement based on a point-in-time assessment, was equivalent to 2.9% of RWAs, of which 1.7% was met by CET1 capital.

Throughout the first half of 2021, we complied with the PRA's regulatory capital adequacy requirements.

Risk-

weighted assets

RWAs by global business
	WPB	CMB	GBM	Corporate Centre	Total
	$bn	$bn	$bn	$bn	$bn
Credit risk	148.3	303.5	166.3	84.8	702.9
Counterparty credit risk	0.9	0.6	36.6	1.2	39.3
Market risk	1.3	0.6	20.3	3.3	25.5
Operational risk	34.5	27.4	32.0	0.7	94.6
At 30 Jun 2021	185.0	332.1	255.2	90.0	862.3
At 31 Dec 2020	172.8	327.7	265.1	91.9	857.5

RWAs by geographical region
	Europe	Asia	MENA	North America	Latin America	Total
	$bn	$bn	$bn	$bn	$bn	$bn
Credit risk	206.0	326.3	49.9	94.0	26.7	702.9
Counterparty credit risk	20.6	10.7	1.3	4.8	1.9	39.3
Market risk¹	17.1	24.7	2.1	4.6	1.2	25.5
Operational risk	26.1	45.4	6.2	11.8	5.1	94.6
At 30 Jun 2021	269.8	407.1	59.5	115.2	34.9	862.3
At 31 Dec 2020	284.3	384.2	60.2	117.8	35.2	857.5

1 Market risk RWAs are non-additive across geographical regions due to diversification effects within the Group.

RWA movement by global businesses by key driver
	Credit risk, counterparty credit risk and operational risk
	WPB	CMB	GBM	Corporate Centre	Market risk	Total RWAs
	$bn	$bn	$bn	$bn	$bn	$bn
RWAs at 1 Jan 2021	171.2	326.8	242.2	88.8	28.5	857.5
Asset size	10.3	6.7	(5.7)	3.3	(1.7)	12.9
Asset quality	(1.8)	(3.0)	4.9	(0.6)	-	(0.5)

Model updates	1.9	(0.3)	(0.1)	-	(1.2)	0.3
Methodology and policy	2.6	2.0	(5.2)	(4.5)	(0.1)	(5.2)
Foreign exchange movements	(0.5)	(0.7)	(1.2)	(0.3)	-	(2.7)
Total RWA movement	12.5	4.7	(7.3)	(2.1)	(3.0)	4.8
RWAs at 30 Jun 2021	183.7	331.5	234.9	86.7	25.5	862.3

RWA movement by geographical region by key driver
	Credit risk, counterparty credit risk and operational risk
	Europe	Asia	MENA	North America	Latin America	Market risk	Total RWAs
	$bn	$bn	$bn	$bn	$bn	$bn	$bn
RWAs at 1 Jan 2021	260.8	363.3	57.8	113.1	34.0	28.5	857.5
Asset size	(11.7)	24.9	0.8	-	0.6	(1.7)	12.9
Asset quality	5.7	(1.7)	(0.4)	(3.9)	(0.2)	-	(0.5)
Model updates	-	1.7	(0.1)	(0.1)	-	(1.2)	0.3
Methodology and policy	(2.2)	(3.6)	-	0.7	-	(0.1)	(5.2)
Foreign exchange movements	0.1	(2.2)	(0.7)	0.8	(0.7)	-	(2.7)
Total RWA movement	(8.1)	19.1	(0.4)	(2.5)	(0.3)	(3.0)	4.8
RWAs at 30 Jun 2021	252.7	382.4	57.4	110.6	33.7	25.5	862.3

At 30 June 2021, our cumulative risk-weighted asset ('RWA') saves as part of our reduction programme were $84.5bn. This included accelerated reductions of $9.6bn in 4Q19. As explained on page 12, we have increased our RWA reduction target to $110bn by 2022, reflecting methodology changes around the tracking and reporting of reductions.

RWAs rose by $4.8bn during the first half of the year, including a decrease of $2.7bn due to foreign currency translation differences. The $7.5bn increase (excluding foreign currency translation differences) comprised the movements described by the following comments.

Asset size

The $12.9bn increase in RWAs due to asset size movements comprised growth in WPB, CMB and Corporate Centre, partly offset by reductions in GBM and market risk RWAs.

The $10.3bn increase in WPB RWAs was mostly in Asia, primarily due to short-term lending and mortgage growth in Hong Kong. CMB RWAs grew by $6.7bn, predominantly due to corporate loan growth in mainland China, Hong Kong and India, partly offset by lower lending in Europe.

The $3.3bn rise in Corporate Centre RWAs was across all major regions, and included increases in sovereign exposures, short-term exposures to other banks, Markets Treasury debt securities and loans, and the value of material holdings.

The $5.7bn fall in GBM RWAs included a $3.6bn reduction in counterparty credit risk RWAs, largely due to management actions in Europe and North America, and mark-to-market movements. A further $2.1bn decrease in credit risk RWAs was driven by management actions in Europe, Latin America, North America and

Asia, partly offset by lending growth in Asia.

Market risk RWAs decreased by $1.7bn, largely due to the effects of risk mitigation on the emerging markets bond portfolio and a fall in foreign exchange risk, partly offset by an increase in stressed value at risk.

Asset quality

Changes in asset quality led to an RWA decrease of $0.5bn. The reduction in CMB, WPB and Corporate Centre RWAs was mostly the result of favourable portfolio mix changes in Asia, North America and Europe, partly offset by credit migration in Asia. The $4.9bn rise in GBM RWAs was primarily due to portfolio changes in the UK and credit migration in Asia and Europe.

Model updates

The $0.3bn increase due to model updates included a $1.9bn rise in WPB, mostly as a result of an update to our Australian mortgages model. This was partly offset by a $1.2bn reduction in Market Risk, largely from the implementation of an options risk model, and RWA decreases in CMB and GBM, predominantly due to corporate model updates.

Methodology and policy

The $5.2bn decrease in RWAs from methodology and policy changes was primarily due to risk parameter refinements in GBM and CMB, mainly in Europe and Asia. These movements were partly offset in CMB by a $1.0bn increase relating to updates to the treatment of SMEs, and a $0.7bn increase following an enhancement in the calculation of operational risk RWAs.

Changes to real estate, Markets Treasury and other allocation methodologies were the main cause of the $2.6bn increase in WPB RWAs, with offsets across Corporate Centre, CMB and GBM.

Leverage ratio¹

		At
		30 Jun	31 Dec
		2021	2020
Ref*		$bn	$bn
20	Tier 1 capital	157.0	158.5
21	Total leverage ratio exposure	2,968.5	2,897.1
		%	%
22	Leverage ratio	5.3	5.5
EU-23	Choice of transitional arrangements for the definition of the capital measure	Fully phased-in	Fully phased-in
	UK leverage ratio exposure - quarterly average²	2,535.1	2,555.5
		%	%
	UK leverage ratio - quarterly average²	6.3	6.1
	UK leverage ratio - quarter end²	6.2	6.2

* The references identify the lines prescribed in the EBA template.

1 The CRR II regulatory transitional arrangements for IFRS 9 are applied in both leverage ratio calculations.

2 UK leverage ratio denotes the Group's leverage ratio calculated under the PRA's UK leverage framework. This measure excludes from the calculation of exposure qualifying central bank balances and loans under the UK Bounce Back Loan Scheme.

Our leverage ratio calculated in accordance with the Capital Requirements Regulation was 5.3% at 30 June 2021, down from 5.5% at 31 December 2020, due to a decrease in tier 1 capital and an increase in leverage exposure, primarily due to growth in cash and balances at central banks, customer lending and trading assets, offset by a decrease in financial investments.

At 30 June 2021, our UK minimum leverage ratio requirement of 3.25% was supplemented by an additional leverage ratio buffer of 0.7% and a countercyclical leverage ratio buffer of 0.1%. These additional buffers translated into capital values of $17.7bn and $2.5bn respectively. We exceeded these leverage requirements.

Regulatory disclosures

Pillar 3 disclosure requirements

Pillar 3 of the Basel regulatory framework is related to market discipline and aims to make financial services firms more transparent by requiring publication of wide-ranging information on their risks, capital and management. Our Pillar 3 Disclosures at 30 June 2021 is expected to be published on or around 9 August 2021 at www.hsbc.com/investors.

Liquidity and funding risk in the first half of 2021

Liquidity metrics

At 30 June 2021, all of the Group's material operating entities were above regulatory minimum levels.

Each entity maintains sufficient unencumbered liquid assets to comply with local and regulatory requirements. The liquidity value of these liquidity assets for each entity is shown in the following table along with the individual LCR levels on a European Commission ('EC') basis. This basis may differ from local LCR measures due to differences in the way non-EU regulators have implemented the Basel III standards.

Each entity maintains a sufficient stable funding profile and it is assessed by using the net stable funding ratio ('NSFR') or other appropriate metrics.

In addition to regulatory metrics, HSBC enhanced its liquidity framework in 2021 to include an 'internal liquidity metric', which is being used to monitor and manage liquidity risk via a low-point measure across a 270-day horizon, taking into account recovery capacity.

The Group liquidity and funding position at 30 June 2021 is analysed in the following sections.

Operating entities' liquidity
	At 30 June 2021
	LCR	HQLA	Net outflows	NSFR
	%	$bn	$bn	%
HSBC UK Bank plc (ring-fenced bank)¹	223	145	65	177
HSBC Bank plc (non-ring-fenced bank)²	145	141	97	116
The Hongkong and Shanghai Banking Corporation - Hong Kong branch³	172	120	70	134
The Hongkong and Shanghai Banking Corporation - Singapore branch³	212	14	6	137
Hang Seng Bank	187	41	22	143
HSBC Bank China	198	24	12	149
HSBC Bank USA	126	104	83	145
HSBC Continental Europe⁴	146	58	40	133
HSBC Middle East - UAE branch	215	11	5	158
HSBC Canada⁴	129	22	17	125
HSBC Mexico	186	9	5	135

Operating entities' liquidity (continued)
	At 31 December 2020
	LCR	HQLA	Net outflows	NSFR
	%	$m	$m	%
HSBC UK Bank plc (ring-fenced bank)¹	198	121	61	164
HSBC Bank plc (non-ring-fenced bank)²	136	138	102	124
The Hongkong and Shanghai Banking Corporation - Hong Kong branch³	195	146	75	146
The Hongkong and Shanghai Banking Corporation - Singapore branch³	162	16	10	135
Hang Seng Bank	212	50	24	151
HSBC Bank China	232	24	10	158
HSBC Bank USA	130	106	82	130
HSBC Continental Europe⁴	143	48	34	130
HSBC Middle East - UAE branch	280	11	4	164
HSBC Canada⁴	165	30	18	136
HSBC Mexico	198	10	5	139

1 HSBC UK Bank plc refers to the HSBC UK liquidity group, which comprises four legal entities: HSBC UK Bank plc, Marks and Spencer Financial Services plc, HSBC Private Bank (UK) Ltd and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the application of UK liquidity regulation as agreed with the PRA.

2 HSBC Bank plc includes overseas branches and special purpose entities consolidated by HSBC for financial statements purposes.

3 The Hongkong and Shanghai Banking Corporation - Hong Kong branch and The Hongkong and Shanghai Banking Corporation - Singapore branch represent the material activities of The Hongkong and Shanghai Banking Corporation. Each branch is monitored and controlled for liquidity and funding risk purposes as a stand-alone operating entity.

4 HSBC Continental Europe and HSBC Canada represent the consolidated banking operations of the Group in France and Canada, respectively. HSBC Continental Europe and HSBC Canada are each managed as single distinct operating entities for liquidity purposes.

At 30 June 2021, all of the Group's principal operating entities were well above regulatory minimum levels.

The most significant movements in 2021 are explained below:

• HSBC UK Bank plc retained a strong liquidity position, reflecting growth in its commercial surplus primarily due to higher deposits.

• HSBC Bank plc's liquidity ratio increased to 145%, mainly due to growth in customer deposits and a decline in loans.

• The Hongkong and Shanghai Banking Corporation - Hong Kong branch liquidity position remained strong, although its liquidity ratio decreased to 172%, mainly due to a growth in loans.

• Hang Seng Bank's liquidity ratio decreased to 187%, mainly due to growth in loans.

• The Hongkong and Shanghai Banking Corporation - Singapore branch increased its liquidity ratio to 212%, mainly due to a change in the maturity profile of the loans.

• HSBC Bank China's liquidity ratio decreased to 198%, mainly due to growth in loans.

• HSBC Bank USA maintained a strong liquidity ratio of 126%.

• HSBC Continental Europe maintained a strong liquidity position, reflecting growth in deposits.

• HSBC Bank Middle East - UAE Branch retained a strong liquidity position, with a liquidity ratio of 215%.

• HSBC Canada's liquidity ratio decreased to 129%, mainly driven by the maturity of the funding raised last year during the pandemic and growth in loans.

Consolidated liquidity metrics

Liquidity coverage ratio

At 30 June 2021, the total HQLA held at entity level amounted to $844bn (31 December 2020: $857bn), a decrease of $13bn. During the first half of 2021, HSBC implemented a revised approach to the application of the requirements under the EC Delegated Act. This approach was used to assess the limitations in the fungibility of entity liquidity around the Group and resulted in an adjustment of $185bn to LCR HQLA and $4bn to LCR inflows. This reflected an increase in the adjustment of $42bn compared with the approach used for the disclosure in the Annual Report and Accounts 2020. The change in methodology was designed to better incorporate local regulatory restrictions on the transferability of liquidity.

As a consequence, the Group LCR was 134% at 30 June 2021 (31 December 2020:139%). The $185bn of HQLA and $4bn of inflows remains available to cover liquidity risk in relevant entities.

	At
	30 Jun		30 Jun		31 Dec
	2021		2020¹		2020¹
	$bn		$bn		$bn
High-quality liquid assets (in entities)	844		784		857
EC Delegated Act adjustment	(189)		(130)		(179)
Group LCR HQLA	659		654		678
Net outflows	494		443		487
Liquidity coverage ratio	134	%	148	%	139	%

1 Group LCR numbers above for 30 June 2020 and 31 December 2020 are based on the approach used before the methodology was revised.

Liquid assets

After the $185bn adjustment, the Group LCR HQLA of $659bn (31 December 2020: $678bn) was held in a range of asset classes and currencies. Of these, 94% were eligible as level 1 (31 December 2020: 90%).

The following tables reflect the composition of the liquidity pool by asset type and currency at 30 June 2021:

Liquidity pool by asset type
	Liquidity pool	Cash	Level 1¹	Level 2¹
	$bn	$bn	$bn	$bn
Cash and balance at central bank	377	377	-	-
Central and local government bonds	250	-	220	30
Regional government and public sector entities	4	-	3	1
International organisation and multilateral development banks	12	-	12	-
Covered bonds	4	-	1	3
Other	12	-	9	3
Total at 30 Jun 2021	659	377	245	37
Total at 31 Dec 2020	678	307	301	70

1 As defined in EU regulation, level 1 assets means 'assets of extremely high liquidity and credit quality', and level 2 assets means 'assets of high liquidity and credit quality'.

Liquidity pool by currency
	$	£	€	HK$	Other	Total
	$bn	$bn	$bn	$bn	$bn	$bn
Liquidity pool at 30 Jun 2021	151	207	108	54	139	659
Liquidity pool at 31 Dec 2020	218	176	117	74	93	678

Sources of funding

Our primary sources of funding are customer current accounts and savings deposits payable on demand or at short notice. We issue secured and unsecured wholesale securities to supplement customer deposits, meet regulatory obligations and to change the currency mix, maturity profile or location of our liabilities.

The following 'Funding sources' and 'Funding uses' tables provide a view of how our consolidated balance sheet is funded. In practice, all the principal operating entities are required to manage liquidity and funding risk on a stand-alone basis.

The tables analyse our consolidated balance sheet according to the assets that primarily arise from operating activities and the sources of funding primarily supporting these activities. Assets and liabilities that do not arise from operating activities are presented as a net balancing source or deployment of funds.

In 1H21, the level of customer accounts continued to exceed the level of loans and advances to customers. The positive funding gap was predominantly deployed in liquid assets.

Funding sources
	At
	30 Jun	31 Dec
	2021	2020
	$m	$m
Customer accounts	1,669,091	1,642,780
Deposits by banks	100,448	82,080
Repurchase agreements - non-trading	112,798	111,901
Debt securities in issue	84,218	95,492
Cash collateral, margin and settlement accounts	104,215	78,565
Subordinated liabilities	20,774	21,951
Financial liabilities designated at fair value	151,686	157,439
Liabilities under insurance contracts	110,572	107,191
Trading liabilities	89,637	75,266
- repos	14,169	11,728
- stock lending	5,616	4,597
- other trading liabilities	69,852	58,941
Total equity	206,764	204,995
Other balance sheet liabilities	325,802	406,504
	2,976,005	2,984,164

Funding uses
	At
	30 Jun	31 Dec
	2021	2020
	$m	$m
Loans and advances to customers	1,059,511	1,037,987
Loans and advances to banks	86,886	81,616
Reverse repurchase agreements - non-trading	201,714	230,628
Cash collateral, margin and settlement accounts	92,074	76,859
Assets held for sale	3,640	299
Trading assets	260,250	231,990
- reverse repos	19,660	13,990
- stock borrowing	9,213	8,286
- other trading assets	231,377	209,714
Financial investments	434,576	490,693
Cash and balances with central banks	393,559	304,481
Other balance sheet assets	443,795	529,611
	2,976,005	2,984,164

Interest rate risk in the banking book in the first half of 2021

Net interest income sensitivity

The following tables set out the assessed impact to a hypothetical base case projection of our net interest income ('NII'), excluding insurance, under the following scenarios:

• an immediate shock of 25 basis points ('bps') to the current market-implied path of interest rates across all currencies on 1 July 2021 (effects over one year and five years); and

• an immediate shock of 100bps to the current market-implied path of interest rates across all currencies on 1 July 2021 (effects over one year and five years).

The sensitivities shown represent our assessment of the change to a hypothetical base case NII, assuming a static balance sheet and no management actions from Markets Treasury. They incorporate the effect of interest rate behaviouralisation, managed rate product pricing assumptions and customer behaviour, including the prepayment of mortgages or customer migration from non-interest-bearing to interest-bearing deposit accounts. The scenarios represent interest rate shocks to the current market implied path of rates. No floors have been applied to market rates, although flooring on product rates has been retained where applicable.

The one-year and five-year NII sensitivities increased in June 2021 at Group level when compared with December 2020. This was driven by changes in the forecasted yield curves and changes in balance sheet composition.

Immediate interest rate rises of 25bps and 100bps would increase projected NII for the 12 months to 30 June 2022 by $1,502m and $5,772m, respectively. Conversely, falls of 25bps and 100bps would decrease projected NII for the 12 months to 30 June 2022 by $1,605m and $5,190 respectively.

The sensitivity of NII for 12 months has increased by $424m in the plus 100bps and by $336m in the minus 100bps parallel shock comparing June 2021 with December 2020.

The increase in sensitivity of NII for 12 months was mainly driven by the general build-up of liquidity throughout the Group, which has been deployed in short-term investments (predominantly cash, hold-to-collect-and-sell securities and reverse repos), and changes in pass-on assumptions in view of the significant drop in interest rates and changes in portfolio composition.

The change in NII sensitivity for five years is also driven by the factors above.

The structural sensitivity of NII arising within the three global businesses, excluding Markets and Securities Services, is positive in a rising rate environment and negative in a falling rate environment. Markets Treasury has an NII sensitivity profile that offsets this to some degree. The tables do not include potential Markets Treasury management actions or changes in Markets and Securities Services net trading income that may further limit the offset.

NII sensitivity to an instantaneous change in yield curves (12 months)
	US dollar	HK dollar	Sterling	Euro	Other	Total
	$m	$m	$m	$m	$m	$m
Change in Jul 2021 to Jun 2022 (based on balance sheet at 30 Jun 2021)
+25bps	114	340	561	113	374	1,502
-25bps	(122)	(393)	(616)	(83)	(391)	(1,605)
+100bps	369	1,354	2,053	532	1,464	5,772
-100bps	(224)	(837)	(2,257)	(330)	(1,542)	(5,190)
Change in Jan 2021 to Dec 2021 (based on balance sheet at 31 Dec 2020)
+25bps	(110)	(83)	6	(13)	55	(145)
-25bps	105	(50)	(67)	5	(90)	(97)
+100bps	(177)	87	242	30	242	424
-100bps	341	(88)	(351)	(31)	(207)	(336)

NII sensitivity to an instantaneous change in yield curves (5 years)
	Year 1	Year 2	Year 3	Year 4	Year 5	Total
	$m	$m	$m	$m	$m	$m
Change in Jul 2021 to Jun 2026 (based on balance sheet at 30 Jun 2021)
+25bps	1,502	1,806	1,976	2,098	2,158	9,540
-25bps	(1,605)	(2,085)	(2,042)	(2,152)	(2,235)	(10,119)
+100bps	5,772	7,118	7,778	8,092	8,179	36,939
-100bps	(5,190)	(6,924)	(8,249)	(8,892)	(9,243)	(38,498)
Change in Jan 2021 to Dec 2025 (based on balance sheet at 31 Dec 2020)
+25bps	(145)	(60)	46	70	58	(31)
-25bps	(97)	(98)	266	(107)	(124)	(160)
+100bps	424	580	696	648	441	2,789
-100bps	(336)	(751)	(1,162)	(1,232)	(918)	(4,399)

Market risk

Overview

Market risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spreads, equity prices and commodity prices, will reduce our income or the value of our portfolios.

Market risk in the first half of 2021

There were no material changes to the policies and practices for the management of market risk in the first half of 2021.

A summary of our current policies and practices for the management of market risk is set out in 'Market risk management' on page 182 of the Annual Report and Accounts 2020.

Financial markets remained resilient during the first half of 2021, against the backdrop of loose financial conditions, continued fiscal support and acceleration in the roll-out of Covid-19 vaccination programmes to the general population. As the reopening of major economies progressed in 1Q21, rising concerns of inflationary pressures and expectations that the US Federal Reserve could raise interest rates earlier than previously anticipated led to a temporary increase in long-term government bond yields and a pause in the stock market rally. The path of monetary policies remained uncertain in 2Q21, although central banks continued to remain cautious and provide liquidity, highlighting the potentially transitory nature of higher inflation. This provided continued support to risk assets valuations and led to interest rates retracing from the high levels in March, while market volatility remained subdued. In June, major equity markets reached new record highs and credit markets remained strong, with credit benchmark indices for investment grade and high-yield debt close to pre-pandemic levels.

We continued to manage market risk prudently in the first half of 2021. Sensitivity exposures and VaR remained within appetite as the business pursued its core market-making activity in support of our customers. Market risk was managed using a complementary set of risk measures and limits, including stress and scenario analysis.

Trading portfolios

Value at risk of the trading portfolios

Trading VaR was predominantly generated by Markets and Securities Services. Market-making activities in the Global Debt Markets and Foreign Exchange businesses were the main drivers of trading VaR at the end of 1H21, with larger contributions compared with the end of 2020. Trading VaR at 30 June 2021 was lower than at 31 December 2020. The moderate reduction in trading VaR during the first half of the year was due mainly to larger offsetting gains from the Equity business, including lower exposures to dividends and correlation risks. The Group trading VaR for the half-year is shown in the table below.

Trading VaR, 99% 1 day
	Foreign exchange and commodity	Interest rate	Equity	Credit spread	Portfolio diversification¹	Total
	$m	$m	$m	$m	$m	$m
Half-year to 30 Jun 2021	13.6	33.5	15.8	18.3	(42.5)	38.7
Average	15.0	33.4	16.5	18.1	(46.2)	36.8
Maximum	31.8	50.4	24.3	29.4		48.2
Minimum	6.9	18.5	12.1	12.2		31.1

Half-year to 30 Jun 2020	10.4	36.8	26.3	18.7	(47.8)	44.4
Average	10.6	27.6	25.0	23.1	(36.2)	50.1
Maximum	19.9	43.5	41.3	44.1		69.3
Minimum	5.6	19.1	13.6	13.7		33.6

Half-year to 31 Dec 2020	13.7	20.3	21.5	24.3	(36.4)	43.4
Average	11.3	25.5	29.0	20.2	(40.2)	45.8
Maximum	25.7	38.1	40.5	28.6		62.2
Minimum	7.1	19.8	21.1	12.6		37.2

1 When VaR is calculated at a portfolio level, natural offsets in risk can occur when compared with aggregating VaR at the asset class level. This difference is called portfolio diversification. The asset class VaR maxima and minima reported in the table occurred on different dates within the reporting period. For this reason, we do not report an implied portfolio diversification measure between the maximum (minimum) asset class VaR measures and the maximum (minimum) total VaR measures in this table.

The risk not in VaR ('RNIV') framework covers risks from exposures in our trading book that are not fully captured by the VaR model. The VaR-based RNIVs are included within the metrics for each asset class.

Back-testing

In 1H21, the Group experienced one loss exception against hypothetical profit and loss and no exceptions against actual profit and loss.

The hypothetical profit and loss reflects the profit and loss that would be realised if positions were held constant from the end of one trading day to the end of the next. This measure of profit and loss does not align with how risk is dynamically hedged, and is not therefore necessarily indicative of the actual performance of the business. The loss back-testing exception against hypothetical profit and loss observed in March was mainly driven by the effect of lower volatility in the equity markets and by the increase in some emerging markets foreign exchange forward rates volatilities.

Non-trading portfolios

Value at risk of the non-trading portfolios

Non-trading portfolios comprise positions that primarily arise from the interest rate management of our retail and commercial banking assets and liabilities, financial investments measured at fair value through other comprehensive income, debt instruments measured at amortised cost, and exposures arising from our insurance operations.

The VaR for non-trading activity at 30 June 2021 did not change materially compared with 31 December 2020. The increase in average non-trading VaR was driven primarily by the effect of higher interest rate levels and market volatility observed in February and March 2021, as the markets adjusted to higher economic growth and rising inflation expectations. This led to an increase in VaR, while the size of interest rate exposures remained relatively stable.

Non-trading VaR includes non-trading financial instruments held in portfolios managed by Markets Treasury. The management of interest rate risk in the banking book is described further in 'Net interest income sensitivity' on page 87.

The Group non-trading VaR for the half-year is shown in the following table

Non-trading VaR, 99% 1 day
	Interest rate	Credit spread	Portfolio diversification¹	Total
	$m	$m	$m	$m
Half-year to 30 Jun 2021	193.7	73.8	(18.0)	249.5
Average	201.1	80.5	(31.2)	250.4
Maximum	248.7	99.3		298.8
Minimum	163.3	64.7		193.5

Half-year to 30 Jun 2020	184.3	83.2	(61.6)	205.9
Average	122.8	80.9	(60.7)	143.0
Maximum	190.1	133.4		219.7
Minimum	59.0	44.2		79.7

Half-year to 31 Dec 2020	166.6	87.0	(5.7)	247.8
Average	176.7	84.0	(23.7)	237.0
Maximum	196.4	102.1		274.6
Minimum	159.2	67.5		179.7

Non-trading VaR excludes equity risk on securities held at fair value, structural foreign exchange risk and interest rate risk on fixed-rate securities issued by HSBC Holdings. HSBC's management of market risk in the non-trading book is described in the Treasury risk section on page 85.

Insurance manufacturing operations risk

Overview

The majority of the risk in our insurance business derives from manufacturing activities and can be categorised as financial risk and insurance risk. Financial risks include market risk, credit risk and liquidity risk. Insurance risk is the risk, other than financial risk, of loss transferred from the holder of the insurance contract to HSBC, the issuer. The cost of claims and benefits can be influenced by many factors, including mortality and morbidity experience, as well as lapse and surrender rates.

Insurance manufacturing operations risk in the first half of 2021

There have been no material changes to the policies and practices for the management of risks arising in our insurance operations described in the Annual Report and Accounts 2020.

A summary of our policies and practices regarding the risk management of insurance operations, our insurance model and the main contracts we manufacture is provided on page 189 of the Annual Report and Accounts 2020.

The risk profile of our insurance manufacturing operations is assessed in the Group's ICAAP based on their financial capacity to support the risks to which they are exposed. Capital adequacy is assessed on both the Group's economic capital basis, and the relevant local insurance regulatory basis. The Group's economic capital basis is largely aligned to European Solvency II regulations. Risk appetite buffers are set to ensure that the operations are able to remain solvent on both bases, allowing for business-as-usual volatility and extreme but plausible stress events. In addition, the insurance manufacturing operations also manage their market, liquidity, credit, underwriting and non-financial risk exposures to Board-approved risk appetite limits.

Interest rates and equity values, which are the key risk drivers for the financial strength of the insurance operations, in general rose during the first half of the year. This had a favourable impact on capital positions and financial risk exposures. As a result, at 30 June 2021 the majority of the capital and financial risk positions of our insurance operations were within risk appetite. However, we continue to monitor these risks closely, as lower interest rates impact on margins and increase profit sensitivity on our insurance products.

The following table shows the composition of assets and liabilities by contract type.

Balance sheet of insurance manufacturing subsidiaries by type of contract
	With DPF	Unit- linked	Other contracts¹	Shareholder assets and liabilities	Total
	$m	$m	$m	$m	$m
Financial assets	87,984	9,134	19,402	9,238	125,758
- trading assets	-	-	-	-	-
- financial assets designated and otherwise mandatorily measured at fair value through profit or loss	29,111	8,788	3,651	1,907	43,457
- derivatives	146	1	6	2	155
- financial investments - at amortised cost	41,201	93	14,145	4,391	59,830
- financial investments - at fair value through other comprehensive income	11,851	-	490	1,700	14,041
- other financial assets²	5,675	252	1,110	1,238	8,275
Reinsurance assets	2,191	77	1,625	1	3,894
PVIF³	-	-	-	9,449	9,449
Other assets and investment properties	2,551	3	658	717	3,929
Total assets at June 2021	92,726	9,214	21,685	19,405	143,030
Liabilities under investment contracts designated at fair value	-	2,390	3,941	-	6,331
Liabilities under insurance contracts	87,685	6,726	16,225	-	110,636
Deferred tax⁴	180	8	19	1,407	1,614
Other liabilities	-	-	-	8,068	8,068
Total liabilities	87,865	9,124	20,185	9,475	126,649
Total equity	-	-	-	16,381	16,381
Total liabilities and equity at June 2021	87,865	9,124	20,185	25,856	143,030

Financial assets	84,478	8,802	18,932	8,915	121,127
- trading assets	-	-	-	-	-
- financial assets designated at fair value	26,002	8,558	3,508	1,485	39,553
- derivatives	262	3	13	3	281
- financial investments at amortised cost	39,891	30	13,984	4,521	58,426
- financial investments at fair value through other comprehensive income	12,531	-	459	1,931	14,921
- other financial assets²	5,792	211	968	975	7,946
Reinsurance assets	2,256	65	1,447	2	3,770
PVIF³	-	-	-	9,435	9,435
Other assets and investment properties	2,628	1	227	721	3,577
Total assets at December 2020	89,362	8,868	20,606	19,073	137,909
Liabilities under investment contracts designated at fair value	-	2,285	4,100	-	6,385
Liabilities under insurance contracts	84,931	6,503	15,827	-	107,261
Deferred tax⁴	145	5	25	1,400	1,575
Other liabilities	-	-	-	7,244	7,244
Total liabilities	85,076	8,793	19,952	8,644	122,465
Total equity	-	-	-	15,444	15,444
Total liabilities and equity at December 2020	85,076	8,793	19,952	24,088	137,909

1 Other contracts includes term assurance, credit life insurance, universal life insurance and certain investment contracts not included in the 'Unit-linked' or 'With DPF' columns.

2 Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.

3 Present value of in-force long-term insurance business.

4 Deferred tax includes the deferred tax liabilities arising on recognition of PVIF.

Market risk

Description and exposure

Market risk is the risk of changes in market factors affecting HSBC's capital or profit. Market factors include interest rates, equity and growth assets, and foreign exchange rates.

Our exposure varies depending on the type of contract issued. Our most significant life insurance products are contracts with discretionary participating features ('DPF') issued in France and Hong Kong. These products typically include some form of capital guarantee or guaranteed return on the sums invested by the policyholders, to which discretionary bonuses are added if allowed by the overall performance of the funds. These funds are primarily invested in bonds, with a proportion allocated to other asset classes to provide customers with the potential for enhanced returns.

DPF products expose HSBC to the risk of variation in asset returns, which will impact our participation in the investment performance.

In addition, in some scenarios the asset returns can become insufficient to cover the policyholders' financial guarantees, in which case the shortfall has to be met by HSBC. Amounts are held against the cost of such guarantees, calculated by stochastic modelling.

Where local rules require, these reserves are held as part of liabilities under insurance contracts. Any remainder is accounted for as a deduction from the present value of in-force ('PVIF')
long-term insurance business on the relevant product.

For unit-linked contracts, market risk is substantially borne by the policyholder, but some market risk exposure typically remains, as fees earned are related to the market value of the linked assets.

Sensitivities

Changes in financial market factors, from the economic assumptions in place at the start of the year, had a positive impact on reported profit before tax of $413m (1H20: $320m negative). The following table illustrates the effects of selected interest rate, equity price and foreign exchange rate scenarios on our profit for the period and the total equity of our insurance manufacturing subsidiaries.

Where appropriate, the effects of the sensitivity tests on profit after tax and equity incorporate the impact of the stress on the PVIF.

Due in part to the impact of the cost of guarantees and hedging strategies, which may be in place, the relationship between the profit and total equity and the risk factors is non-linear, particularly in a low interest-rate environment.

Therefore, the results disclosed should not be extrapolated to measure sensitivities to different levels of stress. For the same reason, the impact of the stress is not necessarily symmetrical on the upside and downside. The sensitivities are stated before allowance for management actions, which may mitigate the effect of changes in the market environment. The sensitivities presented allow for adverse changes in policyholder behaviour that may arise in response to changes in market rates. The differences between the impacts on profit after tax and equity are driven by the changes in value of the bonds measured at fair value through other comprehensive income, which are only accounted for in equity.

Sensitivity of HSBC's insurance manufacturing subsidiaries to market risk factors

	At 30 Jun 2021		At 31 Dec 2020
	Effect on profit after tax	Effect on total equity	Effect on profit after tax	Effect on total equity
	$m	$m	$m	$m
+100 basis point parallel shift in yield curves	(42)	(188)	(67)	(188)
-100 basis point parallel shift in yield curves	(53)	97	(68)	58
10% increase in equity prices	366	366	332	332
10% decrease in equity prices	(372)	(372)	(338)	(338)
10% increase in US dollar exchange rate compared with all currencies	10	10	84	84
10% decrease in US dollar exchange rate compared with all currencies	(10)	(10)	(84)	(84)

Directors' responsibility statement

The Directors¹ are required to prepare the financial statements on a going concern basis unless it is not appropriate. They are satisfied that the Group has the resources to continue in business for the foreseeable future and that the financial statements continue to be prepared on a going concern basis.

The Directors confirm that to the best of their knowledge:

• the financial statements have been prepared in accordance with UK adopted IAS 34 'Interim Financial Reporting', IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ('IASB'), IAS 34 'Interim Financial Reporting' as adopted by the EU and the Disclosure Guidance and Transparency Rules ('DTR') sourcebook of the UK's Financial Conduct Authority;

• this Interim Report 2021 gives a true, fair, balanced and understandable view of the assets, liabilities, financial position and profit or loss of the Company; and

• this Interim Report 2021 includes a fair review of the information required by:

- DTR 4.2.7R, being an indication of: important events that have occurred during the first six months of the financial year ending 31 December 2021 and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

- DTR 4.2.8R, being: related party transactions that have taken place in the first six months of the financial year ending 31 December 2021, which have materially affected the financial position or performance of HSBC during that period; and any changes in the related parties transactions described in the Annual Report and Accounts 2020 that could materially affect the financial position or performance of HSBC during the first six months of the financial year ending 31 December 2021.

On behalf of the Board

Mark E Tucker

Group Chairman

2 August 2021

1 Mark Tucker*, James Anthony Forese^†, Steven Guggenheimer^†, Irene Lee^†, José Antonio Meade Kuribreña^†, Eileen K Murray^†, David Nish^†, Noel Quinn, Ewen Stevenson, Jackson Tai^† and Pauline van der Meer Mohr^† .

*Non-executive Group Chairman ^† Independent non-executive Director

Independent review report to HSBC Holdings plc

Report on the interim condensed financial statements

Our conclusion

We have reviewed HSBC Holdings plc's interim condensed financial statements (the 'interim financial statements') in the interim report of HSBC Holdings plc and its subsidiaries (the 'Group') for the six month period ended 30 June 2021 (the 'period').

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting', International Accounting Standard 34, 'Interim Financial Reporting', as issued by the IASB, International Accounting Standard 34 'Interim Financial Reporting' and as adopted by the European Union, and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

• the consolidated balance sheet as at 30 June 2021;

• the consolidated income statement and consolidated statement of comprehensive income for the period then ended;

• the consolidated statement of cash flows for the period then ended;

• the consolidated statement of changes in equity for the period then ended; and

• the notes to the interim financial statements and certain other information¹.

The interim financial statements included in the interim report have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting', International Accounting Standard 34 'Interim Financial Reporting' as issued by the IASB, International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union, and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The interim report of the Group, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report of the Group in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim report of the Group based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim report of the Group and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London, United Kingdom

2 August 2021

1 Certain other information comprises the following tables: 'Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees' and 'Distribution of financial instruments to which the impairment requirements of IFRS 9 are applied, by credit quality and stage allocation'.

Interim condensed financial statements
	Page
Consolidated income statement	105
Consolidated statement of comprehensive income	106
Consolidated balance sheet	107
Consolidated statement of cash flows	108
Consolidated statement of changes in equity	109

Consolidated income statement
		Half-year to
		30 Jun	30 Jun	31 Dec
		2021	2020	2020
	Notes*	$m	$m	$m
Net interest income		13,098	14,509	13,069
- interest income		17,960	23,000	18,756
- interest expense		(4,862)	(8,491)	(5,687)
Net fee income	2	6,674	5,926	5,948
- fee income		8,458	7,480	7,571
- fee expense		(1,784)	(1,554)	(1,623)
Net income from financial instruments held for trading or managed on a fair value basis		4,184	5,768	3,814
Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss		2,795	(1,290)	3,371
Change in fair value of designated debt and related derivatives		(67)	197	34
Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss		548	80	375
Gains less losses from financial investments		433	466	187
Net insurance premium income		5,663	5,020	5,073
Other operating income		155	471	56
Total operating income		33,483	31,147	31,927
Net insurance claims and benefits paid and movement in liabilities to policyholders		(7,932)	(4,402)	(8,243)
Net operating income before change in expected credit losses and other credit impairment charges		25,551	26,745	23,684
Change in expected credit losses and other credit impairment charges		719	(6,858)	(1,959)
Net operating income		26,270	19,887	21,725
Employee compensation and benefits		(9,610)	(8,514)	(9,562)
General and administrative expenses		(5,675)	(4,918)	(6,197)
Depreciation and impairment of property, plant and equipment and right-of-use assets		(1,160)	(1,209)	(1,472)
Amortisation and impairment of intangible assets		(642)	(1,845)	(674)
Goodwill impairment		-	(41)	-
Total operating expenses		(17,087)	(16,527)	(17,905)
Operating profit		9,183	3,360	3,820
Share of profit in associates and joint ventures		1,656	958	639
Profit before tax		10,839	4,318	4,459
Tax expense		(2,417)	(1,193)	(1,485)
Profit for the period		8,422	3,125	2,974
Attributable to:
- ordinary shareholders of the parent company		7,276	1,977	1,921
- preference shareholders of the parent company		7	45	45
- other equity holders		666	617	624
- non-controlling interests		473	486	384
Profit for the period		8,422	3,125	2,974
		$	$	$
Basic earnings per ordinary share	4	0.36	0.10	0.10
Diluted earnings per ordinary share	4	0.36	0.10	0.09

* For Notes on the interim condensed financial statements, see page 105.

Consolidated statement of comprehensive income
	Half-year to
	30 Jun	30 Jun	31 Dec
	2021	2020	2020
	$m	$m	$m
Profit for the period	8,422	3,125	2,974
Other comprehensive income/(expense)
Items that will be reclassified subsequently to profit or loss when specific conditions are met:
Debt instruments at fair value through other comprehensive income	(1,368)	1,747	3
- fair value gains/(losses)	(1,392)	2,654	293
- fair value gains transferred to the income statement on disposal	(375)	(454)	(214)
- expected credit recoveries/(losses) recognised in the income statement	(26)	109	(61)
- income taxes	425	(562)	(15)
Cash flow hedges	(238)	476	(5)
- fair value gains/(losses)	877	255	(412)
- fair value losses/(gains) reclassified to the income statement	(1,195)	364	405
- income taxes and other movements	80	(143)	2
Share of other comprehensive income/(expense) of associates and joint ventures	104	(115)	42
- share for the period	104	(115)	42
Exchange differences	(449)	(4,552)	9,407
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of defined benefit asset/(liability)	(747)	1,182	(348)
- before income taxes	(775)	1,703	(480)
- income taxes	28	(521)	132
Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in own credit risk	155	2,354	(2,187)
- before income taxes	(2)	2,936	(2,746)
- income taxes	157	(582)	559
Equity instruments designated at fair value through other comprehensive income	(348)	(123)	335
- fair value gains/(losses)	(345)	(122)	334
- income taxes	(3)	(1)	1
Effects of hyperinflation	166	72	121
Other comprehensive income/(expense) for the period, net of tax	(2,725)	1,041	7,368
Total comprehensive income for the period	5,697	4,166	10,342
Attributable to:
- ordinary shareholders of the parent company	4,612	3,043	9,103
- preference shareholders of the parent company	7	45	45
- other equity holders	666	617	624
- non-controlling interests	412	461	570
Total comprehensive income for the period	5,697	4,166	10,342

Consolidated balance sheet
		At
		30 Jun	31 Dec
		2021	2020
	Notes*	$m	$m
Assets
Cash and balances at central banks		393,559	304,481
Items in the course of collection from other banks		9,406	4,094
Hong Kong Government certificates of indebtedness		41,880	40,420
Trading assets		260,250	231,990
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss		49,120	45,553
Derivatives	8	209,516	307,726
Loans and advances to banks		86,886	81,616
Loans and advances to customers		1,059,511	1,037,987
Reverse repurchase agreements - non-trading		201,714	230,628
Financial investments	9	434,576	490,693
Prepayments, accrued income and other assets	15	175,155	156,412
Current tax assets		405	954
Interests in associates and joint ventures	10	28,709	26,684
Goodwill and intangible assets		20,703	20,443
Deferred tax assets		4,615	4,483
Total assets		2,976,005	2,984,164
Liabilities and equity
Liabilities
Hong Kong currency notes in circulation		41,880	40,420
Deposits by banks		100,448	82,080
Customer accounts		1,669,091	1,642,780
Repurchase agreements - non-trading		112,798	111,901
Items in the course of transmission to other banks		15,100	4,343
Trading liabilities		89,637	75,266
Financial liabilities designated at fair value		151,686	157,439
Derivatives	8	200,156	303,001
Debt securities in issue		84,218	95,492
Accruals, deferred income and other liabilities	15	164,800	128,624
Current tax liabilities		929	690
Liabilities under insurance contracts		110,572	107,191
Provisions	11	2,814	3,678
Deferred tax liabilities		4,338	4,313
Subordinated liabilities		20,774	21,951
Total liabilities		2,769,241	2,779,169
Equity
Called up share capital		10,376	10,347
Share premium account		14,600	14,277
Other equity instruments		22,414	22,414
Other reserves		6,509	8,833
Retained earnings		144,319	140,572
Total shareholders' equity		198,218	196,443
Non-controlling interests		8,546	8,552
Total equity		206,764	204,995
Total liabilities and equity		2,976,005	2,984,164

* For Notes on the interim condensed financial statements, see page 105.

Consolidated statement of cash flows
	Half-year to
	30 Jun	30 Jun	31 Dec
	2021	2020	2020
	$m	$m	$m
Profit before tax	10,839	4,318	4,459
Adjustments for non-cash items:
Depreciation, amortisation and impairment	1,802	3,095	2,146
Net gain from investing activities	(485)	(405)	(136)
Share of profits in associates and joint ventures	(1,656)	(958)	(639)
Change in expected credit losses gross of recoveries and other credit impairment charges	(484)	6,875	2,221
Provisions including pensions	301	277	887
Share-based payment expense	254	195	238
Other non-cash items included in profit before tax	205	(718)	(188)
Change in operating assets	(3,811)	11,185	(23,788)
Change in operating liabilities	49,015	134,734	68,164
Elimination of exchange differences¹	5,212	3,775	(29,524)
Dividends received from associates	10	120	641
Contributions paid to defined benefit plans	(342)	(335)	(160)
Tax paid	(997)	(2,373)	(1,886)
Net cash from operating activities	59,863	159,785	22,435
Purchase of financial investments	(263,198)	(271,830)	(224,839)
Proceeds from the sale and maturity of financial investments	298,596	225,733	251,257
Net cash flows from the purchase and sale of property, plant and equipment	(375)	(447)	(999)
Net cash flows from purchase of customer and loan portfolios	1,063	244	1,118
Net investment in intangible assets	(1,011)	(957)	(1,107)
Net cash flow on (purchase)/disposal of subsidiaries, businesses, associates and joint ventures	(84)	(409)	(194)
Net cash from investing activities	34,991	(47,666)	25,236
Issue of ordinary share capital and other equity instruments	1,996	-	1,497
Net sales/(purchases) of own shares for market-making and investment purposes	1	(48)	(133)
Redemption of preference shares and other equity instruments	(3,450)	(398)	-
Subordinated loan capital repaid	(852)	(1,538)	(2,000)
Dividends paid to shareholders of the parent company and non-controlling interests	(4,121)	(1,204)	(819)
Net cash from financing activities	(6,426)	(3,188)	(1,455)
Net increase/(decrease) in cash and cash equivalents	88,428	108,931	46,216
Cash and cash equivalents at the beginning of the period	468,323	293,742	395,218
Exchange differences in respect of cash and cash equivalents	(4,818)	(7,455)	26,889
Cash and cash equivalents at the end of the period	551,933	395,218	468,323

Interest received was $19,761m (1H20: $25,159m; 2H20: $20,419m), interest paid was $6,552m (1H20: $10,573m; 2H20: $7,167m) and dividends received (excluding dividends received from associates, which are presented separately above) were $801m (1H20: $447m; 2H20: $711m).

1 Adjustments to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details cannot be determined without unreasonable expense.

Consolidated statement of changes in equity
				Other reserves
	Called up share capital and share premium	Other equity instru-ments	Retained earnings	Financial assets at FVOCI reserve	Cash flow hedging reserve	Foreign exchange reserve	Merger and other reserves	Total share-holders' equity	Non- controlling interests	Total equity
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
At 1 Jan 2021	24,624	22,414	140,572	1,816	457	(20,375)	26,935	196,443	8,552	204,995
Profit for the period	-	-	7,949	-	-	-	-	7,949	473	8,422
Other comprehensive income (net of tax)	-	-	(337)	(1,629)	(234)	(464)	-	(2,664)	(61)	(2,725)
- debt instruments at fair value through other comprehensive income	-	-	-	(1,351)	-	-	-	(1,351)	(17)	(1,368)
- equity instruments designated at fair value through other comprehensive income	-	-	-	(278)	-	-	-	(278)	(70)	(348)
- cash flow hedges	-	-	-	-	(234)	-	-	(234)	(4)	(238)
- changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in own credit risk	-	-	155	-	-	-	-	155	-	155
- remeasurement of defined benefit asset/liability	-	-	(762)	-	-	-	-	(762)	15	(747)
- share of other comprehensive income of associates and joint ventures	-	-	104	-	-	-	-	104	-	104
- effects of hyperinflation	-	-	166	-	-	-	-	166	-	166
- exchange differences	-	-	-	-	-	(464)	-	(464)	15	(449)
Total comprehensive income for the period	-	-	7,612	(1,629)	(234)	(464)	-	5,285	412	5,697
Shares issued under employee remuneration and share plans	352	-	(335)	-	-	-	-	17	-	17
Capital securities issued¹	-	2,000	(4)	-	-	-	-	1,996	-	1,996
Dividends to shareholders	-	-	(3,732)	-	-	-	-	(3,732)	(389)	(4,121)
Redemption of securities²	-	(2,000)	-	-	-	-	-	(2,000)	-	(2,000)
Cost of share-based payment arrangements	-	-	254	-	-	-	-	254	-	254
Other movements	-	-	(48)	3	-	-	-	(45)	(29)	(74)
At 30 Jun 2021	24,976	22,414	144,319	190	223	(20,839)	26,935	198,218	8,546	206,764

At 1 Jan 2020	24,278	20,871	136,679	(108)	(2)	(25,133)	27,370	183,955	8,713	192,668
Profit for the period	-	-	2,639	-	-	-	-	2,639	486	3,125
Other comprehensive income (net of tax)	-	-	3,506	1,654	465	(4,559)	-	1,066	(25)	1,041
- debt instruments at fair value through other comprehensive income	-	-	-	1,735	-	-	-	1,735	12	1,747
- equity instruments designated at fair value through other comprehensive income	-	-	-	(81)	-	-	-	(81)	(42)	(123)
- cash flow hedges	-	-	-	-	465	-	-	465	11	476
- changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in own credit risk	-	-	2,354	-	-	-	-	2,354	-	2,354
- remeasurement of defined benefit asset/liability	-	-	1,195	-	-	-	-	1,195	(13)	1,182
- share of other comprehensive income of associates and joint ventures	-	-	(115)	-	-	-	-	(115)	-	(115)
- effects of hyperinflation	-	-	72	-	-	-	-	72	-	72
- exchange differences	-	-	-	-	-	(4,559)	-	(4,559)	7	(4,552)
Total comprehensive income for the period	-	-	6,145	1,654	465	(4,559)	-	3,705	461	4,166
Shares issued under employee remuneration and share plans	336	-	(329)	-	-	-	-	7	-	7
Dividends to shareholders	-	-	(662)	-	-	-	-	(662)	(542)	(1,204)
Cost of share-based payment arrangements	-	-	195	-	-	-	-	195	-	195
Other movements	-	43	(219)	12	-	-	-	(164)	(447)	(611)
At 30 Jun 2020	24,614	20,914	141,809	1,558	463	(29,692)	27,370	187,036	8,185	195,221

Consolidated statement of changes in equity (continued)
				Other reserves
	Called up share capital and share premium	Other equity instru- ments	Retained earnings	Financial assets at FVOCI reserve	Cash flow hedging reserve	Foreign exchange reserve	Merger and other reserves	Total share- holders' equity	Non- controlling interests	Total equity
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
At 1 Jul 2020	24,614	20,914	141,809	1,558	463	(29,692)	27,370	187,036	8,185	195,221
Profit for the period	-	-	2,590	-	-	-	-	2,590	384	2,974
Other comprehensive income (net of tax)	-	-	(2,388)	259	(6)	9,317	-	7,182	186	7,368
- debt instruments at fair value through other comprehensive income	-	-	-	11	-	-	-	11	(8)	3
- equity instruments designated at fair value through other comprehensive income	-	-	-	248	-	-	-	248	87	335
- cash flow hedges	-	-	-	-	(6)	-	-	(6)	1	(5)
- changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in own credit risk	-	-	(2,187)	-	-	-	-	(2,187)	-	(2,187)
- remeasurement of defined benefit asset/liability	-	-	(364)	-	-	-	-	(364)	16	(348)
- share of other comprehensive income of associates and joint ventures	-	-	42	-	-	-	-	42	-	42
- effects of hyperinflation	-	-	121	-	-	-	-	121	-	121
- exchange differences	-	-	-	-	-	9,317	-	9,317	90	9,407
Total comprehensive income for the period	-	-	202	259	(6)	9,317	-	9,772	570	10,342
Shares issued under employee remuneration and share plans	10	-	(10)	-	-	-	-	-	-	-
Capital securities issued¹	-	1,500	(3)	-	-	-	-	1,497	-	1,497
Dividends to shareholders	-	-	(669)	-	-	-	-	(669)	(150)	(819)
Redemption of securities²	-	-	(1,450)	-	-	-	-	(1,450)	-	(1,450)
Transfers³	-	-	435	-	-	-	(435)	-	-	-
Cost of share-based payment arrangements	-	-	239	-	-	-	-	239	-	239
Other movements	-	-	19	(1)	-	-	-	18	(53)	(35)
At 31 Dec 2020	24,624	22,414	140,572	1,816	457	(20,375)	26,935	196,443	8,552	204,995

1 During 2021, HSBC Holdings issued $2,000m of Additional Tier1 instruments on which there were $4m of external issue costs. In 2020, HSBC Holdings issued $1,500m of perpetual subordinated contingent convertible securities.

2 During 2021, HSBC Holdings redeemed $2,000m 6.875% perpetual subordinated contingent convertible securities. In 2020, HSBC Holdings called and later redeemed $1,450m 6.20% non-cumulative US dollar preference shares.

3 Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was previously impaired. In 2020, an additional impairment of $435m was recognised and a permitted transfer of this amount was made from the merger reserve to retained earnings.

Notes on the interim condensed financial statements
		Page			Page
1	Basis of preparation and significant accounting policies	111	10	Interests in associates and joint ventures	123
2	Net fee income	112	11	Provisions	126
3	Dividends	112	12	Contingent liabilities, contractual commitments and guarantees	126
4	Earnings per share	113	13	Legal proceedings and regulatory matters	127
5	Segmental analysis	113	14	Transactions with related parties	130
6	Fair values of financial instruments carried at fair value	117	15	Business disposals	130
7	Fair values of financial instruments not carried at fair value	121	16	Events after the balance sheet date	130
8	Derivatives	122	17	Interim Report 2021 and statutory accounts	130
9	Financial investments	123

1	Basis of preparation and significant accounting policies

(a) Compliance with International Financial Reporting Standards

Our interim condensed financial statements have been prepared on the basis of the policies set out in the 2020 annual financial statements and in accordance with UK adopted IAS 34 'Interim Financial Reporting', IAS 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board ('IASB'), IAS 34 'Interim Financial Reporting' as adopted by the EU and the Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority. Therefore, they include an explanation of events and transactions that are significant to an understanding of the changes in HSBC's financial position and performance since the end of 2020. These financial statements should be read in conjunction with the Annual Report and Accounts 2020, which were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, and International Financial Reporting Standards ('IFRSs') as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee.

At 30 June 2021, there were no unendorsed standards effective for the half-year to 30 June 2021 affecting these financial statements, and there was no difference between IFRSs adopted by the UK, IFRSs as adopted by the EU and IFRSs issued by the IASB in terms of their application to HSBC.

The financial statements for HSBC for the year ended 31 December 2021 will be prepared in accordance with IFRS as adopted by the UK, international financial reporting standards adopted by the EU and IFRSs as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee.

Standards applied during the half-year to 30 June 2021

There were no new standards or amendments to standards that had an effect on these interim condensed financial statements.

(b) Use of estimates and judgements

Management believes that our critical accounting estimates and judgements are those that relate to impairment of amortised cost and FVOCI debt financial assets, the valuation of financial instruments, deferred tax assets, provisions for liabilities, defined benefit obligations, interests in associates, impairment of non-financial assets and post-employment benefits. There were no changes in the current period to the critical accounting estimates and judgements applied in 2020, which are stated on pages 77 and 289 of the Annual Report and Accounts 2020.

There were no material changes in the composition of the Group in the half-year to 30 June 2021. For further details of future business disposals, see Note 15 'Business disposals'.

(d) Future accounting developments

IFRS 17 'Insurance Contracts' was issued in May 2017, with amendments to the standard issued in June 2020. It has not been adopted for use in the UK or in the EU. The standard sets out the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. Following the amendments, IFRS 17 is effective from 1 January 2023. The Group is in the process of implementing IFRS 17. Industry practice and interpretation of the standard are still developing. Therefore, the likely impact of its implementation remains uncertain. However, compared with the Group's current accounting policy for insurance, there will be no PVIF asset recognised; rather the estimated future profit will be included in the measurement of the insurance contract liability as the contractual service margin and gradually recognised in revenue as services are provided over the duration of the insurance contract.

(e) Going concern

The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources. These considerations include stressed scenarios that reflect the continuing uncertainty that the global Covid-19 pandemic has had on HSBC's operations, as well as considering potential impacts from other top and emerging risks, and the related impact on profitability, capital and liquidity.

(f) Accounting policies

The accounting policies that we applied for these interim condensed consolidated financial statements are consistent with those described on pages 288 to 299 of the Annual Report and Accounts 2020, as are the methods of computation.

2	Net fee income

	Half-year to
	30 Jun	30 Jun	31 Dec
	2021	2020	2020
	$m	$m	$m
Net fee income by product
Funds under management	1,304	1,113	1,176
Cards	1,035	954	995
Broking income	895	743	796
Credit facilities	827	726	733
Account services	714	649	644
Unit trusts	603	455	444
Underwriting	576	552	463
Global custody	500	446	488
Remittances	361	325	352
Imports/exports	300	288	289
Insurance agency commission	176	171	154
Other	1,167	1,058	1,037
Fee income	8,458	7,480	7,571
Less: fee expense	(1,784)	(1,554)	(1,623)
Net fee income	6,674	5,926	5,948
Net fee income by global business
Wealth and Personal Banking	3,042	2,691	2,717
Commercial Banking	1,786	1,630	1,595
Global Banking and Markets	1,857	1,608	1,659
Corporate Centre	(11)	(3)	(23)

Dividends

On 2 August 2021, the Directors approved an interim dividend for the 2021 half-year of $0.07 per ordinary share in respect of the financial year ending 31 December 2021. This distribution amounts to approximately $1,430m and will be payable on 30 September 2021. No liability is recognised in the financial statements in respect of these dividends.

Dividends paid to shareholders of HSBC Holdings plc
	Half-year to
	30 Jun 2021			30 Jun 2020			31 Dec 2020
	Per share	Total	Settled in scrip	Per share	Total	Settled in scrip	Per share	Total	Settled in scrip
	$	$m	$m	$	$m	$m	$	$m	$m
Dividends paid on ordinary shares
In respect of previous year:
- fourth interim dividend	0.15	3,059	-	-	-	-	-	-	-
In respect of current year:
- first interim dividend	-	-	-	-	-	-	-	-	-
- second interim dividend	-	-	-	-	-	-	-	-	-
- third interim dividend	-	-	-	-	-	-	-	-	-
Total	0.15	3,059	-	-	-	-	-	-	-
Total dividends on preference shares classified as equity (paid quarterly)¹	4.99	7		31.00	45		31.00	45
Total coupons on capital securities classified as equity		666			617			624
Dividends to shareholders		3,732			662			669

1 HSBC Holdings called $1,450m 6.20% non-cumulative US dollar preference shares on 10 December 2020. The security was redeemed and cancelled on 13 January 2021.

Total coupons on capital securities classified as equity
			Half-year to
			30 Jun	30 Jun	31 Dec
			2021	2020	2020
	First call date	Per security	$m	$m	$m
Perpetual subordinated contingent convertible securities¹
- $2,000m issued at 6.875%²	Jun 2021	$68.750	69	69	69
- $2,250m issued at 6.375%	Sep 2024	$63.750	72	72	71
- $2,450m issued at 6.375%	Mar 2025	$63.750	78	78	78
- $3,000m issued at 6.000%	May 2027	$60.000	90	90	90
- $2,350m issued at 6.250%	Mar 2023	$62.500	73	73	74
- $1,800m issued at 6.500%	Mar 2028	$65.000	59	59	58
- $1,500m issued at 4.600%³	Dec 2030	$46.000	35	-	-
- $1,000m issued at 4.000%⁴	Mar 2026	$40.000	-	-	-
- $1,000m issued at 4.700%⁵	Mar 2031	$47.000	-	-	-
- €1,500m issued at 5.250%	Sep 2022	€52.500	47	44	46
- €1,000m issued at 6.000%	Sep 2023	€60.000	34	33	34
- €1,250m issued at 4.750%	July 2029	€47.500	36	33	34
- £1,000m issued at 5.875%	Sep 2026	£58.750	41	36	38
- SGD1,000m issued at 4.700%	Jun 2022	SGD47.000	18	17	18
- SGD750m issued at 5.000%	Sep 2023	SGD50.000	14	13	14
Total			666	617	624

1 Discretionary coupons are paid twice a year on the perpetual subordinated contingent convertible securities, in denominations of 1,000 per security in each security's issuance currency.

2 This security was called by HSBC Holdings on 15 April 2021 and was redeemed and cancelled on 1 June 2021.

3 This security was issued by HSBC Holdings on 17 December 2020. The first call date commences six calendar months prior to the reset date of
17 June 2031.

4 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of 9 September 2026.

5 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of 9 September 2031.

4	Earnings per share

Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the basic earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares.

Profit attributable to ordinary shareholders of the parent company
	Half-year to
	30 Jun	30 Jun	31 Dec
	2021	2020	2020
	$m	$m	$m
Profit attributable to shareholders of the parent company	7,949	2,639	2,590
Dividend payable on preference shares classified as equity	(7)	(45)	(45)
Coupon payable on capital securities classified as equity	(666)	(617)	(624)
Profit attributable to ordinary shareholders of the parent company	7,276	1,977	1,921

Basic and diluted earnings per share
	Half-year to
	30 Jun 2021			30 Jun 2020			31 Dec 2020
	Profit	Number of shares	Amount per share	Profit	Number of shares	Amount per share	Profit	Number of shares	Amount per share
	$m	(millions)	$	$m	(millions)	$	$m	(millions)	$
Basic¹	7,276	20,211	0.36	1,977	20,162	0.10	1,921	20,176	0.10
Effect of dilutive potential ordinary shares		97			58			63
Diluted¹	7,276	20,308	0.36	1,977	20,220	0.10	1,921	20,239	0.09

1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).

5	Segmental analysis

The Group Chief Executive, supported by the rest of the Group Executive Committee ('GEC'), is considered the Chief Operating Decision Maker ('CODM') for the purposes of identifying the Group's reportable segments. Global business results are assessed by the CODM on the basis of adjusted performance that removes the effects of significant items and currency translation from reported results. Therefore, we present these results on an adjusted basis as required by IFRSs. The 2020 adjusted performance information is presented on a constant currency basis. The income statements for the half-years to 30 June 2020 and 31 December 2020 are converted at the average rates of exchange for 2021, and the balance sheets at 30 June 2020 and 31 December 2020 at the prevailing rates of exchange on 30 June 2021.

Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully attributed to global businesses. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree of subjectivity. Costs that are not allocated to global businesses are included in Corporate Centre.

Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-business line transactions. All such transactions are undertaken on arm's length terms. The intra-Group elimination items for the global businesses are presented in Corporate Centre.

Our global businesses

We provide a comprehensive range of banking and related financial services to our customers in our three global businesses. The products and services offered to customers are organised by these global businesses:

• Wealth and Personal Banking ('WPB') provides a full range of retail banking and wealth products to our customers from personal banking to ultra high net worth individuals. Typically, customer offerings include retail banking products, such as current and savings accounts, mortgages and personal loans, credit cards, debit cards and local and international payment services. We also provide wealth management services, including insurance and investment products, global asset management services, investment management and Private Wealth Solutions for customers with more sophisticated and international requirements.

• Commercial Banking ('CMB') offers a broad range of products and services to serve the needs of our commercial customers, including small and medium-sized enterprises, mid-market enterprises and corporates. These include credit and lending, international trade and receivables finance, treasury management and liquidity solutions (payments and cash management and commercial cards), commercial insurance and investments. CMB also offers customers access to products and services offered by other global businesses, such as Global Banking and Markets, which include foreign exchange products, raising capital on debt and equity markets and advisory services.

• Global Banking and Markets ('GBM') provides tailored financial solutions to major government, corporate and institutional clients and private investors worldwide. The client-focused business lines deliver a full range of banking capabilities, including financing, advisory and transaction services, a markets business that provides services in credit, rates, foreign exchange, equities, money markets and securities services, and principal investment activities.

HSBC adjusted profit before tax and balance sheet data
	Half-year to 30 Jun 2021
	Wealth and Personal Banking	Commercial Banking	Global Banking and Markets	Corporate Centre	Total
	$m	$m	$m	$m	$m
Net operating income/(expense) before change in expected credit losses and other credit impairment charges¹	11,401	6,651	7,878	(133)	25,797
- external	11,168	6,626	8,631	(628)	25,797
- inter-segment	233	25	(753)	495	-
of which: net interest income/(expense)	7,067	4,366	2,024	(378)	13,079
Change in expected credit losses and other credit impairment (charges)/recoveries	52	249	414	4	719
Net operating income	11,453	6,900	8,292	(129)	26,516
Total operating expenses	(7,600)	(3,525)	(4,985)	(112)	(16,222)
Operating profit	3,853	3,375	3,307	(241)	10,294
Share of profit in associates and joint ventures	11	1	-	1,644	1,656
Adjusted profit before tax	3,864	3,376	3,307	1,403	11,950
	%	%	%	%	%
Share of HSBC's adjusted profit before tax	32.3	28.3	27.7	11.7	100.0
Adjusted cost efficiency ratio	66.7	53.0	63.3	(84.2)	62.9
Adjusted balance sheet data	$m	$m	$m	$m	$m
Loans and advances to customers (net)	491,320	350,945	216,098	1,148	1,059,511
Interests in associates and joint ventures	478	15	128	28,088	28,709
Total external assets	912,479	624,042	1,258,694	180,790	2,976,005
Customer accounts	841,257	485,689	341,242	903	1,669,091

HSBC adjusted profit before tax and balance sheet data (continued)
	Half-year to 30 Jun 2020
	Wealth and Personal Banking	Commercial Banking	Global Banking and Markets	Corporate Centre	Total
	$m	$m	$m	$m	$m
Net operating income before change in expected credit losses and other credit impairment charges¹	11,694	7,326	8,574	3	27,597
- external	10,071	7,742	10,511	(727)	27,597
- inter-segment	1,623	(416)	(1,937)	730	-
of which: net interest income/(expense)	8,331	5,080	2,435	(804)	15,042
Change in expected credit losses and other credit impairment charges	(2,328)	(3,751)	(1,195)	(13)	(7,287)
Net operating income/(expense)	9,366	3,575	7,379	(10)	20,310
Total operating expenses	(7,695)	(3,457)	(4,813)	260	(15,705)
Operating profit/(loss)	1,671	118	2,566	250	4,605
Share of profit in associates and joint ventures	(8)	-	-	1,057	1,049
Adjusted profit before tax	1,663	118	2,566	1,307	5,654
	%	%	%	%	%
Share of HSBC's adjusted profit before tax	29.4	2.1	45.4	23.1	100.0
Adjusted cost efficiency ratio	65.8	47.2	56.1	(8,666.7)	56.9
Adjusted balance sheet data	$m	$m	$m	$m	$m
Loans and advances to customers (net)	456,263	362,094	254,126	1,365	1,073,848
Interests in associates and joint ventures	428	15	140	25,659	26,242
Total external assets	856,599	579,865	1,472,925	173,932	3,083,321
Customer accounts	810,137	441,427	357,082	738	1,609,384

	Half-year to 31 Dec 2020
Net operating income/(expense) before change in expected credit losses and other credit impairment charges¹	11,019	6,489	7,323	(308)	24,523
- external	10,534	6,468	8,257	(736)	24,523
- inter-segment	485	21	(934)	428	-
of which: net interest income/(expense)	7,231	4,545	2,184	(533)	13,427
Change in expected credit losses and other credit impairment (charges)/recoveries	(685)	(1,265)	(95)	14	(2,031)
Net operating income/(expense)	10,334	5,224	7,228	(294)	22,492
Total operating expenses	(7,871)	(3,491)	(4,916)	(673)	(16,951)
Operating profit/(loss)	2,463	1,733	2,312	(967)	5,541
Share of profit in associates and joint ventures	15	(1)	-	1,125	1,139
Adjusted profit before tax	2,478	1,732	2,312	158	6,680
	%	%	%	%	%
Share of HSBC's adjusted profit before tax	37.1	25.9	34.6	2.4	100.0
Adjusted cost efficiency ratio	71.4	53.8	67.1	(218.5)	69.1
Adjusted balance sheet data	$m	$m	$m	$m	$m
Loans and advances to customers (net)	469,218	342,951	223,395	1,254	1,036,818
Interests in associates and joint ventures	446	14	141	26,261	26,862
Total external assets	882,042	570,369	1,342,544	186,633	2,981,588
Customer accounts	834,376	470,686	335,977	609	1,641,648

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

Reported external net operating income is attributed to countries and territories on the basis of the location of the branch responsible for reporting the results or advancing the funds:

	Half-year to
	30 Jun 2021	30 Jun 2020	31 Dec 2020
	$m	$m	$m
Reported external net operating income by country/territory¹	25,551	26,745	23,684
- UK	5,610	4,166	4,997
- Hong Kong	7,476	8,703	7,080
- US	1,993	2,435	2,039
- France	1,228	697	1,056
- other countries	9,244	10,744	8,512

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

Adjusted results reconciliation
	Half-year to
	30 Jun 2021			30 Jun 2020				31 Dec 2020
	Adjusted	Significant items	Reported	Adjusted	Currency translation	Significant items	Reported	Adjusted	Currency translation	Significant items	Reported
	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m	$m
Revenue¹	25,797	(246)	25,551	27,597	(1,117)	265	26,745	24,523	(630)	(209)	23,684
ECL	719	-	719	(7,287)	429	-	(6,858)	(2,031)	72	-	(1,959)
Operating expenses	(16,222)	(865)	(17,087)	(15,705)	887	(1,709)	(16,527)	(16,951)	471	(1,425)	(17,905)
Share of profit in associates and joint ventures	1,656	-	1,656	1,049	(91)	-	958	1,139	(38)	(462)	639
Profit before tax	11,950	(1,111)	10,839	5,654	108	(1,444)	4,318	6,680	(125)	(2,096)	4,459

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

Adjusted balance sheet reconciliation
	At
	30 Jun 2021	31 Dec 2020
	Reported and adjusted	Adjusted	Currency translation	Reported
	$m	$m	$m	$m
Loans and advances to customers (net)	1,059,511	1,036,818	1,169	1,037,987
Interests in associates and joint ventures	28,709	26,862	(178)	26,684
Total external assets	2,976,005	2,981,588	2,576	2,984,164
Customer accounts	1,669,091	1,641,648	1,132	1,642,780

Adjusted profit reconciliation
	Half-year to
	30 Jun 2021	30 Jun 2020	31 Dec 2020
	$m	$m	$m
Adjusted profit before tax	11,950	5,654	6,680
Significant items	(1,111)	(1,444)	(2,096)
- customer redress programmes (revenue)	18	26	(47)
- disposals, acquisitions and investment in new businesses (revenue)	-	(8)	(2)
- fair value movements on financial instruments¹	(194)	299	(35)
- restructuring and other related costs (revenue)²	(70)	(49)	(121)
- customer redress programmes (operating expenses)	(17)	(50)	104
- impairment of goodwill and other intangible assets	-	(1,025)	(65)
- past service costs of guaranteed minimum pension benefits equalisation	-	-	(17)
- restructuring and other related costs (operating expenses)³	(848)	(505)	(1,403)
- settlements and provisions in connection with legal and other regulatory matters	-	(5)	(7)
- impairment of goodwill (share of profit in associates and joint ventures)⁴	-	-	(462)
- currency translation on significant items		(127)	(41)
Currency translation		108	(125)
Reported profit before tax	10,839	4,318	4,459

1 Includes fair value movements on non-qualifying hedges and debt valuation adjustments on derivatives.

2 Comprises losses associated with the RWA reduction commitments and gains relating to the business update in February 2020.

3 Includes impairment of software intangible assets of $173m in the six months to 30 June 2020 and $197m for the impairment of tangible assets in the six months to 31 December 2020.

4 During the six months to 31 December 2020, The Saudi British Bank ('SABB'), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in 2019. HSBC's post-tax share of the goodwill impairment was $462m.

6	Fair values of financial instruments carried at fair value

The accounting policies, control framework and hierarchy used to determine fair values at 30 June 2021 are consistent with those applied for the Annual Report and Accounts 2020.

Financial instruments carried at fair value and bases of valuation
		Valuation techniques
	Quoted market price Level 1	Using observable inputs Level 2	With significant unobservable inputs Level 3	Total
Recurring fair value measurements	$m	$m	$m	$m
At 30 Jun 2021
Assets
Trading assets	186,338	71,403	2,509	260,250
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss	20,468	15,664	12,988	49,120
Derivatives	1,630	205,209	2,677	209,516
Financial investments	253,593	93,166	3,243	350,002
Liabilities
Trading liabilities	61,676	27,104	857	89,637
Financial liabilities designated at fair value	1,365	143,084	7,237	151,686
Derivatives	1,098	195,637	3,421	200,156

At 31 Dec 2020
Assets
Trading assets	167,980	61,511	2,499	231,990
Financial assets designated and otherwise mandatorily measured at fair value through profit or loss	19,711	14,365	11,477	45,553
Derivatives	2,602	302,454	2,670	307,726
Financial investments	303,654	94,746	3,654	402,054
Liabilities
Trading liabilities	53,290	21,814	162	75,266
Financial liabilities designated at fair value	1,267	150,866	5,306	157,439
Derivatives	1,788	297,025	4,188	303,001

Transfers between Level 1 and Level 2 fair values
	Assets				Liabilities
	Financial investments	Trading assets	Designated and otherwise mandatorily measured at fair value	Derivatives	Trading liabilities	Designated at fair value	Derivatives
	$m	$m	$m	$m	$m	$m	$m
At 30 Jun 2021
Transfers from Level 1 to Level 2	5,421	3,601	150	103	43	-	212
Transfers from Level 2 to Level 1	4,774	2,381	645	-	530	-	-

At 31 Dec 2020
Transfers from Level 1 to Level 2	4,514	3,891	245	-	155	7,414	-
Transfers from Level 2 to Level 1	7,764	5,517	328	1	433	-	-

Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.

Fair value adjustments

We adopt the use of fair value adjustments when we take into consideration additional factors not incorporated within the valuation model that would otherwise be considered by a market participant. We classify fair value adjustments as either 'risk-related' or 'model-related'. The majority of these adjustments relate to GBM. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits or losses within the income statement. For example, as models are enhanced, fair value adjustments may no longer be required. Similarly, fair value adjustments will decrease when the related positions are unwound, but this may not result in profit or loss.

Global Banking and Markets fair value adjustments
	At
	30 Jun 2021		31 Dec 2020
	GBM	Corporate Centre	GBM	Corporate Centre
	$m	$m	$m	$m
Type of adjustment
Risk-related	922	23	1,170	28
- bid-offer	445	-	514	-
- uncertainty	68	1	106	1
- credit valuation adjustment	287	22	445	27
- debt valuation adjustment	(100)	-	(120)	-
- funding fair value adjustment	220	-	204	-
- other	2	-	21	-
Model-related	87	-	74	-
- model limitation	87	-	70	-
- other	-	-	4	-
Inception profit (Day 1 P&L reserves)¹	120	-	104	-
	1,129	23	1,348	28

1 See Note 8 on the interim condensed financial statements on page 116.

We continue to observe losses on the disposals of certain uncollateralised over-the-counter ('OTC') derivatives as part of our commitments to reduce RWAs in GBM, as set out in our business update in February 2020. Based on our analysis, these losses are not considered to give rise to an adjustment within the IFRS 13 'Fair Value Measurement' framework. We will continue to monitor and analyse disposals as they occur.

The reduction in fair value adjustments was driven by increased liquidity, lower volatility and an improved credit environment.

For further details of our risk-related and model-related adjustments, see pages 315 and 316 of the Annual Report and Accounts2020.

Fair value valuation bases

Financial instruments measured at fair value using a valuation technique with significant unobservable inputs - Level 3
	Assets					Liabilities
	Financial investments	Trading assets	Designated and otherwise mandatorily measured at fair value through profit or loss	Derivatives	Total	Trading liabilities	Designated at fair value	Derivatives	Total
	$m	$m	$m	$m	$m	$m	$m	$m	$m
Private equity including strategic investments	590	55	12,484	-	13,129	206	-	-	206
Asset-backed securities	900	250	17	-	1,167	-	-	-	-
Loans held for securitisation	-	-	-	-	-	-	-	-	-
Structured notes	-	-	-	-	-	-	7,237	-	7,237
Derivatives with monolines	-	-	-	52	52	-	-	-	-
Other derivatives	-	-	-	2,625	2,625	-	-	3,421	3,421
Other portfolios	1,753	2,204	487	-	4,444	651	-	-	651
At 30 Jun 2021	3,243	2,509	12,988	2,677	21,417	857	7,237	3,421	11,515

Private equity including strategic investments	930	4	10,971	-	11,905	4	-	-	4
Asset-backed securities	1,286	523	25	-	1,834	-	-	-	-
Loans held for securitisation	-	-	-	-	-	-	-	-	-
Structured notes	-	-	-	-	-	29	5,301	-	5,330
Derivatives with monolines	-	-	-	68	68	-	-	-	-
Other derivatives	-	-	-	2,602	2,602	-	-	4,187	4,187
Other portfolios	1,438	1,972	481	-	3,891	129	5	1	135
At 31 Dec 2020	3,654	2,499	11,477	2,670	20,300	162	5,306	4,188	9,656

The basis for determining the fair value of the financial instruments in the table above is explained on page 317 of the Annual Report and Accounts2020.

Reconciliation of fair value measurements in Level 3 of the fair value hierarchy

Movement in Level 3 financial instruments
	Assets				Liabilities
	Financial investments	Trading assets	Designated and otherwise mandatorily measured at fair value through profit or loss	Derivatives	Trading liabilities	Designated at fair value	Derivatives
	$m	$m	$m	$m	$m	$m	$m
At 1 Jan 2021	3,654	2,499	11,477	2,670	162	5,306	4,188
Total gains/(losses) recognised in profit or loss	2	(155)	1,038	195	15	(456)	466
- net income/(losses) from financial instruments held for trading or managed on a fair value basis	-	(155)	-	195	15	-	466
- changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss	-	-	1,038	-	-	(456)	-
- gains less losses from financial investments held at fair value through other comprehensive income	2	-	-	-	-	-	-
Total gains/(losses) recognised in other comprehensive income ('OCI')¹	(391)	23	(114)	23	(3)	2	29
- financial investments: fair value losses	(360)	-	-	-	-	-	-
- exchange differences	(31)	23	(114)	23	(3)	2	29
Purchases	390	1,094	1,631	-	482	-	-
New issuances	-	-	-	-	24	2,725	-
Sales	(214)	(244)	(499)	-	-	-	-
Settlements	(177)	(494)	(436)	(359)	(8)	(896)	(1,537)
Transfers out	(311)	(512)	(159)	(126)	(1)	(339)	(221)
Transfers in	290	298	50	274	186	895	496
At 30 Jun 2021	3,243	2,509	12,988	2,677	857	7,237	3,421
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 30 Jun 2021	-	(99)	885	175	2	106	(4)
- net income/(losses) from financial instruments held for trading or managed on a fair value basis	-	(99)	-	175	2	-	(4)
- changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss	-	-	885	-	-	106	-

At 1 Jan 2020	3,218	4,979	9,476	2,136	53	5,016	2,302
Total gains/(losses) recognised in profit or loss	(13)	(541)	(106)	2,237	-	(117)	2,105
- net income/(losses) from financial instruments held for trading or managed on a fair value basis	-	(541)	-	2,237	-	-	2,105
- changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss	-	-	(106)	-	-	(117)	-
- gains less losses from financial investments held at fair value through other comprehensive income	(13)	-	-	-	-	-	-
Total losses recognised in other comprehensive income ('OCI')¹	(29)	(171)	(4)	(147)	(2)	(78)	(162)
- financial investments: fair value losses	(19)	-	-	-	-	-	-
- exchange differences	(10)	(171)	(4)	(147)	(2)	(78)	(162)
Purchases	610	199	1,594	-	63	-	-
New issuances	-	-	-	-	2	1,091	-
Sales	(271)	(577)	(424)	-	(1)	-	-
Settlements	(401)	(22)	(170)	(262)	(12)	(853)	(307)
Transfers out	(22)	(797)	(63)	(139)	(5)	(275)	(270)
Transfers in	247	795	101	30	7	224	57
At 30 Jun 2020	3,339	3,865	10,404	3,855	105	5,008	3,725
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 30 Jun 2020	-	(7)	(140)	529	(3)	100	1,104
- net income/(losses) from financial instruments held for trading or managed on a fair value basis	-	(7)	-	529	(3)	-	1,104
- changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss	-	-	(140)	-	-	100	-

Movement in Level 3 financial instruments (continued)
	Assets				Liabilities
	Financial investments	Trading assets	Designated and otherwise mandatorily measured at fair value through profit or loss	Derivatives	Trading liabilities	Designated at fair value	Derivatives
	$m	$m	$m	$m	$m	$m	$m
At 1 Jul 2020	3,339	3,865	10,404	3,855	105	5,008	3,725
Total gains recognised in profit or loss	30	535	610	44	307	58	1,293
- net income from financial instruments held for trading or managed on a fair value basis	-	535	-	44	307	-	1,293
- changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss	-	-	610	-	-	58	-
- gains less losses from financial investments held at fair value through other comprehensive income	30	-	-	-	-	-	-
Total gains recognised in other comprehensive income ('OCI')¹	423	286	290	290	19	282	331
- financial investments: fair value gains	289	-	-	-	-	-	-
- exchange differences	134	286	290	290	19	282	331
Purchases	61	488	2,107	-	3	-	-
New issuances	-	-	1	-	4	785	-
Sales	(403)	(1,002)	(1,618)	-	(259)	-	-
Settlements	(129)	(1,100)	(265)	(1,280)	(14)	(678)	(1,155)
Transfers out	(79)	(993)	(77)	(426)	(4)	(502)	(258)
Transfers in	412	420	25	187	1	353	252
At 31 Dec 2020	3,654	2,499	11,477	2,670	162	5,306	4,188
Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 31 Dec 2020	-	(32)	412	707	1	(91)	(1,621)
- net income/(losses) from financial instruments held for trading or managed on a fair value basis	-	(32)	-	707	1	-	(1,621)
- changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss	-	-	412	-	-	(91)	-

1 Included in 'Financial investments: fair value gains/(losses)' in the current year and 'Exchange differences' in the consolidated statement of comprehensive income.

Effect of changes in significant unobservable assumptions to reasonably possible alternatives

The following table shows the sensitivity of Level 3 fair values to reasonably possible alternative assumptions:

Sensitivity of fair values to reasonably possible alternative assumptions
	Reflected in profit or loss		Reflected in OCI
	Favourable changes	Unfavourable changes	Favourable changes	Unfavourable changes
	$m	$m	$m	$m
Derivatives, trading assets and trading liabilities¹	179	(197)	-	-
Financial assets and liabilities designated and otherwise mandatorily measured at fair value through profit or loss	795	(793)	-	-
Financial investments	24	(24)	105	(104)
At 30 Jun 2021	998	(1,014)	105	(104)

Derivatives, trading assets and trading liabilities¹	271	(268)	-	-
Financial assets and liabilities designated and otherwise mandatorily measured at fair value through profit or loss	625	(625)	-	-
Financial investments	28	(28)	101	(104)
At 30 Jun 2020	924	(921)	101	(104)

Derivatives, trading assets and trading liabilities¹	229	(244)	-	-
Financial assets and liabilities designated and otherwise mandatorily measured at fair value through profit or loss	644	(643)	-	-
Financial investments	35	(35)	110	(110)
At 31 Dec 2020	908	(922)	110	(110)

1 'Derivatives, trading assets and trading liabilities' is presented as one category to reflect the manner in which these financial instruments are risk-managed.

The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data.

When the fair value of a financial instrument is affected by more than one unobservable assumption, the table above reflects the most favourable or the most unfavourable change from varying the assumptions individually.

Key unobservable inputs to Level 3 financial instruments

The following table lists key unobservable inputs to Level 3 financial instruments and provides the range of those inputs at 30 June 2021. There has been no change to the key unobservable inputs to Level 3 financial instruments and inter-relationships therein, which are detailed on pages 320 and 321 of the Annual Report and Accounts 2020.

Quantitative information about significant unobservable inputs in Level 3 valuations
	Fair value		Valuation techniques	Key unobservable inputs	30 Jun 2021			31 Dec 2020
	Assets	Liabilities			Full range of inputs			Full range of inputs
	$m	$m			Lower	Higher		Lower	Higher
Private equity including strategic investments	13,129	206	See footnote 1	See footnote 1
Asset-backed securities	1,167	-
- collateralised loan/debt obligation	80	-	Market proxy	Prepayment rate	-	-		0%	9%
- collateralised loan/debt obligation	80	-	Market proxy	Bid quotes	-	100		-	100
- other ABSs	1,087	-	Market proxy	Bid quotes	-		172	-	101
Loans held for securitisation	-	-
Structured notes	-	7,237
- equity-linked notes	-	6,067	Model - Option model	Equity volatility	5%	124%		6%	115%
- equity-linked notes	-	6,067	Model - Option model	Equity correlation	7%	98%		(4)%	88%
- FX-linked notes	-	634	Model - Option model	FX volatility	3%	36%		0%	36%
- other	-	536
Derivatives with monolines	52	-	Model - Discounted cash flow	Credit spread	2%	2%		2%	2%
Other derivatives	2,625	3,421
- interest rate derivatives	1,199	999
securitisation swaps	335	462	Model - Discounted cash flow	Prepayment rate	5%	10%		6%	6%
long-dated swaptions	436	312	Model - Option model	IR volatility	6%	25%		6%	28%
other	428	225
- FX derivatives	471	499
FX options	258	315	Model - Option model	FX volatility	1%	36%		0%	43%
other	213	184
- equity derivatives	885	1,813
long-dated single stock options	465	663	Model - Option model	Equity volatility	2%	100%		0%	120%
other	420	1,150
- credit derivatives	70	110
other	70	110
Other portfolios	4,444	651
- repurchase agreements	707	600	Model - Discounted cash flow	IR curve	0%	5%		0%	5%
- other²	3,737	51
At 30 Jun 2021	21,417	11,515

1 Given the bespoke nature of the analysis in respect of each private equity holding, it is not practical to quote a range of key unobservable inputs .

2 'Other' includes a range of smaller asset holdings.

7	Fair values of financial instruments not carried at fair value

The bases for measuring the fair values of loans and advances to banks and customers, financial investments, deposits by banks, customer accounts, debt securities in issue, subordinated liabilities and non-trading repurchase and reverse repurchase agreements are explained on page 322 of the Annual Report and Accounts 2020.

Fair values of financial instruments not carried at fair value on the balance sheet
	At 30 Jun 2021		At 31 Dec 2020
	Carrying amount	Fair value	Carrying amount	Fair value
	$m	$m	$m	$m
Assets
Loans and advances to banks	86,886	87,029	81,616	81,796
Loans and advances to customers	1,059,511	1,058,406	1,037,987	1,035,461
Reverse repurchase agreements - non-trading	201,714	201,694	230,628	230,602
Financial investments - at amortised cost	84,574	90,065	88,639	96,801
Liabilities
Deposits by banks	100,448	100,412	82,080	81,996
Customer accounts	1,669,091	1,669,483	1,642,780	1,643,131
Repurchase agreements - non-trading	112,798	112,797	111,901	111,901
Debt securities in issue	84,218	85,416	95,492	97,028
Subordinated liabilities	20,774	26,966	21,951	28,552

Other financial instruments not carried at fair value are typically short term in nature and reprice to current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value.

8	Derivatives

Notional contract amounts and fair values of derivatives by product contract type held by HSBC
	Notional contract amount		Fair value amount
	Assets and liabilities		Assets			Liabilities
	Trading	Hedging	Trading	Hedging	Total	Trading	Hedging	Total
	$m	$m	$m	$m	$m	$m	$m	$m
Foreign exchange	7,610,890	32,493	71,412	861	72,273	68,509	624	69,133
Interest rate	15,063,325	129,369	175,722	1,723	177,445	167,385	1,360	168,745
Equities	742,764	-	13,835	-	13,835	15,414	-	15,414
Credit	218,085	-	2,259	-	2,259	3,083	-	3,083
Commodity and other	96,958	-	1,755	-	1,755	1,832	-	1,832
Gross total fair values	23,732,022	161,862	264,983	2,584	267,567	256,223	1,984	258,207
Offset					(58,051)			(58,051)
At 30 Jun 2021	23,732,022	161,862	264,983	2,584	209,516	256,223	1,984	200,156

Foreign exchange	7,606,446	35,021	106,696	309	107,005	108,903	1,182	110,085
Interest rate	15,240,867	157,436	249,204	1,914	251,118	236,594	2,887	239,481
Equities	652,288	-	14,043	-	14,043	15,766	-	15,766
Credit	269,401	-	2,590	-	2,590	3,682	-	3,682
Commodity and other	120,259	-	2,073	-	2,073	3,090	-	3,090
Gross total fair values	23,889,261	192,457	374,606	2,223	376,829	368,035	4,069	372,104
Offset					(69,103)			(69,103)
At 31 Dec 2020	23,889,261	192,457	374,606	2,223	307,726	368,035	4,069	303,001

The notional contract amounts of derivatives held for trading purposes and derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date, not amounts at risk. Derivative assets and liabilities decreased during 1H21, reflecting changes in yield curves and the market environment.

Derivatives valued using models with unobservable inputs

The following table shows the difference between the fair value at initial recognition, which is the transaction price, and the value that would have been derived had valuation techniques used for subsequent measurement been applied at initial recognition, less subsequent releases.

Unamortised balance of derivatives valued using models with significant unobservable inputs
	Half-year to
	30 Jun	30 Jun	31 Dec
	2021	2020	2020
	$m	$m	$m
Unamortised balance at beginning of period	104	73	89
Deferral on new transactions	187	106	126
Recognised in the income statement during the period	(172)	(87)	(118)
- amortisation	(89)	(51)	(65)
- subsequent to unobservable inputs becoming observable	(3)	(1)	(3)
- maturity, termination or offsetting derivative	(80)	(35)	(50)
Exchange differences	1	(3)	7
Unamortised balance at end of period¹	120	89	104

1 This amount is yet to be recognised in the consolidated income statement.

Hedge accounting derivatives

The notional contract amounts of derivatives held for hedge accounting purposes indicate the nominal value of transactions outstanding at the balance sheet date, not amounts at risk.

Notional contract amounts of derivatives held for hedging purposes by product type
	At 30 Jun 2021		At 31 Dec 2020
	Cash flow hedges	Fair value hedges	Cash flow hedges	Fair value hedges
	$m	$m	$m	$m
Foreign exchange	21,672	4	24,506	15
Interest rate	31,490	97,879	35,863	121,573
Total	53,162	97,883	60,369	121,588

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 30 June 2021, the notional contract values of outstanding financial instruments designated as hedges of net investments in foreign operations were $10,817m (31 December 2020: $10,500m).

Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39 'Financial Instruments'

The Group has cash flow and fair value hedge accounting relationships that are exposed to different Ibors, predominantly US dollar Libor, sterling Libor and Euribor, as well as overnight rates subject to the market-wide benchmarks reform such as the European Overnight Index Average rate ('Eonia'). Existing financial instruments (such as derivatives, loans and bonds) designated in relationships referencing these benchmarks are expected to transition to RFRs in different ways and at different times. External progress on the transition to RFRs

is being monitored, with the objective of ensuring a smooth transition for the Group's hedge accounting relationships. The specific issues arising will vary with the details of each hedging relationship, but may arise due to the transition of existing products included in the designation, a change in expected volumes of products to be issued, a change in contractual terms of new products issued, or a combination of these factors. Some hedges may need to be de-designated and new relationships entered into, while others may survive the market-wide benchmarks reform.

The hedged items that are affected by the Phase 2 amendments to the IASB's Ibor reform are presented in the balance sheet as 'Financial assets designated and otherwise mandatorily measured at fair value through other comprehensive income', 'Loans and advances to customers', 'Debt securities in issue' and 'Deposits by banks'.

The notional amounts of interest rate derivatives designated in hedge accounting relationships represent the extent of the risk exposure managed by the Group that is expected to be directly affected by market-wide Ibor reform and in scope of the IASB Ibor reform Phase 1 and Phase 2 amendments. The cross-currency swaps designated in hedge accounting relationships and affected by Ibor reform are not significant and have not been presented below:

Hedging instrument impacted by Ibor reform
	Hedging instrument
	Impacted by Ibor reform					Not impacted by Ibor reform	Notional amount¹
	€	£	$	Other	Total	Not impacted by Ibor reform	Notional amount¹
	$m	$m	$m	$m	$m	$m	$m
Fair value hedges	9,615	311	25,511	7,024	42,461	55,418	97,879
Cash flow hedges	8,662	829	4,201	5,630	19,322	12,168	31,490
At 30 Jun 2021	18,277	1,140	29,712	12,654	61,783	67,586	129,369

Fair value hedges	17,792	3,706	32,789	10,128	64,415	57,158	121,573
Cash flow hedges	8,344	2,522	8,705	6,797	26,368	9,495	35,863
At 31 Dec 2020	26,136	6,228	41,494	16,925	90,783	66,653	157,436

1 The notional contract amounts of interest rate derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date. They do not represent amounts at risk.

2 The notional contract amounts of euro interest rate derivatives impacted by Ibor reform mainly comprise hedges with a Euribor benchmark, which are 'Fair value hedges' of $8,793m (31 December 2020: $6,000m) and 'Cash flow hedges' of $8,662m (31 December 2020: $8,344m).

9	Financial investments

Carrying amounts of financial investments
	30 Jun	31 Dec
	2021	2020
	$m	$m
Financial investments measured at fair value through other comprehensive income	350,002	402,054
- treasury and other eligible bills	101,297	118,163
- debt securities	246,728	281,467
- equity securities	1,895	2,337
- other instruments	82	87
Debt instruments measured at amortised cost	84,574	88,639
- treasury and other eligible bills	8,085	11,757
- debt securities	76,489	76,882
At the end of the period	434,576	490,693

10	Interests in associates and joint ventures

At 30 June 2021, the carrying amount of HSBC's interests in associates and joint ventures was $28,709m (31 December 2020: $26,684m).

Principal associates of HSBC
	At
	30 Jun 2021		31 Dec 2020
	Carrying amount	Fair value¹	Carrying amount	Fair value¹
	$m	$m	$m	$m
Bank of Communications Co., Limited	22,857	9,484	21,248	7,457
The Saudi British Bank	4,405	5,350	4,215	4,197

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).

Bank of Communications Co., Limited

The Group's investment in Bank of Communications Co., Limited ('BoCom') is classified as an associate. Significant influence in BoCom was established with consideration of all relevant factors, including representation on BoCom's Board of Directors and participation in a Resource and Experience Sharing agreement ('RES'). Under the RES, 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 30 June 2021, the fair value of the Group's investment in BoCom had been below the carrying amount for approximately nine years. As a result, the Group performed an impairment test on the carrying amount, which confirmed that there was no impairment at 30 June 2021 as the recoverable amount as determined by a value-in-use ('VIU') calculation was higher than the carrying value.

30 Jun 2021

31 Dec 2020

VIU

Carrying

value

Fair

value

VIU

Carrying

value

Fair

value

$bn

BoCom

23.6

22.9

9.5

21.8

21.2

7.5

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 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 forecast of 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 best 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 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 into 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 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 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% (31 December 2020: 3%) for periods after 2024, which does not exceed forecast GDP growth in mainland China and is consistent with forecasts by external analysts.

• Long-term asset growth rate: 3% (31 December 2020: 3%) for periods after 2024, which is the rate that assets are expected to grow to achieve long-term profit growth of 3%.

• Discount rate: 10.59% (31 December 2020: 11.37%), which is based on a capital asset pricing model ('CAPM') calculation for BoCom, using market data. Management also compares the rate derived from the CAPM with discount rates from external sources. The discount rate used is within the range of 9.5% to 15.0% (31 December 2020: 10.3% to 15.0%) indicated by external sources. The lower rate reflects the impact of updates to certain components of CAPM arising from a relative reduction in the volatility of Chinese banks, the maturity of the Chinese banking industry, and a decrease in mainland China's credit risk due to its relatively quick recovery from the impact of the Covid-19 outbreak.

• Expected credit losses ('ECL') as a percentage of customer advances: ranges from 0.98% to 1.10% (31 December 2020: 0.98% to 1.22%) in the short to medium term, reflecting a decrease in the upper end of the range due to BoCom's actual results and an improved outlook for ECL following the peak of the Covid-19 outbreak in mainland China. For periods after 2024, the ratio is 0.88% (2020: 0.88%), which is slightly lower than BoCom's average ECL in recent years prior to the Covid-19 outbreak.

• Risk-weighted assets as a percentage of total assets: ranges from 61% to 62% (31 December 2020: 61% to 62%) in the short to medium term, reflecting increases that may arise from relatively elevated ECL in the short term, followed by reductions that may arise from a subsequent lowering of ECL and a continuation of the trend of strong retail loan growth. For periods after 2024, the ratio is 61% (2020: 61%). These rates are similar to BoCom's actual results in recent years and are slightly below forecasts disclosed by external analysts.

• Operating income growth rate: ranges from 4.4% to 6.3% (31 December 2020: 3.5% to 6.7%) in the short to medium term, and is lower than BoCom's actual results in recent years and forecasts disclosed by external analysts, reflecting BoCom's most recent actual results, global trade tensions and industry developments in mainland China.

• Cost-income ratio: 36.1% (31 December 2020: 36.3% to 36.8%) in the short to medium term. These ratios are similar to BoCom's actual results in recent years and slightly lower than forecasts disclosed by external analysts.

• Effective tax rate: ranges from 10.0% to 14.3% (31 December 2020: 7.8% to 16.5%) in the short to medium term, reflecting BoCom's actual results and an expected increase towards the long-term assumption through the forecast period. For periods after 2024, the rate is 16.8% (2020: 16.8%), which is higher than the recent historical average, above the most likely rate within the range of the minimum tax rate as proposed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, and forecasts for the short to medium term disclosed by external analysts.

• Capital requirements: Capital adequacy ratio: 12.5% (31 December 2020: 11.5%) and tier 1 capital adequacy ratio: 9.5% (31 December 2020: 9.5%), based on BoCom's capital risk appetite and the minimum regulatory requirements, respectively. The capital adequacy ratio assumption was updated to 12.5% from 11.5%, which was the minimum regulatory requirement, following the recent approval of BoCom's capital management plan.

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	Decrease by 22 basis points
• Long-term asset growth rate	Increase by 19 basis points
• Discount rate	Increase by 27 basis points
• Expected credit losses as a percentage of customer advances	Increase by 3 basis points
• Risk-weighted assets as a percentage of total assets	Increase by 145 basis points
• Operating income growth rate	Decrease by 39 basis points
• Cost-income ratio	Increase by 87 basis points
• Long-term effective tax rate	Increase by 228 basis points
• Capital requirements - capital adequacy ratio	Increase by 30 basis points
• Capital requirements - tier 1 capital adequacy ratio	Increase by 199 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 may 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 period to period.

Sensitivity of VIU to reasonably possible changes in key assumptions
	Favourable change			Unfavourable change
		Increase in VIU	VIU		Decrease in VIU	VIU
	bps	$bn	$bn	bps	$bn	$bn
At 30 Jun 2021
Long-term asset/profit growth rate¹	(50) / -	1.9 / -	25.5 / 23.6	- / (50)	- / (1.7)	23.6 / 21.9
Discount rate	(109)	3.8	27.4	31	(0.8)	22.8
Expected credit losses as a percentage of customer advances	2021 to 2024: 99 2025 onwards: 79	1.9	25.5	2021 to 2024: 112 2025 onwards: 102	(3.0)	20.6
Risk-weighted assets as a percentage of total assets	(81)	0.3	23.9	87	(0.6)	23.0
Operating income growth rate	16	0.4	24.0	(46)	(0.9)	22.7
Cost-income ratio	(168)	1.7	25.3	287	(2.6)	21.0
Long-term effective tax rate	(180)	0.6	24.2	820	(2.7)	20.9
Capital requirements - capital adequacy ratio	-	-	23.6	254	(7.4)	16.2
Capital requirements - tier 1 capital adequacy ratio	-	-	23.6	332	(4.8)	18.8

At 31 Dec 2020
Long-term asset/profit growth rate¹	(50) / -	1.4 / -	23.2 / 21.8	- / (50)	- / (1.3)	21.8 / 20.5
Discount rate		1.2	23.0	53	(1.2)	20.6
Expected credit losses as a percentage of customer advances	2020 to 2024: 96 2025 onwards: 76	2.3	24.1	2020 to 2024: 122 2025 onwards: 95	(2.1)	19.7
Risk-weighted assets as a percentage of total assets	(40)	0.1	21.9	166	(0.8)	21.0
Operating income growth rate	2	0.2	22.0	(69)	(1.5)	20.3
Cost-income ratio	(149)	1.3	23.1	120	(1.2)	20.6
Long-term effective tax rate	(316)	0.9	22.7	820	(2.2)	19.6
Capital requirements - capital adequacy ratio	-	-	21.8	297	(7.8)	14.0
Capital requirements - tier 1 capital adequacy ratio	-	-	21.8	263	(5.3)	16.5

1 The reasonably possible ranges of the long-term profit growth rate and long-term asset growth rate assumptions reflect the close relationship between these assumptions, which would result in offsetting changes to each assumption.

Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is $19.6bn to $25.9bn (31 December 2020: $18.2bn to $24.2bn). The range is based on the favourable/unfavourable change in the earnings in the short to medium term and long-term expected credit losses as a percentage of customer advances as 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.

The Saudi British Bank

The Group's investment in The Saudi British Bank ('SABB') is classified as an associate. In June 2019, the merger between SABB and Alawwal bank ('Alawwal') became effective, which reduced HSBC's 40% interest in SABB to 29.2%. On 3 December 2020, HSBC purchased additional shares in SABB, which increased the Group's shareholding to 31%. HSBC remains the largest shareholder in SABB. Significant influence in SABB is established via representation on the Board of Directors. Investments in associates are recognised using the equity method of accounting in accordance with IAS 28, as described previously for BoCom.

Impairment testing

There were no indicators of impairment at 30 June 2021. The fair value of the Group's investment in SABB of $5.4bn was above the carrying amount of $4.4bn.

11	Provisions

	Restructuring costs	Legal proceedings and regulatory matters	Customer remediation	Other provisions	Total
	$m	$m	$m	$m	$m
Provisions (excluding contractual commitments)
At 31 Dec 2020	671	756	858	305	2,590
Additions	158	61	92	100	411
Amounts utilised	(273)	(149)	(298)	(28)	(748)
Unused amounts reversed	(72)	(14)	(93)	(43)	(222)
Exchange and other movements	45	(27)	10	(29)	(1)
At 30 Jun 2021	529	627	569	305	2,030
Contractual commitments¹
At 31 Dec 2020					1,088
Net change in expected credit loss provision and other movements					(304)
At 30 Jun 2021					784
Total provisions
At 31 Dec 2020					3,678
At 30 Jun 2021					2,814

1 Contractual commitments include the provision for contingent liabilities measured under IFRS 9 'Financial Instruments' in respect of financial guarantees and the expected credit loss provision on off-balance sheet guarantees and commitments.

Further details of 'Legal proceedings and regulatory matters' are set out in Note 13. 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' refers 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.

At 30 June 2021, $278m (31 December 2020: $334m) of the customer remediation provision related to the estimated liability for redress in respect of the possible mis-selling of payment protection insurance ('PPI') policies in previous years. Payments totalling $74m were made during the first six months of 2021, and the provision was increased by $18m.

At 30 June 2021, a provision of $124m (31 December 2020: $308m) was held relating to the liability for redress payable to customers following a review of collections and recoveries practices in the UK. During the first six months of 2021, redress payments and incurred operating costs totalled $157m, in addition to a net release of $27m of provision. This release takes account of the impact of the estimated cost of redress of the actual number of customers impacted and cost of redress paid.

For further details of the impact of IFRS 9 on undrawn loan commitments and financial guarantees, presented in 'Contractual commitments', see Note 12. 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 70.

12	Contingent liabilities, contractual commitments and guarantees

	At
	30 Jun	31 Dec
	2021	2020
	$m	$m
Guarantees and contingent liabilities:
- financial guarantees	27,274	18,384
- performance and other guarantees	80,641	78,114
- other contingent liabilities	838	1,219
At the end of the period	108,753	97,717
Commitments:¹
- documentary credits and short-term trade-related transactions	9,201	7,178
- forward asset purchases and forward deposits placed	72,916	66,506
- standby facilities, credit lines and other commitments to lend	764,768	771,086
At the end of the period	846,885	844,770

1 Includes $661,373m of commitments at 30 June 2021 (31 December 2020: $659,783m), 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 11.

The majority of 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 and regulatory and other matters against Group companies are excluded from this note but are disclosed in Notes 11 and 13.

13	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 of the Annual Report and Accounts 2020. While the outcomes of legal proceedings and regulatory matters are inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at 30 June 2021 (see Note 11). 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 for the Southern District of New York (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 February 2019, the US Court of Appeals for the Second Circuit (the 'Second Circuit Court of Appeals') reversed that dismissal. Following the US Supreme Court's denial of certiorari in June 2020, the cases were remanded to the US Bankruptcy Court, where they are now pending.

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 to file amended complaints. As a result of that opinion, all claims against one of the HSBC companies, and certain claims against the remaining HSBC defendants, were dismissed. In May 2019, the liquidators appealed certain issues from the US Bankruptcy Court to the US District Court for the Southern District of New York (the 'New York District Court') and these appeals remain pending.

In January 2020, the liquidators filed amended complaints on the claims remaining in the US Bankruptcy Court. In December 2020, the US Bankruptcy Court granted in part and denied in part motions filed by the defendants, including HSBC, to dismiss the amended complaints. In March 2021, the liquidators and defendants appealed the US Bankruptcy Court's decision, and these appeals are currently pending. Meanwhile, proceedings before the US Bankruptcy Court with respect to the remaining claims that were not dismissed are ongoing.

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 2021 for UK-based defendants and November 2021 for all other defendants.

Cayman Islands litigation: In February 2013, Primeo Fund ('Primeo') (in liquidation since April 2009) brought an action against HSBC Securities Services Luxembourg ('HSSL') and Bank of Bermuda (Cayman) Limited (now known as HSBC 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, in June 2019, the Court of Appeal of the Cayman Islands dismissed Primeo's appeal. In August 2019, Primeo filed a notice of appeal to the UK Privy Council. The first of two possible hearings before the UK Privy Council took place during April 2021, where judgment is pending.

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. In December 2018, Alpha Prime brought additional claims before the Luxembourg District Court seeking damages against various HSBC companies. These matters are currently pending before the Luxembourg District Court.

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. These matters are currently pending before the Luxembourg District Court.

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 decision. In July 2020, the Irish Supreme Court ruled in part in favour of Defender Limited and returned the case to the High Court for further proceedings. In April 2021, the parties reached an agreement to resolve the dispute and, in May 2021, the action against HTIE was discontinued.

There are many factors that may affect the range of possible outcomes, and any 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 to or exceeding $500m, excluding costs and interest. Due to uncertainties and limitations of this estimate, any possible damages that might ultimately arise could differ significantly from this amount.

Anti-money laundering and sanctions-related matters

In December 2012, HSBC Holdings entered into a number of agreements, including an undertaking with the UK Financial Services Authority (replaced with a Direction issued by the UK Financial Conduct Authority ('FCA') in 2013 and again in 2020) as well as a cease-and-desist order with the US Federal Reserve Board ('FRB'), both of which contained certain forward-looking anti-money laundering ('AML') and sanctions-related obligations. HSBC also agreed to retain an independent compliance monitor (who was, 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. In 2020, HSBC's engagement with the independent compliance monitor, acting in his roles as both Skilled Person and Independent Consultant, concluded. The role of FCA Skilled Person was assigned to a new individual in the second quarter of 2020. Separately, in early 2021, a new FRB Independent Consultant was appointed pursuant to the cease-and-desist order. The roles of each of the FCA Skilled Person and the FRB Independent Consultant are discussed on page 188 of the Annual Report and Accounts 2020.

The FCA is conducting an investigation into HSBC Bank plc's and HSBC UK Bank plc's compliance with UK money laundering regulations and financial crime systems and controls requirements. HSBC continues to cooperate with the FCA's investigation, which is at or nearing completion.

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. 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. Currently, nine actions remain pending in federal courts in New York or the District of Columbia. The courts have granted HSBC's motions to dismiss in five of these cases. Appeals remain pending in two cases, and the remaining three dismissals are also subject to appeal. The four remaining actions are at a very early stage.

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

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

Euro interest rate derivatives: In December 2016, the European Commission ('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 appealed the decision and, in September 2019, the General Court of the European Union (the 'General Court') issued a decision largely upholding the EC's findings on liability but annulling the fine. HSBC and the EC both appealed the General Court's decision to the European Court of Justice (the 'Court of Justice'). In June 2021, the EC adopted a new fining decision for an amount which was 5% less than the previously annulled fine, and subsequently withdrew its appeal to the Court of Justice. HSBC's appeal remains pending.

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. HSBC has reached class settlements with five groups of plaintiffs, and the court has approved these settlements. HSBC has also resolved several of the individual actions, although 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: Between January and March 2019, HSBC and other panel banks were named as defendants in three putative class actions filed in the New York District Court on behalf of persons and entities who purchased instruments paying interest indexed to US dollar ICE Libor from a panel bank. The complaints allege, among other things, misconduct related to the suppression of this benchmark rate in violation of US antitrust and state law. In July 2019, the three putative class actions were consolidated, and the plaintiffs filed a consolidated amended complaint. In March 2020, the court granted the defendants' joint motion to dismiss in its entirety. This matter is on appeal.

Singapore interbank offered rate ('Sibor'), Singapore swap offer rate ('SOR') and Australia bank bill swap rate ('BBSW'):
In July 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.

In the Sibor/SOR litigation, in March 2021, following an appeal by the plaintiffs, the Second Circuit Court of Appeals reversed the dismissal of the plaintiffs' third amended complaint and remanded the case to the New York District Court where it remains pending against the defendants, including The Hongkong and Shanghai Banking Corporation Limited.

In the BBSW litigation, in November 2018, the court dismissed all foreign defendants, including all the HSBC entities, on personal jurisdiction grounds. In April 2019, the plaintiffs filed an amended complaint, which the defendants moved to dismiss. In February 2020, the court again dismissed the plaintiffs' amended complaint against all the HSBC entities.

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

Since at least 2014, the EC has been conducting an investigation into trading activities by a number of banks, including HSBC, in the foreign exchange spot market. HSBC is cooperating with this investigation.

In January 2018, following the conclusion of the US Department of Justice's ('DoJ') investigation into HSBC's historical foreign exchange activities, 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. In January 2021, the FX DPA expired and, in July 2021, the DoJ filed a motion to dismiss the charges deferred by the FX DPA, which remains pending.

In December 2016, Brazil's Administrative Council of Economic Defense initiated an investigation into the onshore foreign exchange market and identified a number of banks, including HSBC, as subjects of its investigation.

In June 2020, the Competition Commission of South Africa, having initially referred a complaint for proceedings before the South African Competition Tribunal in February 2017, filed a revised complaint against 28 financial institutions, including HSBC Bank plc and HSBC Bank USA, for alleged anti-competitive behaviour in the South African foreign exchange market. In August 2020, HSBC Bank plc and HSBC Bank USA filed an application to dismiss the revised complaint, which remains pending.

Beginning in 2013, various HSBC companies and other banks have been named as defendants in a number of putative class actions filed in, or transferred to, the New York District Court arising from allegations that the defendants conspired to manipulate foreign exchange rates. HSBC has reached class settlements with two groups of plaintiffs, including direct and indirect purchasers of foreign exchange products, and the court has granted final approval of these settlements. A putative class action by a group of retail customers of foreign exchange products remains pending.

In September 2018, various HSBC companies and other banks were named as defendants in two motions for certification of class actions filed in Israel alleging foreign exchange-related misconduct. In July 2019, the Tel Aviv Court allowed the plaintiffs to consolidate their claims and, in September 2019, the plaintiffs filed a motion for certification of the consolidated class action. In August 2020, HSBC Bank plc filed a motion to dismiss and, in January 2021, HSBC Holdings filed a motion seeking to challenge the service of the motion for certification on defendants outside Israel. These motions remain pending.

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 direct purchaser class action settlement in the US. These matters remain pending. Additionally, in May 2021, two civil actions were filed in Brazil alleging foreign exchange-related misconduct by various banks, including HSBC, for the period from 2007 to 2013. HSBC has not yet been served with these actions. It is possible that additional civil 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 litigation

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, which were consolidated in the New York District Court, 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. In October 2020, HSBC reached a settlement in principle with the plaintiffs to resolve the consolidated action. The settlement remains subject to court approval.

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 ongoing.

Silver: Beginning in July 2014, numerous putative class actions were filed in federal district courts in New York, naming HSBC and other members of The London Silver Market Fixing Limited 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, 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. These actions are ongoing.

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 2020, the court granted the defendants' motion to dismiss the plaintiffs' third amended complaint but granted the plaintiffs leave to re-plead certain claims. The plaintiffs have filed an appeal.

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.

Film finance litigation

In July and November 2015, 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 separate 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 June 2019, a similar claim was issued against PBGB in the High Court of England and Wales by additional claimants. These actions are ongoing.

In June 2020, two separate claims were issued against HSBC UK Bank plc (as successor to PBGB's business) in the High Court of England and Wales by two separate groups of investors in Eclipse film finance schemes in connection with PBGB's role in the development of such schemes. These actions are ongoing.

In April 2021, HSBC UK Bank plc (as successor to PBGB's business) was served with a claim issued in the High Court of England and Wales in connection with PBGB's role in the development of the Zeus film finance schemes. This action is at an early stage.

It is possible that additional actions or investigations will be initiated against HSBC UK Bank plc as a result of PBGB's 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 any possible impact on HSBC, 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:

• investigations by tax administration, regulatory and law enforcement authorities in Argentina, India and elsewhere in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation;

• an investigation by the US Commodity Futures Trading Commission regarding interest rate swap transactions related to, among other things, bond issuances;

• an investigation by the FCA in connection with collections and recoveries operations in the UK;

• an investigation by the UK Competition and Markets Authority concerning the financial services sector;

• a putative class action brought in the New York District Court relating to the Mexican government bond market;

• two group actions pending in the US courts 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; and

• litigation brought against various HSBC companies in the US courts relating to residential mortgage-backed securities, based primarily on (a) claims brought against HSBC Bank USA in connection with its role as trustee on behalf of various securitisation trusts; and (b) claims against several HSBC companies seeking that the defendants repurchase various mortgage loans.

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

14	Transactions with related parties

There were no changes in the related party transactions described in the Annual Report and Accounts 2020 that have had a material effect on the financial position or performance of HSBC in the half-year to 30 June 2021. All related party transactions that took place in the half-year to 30 June 2021 were similar in nature to those disclosed in the Annual Report and Accounts 2020.

15	Business disposals

In the first half of 2021, we accelerated the pace of execution on our strategic ambition to be the preferred international financial partner for our clients with the announcements of the potential sale of our retail banking businesses in France, as well as the exit of domestic mass market retail banking in the US .

Potential sale of the retail banking business in France

On 18 June 2021, HSBC Continental Europe signed a memorandum of understanding with Promontoria MMB SAS ('My Money Group'), its subsidiary Banque des Caraïbes SA and My Money Bank, regarding the potential sale of HSBC Continental Europe's retail banking business in France.

The potential sale includes: HSBC Continental Europe's French retail banking business; the Crédit Commercial de France ('CCF') brand; and, subject to the satisfaction of relevant conditions, HSBC Continental Europe's 100% ownership interest in HSBC SFH (France) and its 3% ownership interest in Crédit Logement. The sale would generate an estimated loss before tax including related transaction costs for the Group of $2.3bn, together with an additional $0.7bn impairment of goodwill.

There would be no immediate tax benefit recognised in respect of the sale loss nor impairment. The vast majority of the estimated loss for the write-down of the disposal group to fair value less costs to sell will be recognised when it is classified as held for sale in accordance with IFRS 5, which is currently anticipated to be in 2022. Subsequently, the disposal group classified as held for sale will be remeasured at the lower of carrying amount and fair value less costs to sell at each reporting period. Any remaining gain or loss not previously recognised shall be recognised at the date of derecognition, which is currently anticipated to be in the first half of 2023.

At 30 June 2021, the value of the total assets of the business to be sold was $28.2bn, including $25.6bn of loans and advances to customers, and the value of customer accounts was $23.5bn.

US retail banking business

On 26 May 2021, we announced that we will exit our US mass market retail banking business, including our Personal and Advance propositions, as well as retail business banking, and will rebrand approximately 20 to 25 of our retail branches into international wealth centres to serve our Premier and Jade customers. In conjunction with the execution of this strategy, HSBC Bank USA, N.A. has entered into definitive sale agreements with Citizens Bank and Cathay Bank to sell approximately 90 of our retail branches along with substantially all residential mortgage, unsecured and retail business banking loans and all deposits in our branch network not associated with our Premier, Jade and Private Banking customers. Certain assets under management associated with our mass market retail banking business will also be transferred. The remaining branches not sold or rebranded will be closed.

The sales are expected to close by the first quarter of 2022, subject to regulatory approval, and are not expected to impact results materially. At 30 June 2021, loans and advances to customers of $2.6bn and customer accounts of $9.9bn related to these transactions met the criteria to be classified as held for sale.

16	Events after the balance sheet date

In its assessment of events after the balance sheet date, HSBC has considered and concluded that no material events have occurred resulting in adjustments to the financial statements.

An interim dividend for the 2021 half-year in respect of the financial year ending 31 December 2021 was approved by the Directors on 2 August 2021, as described in Note 3.

17	Interim Report 2021 and statutory accounts

The information in this Interim Report 2021 is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. This Interim Report 2021 was approved by the Board of Directors on 2 August 2021. The statutory accounts of HSBC Holdings plc for the year ended 31 December 2020 have been delivered to the Registrar of Companies in England and Wales in accordance with section 447 of the Companies Act 2006. The Group's auditor PricewaterhouseCoopers LLP ('PwC') has reported on those accounts. Its report was unqualified, did not include a reference to any matters to which PwC drew attention by way of emphasis without qualifying its report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Shareholder information
		Page			Page
1	Directors' interests	132	11	Corporate governance	136
2	Employee share plans	134	12	Changes in Directors' details	136
3	Other equity instruments	134	13	Going concern basis	136
4	Notifiable interests in share capital	134	14	Telephone and online share dealing service	136
5	Dealings in HSBC Holdings listed securities	135	15	Stock symbols	137
6	Interim dividend for the 2021 half-year	135	16	Copies of the Interim Report 2021 and shareholder enquiries and communications	137
7	Dividend on preference shares	135	16		137
8	Proposed interim dividends for 2021	135
9	Earnings release	135
10	Final results	135

1	Directors' interests

According to the register of Directors' interests maintained by HSBC Holdings pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong, at 30 June 2021 (or date of retirement from the Board, if earlier) the Directors of HSBC Holdings had the following interests, all beneficial unless otherwise stated, in the shares or debentures of HSBC and its associates:

Directors' interests - shares and debentures
		At 30 Jun 2021
	At 1 Jan 2021	Beneficial owner	Child under 18 or spouse	Jointly with another person	Trustee	Total interests
HSBC Holdings ordinary shares
Laura Cha¹	16,200	16,200	-	-	-	16,200
Henri de Castries¹	19,251	19,251	-	-	-	19,251
James Forese²	115,000	115,000	-	-	-	115,000
Steven Guggenheimer²	15,000	-	-	15,000	-	15,000
Irene Lee	11,904	15,000	-	-	-	15,000
José Antonio Meade Kuribreña²	15,000	15,000	-	-	-	15,000
Heidi Miller^1,2	15,700	15,700	-	-	-	15,700
Eileen Murray²	75,000	75,000				75,000
David Nish	50,000	-	50,000	-	-	50,000
Noel Quinn³	778,958	986,297	-	-	-	986,297
Ewen Stevenson³	545,731	757,135	-	-	-	757,135
Jackson Tai^2,4	66,515	32,800	11,965	21,750	-	66,515
Mark Tucker	307,352	307,352	-	-	-	307,352
Pauline van der Meer Mohr	15,000	15,000	-	-	-	15,000

1 Laura Cha, Henri de Castries and Heidi Miller retired from the Board on 28 May 2021.

2 James Forese has an interest in 23,000, Steven Guggenheimer has an interest in 3,000, José Antonio Meade Kuribreña has an interest in 3,000, Heidi Miller has an interest in 3,140, Eileen Murray has an interest in 15,000 and Jackson Tai has an interest in 13,303 listed American Depositary Shares ('ADSs'), which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

3 Executive Directors' other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings Savings-Related Share Option Plan (UK) and the HSBC Share Plan 2011 are set out on the following pages. At 30 June 2021, the aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee share plans, were: Noel Quinn - 2,585,804 and Ewen Stevenson - 2,377,832. Each Director's total interests represents around 0.01% of the shares in issue and 0.01% of the shares in issue excluding treasury shares.

4 Jackson Tai's holding includes a non-beneficial interest in 11,965 shares of which he is custodian.

Savings-Related Share Option Plan

Currently no executive Directors participate in a Savings-Related Share Option Plan. For further details on the Savings-Related Share Option Plan, see page 128.

HSBC Share Plan 2011

Conditional awards of deferred shares

Vesting of deferred share awards is normally subject to the Director remaining an employee on the vesting date. The awards may vest at an earlier date in certain circumstances. Under the Securities and Futures Ordinance of Hong Kong, interests in conditional share awards are categorised as the interests of the beneficial owner.

Deferred share awards
			HSBC Holdings ordinary shares
	Date of award	Year in which awards may vest	Awards held at	Awards made during the period to 30 Jun 2021		Awards vested during the period to 30 Jun 2021		Awards held at
	Date of award	Year in which awards may vest	1 Jan 2021	Number	Monetary value	Number	Monetary value	30 Jun 2021
					£000		£000
Noel Quinn	29/2/2016¹	2021	38,910	-	-	39,885²	169	-
	27/2/2017³	2020-2024	65,836	-	-	14,851	63	52,647²
	26/2/2018⁴	2021-2025	107,523	-	-	21,504	91	86,019
	25/2/2019⁵	2022-2026	140,585	-	-	-	-	140,585
	24/2/2020⁶	2023-2027	201,702	-	-	-	-	201,702
	1/3/2021⁷	2021	-	187,470	799	187,470	799	-
Ewen Stevenson	28/5/2019⁸	2020-2025	486,802	-	-	222,047	948	264,755
	28/5/2019⁹	2022-2026	241,988			-	-	241,988
	1/3/2021⁷	2021	-	105,584	450	105,584	450	-

1 At the date of the award (29 February 2016), the market value per share was £4.6735. The award vested in full on 15 March 2021 at a market value of £4.2464.

2 Includes any additional shares arising from dividend equivalents.

3 At the date of the award (27 February 2017), the market value per share was £6.5030. The award will vest in five equal annual tranches. The second tranche vested on 12 March 2021 at a market value of £4.2712. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for six months from the vesting date.

4 At the date of the award (26 February 2018), the market value per share was £7.2340. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date. The award will vest in five equal annual tranches. The first tranche vested on 11 March 2021 at a market value of £4.2538.

5 At the date of the award (25 February 2019), the market value per share was £6.2350. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date. The award will vest in five equal annual tranches commencing in March 2022.

6 At the date of the award (24 February 2020), the market value per share was £5.6220. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date. The award will vest in five equal annual tranches commencing in March 2023.

7 The non-deferred award vested immediately on 1 March 2021 and was based on the market value of £4.2620. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for one year from the vesting date.

8 The award was granted on 28 May 2019 using a market value per share of £6.6430 as at 30 November 2018. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for up to one year from the vesting date. The second tranche vested on
12 March 2021 and was based on a market value of £4.2712. The award replaced the 2015 to 2018 long-term incentive ('LTI') plans forfeited by the Royal Bank of Scotland Group plc ('RBS') and is subject to any performance adjustments assessed and disclosed in the relevant annual report and accounts of RBS.

9 The award was granted on 28 May 2019 using a market value per share of £6.2350 as at 22 February 2019. Shares equivalent in number to those that vest under the award (net of tax liabilities) must be retained for up to one year from the vesting date. The award will vest in five annual tranches commencing in March 2022. The award is in respect of the 2018 performance year granted based on Ewen Stevenson's maximum opportunity under RBS's policy and the outcome of the 2018 scorecard as disclosed in RBS's Annual Report and Accounts 2018. The number of shares that vest may be adjusted based on any 'pre-vest performance test' assessed and disclosed in RBS's Annual Report and Accounts.

Long-term incentive awards

The long-term incentive award is an award of shares with a three-year performance period. At the end of this performance period and subject to the award terms, the number of shares that vest will be determined based on an assessment against financial and non-financial measures. Subject to that assessment, the shares will vest in five equal annual instalments. On vesting, awards are subject to a retention period of up to one year. Under the Securities and Futures Ordinance of Hong Kong, interests in share awards are categorised as interests of the beneficial owner.

Long-term incentive awards
			HSBC Holdings ordinary shares
	Date of award¹	Year in which awards may vest	Awards held at	Awards made during the period to 30 Jun 2021		Awards vested during the period to 30 Jun 2021		Awards held at
	Date of award¹	Year in which awards may vest	1 Jan 2021	Number	Monetary value	Number	Monetary value	30 Jun 2021
					£000		£000
Noel Quinn	1 Mar 2021	2024-2028	-	1,118,554	4,767	-	-	1,118,554
Ewen Stevenson	24 Feb 2020	2023-2027	476,757	-	-	-	-	476,757
Ewen Stevenson	1 Mar 2021	2024-2028	-	637,197	2,716	-	-	637,197

1 Awards made on 24 February 2020 were based on the market value of £5.6220 and awards made on 1 March 2021 were based on the market value of £4.2620.

No Directors held any short position (as defined in the Securities and Futures Ordinance of Hong Kong) in the shares or debentures of HSBC Holdings and its associated corporations. Save as stated in the tables above, none of the Directors had an interest in any shares or debentures of HSBC Holdings or any associates at the beginning or at the end of the period, and none of the Directors or members of their immediate families were awarded or exercised any right to subscribe for any shares or debentures in any HSBC corporation during the period.

There have been no changes in the shares or debentures of the Directors from 30 June 2021 to the date of this report.

2	Employee share plans

Share options and discretionary awards of shares are granted under HSBC share plans to help align the interests of employees with those of shareholders. The following are particulars of outstanding share options, including those held by employees working under employment contracts that are regarded as 'continuous contracts' for the purposes of the Hong Kong Employment Ordinance. The options were granted at nil consideration. No options have been granted to substantial shareholders, suppliers of goods or services, or in excess of the individual limit for each share plan. No options were cancelled by HSBC during the period to 30 June 2021.

A summary of the total number of options granted, exercised or lapsed during the period is shown in the following table. Particulars of options held by Directors of HSBC Holdings are set out on page 126. Further details required to be disclosed pursuant to Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited are available on our website at www.hsbc.com, and on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk. Copies may be obtained upon request from the Group Company Secretary and Chief Governance Officer, 8 Canada Square, London E14 5HQ.

All-employee share plans

The HSBC Holdings Savings-Related Share Option Plan (UK) is an all-employee share plan under which eligible employees have been granted options to acquire HSBC Holdings ordinary shares. The HSBC International Employee Share Purchase Plan was introduced in 2013 and now includes employees based in 27 jurisdictions, although no options are granted under this plan. During 2020, approximately 171,000 employees were offered participation in these plans.

For options granted under the HSBC Holdings Savings-Related Share Option Plan (UK), employees may make contributions of up to £500 each month over a period of three or five years. The contributions may be used within six months following the third or fifth anniversary of the commencement of the relevant savings contract, at the employee's election, to exercise the options. Alternatively, the employee may elect to have the savings, plus (where applicable) any interest or bonus, repaid in cash. In the case of redundancy, ceasing employment on grounds of injury or disability, retirement, death, the transfer of the employing business to another party, or a change of control of the employing company, options may be exercised before completion of the relevant savings contract. In certain circumstances, the exercise period of options awarded under the all-employee share option plans may be extended; for example, on the death of a participant, the executors may exercise the option up to six months beyond the normal exercise period or, if a participant has chosen to defer up to 12 contributions, the start of the normal exercise period will be delayed by up to 12 months.

Under the HSBC Holdings Savings-Related Share Option Plan (UK), the option exercise price is determined by reference to the average market value of the HSBC Holdings ordinary shares on the five business days immediately preceding the invitation date, then applying a discount of 20%. The HSBC Holdings Savings-Related Share Option Plan (UK) has an expiry date of 24 April 2030 (by which time the plan may be extended with approval from shareholders) unless the Directors resolve to terminate the plan at an earlier date.

HSBC Holdings all-employee share option plan

HSBC Holdings ordinary shares

Dates of award

Exercise price

Usually exercisable

1 Jan 2021

Granted

in period

Exercised

in period

Lapsed

in period

30 Jun 2021

from

HSBC Savings-Related Share Option Plan (UK)¹

22 Sep 2015

24 Sep

2020

(£)

2.6270

(£)

5.9640

1 Nov 2019

30 April 2026

130,952,539

2,991,699

10,054,766

117,906,074

1 The weighted average closing price of the shares immediately before the dates on which options were exercised was £4.3567.

3	Other equity instruments

Additional tier 1 capital - contingent convertible securities

HSBC Holdings continues to issue contingent convertible securities that are included in its capital base as fully CRR II-compliant additional tier 1 capital securities on an end point basis. These securities are marketed principally and subsequently allotted to corporate investors and fund managers. The net proceeds of the issuances are typically used for HSBC Holdings' general corporate purposes and to further strengthen its capital base to meet requirements under CRR II. These securities bear a fixed rate of interest until their initial call dates. After the initial call dates, if they are not redeemed, the securities will bear interest at rates fixed periodically in advance for five-year periods based on credit spreads, fixed at issuance, above prevailing market rates. Interest on the contingent convertible securities will be due and payable only at our sole discretion of HSBC Holdings, and HSBC Holdings has sole and absolute discretion at all times to cancel for any reason (in whole or part) any interest payment that would otherwise be payable on any payment date. Distributions will not be paid if they are prohibited under UK banking regulations or if the Group has insufficient reserves or fails to meet the solvency conditions defined in the securities' terms.

The contingent convertible securities are undated and are repayable at the option of HSBC Holdings in whole typically at the initial call date or on any fifth anniversary after this date. In addition, the securities are repayable at the option of HSBC in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA. These securities rank pari passu with HSBC Holdings' sterling preference share and therefore rank ahead of ordinary shares. The contingent convertible securities will be converted into fully paid ordinary shares of HSBC Holdings at a predetermined price, should HSBC's consolidated non-transitional CET1 ratio fall below 7.0%. Therefore, in accordance with the terms of the securities, if the non-transitional CET1 ratio breaches the 7.0% trigger, the securities will convert into ordinary shares at the fixed contractual conversion prices in the issuance currencies of the relevant securities, equivalent to £2.70 at the prevailing rate of exchange on the issuance date, subject to anti-dilution adjustments. During the first half of 2021, HSBC issued $2,000m of contingent convertible securities across two issuances of $1,000m each.

4	Notifiable interests in share capital

Between 1 January 2021 and 30 June 2021, HSBC Holdings had not received any notifications of major holdings of voting rights pursuant to the requirements of Rule 5 of the UK Disclosure Guidance and Transparency Rules.

At 30 June 2021, as recorded in the register maintained by HSBC Holdings pursuant to section 336 of the Securities and Futures Ordinance of Hong Kong:

• BlackRock, Inc. gave notice on 30 June 2021 that on 25 June 2021 it had the following interests in HSBC Holdings ordinary shares:
a long position of 1,658,733,707 shares and a short position of 14,678,994 shares, representing 7.99% and 0.07% respectively, of the ordinary shares in issue at that date.

• Ping An Asset Management Co., Ltd, gave notice on 25 September 2020 that on 23 September 2020 it had a long position of 1,655,479,531 in HSBC Holdings ordinary shares, representing 8.00% of the ordinary shares in issue at that date.

•

5	Dealings in HSBC Holdings listed securities

HSBC has policies and procedures that, except where permitted by statute and regulation, prohibit it undertaking specified transactions in respect of its securities listed on The Stock Exchange of Hong Kong Limited ('HKEx'). Except for dealings as intermediaries or as trustees by subsidiaries of HSBC Holdings, neither HSBC Holdings nor any of its subsidiaries has purchased, sold or redeemed any of its securities listed on HKEx during the half-year ended 30 June 2021.

6	Interim dividend for the 2021 half-year

On 2 August 2021, the Directors approved an interim dividend for the 2021 half-year of $0.07 per ordinary share in respect of the financial year ending 31 December 2021. The dividend will be payable on 30 September 2021 to holders on the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 20 August 2021.

The dividend will be payable in US dollars, or in pounds sterling or Hong Kong dollars at the forward exchange rates quoted by HSBC Bank plc in London at or about 11.00am on 20 September 2021, or a combination of these currencies. Particulars of these arrangements will be sent to shareholders on or about 27 August 2021 and changes to currency elections must be received by 16 September 2021. The ordinary shares in London, Hong Kong and Bermuda, and American Depositary Shares ('ADSs') in New York will be quoted ex-dividend on 19 August 2021. As announced on 23 February 2021, the Group has decided to discontinue the scrip dividend option.

The dividend will be payable on ADSs, each of which represents five ordinary shares, on 30 September 2021 to holders of record on
20 August 2021. The dividend of $0.35 per ADS will be payable by the depositary in US dollars. Alternatively, the cash dividend may be invested in additional ADSs by participants in the dividend reinvestment plan operated by the depositary. Elections must be received by 10 September 2021.

Any person who has acquired ordinary shares registered on the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register but who has not lodged the share transfer with the Principal Registrar in the UK, Hong Kong Overseas Branch Registrar or Bermuda Overseas Branch registrar should do so before 4.00pm local time on 20 August 2021 in order to receive the dividend.

Ordinary shares may not be removed from or transferred to the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 20 August 2021. Any person wishing to remove ordinary shares to or from each register must do so before 4.00pm local time on 19 August 2021.

Transfer of ADSs must be lodged with the depositary by 11.00am on 20 August 2021 in order to receive the dividend. ADS holders who receive a cash dividend will be charged a fee, which will be deducted by the depositary, of $0.005 per ADS per cash dividend.

7	Dividend on preference share

A quarterly dividend of £0.01 per Series A sterling preference share is payable on 15 March, 15 June, 15 September and 15 December 2021 for the quarter then ended at the sole and absolute discretion of the Board of HSBC Holdings plc. Accordingly, the Board of HSBC Holdings plc has approved a quarterly dividend to be payable on 15 September 2021 to holders of record on 31 August 2021.

8	Proposed interim dividends for 2021

As announced on 23 February 2021, the Group will not be paying quarterly dividends during 2021 but will consider whether to announce a further interim dividend at the 2021 results announcement in February 2022. The Group will review whether to revert to paying quarterly dividends at or ahead of its 2021 results announcement in February 2022. The Board has adopted a policy designed to provide sustainable cash dividends, while retaining the flexibility to invest and grow the business in the future, supplemented by additional shareholder distributions, if appropriate. Reflecting the current improved economic outlook and operating environment in many of our markets, we now expect to move within our target dividend payout ratio of 40% to 55% of reported earnings per ordinary share ('EPS') in 2021, with the flexibility to adjust EPS for non-cash significant items. Additionally, in 2022, we intend to adjust EPS to exclude the forecast loss on the sale of our retail banking operations in France.

Dividends are declared in US dollars and, at the election of the shareholder, paid in cash in one of, or in a combination of, US dollars, pounds sterling and Hong Kong dollars.

9	Earnings release

An earnings release for the three-month period ending 30 September 2021 is expected to be issued on 25 October 2021.

10	Final results

The results for the year to 31 December 2021 are expected to be announced on 22 February 2022.

11	Corporate governance

We are subject to corporate governance requirements in both the UK and Hong Kong. Throughout the six months ended 30 June 2021, we complied with the applicable provisions of the UK Corporate Governance Code and also the requirements of the Hong Kong Corporate Governance Code. The UK Corporate Governance Code is available at www.frc.org.uk and the Hong Kong Corporate Governance Code is available at www.hkex.com.hk.

Under the Hong Kong Code, the Group Audit Committee should be responsible for the oversight of all risk management and internal control systems, unless expressly addressed by a separate risk committee. Our Group Risk Committee is responsible for oversight of internal control, other than internal financial controls, and risk management systems.

The Board has codified obligations for transactions in Group securities in accordance with the requirements of the Market Abuse Regulation and the rules governing the listing of securities on the HKEx, save that the HKEx has granted waivers from strict compliance with the rules that take into account accepted practices in the UK, particularly in respect of employee share plans.

Following specific enquiries all Directors have confirmed that they have complied with their obligations in respect of transacting in Group securities throughout the period.

There have been no material changes to the information disclosed in the Annual Report and Accounts 2020 in respect of the remuneration of employees, remuneration policies, bonus and share option plans and training schemes. Details of the number of employees are provided on page 31 of the Interim Report 2021.

12	Changes in Directors' details

Changes in current Directors' details since the date of the Annual Report and Accounts 2020, which are required to be disclosed pursuant to Rule 13.51(2) and Rule 13.51B(1) of the Hong Kong Listing Rules, are set out below.

Henri de Castries

Retired from the Board, Group Remuneration Committee and Nomination & Corporate Governance Committee on 28 May 2021.

Laura Cha, GBM

Retired from the Board and Nomination & Corporate Governance Committee on 28 May 2021.

Irene Lee

Stepped down from the Group Remuneration Committee on 28 May 2021.

José Antonio Meade Kuribreña

Appointed as a member to the Group Remuneration Committee on 28 May 2021.

Heidi Miller

Retired from the Board, Group Risk Committee and Nomination & Corporate Governance Committee on 28 May 2021.

Eileen Murray

Stepped down from the Group Audit Committee on 28 May 2021.

Pauline van der Meer Mohr

Stepped down from the Group Risk Committee on 28 May 2021.

David Nish

Stepped down from the Group Remuneration Committee on 23 February 2021.

13	Going concern basis

As mentioned in Note 1 'Basis of preparation and significant accounting policies' on page 105, the financial statements are prepared on a going concern basis as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital resources. These considerations include stressed scenarios that reflect the increasing uncertainty that the global Covid-19 pandemic has had on HSBC's operations, as well as the potential impacts from other top and emerging risks, and the related impact on profitability, capital and liquidity.

In particular, HSBC's principal activities, business and operating models, strategic direction, and top and emerging risks are addressed in the Overview section. A financial summary, including a review of the consolidated income statement and consolidated balance sheet, is provided in the 'Interim management report' section. HSBC's objectives, policies and processes for managing credit, liquidity and market risk are described in the Risk section of the Annual Report and Accounts 2020. HSBC's approach to capital management and allocation is described in the 'Treasury risk' section of the Annual Report and Accounts 2020.

14	Telephone and online share dealing service

For shareholders on the Principal Register who are resident in the UK, with a UK postal address, and who hold an HSBC Bank plc personal current account, the HSBC InvestDirect share dealing service is available for buying and selling HSBC Holdings plc ordinary shares. Details are available from: HSBC InvestDirect, Forum 1, Parkway, Whiteley PO15 7PA; or UK telephone: +44 (0) 3456 080848, or from an overseas telephone: +44 (0) 1226 261090; or website: www.hsbc.co.uk/investments/products-and-services/invest-direct.

15	Stock symbols

HSBC Holdings plc ordinary shares trade under the following stock symbols:

London Stock Exchange	HSBA*
Hong Kong Stock Exchange	5
New York Stock Exchange (ADS)	HSBC
Bermuda Stock Exchange	HSBC.BH
*HSBC's primary market

16	Copies of the Interim Report 2021 and shareholder enquiries and communications

Further copies of the Interim Report 2021 may be obtained from Global Communications, HSBC Holdings plc, 8 Canada Square, London E14 5HQ, United Kingdom; from Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong; or from US Communications, HSBC Bank USA, N.A., 1 West 39th Street, 9th Floor, New York, NY 10018, USA. The Interim Report 2021 may also be downloaded from the HSBC website, www.hsbc.com.

Shareholders may at any time choose to receive corporate communications in printed form or to receive notifications of their availability on HSBC's website. To receive notifications of the availability of a corporate communication on HSBC's website by email, or to revoke or amend an instruction to receive such notifications by email, go to www.hsbc.com/ecomms. If you provide an email address to receive electronic communications from HSBC, we will also send notifications of any future dividend entitlements by email. If you received a notification of the availability of this document on HSBC's website and would like to receive a printed copy or, if you would like to receive future corporate communications in printed form, please write or send an email (quoting your shareholder reference number) to the appropriate Registrar at the address given below. Printed copies will be provided without charge.

Any enquiries relating to your shareholdings on the share register (for example transfers of shares, change of name or address, lost share certificates or dividend cheques) should be sent to the Registrar at the address given below. The Registrars offer an online facility, Investor Centre, which enables shareholders to manage their shareholding electronically.

Principal Register

Hong Kong Overseas Branch Register

Bermuda Overseas Branch Register

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol BS99 6ZZ

United Kingdom

Computershare Hong Kong Investor

Services Limited

Rooms 1712-1716, 17th Floor

Hopewell Centre

183 Queen's Road East

Hong Kong

Investor Relations Team

HSBC Bank Bermuda Limited

37 Front Street

Hamilton HM 11

Bermuda

Telephone: +44 (0) 370 702 0137

Email: web.queries@computershare.co.uk

Web: www.investorcentre.co.uk/contactus

Telephone: +852 2862 8555

Email: hsbc.ecom@computershare.com.hk

Web: www.investorcentre.com/hk

Telephone: +1 441 299 6737

Email: hbbm.shareholder.services@hsbc.bm

Web: www.investorcentre.com/bm

Any enquiries relating to ADSs should be sent to the depositary at:

The Bank of New York Mellon

Shareowner Services

PO Box 505000

Louisville, KY 40233-5000

USA

Telephone (US): +1 877 283 5786

Telephone (international): +1 201 680 6825

Email: shrrelations@cpushareownerservices.com

Web: www.mybnymdr.com

A Chinese translation of this and future documents may be obtained on request from the Registrar. Please also contact the Registrar if you have received a Chinese translation of this document and do not wish to receive such translations in future.

Persons whose shares are held on their behalf by another person may have been nominated to receive communications from HSBC pursuant to section 146 of the UK Companies Act 2006 ('nominated person'). The main point of contact for a nominated person remains the registered shareholder (for example your stockbroker, investment manager, custodian or other person who manages the investment on your behalf). Any changes or queries relating to a nominated person's personal details and holding (including any administration thereof) must continue to be directed to the registered shareholder and not HSBC's Registrar. The only exception is where HSBC, in exercising one of its powers under the UK Companies Act 2006, writes to nominated persons directly for a response.

Cautionary statement regarding forward-

looking statements

This Interim Report 2021 contains certain forward-looking statements with respect to HSBC's: financial condition; results of operations and business, including the strategic priorities; financial, investment and capital targets; and ESG targets/commitments described herein.

Statements that are not historical facts, including statements about HSBC's beliefs and expectations, are forward-looking statements. Words such as 'will', 'should', 'expects', 'targets', 'anticipates', 'intends', 'plans', 'believes', 'seeks', 'estimates', 'potential' and 'reasonably possible', variations of these words and similar expressions are intended to identify forward-looking statements. These statements are based on current plans, information, data, estimates and projections, and therefore undue reliance should not be placed on them. Forward-looking statements speak only as of the date they are made. HSBC makes no commitment to revise or update any forward-looking statements to reflect events or circumstances occurring or existing after the date of any forward-looking statements.

Written and/or oral forward-looking statements may also be made in the periodic reports to the US Securities and Exchange Commission, summary financial statements to shareholders, proxy statements, offering circulars and prospectuses, press releases and other written materials, and in oral statements made by HSBC's Directors, officers or employees to third parties, including financial analysts.

Forward-looking statements involve inherent risks and uncertainties. Readers are cautioned that a number of factors could cause actual results to differ, in some instances materially, from those anticipated or implied in any forward-looking statement. These include, but are not limited to:

• changes in general economic conditions in the markets in which we operate, such as continuing or deepening recessions and fluctuations in employment and creditworthy customers beyond those factored into consensus forecasts (including, without limitation, as a result of the Covid-19 pandemic); the Covid-19 pandemic, which is expected to continue to have adverse impacts on our income due to lower lending and transaction volumes, lower wealth and insurance manufacturing revenue, and lower or negative interest rates in markets where we operate, as well as, more generally, the potential for material adverse impacts on our financial condition, results of operations, prospects, liquidity, capital position and credit ratings; deviations from the market and economic assumptions that form the basis for our ECL measurements (including, without limitation, as a result of the Covid-19 pandemic); potential changes in HSBC's dividend policy; changes in foreign exchange rates and interest rates, including the accounting impact resulting from financial reporting in respect of hyperinflationary economies; volatility in equity markets; lack of liquidity in wholesale funding or capital markets, which may affect our ability to meet our obligations under financing facilities or to fund new loans, investments and businesses; geopolitical tensions or diplomatic developments producing social instability or legal uncertainty, such as the developments in Hong Kong and the South China Sea, the US's approach to strategic competition with China, supply chain restrictions, claims of human rights violations, diplomatic tensions between China and the UK, the EU, Australia and India, and other potential areas of tension, which may affect HSBC by creating regulatory, reputational and market risks; the efficacy of government, customer and HSBC's actions in managing and mitigating climate change and in supporting the global transition to net zero carbon emissions, which may cause both idiosyncratic and systemic risks resulting in potential financial and non-financial impacts; illiquidity and downward price pressure in national real estate markets; adverse changes in central banks' policies with respect to the provision of liquidity support to financial markets; heightened market concerns over sovereign creditworthiness in over-indebted countries; adverse changes in the funding status of public or private defined benefit pensions; societal shifts in customer financing and investment needs, including consumer perception as to the continuing availability of credit; exposure to counterparty risk, including third parties using us as a conduit for illegal activities without our knowledge; the expected discontinuation of certain key Ibors and the development of near risk-free benchmark rates, as well as the transition of legacy Ibor contracts to near risk-free benchmark rates, which exposes HSBC to material execution risks, and increases some financial and non-financial risks; and price competition in the market segments we serve;

• changes in government policy and regulation, including the monetary, interest rate and other policies of central banks and other regulatory authorities in the principal markets in which we operate and the consequences thereof (including, without limitation, actions taken as a result of the Covid-19 pandemic); initiatives to change the size, scope of activities and interconnectedness of financial institutions in connection with the implementation of stricter regulation of financial institutions in key markets worldwide; revised capital and liquidity benchmarks, which could serve to deleverage bank balance sheets and lower returns available from the current business model and portfolio mix; changes to tax laws and tax rates applicable to HSBC, including the imposition of levies or taxes designed to change business mix and risk appetite; the practices, pricing or responsibilities of financial institutions serving their consumer markets; expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign ownership; the future of the UK's relationship with the EU following the UK's withdrawal from the EU, which may continue to be characterised by uncertainty despite the signing of the Trade and Cooperation Agreement between the UK and the EU; passage of the Hong Kong national security law and restrictions on telecommunications, as well as the US Hong Kong Autonomy Act, which have caused tensions between China, the US and the UK; general changes in government policy that may significantly influence investor decisions; the costs, effects and outcomes of regulatory reviews, actions or litigation, including any additional compliance requirements; and the effects of competition in the markets where we operate including increased competition from non-bank financial services companies; and

• factors specific to HSBC, including our success in adequately identifying the risks we face, such as the incidence of loan losses or delinquency, and managing those risks (through account management, hedging and other techniques); our ability to achieve our financial, investment, capital and ESG targets/commitments, which may result in our failure to achieve any of the expected benefits of our strategic priorities; model limitations or failure, including, without limitation, the impact that the consequences of the Covid-19 pandemic have had on the performance and usage of financial models, which may require us to hold additional capital, incur losses and/or use compensating controls, such as judgemental post-model adjustments, to address model limitations; changes to the judgements, estimates and assumptions we base our financial statements on; changes in our ability to meet the requirements of regulatory stress tests; a reduction in the credit ratings assigned to us or any of our subsidiaries, which could increase the cost or decrease the availability of our funding and affect our liquidity position and net interest margin; changes to the reliability and security of our data management, data privacy, information and technology infrastructure, including threats from cyber-attacks, which may impact our ability to service clients and may result in financial loss, business disruption and/ or loss of customer services and data; changes in insurance customer behaviour and insurance claim rates; our dependence on loan payments and dividends from subsidiaries to meet our obligations; changes in accounting standards, which may have a material impact on the way we prepare our financial statements; changes in our ability to manage third-party, fraud and reputational risks inherent in our operations; employee misconduct, which may result in regulatory sanctions and/or reputational or financial harm; changes in skill requirements, ways of working and talent shortages, which may affect our ability to recruit and retain senior management and diverse and skilled personnel; and changes in our ability to develop sustainable finance products and our capacity to measure the climate impact from our financing activity, which may affect our ability to achieve our climate ambition. Effective risk management depends on, among other things, our ability through stress testing and other techniques to prepare for events that cannot be captured by the statistical models it uses; our success in addressing operational, legal and regulatory, and litigation challenges; and other risks and uncertainties we identify in 'Top and emerging risks' on pages 25 to 26 of the Interim Report 2021.

•

Certain defined terms

Unless the context requires otherwise, 'HSBC Holdings' means HSBC Holdings plc and 'HSBC', the 'Group', 'we', 'us' and 'our' refer to HSBC Holdings together with its subsidiaries. Within this document the Hong Kong Special Administrative Region of the People's Republic of China is referred to as 'Hong Kong'. When used in the terms 'shareholders' equity' and 'total shareholders' equity', 'shareholders' means holders of HSBC Holdings ordinary shares and those preference shares and capital securities issued by HSBC Holdings classified as equity. The abbreviations '$m', '$bn' and '$tn' represent millions, billions (thousands of millions) and trillions of US dollars, respectively.

Abbreviations
Currencies
£	British pound sterling
CA$	Canadian dollar
€	Euro
HK$	Hong Kong dollar
RMB	Chinese renminbi
SGD	Singapore dollar
$	United States dollar
Abbreviation
1H20	First half of 2020
1H21	First half of 2021
1Q20	First quarter of 2020
1Q21	First quarter of 2021
2H20	Second half of 2020
2Q20	Second quarter of 2020
2Q21	Second quarter of 2021
4Q20	Fourth quarter of 2020
A
ABS	Asset-backed security
ADS	American Depositary Share
AGM	Annual General Meeting
AIEA	Average interest-earning assets
ALCM	Asset, Liability and Capital Management
ALCO	Asset and Liability Management Committee
AML	Anti-money laundering
ANP	Annualised new business premiums
ASEAN	Association of Southeast Asian Nations
AT1	Additional tier 1
B
Basel	Basel Committee on Banking Supervision
Basel III	Basel Committee's reforms to strengthen global capital and liquidity rules
BoCom	Bank of Communications Co., Limited, one of China's largest banks
BoE	Bank of England
Bps	Basis points. One basis point is equal to one hundredth of a percentage point
BVI	British Virgin Islands
C
C&L	Credit and Lending
CAPM	Capital asset pricing model
CEA	Commodity Exchange Act (US)
CET1	Common equity tier 1
CMB	Commercial Banking, a global business
CMC	Capital maintenance charge
CODM	Chief Operating Decision Maker
CRD IV	Capital Requirements Regulation and Directive
CRR	Customer risk rating
CRR II	Revised Capital Requirements Regulation and Directive, as implemented
D
DoJ	US Department of Justice
DPA	Deferred prosecution agreement (US)
DPD	Days past due
DPF	Discretionary participation feature of insurance and investment contracts
DVA	Debt valuation adjustment
E
EBA	European Banking Authority
EC	European Commission
ECB	European Central Bank
ECL	Expected credit losses. In the income statement, ECL is recorded as a change in expected credit losses and other credit impairment charges. In the balance sheet, ECL is recorded as an allowance for financial instruments to which only the impairment requirements in IFRS 9 are applied.
EEA	European Economic Area
Eonia	Euro Overnight Index Average
EPS	Earnings per ordinary share
ESG	Environmental, social and governance
€STR	Euro short-term rate
EU	European Union
Euribor	Euro interbank offered rate
EVE	Economic value of equity
F
FCA	Financial Conduct Authority (UK)
FRB	Federal Reserve Board (US)
FSTF	Financial Services Task Force
FTE	Full-time equivalent staff
FVOCI	Fair value through other comprehensive income
FX	Foreign exchange
FX DPA	Three-year deferred prosecution agreement with the US Department of Justice, entered into in January 2018
G
GAAP	Generally accepted accounting principles
GBM	Global Banking and Markets, a global business
GDP	Gross domestic product
GEC	Group Executive Committee
GLCM	Global Liquidity and Cash Management
Group	HSBC Holdings together with its subsidiary undertakings
GTRF	Global Trade and Receivables Finance
H
HKEx	The Stock Exchange of Hong Kong Limited
HKMA	Hong Kong Monetary Authority
HNAH	HSBC North America Holdings Inc.
Holdings ALCO	HSBC Holdings Asset and Liability Management Committee
Hong Kong	Hong Kong Special Administrative Region of the People's Republic of China
HQLA	High-quality liquid assets
HSBC	HSBC Holdings together with its subsidiary undertakings
HSBC Bank	HSBC Bank plc, also known as the non-ring-fenced bank
HSBC Bank Middle East	HSBC Bank Middle East Limited
HSBC Bank USA	HSBC Bank USA, N.A., HSBC's retail bank in the US
HSBC Canada	The sub-group, HSBC Bank Canada, HSBC Trust Company Canada, HSBC Mortgage Corporation Canada and HSBC Securities Canada, consolidated for liquidity purposes
HSBC Continental Europe	HSBC Continental Europe
HSBC Finance	HSBC Finance Corporation, the US consumer finance company (formerly Household International, Inc.)
HSBC Holdings	HSBC Holdings plc, the parent company of HSBC
HSBC Private Bank (Suisse)	HSBC Private Bank (Suisse) SA, HSBC's private bank in Switzerland
HSBC UK	HSBC UK Bank plc, also known as the ring-fenced bank
HSBC USA	The sub-group, HSBC USA Inc and HSBC Bank USA, consolidated for liquidity purposes
HSI	HSBC Securities (USA) Inc.
HSSL	HSBC Securities Services (Luxembourg)
HTIE	HSBC Institutional Trust Services (Ireland) Limited
I
IAS	International Accounting Standards
IASB	International Accounting Standards Board
IBA	ICE Benchmark Administration
Ibor	Interbank offered rate
ICAAP	Internal capital adequacy assessment process
IFRSs	International Financial Reporting Standards
ILAAP	Internal liquidity adequacy assessment process
ILM	Internal liquidity metric
IRB	Internal ratings-based
ISDA	International Swaps and Derivatives Association
L
LCR	Liquidity coverage ratio
LGBT+	Lesbian, gay, bisexual and transgender. The plus sign denotes other non-mainstream groups on the spectrums of sexual orientation and gender identity
LGD	Loss given default
Libor	London interbank offered rate
LTI	Long-term incentive
LTV	Loan to value
M
Mainland China	People's Republic of China excluding Hong Kong and Macau
MENA	Middle East and North Africa
MREL	EU minimum requirements for own funds and eligible liabilities
MSS	Markets and Securities Services, HSBC's capital markets and securities services businesses in Global Banking and Markets
N
Net operating income	Net operating income before change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit provisions, also referred to as revenue
NII	Net interest income
NIM	Net interest margin
NSFR	Net stable funding ratio
NZBA	Net-Zero Banking Alliance
O
OCI	Other comprehensive income
OECD	Organisation of Economic Co-operation and Development
OFAC	Office of Foreign Assets Control
OTC	Over-the-counter
P
PBT	Profit before tax
PD	Probability of default
POCI	Purchased or originated credit impaired
PPI	Payment protection insurance
PRA	Prudential Regulation Authority (UK)
Premier	HSBC Premier, HSBC's premium personal global banking service
PVIF	Present value of in-force long-term insurance business
PwC	PricewaterhouseCoopers LLP and its network of firms
R
RFR	Risk-free rate
RNIV	Risk not in VaR
RoE	Return on average ordinary shareholders' equity
RoTE	Return on average tangible equity
RWA	Risk-weighted asset
S
SABB	The Saudi British Bank
SEC	Securities and Exchange Commission (US)
ServCo group	Separately incorporated group of service companies established in response to UK ring-fencing requirements
Sibor	Singapore interbank offered rate
SME	Small and medium-sized enterprise
SOFR	Secured Overnight Financing Rate
Sonia	Sterling Overnight Index Average
T
TRLibor	Turkish Lira interbank offered rate
U
UAE	United Arab Emirates
UK	United Kingdom
UN	United Nations
US	United States of America
V
VaR	Value at risk
VIU	Value in use
W
WPB	Wealth and Personal Banking, a global business

This document comprises the Interim Report 2021 and information herein has been filed on Form 6-K with the US Securities and Exchange Commission for HSBC Holdings plc and its subsidiary and associated undertakings.

HSBC Holdings plc

Incorporated in England with limited liability. Registered in England: number 617987

Registered Office and Group Head Office

8 Canada Square, London E14 5HQ, United Kingdom

Web: www.hsbc.com

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Holdings plc.

Published by Global Finance, HSBC Holdings plc, London

Designed by Superunion, London (cover and 'Overview' section) and by Global Finance, HSBC Holdings plc, London (rest of the Interim Report 2021)

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