FORM 6-K
 
SECURITIES AND EXCHANGE COMMISSION

 
Washington, D.C. 20549

 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a - 16 or 15d - 16 of


the Securities Exchange Act of 1934

Commission File Number: 001-14930


For the month of February 2018
 
HSBC Holdings plc
 
42nd Floor, 8 Canada Square, London E14 5HQ, England
 
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F).
 
Form 20-F   X              Form 40-F ......
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ......

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ......

(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934).
 
Yes .......          No    X
 
(If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ).








Pillar 3 Disclosures at 31 December 2017

Contents
 
Page
Introduction
Key metrics
Regulatory framework for disclosures
Pillar 3 disclosures
Regulatory developments
Risk management
Linkage to the Annual Report and Accounts 2017
Capital and RWAs
Capital management
Own funds
Leverage ratio
Pillar 1 capital requirements and RWA flow
Pillar 2 and ICAAP
Credit risk
Overview and responsibilities
Credit risk management
Credit risk models governance
Credit quality of assets
Risk mitigation
Global risk
Wholesale risk
Retail risk
Counterparty credit risk
Counterparty credit risk management
Securitisation
HSBC securitisation strategy
HSBC securitisation activity
Monitoring of securitisation positions
Securitisation accounting treatment
Securitisation regulatory treatment
Analysis of securitisation exposures
Market risk
Overview of market risk in global businesses
Market risk governance
Market risk measures
Market risk capital models
Prudent valuation adjustment
Structural foreign exchange exposures
Interest rate risk in the banking book
Operational risk
Overview and objectives
Organisation and responsibilities
Measurement and monitoring
Other risks
Pension risk
Non-trading book exposures in equities
Risk management of insurance operations
Liquidity and funding risk
Reputational risk
Sustainability risk
Business risk
Dilution risk
Remuneration
 
Appendices
 
 
Page
I
Additional tables
II
Asset encumbrance
III
Summary of disclosures withheld
Other Information
 
Abbreviations
Cautionary statement regarding forward-looking statements
Contacts
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 ‘$m’ and ‘$bn’ represent millions and billions (thousands of millions) of US dollars respectively.

1
HSBC Holdings plc Pillar 3 2017


Tables
 
 
Page

1
Key metrics
3

2
Reconciliation of balance sheets – financial accounting to regulatory scope of consolidation
6

3
Principal entities with a different regulatory and accounting scope of consolidation
9

4
Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories
with regulatory risk categories
10

5
Main sources of differences between regulatory exposure amounts and carrying values in financial statements
12

6
Own funds disclosure
14

7
Summary reconciliation of accounting assets and leverage ratio exposures
16

8
Leverage ratio common disclosure
16

9
Leverage ratio – Split of on-balance sheet exposures (excluding derivatives, SFTs and exempted exposures)
16

10
Overview of RWAs
18

11
RWA flow statements of credit risk exposures under the IRB approach
18

12
RWA flow statements of CCR exposures under IMM
19

13
RWA flow statements of market risk exposures under IMA
19

14
Credit quality of exposures by exposure classes and instruments
21

15
Credit quality of exposures by industry or counterparty types
22

16
Credit quality of exposures by geography¹
22

17
Ageing of past-due unimpaired and impaired exposures
23

18
Non-performing and forborne exposures
23

19
Credit risk exposure – summary
24

20
Geographical breakdown of exposures
25

21
Concentration of exposures by industry or counterparty types
26

22
Maturity of on-balance sheet exposures
28

23
Amount of impaired exposures and related allowances, broken down by geographical region
29

24
Movement in specific credit risk adjustments by industry and geographical region
29

25
Credit risk mitigation techniques – overview¹
31

26
Standardised approach – credit conversion factor (‘CCF’) and credit risk mitigation (‘CRM’) effects
32

27
Standardised approach – exposures by asset class and risk weight
33

28
IRB – Effect on RWA of credit derivatives used as CRM techniques
33

29
Credit derivatives exposures
34

30
Wholesale IRB credit risk models
37

31
IRB models – estimated and actual values (wholesale)¹
38

32
IRB models – corporate PD models – performance by CRR grade
38

33
Material retail IRB risk rating systems
41

34
IRB models – estimated and actual values (retail)
44

35
Wholesale IRB exposure – back-testing of probability of default (PD) per portfolio¹
46

 
 
 
 
 
 
Page

36
Retail IRB exposure – back-testing of probability of default (PD) per portfolio¹
48

37
Counterparty credit risk exposure – by exposure class, product and geographical region
51

38
Counterparty credit risk – RWAs by exposure class, product and geographical region
52

39
Securitisation exposure – movement in the year
55

40
Securitisation – asset values and impairments
55

41
Market risk under standardised approach
56

42
Market risk under IMA
56

43
IMA values for trading portfolios
59

44
Prudential valuation adjustments
60

45
Operational risk RWAs
61

46
Non-trading book equity investments
63

47
Level and components of HSBC Group Consolidated Liquidity Coverage Ratio
66

48
Analysis of on-balance sheet encumbered and unencumbered assets
67

49
Wholesale IRB exposure – by obligor grade
70

50
PD, LGD, RWA and exposure by country
72

51
Retail IRB exposure – by internal PD band
86

52
IRB expected loss and CRAs – by exposure class
87

53
Credit risk exposure – by geographical region
88

54
Credit risk RWAs – by geographical region
90

55
IRB exposure – credit risk mitigation
91

56
Standardised exposure – credit risk mitigation
92

57
Standardised exposure – by credit quality step
92

58
Changes in stock of general and specific credit risk adjustments
93

59
Changes in stock of defaulted loans and debt securities
93

60
IRB – Credit risk exposures by portfolio and PD range
94

61
Specialised lending on slotting approach¹
100

62
Analysis of counterparty credit risk (CCR) exposure by approach (excluding centrally cleared exposures)
100

63
Credit valuation adjustment (CVA) capital charge
100

64
Standardised approach – CCR exposures by regulatory portfolio and risk weights
101

65
IRB – CCR exposures by portfolio and PD scale
102

66
Impact of netting and collateral held on exposure values
104

67
Composition of collateral for CCR exposure
104

68
Exposures to central counterparties
104

69
Securitisation exposures in the non-trading book
105

70
Securitisation exposures in the trading book
105

71
Securitisation exposures in the non-trading book and associated capital requirements – bank acting as originator or sponsor
106

72
Securitisation exposures in the non-trading book and associated capital requirements – bank acting as investor
108

73
Asset encumbrance
110



HSBC Holdings plc Pillar 3 2017
2


Pillar 3 Disclosures at 31 December 2017

Introduction
Table 1: Key metrics
 
 
 
At 31 Dec

 
 
Footnotes
2017

 
Available capital ($bn)
1
 
1
Common equity tier 1 (‘CET1’) capital
 
126.1

2
Tier 1 capital
 
151.0

3
Total regulatory capital
 
182.4

 
Risk-weighted assets (‘RWAs’) ($bn)
 
 
4
Total RWAs
 
871.3

 
Capital ratios (%)
 
 
5
CET1
 
14.5

6
Total tier 1
 
17.3

7
Total capital
 
20.9

 
Additional CET1 buffer requirements as a percentage of RWA (%)


 
 
8
Capital conservation buffer requirement

 
1.25

9
Countercyclical buffer requirement

 
0.22

10
Bank G-SIB and/or D-SIB additional requirements

 
1.25

11
Total of bank CET1 specific buffer requirements

 
2.72

12
CET1 available after meeting the bank’s minimum capital requirements
 
8.0

 
Leverage ratio
 
 
13
Total leverage ratio exposure measure ($bn)

 
2,557.1

14
Leverage ratio (%)
2
5.6

 
Liquidity Coverage Ratio (‘LCR’)

 
 
15
Total high-quality liquid assets ($bn)
 
512.6

16
Total net cash outflow ($bn)
 
359.9

17
LCR ratio (%)
3
142.2

1
Capital figures are reported on a transitional basis.
2
Leverage ratio is calculated on a fully phased-in basis.
3
LCR ratio is calculated as at 31 December 2017.
Regulatory framework for disclosures
HSBC is supervised on a consolidated basis in the United Kingdom (‘UK’) by the Prudential Regulation Authority (‘PRA’), which receives information on the capital adequacy of, and sets capital requirements for, the Group as a whole. Individual banking subsidiaries are directly regulated by their local banking supervisors, who set and monitor their local capital adequacy requirements. In most jurisdictions, non-banking financial subsidiaries are also subject to the supervision and capital requirements of local regulatory authorities.
At a consolidated group level, we calculated capital for prudential regulatory reporting purposes throughout 2017 using the Basel III framework of the Basel Committee (‘Basel’) as implemented by the European Union (‘EU’) in the amended Capital Requirements Directive and Regulation (‘CRD IV’), and in the PRA’s Rulebook for the UK banking industry. The regulators of Group banking entities outside the EU are at varying stages of implementation of the Basel Committee’s framework, so local regulation in 2017 may have been on the basis of Basel I, II or III.
The Basel Committee’s framework is structured around three ‘pillars’: the Pillar 1 minimum capital requirements and Pillar 2 supervisory review process are complemented by Pillar 3 market discipline. The aim of Pillar 3 is to produce disclosures that allow market participants to assess the scope of application by banks of the Basel Committee’s framework and the rules in their jurisdiction, their capital condition, risk exposures and risk management processes, and hence their capital adequacy.
Pillar 3 requires all material risks to be disclosed to provide a comprehensive view of a bank’s risk profile.
The PRA’s final rules adopted national discretions in order to accelerate significantly the transition timetable to full ‘end point’ CRD IV compliance.
 
Pillar 3 disclosures
HSBC’s Pillar 3 disclosures at December 2017 comprise all information required under Pillar 3, both quantitative and qualitative. They are made in accordance with Part 8 of the Capital Requirements Regulation within CRD IV and the European Banking Authority’s (‘EBA’) final standards on revised Pillar 3 disclosures issued in December 2016. These disclosures are supplemented by specific additional requirements of the PRA and discretionary disclosures on our part.
The Pillar 3 disclosures are governed by the Group’s disclosure policy framework as approved by the Group Audit Committee (‘GAC’). Information relating to the rationale for withholding certain disclosures is provided in Appendix III.
In our disclosures, to give insight into movements during the year, we provide comparative figures for the previous year, analytical review of variances and ‘flow’ tables for capital requirements.
Key ratios and figures are reflected throughout the Pillar 3 disclosures at December 2017 and a summary is presented in Table 1. Where disclosures have been enhanced, or are new, we do not generally restate or provide prior year comparatives. The capital resources tables track the position from a CRD IV transitional to an end point basis.
We publish comprehensive Pillar 3 disclosures annually on the HSBC website www.hsbc.com, concurrently with the release of our Annual Report and Accounts 2017. A separate Pillar 3 document is also published at half-year following our Interim Report disclosure. Quarterly earnings releases also include regulatory information in line with the new requirements on the frequency of regulatory disclosures.
Pillar 3 requirements may be met by inclusion in other disclosure media. Where we adopt this approach, references are provided to the relevant pages of the Annual Report and Accounts 2017 or other locations.
We continue to engage in the work of the UK authorities and industry associations to improve the transparency and comparability of UK banks’ Pillar 3 disclosures.
Regulatory developments
Basel Committee
In December, the Basel Committee (‘Basel’) published the revisions to the Basel III framework (sometimes referred to as ‘Basel IV’). The final package includes:
widespread changes to the risk weights under the standardised approach to credit risk;
a change in the scope of application of the internal ratings based (‘IRB’) approach to credit risk, together with changes to the IRB methodology;
the replacement of the operational risk approaches with a single methodology;
an amended set of rules for the credit valuation adjustment (‘CVA’) capital framework;
an aggregate output capital floor that ensures that banks’ total risk-weighted assets are no lower than 72.5% of those generated by the standardised approaches; and
changes to the exposure measure for the leverage ratio, together with the imposition of a leverage ratio buffer for global systemically important institutions (‘G-SIB’). This will take the form of a tier 1 capital buffer set at 50% of the G-SIB’s RWAs capital buffer.
Basel has announced that the package will be implemented on 1 January 2022, with a five-year transitional provision for the output floor from that date, commencing at a rate of 50%.
HSBC is currently evaluating the final package. Given that the package contains a significant number of national discretions and that Basel has committed to re-calibrate the market risk elements

3
HSBC Holdings plc Pillar 3 2017


of the final framework during 2018, significant uncertainty remains as to the impact.
In all instances, the final standards will have to be transposed into the relevant local law before coming into effect. In addition, during 2017, Basel proposed other revisions to the regulatory capital framework. In particular, it published:
a discussion paper on the treatment of sovereign exposures;
the final guidelines regarding the identification and management of step-in risk;
the interim regulatory treatment and transitional requirements for International Financial Reporting Standard 9, Financial Instruments (‘IFRS 9’) provisions;
the final phase 2 Pillar 3 standards; and
proposals to revise the G-SIB assessment framework.
Financial Stability Board
In July, the Financial Stability Board (‘FSB’) expanded its resolution reform policy framework with the publication of its ‘Guiding Principles on the Internal Total Loss-absorbing Capacity of G-SIBs (‘Internal TLAC’)’. These guidelines supplement the FSB’s TLAC standard published in November 2015. In addition, the FSB published consultations on other outstanding issues related to its resolution framework. Again, these need to be incorporated into the relevant local law before coming into effect.
European Union
In the EU, elements of Basel’s and the FSB’s reforms are being implemented through revisions to the Capital Requirements Regulation and Capital Requirements Directive (collectively referred to as ‘CRR2’) and the EU resolution framework. The key components of CRR2 include changes to the market risk framework under the Fundamental Review of the Trading Book, changes to the counterparty credit risk framework and a binding leverage ratio. It also includes details of the minimum requirements for TLAC, which in the EU is known as the ‘Minimum Requirements for own funds and Eligible Liabilities’ (‘MREL’). The CRR2 changes are expected to be finalised in 2018 and apply from 1 January 2021, although certain elements, such as MREL, are expected to apply from 1 January 2019.
In December, the EU’s IFRS 9 transitional capital arrangements were published formally and the EBA published its final guidelines on the IFRS 9 disclosures. Separately, the final changes to the capital rules on securitisation were also published formally by the EU with implementation expected on 1 January 2019 for new transactions and on 1 January 2020 for existing positions. In addition, during 2017, the EBA published a consultation on the methods of prudential consolidation under the EU’s rules.
Also in December, in line with the EU’s rules, the requirement to have a Basel I floor lapsed and the PRA confirmed that its application is no longer required. A new output floor will be implemented as part of the Basel IV amendments.
Bank of England
In March, HSBC received from the Bank of England (‘BoE’) its indicative MREL requirement applicable to HSBC Holdings plc and its European Resolution Group (comprised of HSBC Bank plc and its subsidiaries). This includes interim MREL requirements effective from 1 January 2019 and final requirements effective from 1 January 2022. The BoE also confirmed formally that ‘multiple-point-of-entry’ (‘MPE’) is the preferred resolution strategy for HSBC. In May, the BoE published the quantum of MREL requirements for major UK banks.
In addition, during 2017, the BoE and the PRA proposed other revisions to the regulatory capital and MREL frameworks. In particular, they published proposals and/or final rules setting out:
the approach to setting internal MREL and the setting of MREL for MPE groups;
the interaction of MREL with both the capital and leverage ratio buffers;
 
changes to the groups and double leverage policy;
the policy refining the PRA’s Pillar 2A capital requirements and disclosure; and
the policy to ensure that valuation processes do not impede resolvability.
The PRA also published its final rules on the exclusion of claims on central banks from the UK leverage ratio framework and the re-calibration of the minimum leverage ratio for HSBC from 3% to 3.25% of tier 1 capital. These changes took effect in October 2017.
Lastly, in June, the Financial Policy Committee raised the countercyclical buffer rate for UK exposures to 0.5%, to apply from June 2018 and in November, increased it further to 1% with binding effect from November 2018.
Risk management
Our risk management framework
We use an enterprise-wide, risk management framework across the organisation and across all risk types. It is underpinned by our risk culture and is reinforced by the HSBC Values and our Global Standards programme.
The framework fosters continuous monitoring of the risk environment, and an integrated evaluation of risks and their interactions. It also ensures we have a consistent approach to monitoring, managing and mitigating the risks we accept and incur in our activities. Further information on our risk management framework is set out on page 106 of the Annual Report and Accounts 2017. The management and mitigation of principal risks facing the Group is described in our top and emerging risks on page 95 of the Annual Report and Accounts 2017.
Commentary on hedging strategies and associated processes can be found in the Market risk and Securitisation sections of this document. Additionally, a comprehensive overview of this topic can be found in Note 1.2(e) on page 227 of the Annual Report and Accounts 2017.
Risk culture
HSBC has long recognised the importance of a strong risk culture, the fostering of which is a key responsibility of senior executives. Our risk culture is reinforced by the HSBC Values and our Global Standards programme. It is instrumental in aligning the behaviours of individuals with our attitude to assuming and managing risk, which helps to ensure that our risk profile remains in line with our risk appetite.
Our risk culture is further reinforced by our approach to remuneration. Individual awards, including those for senior executives, are based on compliance with the HSBC Values and the achievement of financial and non-financial objectives that are aligned to our risk appetite and strategy.
Further information on risk and remuneration is set out on pages 95 and 203 of the Annual Report and Accounts 2017.
Risk governance
The Board has ultimate responsibility for the effective management of risk and approves HSBC’s risk appetite. It is advised on risk-related matters by the Group Risk Committee (‘GRC’), the Financial System Vulnerabilities Committee (‘FSVC’) and the Conduct and Values Committee (‘CVC’). The activities of the GRC, FSVC and CVC are set out on pages 175 to 177 of the Annual Report and Accounts 2017.
Executive accountability for the ongoing monitoring, assessment and management of the risk environment and the effectiveness of the risk management framework resides with the Group Chief Risk Officer. He is supported by the Risk Management Meeting (‘RMM’) of the Group Management Board.

HSBC Holdings plc Pillar 3 2017
4


Pillar 3 Disclosures at 31 December 2017

The management of financial crime risk resides with the Group Head of Financial Crime Risk. He is supported by the Financial Crime Risk Management Meeting, as described on page 118 of the Annual Report and Accounts 2017.
Day-to-day responsibility for risk management is delegated to senior managers with individual accountability for decision making. These senior managers are supported by global functions. All employees have a role to play in risk management. These roles are defined using the three lines of defence model, which takes into account the Group’s business and functional structures (see page 107 of the Annual Report and Accounts 2017).
Our executive risk governance structures ensure appropriate oversight and accountability for risk, which facilitates the reporting and escalation to the RMM (see page 107 of the Annual Report and Accounts 2017).
Risk appetite
Risk appetite is a key component of our management of risk. It describes the aggregate level and risk types that we are willing to accept in achieving our medium to long-term business objectives. In HSBC, risk appetite is managed through a global risk appetite framework and articulated in a risk appetite statement (‘RAS’), which is approved biannually by the Board on the advice of the GRC.
The Group‘s risk appetite informs our strategic and financial planning process, defining the desired forward-looking risk profile of the Group. It is also integrated within other risk management tools, such as the top and emerging risks report and stress testing, to ensure consistency in risk management. Information on our risk management tools is set out on page 107 of the Annual Report and Accounts 2017. Details on the Group’s overarching risk appetite are set out on page 95 of the Annual Report and Accounts 2017.
Stress testing
HSBC operates a comprehensive stress testing programme that supports our risk management and capital planning. It includes execution of stress tests mandated by our regulators. Our stress testing is supported by dedicated teams and infrastructure.
Our testing programme assesses our capital strength and enhances our resilience to external shocks. It also helps us understand and mitigate risks, and informs our decision about capital levels. As well as taking part in regulatory driven stress tests, we conduct our own internal stress tests.
The Group stress testing programme is overseen by the GRC, and results are reported, where appropriate, to the RMM and GRC.
Further information on stress testing and details of the Group’s regulatory stress test results are set out on page 109 of the Annual Report and Accounts 2017.
Global Risk function
We have a dedicated Global Risk function, headed by the Group Chief Risk Officer, which is responsible for the Group‘s risk management framework. This includes establishing global policy, monitoring risk profiles, and forward-looking risk identification and management. Global Risk is made up of sub-functions covering all risks to our operations. It is independent from the global businesses, including sales and trading functions, helping to ensure balance in risk/return decisions. The Global Risk function operates in line with the three lines of defence model (see page 107 of the Annual Report and Accounts 2017).
Risk management and internal control systems
The Directors are responsible for maintaining and reviewing the effectiveness of risk management and internal control systems, and for determining the aggregate level and risk types they are willing to accept in achieving the Group’s business objectives. On behalf of the Board, the GAC has responsibility for oversight of risk management and internal controls over financial reporting, and the GRC has responsibility for oversight of risk management and internal controls other than for financial reporting.
 
The Directors, through the GRC and the GAC, conduct an annual review of the effectiveness of our system of risk management and internal control. The GRC and the GAC received confirmation that executive management has taken or is taking the necessary actions to remedy any failings or weaknesses identified through the operation of our framework of controls.
HSBC’s key risk management and internal control procedures are described on page 178 of the Annual Report and Accounts 2017, where the Directors’ Report on the effectiveness of internal controls can also be found.
Risk measurement and reporting systems
Our risk measurement and reporting systems are designed to help ensure that risks are comprehensively captured with all the attributes necessary to support well-founded decisions, that those attributes are accurately assessed, and that information is delivered in a timely manner for those risks to be successfully managed and mitigated.
Risk measurement and reporting systems are also subject to a governance framework designed to ensure that their build and implementation are fit-for- purpose and functioning appropriately. Risk information systems development is a key responsibility of the Global Risk function, while the development and operation of risk rating and management systems and processes are ultimately subject to the oversight of the Board.
We continue to invest significant resources in IT systems and processes in order to maintain and improve our risk management capabilities. A number of key initiatives and projects to enhance consistent data aggregation, reporting and management, and work towards meeting our Basel Committee data obligations are in progress. Group policy promotes the deployment of preferred technology where practicable. Group standards govern the procurement and operation of systems used in our subsidiaries to process risk information within business lines and risk functions.
Risk measurement and reporting structures deployed at Group level are applied throughout global businesses and major operating subsidiaries through a common operating model for integrated risk management and control. This model sets out the respective responsibilities of Group, global business, region and country level risk functions in respect of such matters as risk governance and oversight, compliance risks, approval authorities and lending guidelines, global and local scorecards, management information and reporting, and relations with third parties, including regulators, rating agencies and auditors.
Risk analytics and model governance
The Global Risk function manages a number of analytics disciplines supporting model development and management, including rating, scoring, economic capital and stress testing models for different risk types and business segments. It formulates technical responses to industry developments and regulatory policy in the field of risk analytics, develops HSBC’s global risk models, and oversees local model development and use around the Group toward our implementation targets for IRB approaches.
Model governance is under the general oversight of the Global Model Oversight Committee (‘MOC’). The Global MOC is supported by specific global functional MOCs for wholesale credit risk, market risk, Retail Banking and Wealth Management (‘RBWM’), Global Private Banking (‘GPB’), Finance, regulatory compliance, operational risk, fraud risk and financial intelligence, pensions risk and financial crime risk, and has functional and/or regional and entity-level counterparts with comparable terms of reference where required.

5
HSBC Holdings plc Pillar 3 2017


The Global MOC meets regularly and reports to RMM. It is chaired by the Global Risk function, and its membership is drawn from Risk, Finance and global businesses. Its primary responsibilities are to oversee the framework for the management of model risk, bring a strategic approach to model-related issues across the Group, and to oversee the governance of our risk rating models, their consistency and approval, within the regulatory framework. Through its oversight of the functional MOCs, it identifies emerging risks for all aspects of the risk rating system, ensuring that model risk is managed within our risk appetite statement, and formally advises RMM on any material model-related issues.
Models are also subject to an independent model review and validation process led by the Independent Model Review team within Global Risk. The Independent Model Review team provides robust challenge to the modelling approaches used across the Group, and ensures that the performance of those models is transparent and that their limitations are visible to key stakeholders.
The development and use of data and models to meet local requirements are the responsibility of global businesses or functions, as well as regional and/or local entities under the governance of their own management, subject to overall Group policy and oversight.
 
Linkage to the Annual Report and Accounts
2017
Structure of the regulatory group
Subsidiaries engaged in insurance activities are excluded from the regulatory consolidation by excluding assets, liabilities and post-acquisition reserves. The Group’s investments in these insurance subsidiaries are recorded at cost and deducted from CET1 capital (subject to thresholds).
The regulatory consolidation also excludes special purpose entities (‘SPEs’) where significant risk has been transferred to third parties. Exposures to these SPEs are risk-weighted as securitisation positions for regulatory purposes.
Participating interests in banking associates are proportionally consolidated for regulatory purposes by including our share of assets, liabilities, profit and loss, and risk-weighted assets in accordance with the PRA’s application of EU legislation. Non-participating significant investments, along with non-financial associates, are deducted from capital (subject to thresholds).
Table 2: Reconciliation of balance sheets – financial accounting to regulatory scope of consolidation
 
 
Accounting
balance
sheet

Deconsolidation
of insurance/
other entities

Consolidation
of banking
associates

Regulatory
balance
sheet

 
Ref †
$m

$m

$m

$m

Assets
 
 
 
 
 
Cash and balances at central banks
 
180,624

(38
)
1,174

181,760

Items in the course of collection from other banks
 
6,628


2

6,630

Hong Kong Government certificates of indebtedness
 
34,186



34,186

Trading assets
 
287,995

(359
)
1

287,637

Financial assets designated at fair value
 
29,464

(28,674
)

790

Derivatives
 
219,818

(128
)
57

219,747

Loans and advances to banks
 
90,393

(2,024
)
1,421

89,790

Loans and advances to customers
 
962,964

(3,633
)
12,835

972,166

– of which: impairment allowances on IRB portfolios
h
(5,004
)


(5,004
)
Reverse repurchase agreements – non-trading
 
201,553


1,854

203,407

Financial investments
 
389,076

(61,480
)
3,325

330,921

Capital invested in insurance and other entities
 

2,430


2,430

Prepayments, accrued income and other assets
 
67,191

(4,202
)
267

63,256

– of which: retirement benefit assets
i
8,752



8,752

Current tax assets
 
1,006

(5
)

1,001

Interests in associates and joint ventures
 
22,744

(370
)
(4,064
)
18,310

– of which: positive goodwill on acquisition
e
521

(14
)
(1
)
506

Goodwill and intangible assets
e
23,453

(6,937
)

16,516

Deferred tax assets
f
4,676

170


4,846

Total assets at 31 Dec 2017
 
2,521,771

(105,250
)
16,872

2,433,393


HSBC Holdings plc Pillar 3 2017
6


Pillar 3 Disclosures at 31 December 2017

 
 
Accounting
balance
sheet

Deconsolidation
of insurance/
other entities

Consolidation
of banking
associates

Regulatory
balance
sheet

 
Ref †
$m

$m

$m

$m

Liabilities and equity
 
 
 
 
 
Liabilities
 
 
 
 
 
Hong Kong currency notes in circulation
 
34,186



34,186

Deposits by banks
 
69,922

(86
)
695

70,531

Customer accounts
 
1,364,462

(64
)
14,961

1,379,359

Repurchase agreements – non-trading
 
130,002



130,002

Items in course of transmission to other banks
 
6,850



6,850

Trading liabilities
 
184,361

867


185,228

Financial liabilities designated at fair value
 
94,429

(5,622
)

88,807

– of which:
 
 
 
 
 
included in tier 1
m
459



459

included in tier 2
n, q
23,831



23,831

Derivatives
 
216,821

69

51

216,941

Debt securities in issue
 
64,546

(2,974
)
320

61,892

Accruals, deferred income and other liabilities
 
45,907

(211
)
622

46,318

Current tax liabilities
 
928

(81
)

847

Liabilities under insurance contracts
 
85,667

(85,667
)


Provisions
 
4,011

(17
)
223

4,217

– of which: credit-related contingent liabilities and contractual commitments on IRB portfolios
h
220



220

Deferred tax liabilities
 
1,982

(1,085
)

897

Subordinated liabilities
 
19,826

1


19,827

– of which:
 
 
 
 
 
included in tier 1
k, m
1,838



1,838

included in tier 2
n, o, q
17,561



17,561

Total liabilities at 31 Dec 2017
 
2,323,900

(94,870
)
16,872

2,245,902

Equity
 
 
 
 
 
Called up share capital
a
10,160



10,160

Share premium account
a, k
10,177



10,177

Other equity instruments
j, k
22,250



22,250

Other reserves
c, g
7,664

1,236


8,900

Retained earnings
b, c
139,999

(10,824
)

129,175

Total shareholders’ equity
 
190,250

(9,588
)

180,662

Non-controlling interests
d, l, m, p
7,621

(792
)

6,829

– of which: non-cumulative preference shares issued by subsidiaries
   included in tier 1 capital
m




Total equity at 31 Dec 2017
 
197,871

(10,380
)

187,491

Total liabilities and equity at 31 Dec 2017
 
2,521,771

(105,250
)
16,872

2,433,393

The references (a) – (q) identify balance sheet components that are used in the calculation of regulatory capital on page 14.
Table 2: Reconciliation of balance sheets – financial accounting to regulatory scope of consolidation (continued)
 
 
 
Accounting
balance
sheet

Deconsolidation
of insurance/
other entities

Consolidation
of banking
associates

Regulatory
balance
sheet

 
Ref †
$m

$m

$m

$m

Assets
 
 
 
 
 
Cash and balances at central banks
 
128,009

(27
)
1,197

129,179

Items in the course of collection from other banks
 
5,003


26

5,029

Hong Kong Government certificates of indebtedness
 
31,228



31,228

Trading assets
 
235,125

(198
)
1

234,928

Financial assets designated at fair value
 
24,756

(24,481
)

275

Derivatives
 
290,872

(145
)
77

290,804

Loans and advances to banks
 
88,126

(1,845
)
922

87,203

Loans and advances to customers
 
861,504

(3,307
)
12,897

871,094

– of which: impairment allowances on IRB portfolios
h
(5,096
)


(5,096
)
Reverse repurchase agreements – non-trading
 
160,974

344

1,444

162,762

Financial investments
 
436,797

(54,904
)
3,500

385,393

Capital invested in insurance and other entities
 

2,214


2,214

Prepayments, accrued income and other assets
 
63,909

(3,073
)
306

61,142

– of which: retirement benefit assets
i
4,714



4,714

Current tax assets

 
1,145

(118
)

1,027

Interests in associates and joint ventures
 
20,029


(4,195
)
15,834

– of which: positive goodwill on acquisition
e
488


(475
)
13

Goodwill and intangible assets
e
21,346

(6,651
)
481

15,176

Deferred tax assets
f
6,163

176

5

6,344

Total assets at 31 Dec 2016
 
2,374,986

(92,015
)
16,661

2,299,632


7
HSBC Holdings plc Pillar 3 2017


 
 
Accounting
balance
sheet

Deconsolidation
of insurance/
other entities

Consolidation
of banking
associates

Regulatory
balance
sheet

 
Ref †
$m

$m

$m

$m

Liabilities and equity
 
 
 
 
 
Liabilities
 
 
 
 
 
Hong Kong currency notes in circulation
 
31,228



31,228

Deposits by banks
 
59,939

(50
)
441

60,330

Customer accounts
 
1,272,386

(44
)
14,997

1,287,339

Repurchase agreements – non-trading
 
88,958



88,958

Items in course of transmission to other banks
 
5,977



5,977

Trading liabilities
 
153,691

643

1

154,335

Financial liabilities designated at fair value
 
86,832

(6,012
)

80,820

– of which:
 
 
 
 
 
included in tier 1
m
411



411

included in tier 2
n, q
23,172



23,172

Derivatives
 
279,819

193

64

280,076

Debt securities in issue
 
65,915

(3,547
)
662

63,030

Accruals, deferred income and other liabilities
 
44,291

1,810

495

46,596

Current tax liabilities
 
719

(26
)

693

Liabilities under insurance contracts
 
75,273

(75,273
)


Provisions
 
4,773

(18
)

4,755

– of which: credit-related contingent liabilities and contractual commitments on IRB portfolios
h
267



267

Deferred tax liabilities
 
1,623

(981
)
1

643

Subordinated liabilities
 
20,984

1


20,985

– of which:
 
 
 
 
 
included in tier 1
k, m
1,754



1,754

included in tier 2
n, o, q
18,652



18,652

Total liabilities at 31 Dec 2016
 
2,192,408

(83,304
)
16,661

2,125,765

Equity
 
 
 
 
 
Called up share capital
a
10,096



10,096

Share premium account
a, k
12,619



12,619

Other equity instruments
j, k
17,110



17,110

Other reserves
c, g
(1,234
)
1,735


501

Retained earnings
b, c
136,795

(9,442
)

127,353

Total shareholders’ equity
 
175,386

(7,707
)

167,679

Non-controlling interests
d, l, m, p
7,192

(1,004
)

6,188

– of which: non-cumulative preference shares issued by subsidiaries
   included in tier 1 capital
m
260



260

Total equity at 31 Dec 2016
 
182,578

(8,711
)

173,867

Total liabilities and equity at 31 Dec 2016
 
2,374,986

(92,015
)
16,661

2,299,632

The references (a) – (q) identify balance sheet components that are used in the calculation of regulatory capital on page 14.

HSBC Holdings plc Pillar 3 2017
8


Pillar 3 Disclosures at 31 December 2017

Table 3: Principal entities with a different regulatory and accounting scope of consolidation

 
 
 
At 31 Dec 2017
At 31 Dec 2016

Principal activities
Method of accounting consolidation
Method of regulatory consolidation
 
Total
assets

Total
equity

Total
assets

Total
equity


Footnote
$m

$m

$m

$m

Principal associates
 
 
 
 
 
 
 
 
The Saudi British Bank
Banking services
Equity
Proportional consolidation
 
50,417

8,752

49,784

8,202

Principal insurance entities excluded from the regulatory consolidation
 
 
 
 
 
 
 
 
HSBC Life (International) Ltd
Life insurance manufacturing
Fully consolidated
N/A
 
45,083

3,679

39,346

2,838

HSBC Assurances Vie (France)
Life insurance manufacturing
Fully consolidated
N/A
 
27,713

843

23,418

721

Hang Seng Insurance Company Ltd
Life insurance manufacturing
Fully consolidated
N/A
 
16,411

1,403

15,225

1,107

HSBC Insurance (Singapore) Pte Ltd
Life insurance manufacturing
Fully consolidated
N/A
 
4,425

706

3,589

360

HSBC Life (UK) Ltd
Life insurance manufacturing
Fully consolidated
N/A
 
2,115

196

1,678

158

HSBC Life Assurance (Malta) Ltd
Life insurance manufacturing
Fully consolidated
N/A
 
1,681

61

1,747

54

HSBC Life Insurance Company Ltd
Life insurance manufacturing
Fully consolidated
N/A
 
1,113

87

864

85

HSBC Seguros S.A. (Mexico)
Life insurance manufacturing
Fully consolidated
N/A
 
785

120

716

118

Principal SPEs excluded from the regulatory consolidation
 
 
 
1
 
 
 
 
Regency Assets Ltd
Securitisation
Fully consolidated
N/A
 
7,466


7,380


Mazarin Funding Ltd
Securitisation
Fully consolidated
N/A
 
852

48

1,117

12

Barion Funding Ltd
Securitisation
Fully consolidated
N/A
 
424

78

653

56

Metrix Portfolio Distribution Plc
Securitisation
Fully consolidated
N/A
 
326


333


1
These SPEs issued no or de minimis share capital.
Table 3 also presents the total assets and total equity, on a stand-alone IFRS basis, of the entities which are included in the Group consolidation on different bases for accounting and regulatory purposes. The figures shown therefore include intra-Group balances. For associates, table 3 shows the total assets and total equity of the entity as a whole rather than HSBC’s share in the entities’ balance sheets.
For insurance entities, the present value of the in-force long-term insurance business asset of $6.6bn and the related deferred tax liability are only recognised on consolidation in financial reporting, and are therefore not included in the asset or equity positions for the stand-alone entities presented in table 3. In addition, these figures exclude any deferred acquisition cost assets that may be recognised in the entities’ stand-alone financial reporting.
Measurement of regulatory exposures
This section sets out the main reasons why the measurement of regulatory exposures is not directly comparable with the financial information presented in the Annual Report and Accounts 2017.
The Pillar 3 Disclosures at December 2017 are prepared in accordance with regulatory capital adequacy concepts and rules, while the Annual Report and Accounts 2017 are prepared in accordance with IFRSs. The purpose of the regulatory balance sheet is to provide a point-in-time (‘PIT’) value of all on-balance sheet assets.
 
The regulatory exposure value includes an estimation of risk, and is expressed as the amount expected to be outstanding if and when the counterparty defaults.
Moreover, regulatory exposure classes are based on different criteria from accounting asset types and are therefore not comparable on a line by line basis.
The following tables show in two steps how the accounting values in the regulatory balance sheet link to regulatory exposure at default (‘EAD’).
In a first step, table 4 shows the difference between the accounting and regulatory scope of consolidation, and a breakdown of the accounting balances into the risk types that form the basis for regulatory capital requirements. Table 5 then shows the main differences between the accounting balances and regulatory exposures by regulatory risk type.

9
HSBC Holdings plc Pillar 3 2017


Table 4: Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with
regulatory risk categories
 
 
 
Carrying value of items
 
Carrying values as reported in published financial statements

Carrying values under scope of regulatory consolidation1

Subject to the credit risk framework

Subject to the counter-party credit risk framework2

Subject to the securitisation framework3

Subject to the market risk framework

Subject to deduction from capital or not subject to regulatory capital requirements

 
$bn

$bn

$bn

$bn

$bn

$bn

$bn

Assets
 
 
 
 
 
 
 
Cash and balances at central banks
180.6

181.8

164.7





Items in the course of collection from other banks
6.6

6.6

6.6





Hong Kong Government certificates of indebtedness
34.2

34.2

34.2





Trading assets
288.0

287.6

2.0

17.1


270.4

15.2

Financial assets designated at fair value
29.5

0.8

0.8





Derivatives
219.8

219.7


218.5

1.2

219.7


Loans and advances to banks
90.4

89.8

98.6

6.6

0.6


1.1

Loans and advances to customers
963.0

972.2

943.7

10.4

13.1


5.0

Reverse repurchase agreements – non-trading
201.6

203.4


203.4




Financial investments
389.1

330.9

324.1


6.5


0.3

Capital invested in insurance and other entities

2.4

1.6




0.8

Current tax assets
1.0

1.0

1.0





Prepayments, accrued income and other assets
67.1

63.4

42.0

3.8

0.1

13.3

6.0

Interests in associates and joint ventures
22.7

18.3

12.9




5.4

Goodwill and intangible assets
23.5

16.5





16.4

Deferred tax assets
4.7

4.8

6.3




(1.5
)
Total assets at 31 Dec 2017
2,521.8

2,433.4

1,638.5

459.8

21.5

503.4

48.7

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Hong Kong currency notes in circulation
34.2

34.2





34.2

Deposits by banks
69.9

70.5





70.5

Customer accounts
1,364.5

1,379.4





1,379.4

Repurchase agreements – non trading
130.0

130.0


130.0




Items in course of transmission to other banks
6.9

6.9





6.9

Trading liabilities
184.4

185.2


10.6


172.2

13.0

Financial liabilities designated at FV
94.4

88.8





88.8

Derivatives
216.8

216.9


216.9


216.9


Debt securities in issue
64.5

61.9





61.9

Current tax liabilities
0.9

0.8





0.8

Liabilities under insurance contract
85.7







Accruals, deferred income, and other liabilities
45.9

46.3





46.3

Provisions
4.0

4.2

0.3




3.9

Deferred tax liabilities
2.0

0.9

1.3




1.7

Subordinated liabilities
19.8

19.9





19.9

Total liabilities at 31 Dec 2017
2,323.9

2,245.9

1.6

357.5


389.1

1,727.3



HSBC Holdings plc Pillar 3 2017
10


Pillar 3 Disclosures at 31 December 2017

Table 4: Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories
with regulatory risk categories (continued)
 
 
 
Carrying value of items
 
Carrying values as reported in published financial statements

Carrying values under scope of regulatory consolidation1

Subject to the credit risk framework

Subject to the counter-party credit risk framework2

Subject to the securitisation framework3

Subject to the market risk framework

Subject to deduction from capital or not subject to regulatory capital requirements

 
$bn

$bn

$bn

$bn

$bn

$bn

$bn

Assets
 
 
 
 
 
 
 
Cash and balances at central banks
128.0

129.2

129.2





Items in the course of collection from other banks
5.0

5.0

5.0





Hong Kong Government certificates of indebtedness
31.2

31.2

31.2





Trading assets
235.1

234.9

8.4

11.3


208.7

17.6

Financial assets designated at fair value
24.8

0.3

0.3





Derivatives
290.9

290.8


289.9

0.9

290.8


Loans and advances to banks
88.1

87.2

76.3

2.0

1.2


7.7

Loans and advances to customers
861.5

871.1

847.4

8.9

10.8


4.0

Reverse repurchase agreements – non-trading
161.0

162.8


162.4

0.4



Financial investments
436.8

385.4

375.8


9.5


0.1

Capital invested in insurance and other entities

2.2

1.4




0.8

Current tax assets
1.1

1.0

1.0





Prepayments, accrued income and other assets
63.9

61.2

42.4

3.9


8.2

6.7

Interests in associates and joint ventures
20.0

15.8

10.3




5.5

Goodwill and intangible assets
21.3

15.2





15.2

Deferred tax assets
6.2

6.3

5.2




1.1

Total assets at 31 Dec 2016
2,374.9

2,299.6

1,533.9

478.4

22.8

507.7

58.7

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Hong Kong currency notes in circulation
31.2

31.2





31.2

Deposits by banks
59.9

60.3





60.3

Customer accounts
1,272.4

1,287.3





1,287.3

Repurchase agreements – non trading
89.0

89.0


89.0




Items in course of transmission to other banks
6.0

6.0





6.0

Trading liabilities
153.7

154.3


5.1


139.1

15.2

Financial liabilities designated at FV
86.8

80.8





80.8

Derivatives
279.8

280.1


280.1


280.1


Debt securities in issue
65.9

63.0





63.0

Current tax liabilities
0.7

0.7





0.7

Liabilities under insurance contract
75.3

0.0






Accruals, deferred income, and other liabilities
44.3

46.7





46.7

Provisions
4.8

4.8

0.3




4.5

Deferred tax liabilities
1.6

0.6

0.6





Subordinated liabilities
21.0

21.0





21.0

Total liabilities at 31 Dec 2016
2,192.4

2,125.8

0.9

374.2


419.2

1,616.7

1
The amounts shown in the column ‘Carrying values under scope of regulatory consolidation’ do not equal the sum of the amounts shown in the remaining columns of this table for line items ‘Derivatives’ and ‘Trading assets’, as some of the assets included in these items are subject to regulatory capital charges for both CCR and market risk.
2
The amounts shown in the column ‘Subject to the counterparty credit risk framework’ include both non-trading book and trading book.
3
The amounts shown in the column ‘Subject to the securitisation framework’ only include non-trading book. Trading book securitisation positions are included in the market risk column.

11
HSBC Holdings plc Pillar 3 2017


Table 5: Main sources of differences between regulatory exposure amounts and carrying values in financial statements
 
 
Items subject to:
 
 
Total

Credit risk framework

CCR framework

Securitisation framework

 
$bn

$bn

$bn

$bn

Carrying value of assets within scope of regulatory consolidation1
2,384.7

1,638.5

459.8

21.5

Carrying value of liabilities within scope of regulatory consolidation1
520.7

1.6

357.5


Net carrying value within scope of regulatory consolidation
1,864.0

1,636.9

102.3

21.5

Off-balance sheet amounts and potential future exposure for counterparty risk
801.7

271.0

135.2

15.3

Differences in netting rules
10.4

9.3

1.1



Differences due to financial collateral on standardised approach
(14.7
)
(14.7
)




Differences due to impairments on IRB approach
4.7

4.7





Differences due to EAD modelling and other differences
3.3

5.0

 
(1.7
)
Differences due to credit risk mitigation
(71.1
)
 
(71.1
)
 
Exposure values considered for regulatory purposes at 31 Dec 2017
2,598.3

1,912.2

167.5

35.1

1
Excludes amounts subject to deduction from capital or not subject to regulatory capital requirements.

Explanations of differences between accounting and regulatory exposure amounts
Off-balance sheet amounts and potential future exposure for counterparty risk (CCR)
Off-balance sheet amounts subject to credit risk and securitisation regulatory frameworks include undrawn portions of committed facilities, various trade finance commitments and guarantees, by applying a credit conversion factor (‘CCF’) to these items and consideration of potential future exposures (‘PFE’) for counterparty risk.
Differences in netting rules
Under IFRS, netting is only permitted if legal right of set-off exists and the cash flows are intended to be settled on a net basis. Under the PRA’s regulatory rules, however, netting is applied for capital calculations if there is legal certainty and the positions are managed on a net collateralised basis. As a consequence, we recognise greater netting under the PRA’s rules, reflecting the close-out provisions that would take effect in the event of default of a counterparty rather than just those transactions that are actually settled net in the normal course of business.
Differences due to financial collateral
Exposure value under the standardised approach is calculated after deducting credit risk mitigation whereas accounting value is before such deductions.
Differences due to impairments
The carrying value of assets is net of credit risk adjustments. The regulatory exposure value under IRB approaches is before deducting credit risk adjustments.
Differences due to EAD modelling
The carrying value of assets is usually measured at amortised cost or fair value as at the balance sheet date. For certain IRB models, the exposure value used as EAD is the projected value one year hence.
 
Differences due to credit risk adjustments
In counterparty credit risk, differences arise between accounting carrying values and regulatory exposure as a result of the application of credit risk mitigation and the use of modelled exposures.
Explanation of differences between accounting fair value and regulatory prudent valuation
Fair value is defined as the best estimate of the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Some fair value adjustments already reflect valuation uncertainty to some degree. These are market data uncertainty, model uncertainty and concentration adjustments.
However, it is recognised that a variety of valuation techniques using stressed assumptions and combined with the range of plausible market parameters at a given point in time may still generate unexpected uncertainty beyond fair value.
A series of additional valuation adjustments (‘AVAs’) are therefore required to reach a specified degree of confidence (the ‘Prudent Value’) set by regulators that differs both in terms of scope and measurement from HSBC’s own quantification for disclosure purposes.
AVAs should consider at the minimum: market price uncertainty, bid/offer (close out) uncertainty, model risk, concentration, administrative cost, unearned credit spreads (‘CVA’) and investing and funding costs (‘FFVA’).
AVAs are not limited to level 3 exposures, for which a 95% uncertainty range is already computed and disclosed, but must also be calculated for any exposure for which the exit price cannot be determined with a high degree of certainty.

HSBC Holdings plc Pillar 3 2017
12


Pillar 3 Disclosures at 31 December 2017

Capital and RWAs
Capital management
Approach and policy
Our approach to capital 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 base to support the risks inherent in our business and invest in accordance with our strategy, meeting both consolidated and local regulatory capital requirements at all times.
Our capital management process culminates in the annual Group capital plan, which is approved by the Board. HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where necessary. These investments are substantially funded by HSBC Holdings’ issuance of equity and non-equity capital and by profit retention. As part of its capital management process, HSBC Holdings seeks to maintain a balance between the composition of its capital and its investment in subsidiaries. Subject to the above, there is no current or foreseen impediment to HSBC Holdings’ ability to provide such investments.
Each subsidiary manages its own capital to support its planned business growth and meet its local regulatory requirements within the context of the Group capital plan. Capital generated by subsidiaries in excess of planned requirements is returned to HSBC Holdings, normally by way of dividends, in accordance with the Group’s capital plan.
During 2017, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant restrictions on
 
paying dividends or repaying loans and advances, and none are envisaged with regard to planned dividends or payments. However, the ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things, their respective local regulatory capital and banking requirements, exchange controls, statutory reserves, and financial and operating performance. None of our subsidiaries that are excluded from the regulatory consolidation have capital resources below their minimum regulatory requirement. HSBC Holdings has not entered into any Group Financial Support Agreements pursuant to the application of early intervention measures under the Bank Recovery and Resolution Directive.
All capital securities included in the capital base of HSBC have either been issued as fully compliant CRD IV securities (on an end point basis) or in accordance with the rules and guidance in the PRA’s previous General Prudential Sourcebook, which are included in the capital base by virtue of application of the CRD IV grandfathering provisions. The main features of capital securities issued by the Group, categorised as tier 1 (‘T1’) capital and tier 2 (‘T2’) capital, are set out on the HSBC website, www.hsbc.com.
The values disclosed are the IFRS balance sheet carrying amounts, not the amounts that these securities contribute to regulatory capital. For example, the IFRS accounting and the regulatory treatments differ in their approaches to issuance costs, regulatory amortisation and regulatory eligibility limits prescribed in the grandfathering provisions under CRD IV.
A list of the features of our capital instruments in accordance with Annex III of Commission Implementing Regulation 1423/2013 is also published on our website with reference to our balance sheet on 31 December 2017. This is in addition to the full terms and conditions of our securities, also available on our website.
For further details of our approach to capital management, please see page 162 of the Annual Report and Accounts 2017.


13
HSBC Holdings plc Pillar 3 2017


Own funds
Table 6: Own funds disclosure
 
 
 
At
31 Dec
2017

CRD IV
prescribed
residual
amount

Final
CRD IV
text

Ref*
 
Ref †
$m

$m

$m

 
Common equity tier 1 (‘CET1’) capital: instruments and reserves
 
 
 
 
1
Capital instruments and the related share premium accounts
 
18,932

 
18,932

 
– ordinary shares
a
18,932

 
18,932

2
Retained earnings
b
124,679

 
124,679

3
Accumulated other comprehensive income (and other reserves)
c
9,433

 
9,433

5
Minority interests (amount allowed in consolidated CET1)
d
4,905

 
4,905

5a
Independently reviewed interim net profits net of any foreseeable charge or dividend
b
608

 
608

6
Common equity tier 1 capital before regulatory adjustments
 
158,557

 
158,557

 
Common equity tier 1 capital: regulatory adjustments
 
 
 
 
7
Additional value adjustments
 
(1,146
)
 
(1,146
)
8
Intangible assets (net of related deferred tax liability)
e
(16,872
)
 
(16,872
)
10
Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability)
f
(1,181
)
 
(1,181
)
11
Fair value reserves related to gains or losses on cash flow hedges
g
208

 
208

12
Negative amounts resulting from the calculation of expected loss amounts
h
(2,820
)
 
(2,820
)
14
Gains or losses on liabilities valued at fair value resulting from changes in own credit standing

3,731

 
3,731

15
Defined benefit pension fund assets
i
(6,740
)
 
(6,740
)
16
Direct and indirect holdings of own CET1 instruments

(40
)
 
(40
)
19
Direct, indirect and synthetic holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities (amount above 10% threshold and net of eligible short positions)
 
(7,553
)
 
(7,553
)
28
Total regulatory adjustments to common equity tier 1
 
(32,413
)

(32,413
)
29
Common equity tier 1 capital
 
126,144


126,144

 
Additional tier 1 (‘AT1’) capital: instruments
 
 
 
 
30
Capital instruments and the related share premium accounts
 
16,399


16,399

31
– classified as equity under IFRSs
j
16,399


16,399