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 2017
 
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- ).

Contents
 
Page

Tables
2

Regulatory framework for disclosures
3

Pillar 3 disclosures
3

Regulatory developments
3

Risk management
4

Linkage to the Annual Report and Accounts 2016
5

Capital and RWAs
 
Capital management
13

Own funds
13

Leverage ratio
15

Pillar 1 capital requirements and RWA flow
17

Pillar 2 and ICAAP
20

Credit risk
 
Overview and responsibilities
21

Credit risk management
21

Credit risk models governance
21

Credit quality of assets
22

Risk mitigation
33

Global risk
37

Wholesale risk
38

Retail risk
43

Counterparty credit risk
 
Counterparty credit risk management
50

Securitisation
 
Group securitisation strategy
53

Group securitisation roles
53

Monitoring of securitisation positions
54

Securitisation accounting treatment
54

Securitisation regulatory treatment
54

Analysis of securitisation exposures
54

Market risk
 
Overview of market risk in global businesses
56

Market risk governance
56

Market risk measures
56

Market risk capital models
59

Prudent valuation adjustment
60

Structural foreign exchange exposures
60

Interest rate risk in the banking book
60

Operational risk
 
Overview and objectives
62

Organisation and responsibilities
62

Measurement and monitoring
63

Other risks
 
Pension risk
63

Non-trading book exposures in equities
63

Risk management of insurance operations
64

Liquidity and funding risk
64

Reputational risk
65

Sustainability risk
65

Business risk
65

Dilution risk
65

Remuneration
65

 
Appendices
 
 
 
Page

I
Additional CRD IV and BCBS tables
66

II
Simplified organisation chart for regulatory purposes
98

III
Asset encumbrance
99

IV
Summary of disclosures withheld
100

Other Information
 
Abbreviations
101

Cautionary statement regarding forward-looking statements
103

Contacts
103


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.




Capital and Risk Management Pillar 3 Disclosures at 31 December 2016


Tables
 
 
Page

1

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

2

Principal entities with a different regulatory and accounting scope of consolidation
10

3

Mapping of financial statement categories with regulatory risk categories
11

4

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

5

Own funds disclosure
13

6

Summary reconciliation of accounting assets and leverage ratio exposures
15

7

Leverage ratio common disclosure
16

8

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

9

Total RWAs by risk type
18

10

Overview of RWAs
18

11

RWA flow statements of credit risk exposures under IRB
19

12

RWA flow statements of CCR exposures under IMM
19

13

RWA flow statements of market risk exposures under an IMA
20

14

Credit quality of assets
22

15

Credit risk exposure – summary
22

16

Credit risk exposure – by geographical region
24

17

Credit risk RWAs – by geographical region
26

18

Credit risk exposure – by industry sector
28

19

Credit risk exposure – by maturity
30

20

Ageing analysis of accounting past due and not impaired exposures
31

21

Breakdown of renegotiated exposures between impaired and non-impaired exposures
32

22

Amount of impaired exposures and related allowances, broken down by geographical region
32

23

Movement in specific credit risk adjustments by industry and geographical region
33

24

Credit risk mitigation techniques – overview
35

25

Standardised approach – credit risk exposure and Credit Risk Mitigation (CRM) effects
35

26

Standardised approach – exposures by asset classes and risk weights
36

27

IRB – Effect on RWA of credit derivatives used as CRM techniques
36

28

Credit derivatives exposures
37

29

Wholesale IRB credit risk models
40

30

IRB models – estimated and actual values (wholesale)¹
41

31

IRB models – corporate PD models – performance by CRR grade
41

32

Material retail IRB risk rating systems
44

 
 
 
 
 
 
Page
33

Retail IRB exposures secured by mortgages on immovable property (non-SME)
46

34

IRB models – estimated and actual values (retail)
47

35

Wholesale IRB exposure – Back-testing of probability of default (PD) per portfolio¹
48

36

Retail IRB exposure – Back-testing of probability of default (PD) per portfolio¹
49

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 models
59

43

IMA values for trading portfolios
59

44

Operational risk RWAs
62

45

Non-trading book equity investments
63

46

Wholesale IRB exposure – by obligor grade
66

47

PD, LGD, RWA and exposure by country
69

48

Retail IRB exposure – by internal PD band
83

49

IRB expected loss and CRAs – by exposure class
85

50

IRB expected loss and CRAs – by region
85

51

IRB exposure – credit risk mitigation
86

52

Standardised exposure – credit risk mitigation
86

53

Standardised exposure – by credit quality step
87

54

Changes in stock of defaulted loans and debt securities
88

55

IRB – Credit risk exposures by portfolio and PD range
88

56

Specialised lending – Slotting only
92

57

Analysis of counterparty credit risk (CCR) exposure by approach (excluding centrally cleared exposures)
92

58

Credit valuation adjustment (CVA) capital charge
92

59

Standardised approach – CCR exposures by regulatory portfolio and risk weights
93

60

IRB – CCR exposures by portfolio and PD scale
93

61

Composition of collateral for CCR exposure
94

62

Exposures to central counterparties
94

63

Securitisation exposures in the non-trading book
94

64

Securitisation exposures in the trading book
95

65

Securitisation exposures in the non-trading book and associated regulatory capital requirements – bank acting as originator or as sponsor
95

66

Securitisation exposures in the non-trading book and associated capital requirements – bank acting as investor
96

67

Asset encumbrance
99




2
HSBC Holdings plc Pillar 3 2016


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016

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 2016 using the Basel III framework of the Basel Committee 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 2016 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, enabling 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 2016 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. Additionally, we have implemented Basel Committee on Banking Supervision (‘BCBS’) final standards on revised Pillar 3 disclosures issued in January 2015. 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 IV.
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. Geographical comparative data for Europe and Middle East and North Africa (‘MENA’) have been re-presented to reflect the management oversight provided by the MENA region following the management services agreement entered into by HSBC Bank Middle East Limited in 2016 in respect of HSBC Bank A.S. (Turkey).
Key ratios and figures are reflected throughout the Pillar 3 2016 disclosures and are also available on pages 2 to 3 of the Annual Reports and Accounts 2016. 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, simultaneously with the release of our Annual Report and Accounts. A Pillar 3 document will also be disclosed at half-year following our Interim Report
 
disclosure. Earnings Releases will include regulatory information complementing the financial and risk information presented there and 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 or other location.
We continue to engage constructively in the work of the UK authorities and industry associations to improve the transparency and comparability of UK banks’ Pillar 3 disclosures.
Regulatory developments
Throughout 2016, the BCBS and the Financial Stability Board (‘FSB’) continued to develop their package of reforms to the existing Basel III regulatory capital framework. In particular, the BCBS has proposed modifications to the existing risk-weighted asset (‘RWA’) and leverage frameworks. While many of these proposals are now finalised, certain key elements remain in draft, subject to international agreement. These include:
changes to the framework for credit risk capital requirements under both the internal ratings based (‘IRB’) and standardised (‘STD’) approaches;
a new single operational risk methodology, replacing those currently available;
changes to leverage ratio exposure calculation and a new leverage buffer for global systemically important banks (‘G-SIBs’); and
the introduction of a capital floor based on the new STD approaches.
Separately, in response to the implementation of International Financial Reporting Standards 9 Financial Instruments (‘IFRS 9’) into the accounting framework in 2018, the BCBS has consulted on the long-term treatment of accounting provisions in the regulatory framework and potential transitional arrangements. It is the BCBS’s aim that all of the above proposals will be finalised in 2017.
Meanwhile, in November, the European Commission (‘EC’) proposed a number of revisions to CRD IV, which reflect some of the proposals already completed or under development by the BCBS. Together, these changes are known as the ‘CRR2’ package.
The CRR2 package includes the following:
a new STD approach for counterparty credit risk (‘CCR’) to replace the existing current exposure and STD methods;
changes to the rules for determining the trading book boundary and the methodologies for calculating market risk capital charges;
a binding leverage ratio and changes to the exposure measure;
a new methodology for capital charges for equity investments in funds;
restrictions to the capital base and changes to the exposure limits for the calculation of large exposures; and
the final FSB Total Loss Absorbing Capacity (‘TLAC’) requirements in the EU in the form of Minimum Requirements for own funds and Eligible Liabilities (‘MREL’). In relation to MREL implementation in the UK, the Bank of England also published its final requirements in November 2016, which introduces MREL from 2019 onwards consistent with international timelines.
The CRR2 package is expected to apply from 1 January 2021, save for the rules on TLAC, which may apply from 1 January


HSBC Holdings plc Pillar 3 2016
3


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016


2019, and the transitional provisions for IFRS 9, which may apply from 1 January 2018.
All changes to the regulatory framework would need to be transposed into the relevant law before coming into effect.
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 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 101 of the Annual Report and Accounts 2016. The management and mitigation of principal risks facing the Group is described in our top and emerging risks on page 89 of the Annual Report and Accounts 2016.
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 16 on page 262 of the Annual Report and Accounts 2016.
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 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 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 page 89 of the Annual Report and Accounts 2016.
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 176 to 178 of the Annual Report and Accounts 2016.
Executive accountability for the monitoring, assessment and management of risk resides with the Group Chief Risk Officer. He is supported by the Risk Management Meeting (‘RMM’) of the Group Management Board (‘GMB’).
The management of financial crime risk resides with the Group Head of Financial Crime Risk. He is supported by the Global Standards Steering Meeting, as described on page 114 of the Annual Report and Accounts 2016.
Day-to-day responsibility for risk management is delegated to senior managers with individual accountability for decision making. These managers are supported by global functions as described under ‘Three lines of defence’ (see page 102 of the Annual Report and Accounts 2016).
Our executive risk governance structures ensure appropriate oversight and accountability of risk, which facilitates the
 
reporting and escalation to the RMM (see page 101 of the Annual Report and Accounts 2016).
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. Within HSBC, risk appetite is managed through a global risk appetite framework and articulated in a risk appetite statement (‘RAS’), which is biannually approved 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 101 of the Annual Report and Accounts 2016. Details on the Group’s overarching risk appetite are set out on page 89 of the Annual Report and Accounts 2016.
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 demonstrates 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 regulators‘ 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 103 of the Annual Report and Accounts 2016.
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 102 of the Annual Report and Accounts 2016).
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 over other than financial reporting, including enterprise-wide stress testing.
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 183 of the Annual Report and Accounts


4
HSBC Holdings plc Pillar 3 2016


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016

2016, 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 rating and scoring models for different risk types and business segments, economic capital and stress testing. 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 in progress toward our implementation targets for the IRB advanced approach.
 
Model governance is under the general oversight of Global Model Oversight Committee (‘MOC’). 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, financial crime risk, and has functional and/or regional and entity-level counterparts with comparable terms of reference.
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 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
2016
Basis of consolidation
The basis of consolidation for the purpose of financial accounting under IFRSs, described in Note 1 of the Annual Report and Accounts 2016, differs from that used for regulatory purposes as described in ‘Structure of the regulatory group’ on page 10.


HSBC Holdings plc Pillar 3 2016
5


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016


Table 1: 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
 
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
)
impairment allowances on standardised portfolios
 
(2,754
)

(235
)
(2,989
)
Reverse repurchase agreements – non-trading
 
160,974

344

1,444

162,762

Financial investments
 
436,797

(54,904
)
3,500

385,393

Assets held for sale
 
4,389

(7
)

4,382

– of which:
 
 
 
 
 
goodwill and intangible assets
e
1



1

impairment allowances

(250
)


(250
)
– of which:
 
 
 
 
 
IRB portfolios
h
(146
)


(146
)
standardised portfolios
 
(104
)


(104
)
Capital invested in insurance and other entities
 

2,214


2,214

Current tax assets
 
1,145

(118
)

1,027

Prepayments, accrued income and other assets
 
59,520

(3,066
)
306

56,760

– of which: retirement benefit assets
i
4,714



4,714

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


6
HSBC Holdings plc Pillar 3 2016


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016

Table 1: 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

Liabilities and equity
 
 
 
 
 
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:
 
 
 
 
 
term subordinated debt included in tier 2 capital
n, q
23,172



23,172

preferred securities included in tier 1 capital
m
411



411

Derivatives
 
279,819

193

64

280,076

Debt securities in issue
 
65,915

(3,547
)
662

63,030

Liabilities of disposal groups held for sale
 
2,790



2,790

Current tax liabilities
 
719

(26
)

693

Liabilities under insurance contracts
 
75,273

(75,273
)


Accruals, deferred income and other liabilities
 
41,501

1,810

495

43,806

– of which: retirement benefit liabilities
 
2,681

(2
)
61

2,740

Provisions
 
4,773

(18
)

4,755

– of which: contingent liabilities and contractual commitments
 
299



299

– of which:
 
 
 
 
 
credit-related provisions on IRB portfolios
h
267



267

credit-related provisions on standardised portfolios
 
32



32

Deferred tax liabilities
 
1,623

(981
)
1

643

Subordinated liabilities
 
20,984

1


20,985

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



1,754

perpetual subordinated debt included in tier 2 capital
o
1,967



1,967

term subordinated debt included in tier 2 capital
n, q
16,685



16,685

Total liabilities at 31 Dec 2016
 
2,192,408

(83,304
)
16,661

2,125,765

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 13.

HSBC Holdings plc Pillar 3 2016
7


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016


Table 1: 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
 
98,934

(2
)
28,784

127,716

Items in the course of collection from other banks
 
5,768


22

5,790

Hong Kong Government certificates of indebtedness
 
28,410



28,410

Trading assets
 
224,837

340

4,390

229,567

Financial assets designated at fair value
 
23,852

(23,521
)
2,034

2,365

Derivatives
 
288,476

(146
)
495

288,825

Loans and advances to banks
 
90,401

(3,008
)
16,413

103,806

Loans and advances to customers
 
924,454

(7,427
)
120,016

1,037,043

– of which:
 
 
 
 
 
impairment allowances on IRB portfolios
h
(6,291
)


(6,291
)
impairment allowances on standardised portfolios
 
(3,263
)

(2,780
)
(6,043
)
Reverse repurchase agreements – non-trading
 
146,255

711

5,935

152,901

Financial investments
 
428,955

(51,684
)
42,732

420,003

Assets held for sale
 
43,900

(4,107
)

39,793

– of which:
 
 
 
 
 
goodwill and intangible assets
e
1,680

(219
)

1,461

impairment allowances
 
(1,454
)


(1,454
)
– of which:
 
 
 
 
 
IRB portfolios
h
(7
)


(7
)
standardised portfolios
 
(1,447
)


(1,447
)
Capital invested in insurance and other entities
 

2,371


2,371

Current tax assets
 
1,221

(15
)

1,206

Prepayments, accrued income and other assets
 
54,398

(2,539
)
9,692

61,551

– of which: retirement benefit assets
i
5,272



5,272

Interests in associates and joint ventures
 
19,139


(18,571
)
568

– of which: positive goodwill on acquisition
e
593


(579
)
14

Goodwill and intangible assets
e
24,605

(6,068
)
623

19,160

Deferred tax assets
f
6,051

195

518

6,764

Total assets at 31 Dec 2015
 
2,409,656

(94,900
)
213,083

2,527,839


8
HSBC Holdings plc Pillar 3 2016


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016

Table 1: 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

Liabilities and equity
 
 
 
 
 
Hong Kong currency notes in circulation
 
28,410



28,410

Deposits by banks
 
54,371

(97
)
50,005

104,279

Customer accounts
 
1,289,586

(119
)
147,522

1,436,989

Repurchase agreements – non-trading
 
80,400



80,400

Items in course of transmission to other banks
 
5,638



5,638

Trading liabilities
 
141,614

(66
)
59

141,607

Financial liabilities designated at fair value
 
66,408

(6,046
)

60,362

– of which:
 
 
 
 
 
term subordinated debt included in tier 2 capital
n, q
21,168



21,168

preferred capital securities included in tier 1 capital
m
1,342



1,342

Derivatives
 
281,071

87

508

281,666

Debt securities in issue
 
88,949

(7,885
)
5,065

86,129

Liabilities of disposal groups held for sale
 
36,840

(3,690
)

33,150

Current tax liabilities
 
783

(84
)
409

1,108

Liabilities under insurance contracts
 
69,938

(69,938
)


Accruals, deferred income and other liabilities
 
38,116

2,326

6,669

47,111

– of which: retirement benefit liabilities
 
2,809

(2
)
61

2,868

Provisions
 
5,552

(25
)

5,527

– of which: contingent liabilities and contractual commitments
 
240



240

– of which:
 
 
 
 
 
credit-related provisions on IRB portfolios
h
201



201

credit-related provisions on standardised portfolios
 
39



39

Deferred tax liabilities
 
1,760

(868
)
5

897

Subordinated liabilities
 
22,702


2,841

25,543

– of which:
 
 
 
 
 
preferred capital securities included in tier 1 capital
k, m
1,929



1,929

perpetual subordinated debt included in tier 2 capital
o
2,368



2,368

term subordinated debt included in tier 2 capital
n, q
18,405



18,405

Total liabilities at 31 Dec 2015
 
2,212,138

(86,405
)
213,083

2,338,816

Called up share capital
a
9,843



9,843

Share premium account
a, k
12,421



12,421

Other equity instruments
j, k
15,112



15,112

Other reserves
c, g
7,143

1,650


8,793

Retained earnings
b, c
143,941

(9,212
)

134,729

Total shareholders’ equity
 
188,460

(7,562
)

180,898

Non-controlling interests
d, l, m, p
9,058

(933
)

8,125

– of which: non-cumulative preference shares issued by subsidiaries
   included in tier 1 capital
m
2,077



2,077

Total equity at 31 Dec 2015
 
197,518

(8,495
)

189,023

Total liabilities and equity at 31 Dec 2015
 
2,409,656

(94,900
)
213,083

2,527,839

The references (a) – (q) identify balance sheet components that are used in the calculation of regulatory capital on page 13.

HSBC Holdings plc Pillar 3 2016
9


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016


Structure of the regulatory group
HSBC’s organisation is that of a financial holding company whose major subsidiaries are almost entirely wholly-owned banking entities. A simplified organisation chart showing the difference between the accounting and regulatory consolidation groups is included in Appendix II.
Following a clarification of policy by the PRA, at 30 September 2016 the regulatory treatment of our investment in Bank of Communications Co., Limited (‘BoCom’) changed from proportional consolidation of RWAs to a deduction from capital (subject to regulatory thresholds). The revised regulatory treatment is more consistent with our financial reporting treatment, aligning with the equity method of accounting, and better reflects our relationship with BoCom, including the nature of our obligations and financial commitments. This also results in BoCom no longer being a difference between the financial accounting and regulatory balance sheets in table 1.
Interests in other banking associates are proportionally consolidated for regulatory purposes by including our share of assets, liabilities, profit and loss, and RWAs in accordance with the PRA’s application of EU legislation. As shown in table 2, the principal associate subject to proportional regulatory consolidation at 31 December 2016 is The Saudi British Bank.
 
Subsidiaries engaged in insurance activities are excluded from the regulatory consolidation by excluding assets, liabilities and post-acquisition reserves, leaving the investment of these insurance subsidiaries to be recorded at cost and deducted from common equity tier 1 (‘CET1’) (subject to thresholds). In the column ‘Deconsolidation of insurance/other entities’, in table 1, the amount of $2.2bn (2015: $2.4bn) shown as ‘Capital invested in insurance and other entities’ represents the cost of investment in our insurance business. The principal insurance entities are listed in table 2.
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. The deconsolidation of SPEs connected to securitisation activity and other entities mainly impacts the adjustments to ‘Loans and advances to customers’, ‘Financial investments’ and ‘Debt securities in issue’. Table 2 lists the principal SPEs excluded from the regulatory consolidation with their total assets and total equity. Further details of the use of SPEs in the Group’s securitisation activities are shown in Note 19 of the Annual Report and Accounts 2016 and on page 268.

Table 2: Principal entities with a different regulatory and accounting scope of consolidation
 
 
 
At 31 Dec 2016
At 31 Dec 2015
 
 
Principal activities
Total
assets

Total
equity

Total
assets

Total
equity

 
Footnotes
 
$m

$m

$m

$m

Principal associates
 
 
 
 
 
 
Bank of Communications Co., Limited
1, 2
Banking services
1,165,535

89,364

1,110,088

80,657

The Saudi British Bank
 
Banking services
49,784

8,202

50,189

7,356

Principal insurance entities excluded from the
regulatory consolidation
 
 
 
 
 
 
HSBC Life (International) Ltd
 
Life insurance manufacturing
39,346

2,838

34,808

2,805

HSBC Assurances Vie (France)
 
Life insurance manufacturing
23,418

721

23,713

663

Hang Seng Insurance Company Ltd
 
Life insurance manufacturing
15,225

1,107

14,455

1,154

HSBC Insurance (Singapore) Pte Ltd
 
Life insurance manufacturing
3,589

360

3,102

315

HSBC Life (UK) Ltd
 
Life insurance manufacturing
1,678

158

1,941

390

HSBC Life Insurance Company Ltd
 
Life insurance manufacturing
864

85

764

109

HSBC Seguros S.A. (Mexico)
 
Life insurance manufacturing
716

118

870

182

HSBC Amanah Takaful (Malaysia) SB
 
Life insurance manufacturing
298

26

302

27

HSBC Vida e Previdência (Brasil) S.A.
 
Life insurance manufacturing


3,418

155

HSBC Seguros (Brasil) S.A.
 
Life insurance manufacturing


484

283

Principal SPEs excluded from the
regulatory consolidation
3
 
 
 
 
 
Regency Assets Ltd
 
Securitisation
7,380


15,183


Mazarin Funding Ltd
 
Securitisation
1,117

12

1,879

(9
)
Turquoise Receivables Trustee Ltd
 
Securitisation
838


852

(1
)
Barion Funding Ltd
 
Securitisation
653

56

1,132

68

Malachite Funding Ltd
 
Securitisation
356

34

442

26

Metrix Portfolio Distribution Plc
 
Securitisation
333


304


1
Since 30 September 2016, both the accounting and regulatory balance sheets use the equity method to consolidate our interest in BoCom. For further details, see ‘Structure of the regulatory group’ above.
2
Total assets and total equity for 2016 are as at 30 September 2016.
3
These SPEs issued no or de minimis share capital. The negative equity represents net unrealised losses on unimpaired assets on their balance sheets and negative retained earnings.
Table 2 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 2 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 in-force long-term insurance business asset of $6.5bn and the related deferred tax liability are recognised at the financial reporting consolidated level only, and are therefore not included in the asset or equity positions for the stand-alone entities presented in table 2. 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 2016.
The Pillar 3 Disclosures 2016 are prepared in accordance with regulatory capital adequacy concepts and rules, while the Annual Report and Accounts 2016 are prepared in accordance


10
HSBC Holdings plc Pillar 3 2016


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016

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.
The difference between total assets on the regulatory balance sheet is shown in table 3, and the credit risk and CCR exposure values are shown in table 4.
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 3 below shows a breakdown of the accounting balances into the risk types that form the basis for regulatory capital requirements. Table 4 then shows the main differences between the accounting balances and regulatory exposures by regulatory risk type.

Table 3: 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 credit risk framework

Subject to CCR framework2

Subject to securitisation framework3

Subject to the market risk framework

Subject to deduction from capital or not subject to regulatory capital requirements4

 
$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

Assets held for sale
4.4

4.4

4.4





Capital invested in insurance and other entities
2.2

2.2

1.4




0.8

Current tax assets
1.1

1.0

1.0





Prepayments, accrued income and other assets
59.5

56.8

38.0

3.9


8.2

6.7

Interests in associates and joint ventures
17.8

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

 
 
 
 
 
 
 
 
Cash and balances at central banks
98.9

127.7

127.7





Items in the course of collection from other banks
5.8

5.8

5.8





Hong Kong Government certificates of indebtedness
28.4

28.4

28.4





Trading assets
224.8

229.5

4.4

17.4


225.1


Financial assets designated at fair value
23.9

2.4

2.4





Derivatives
288.5

288.8

0.3

287.5

0.9

288.5


Loans and advances to banks
90.4

103.8

103.8





Loans and advances to customers
924.4

1,037.0

1,027.5


9.5



Reverse repurchase agreements – non-trading
146.3

152.9

5.9

147.0

 


Financial investments
429.0

420.0

408.7


11.3



Assets held for sale
43.9

39.8

32.8

5.3



1.7

Capital invested in insurance and other entities
2.4

2.4

2.4





Current tax assets
1.2

1.2

1.2





Prepayments, accrued income and other assets
54.4

61.5

44.9



11.5

5.1

Interests in associates and joint ventures
16.7

0.6





0.6

Goodwill and intangible assets
24.6

19.2





19.2

Deferred tax assets
6.1

6.8

7.8




(1.0
)
Total assets at 31 Dec 2015
2,409.7

2,527.8

1,804.0

457.2

21.7

525.1

25.6

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 CCR framework’ include both non-trading book and trading book.
3
The amounts shown in the column ‘Subject to securitisation framework’ only include non-trading book. Trading book securitisation positions are included in the market risk column.
4
In the comparative period, the carrying value of settlement accounts not subject to regulatory capital requirements were reported in credit risk and market risk.



HSBC Holdings plc Pillar 3 2016
11


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016


Table 4: Main sources of differences between regulatory exposure values and carrying values in financial statements
 
 
Items subject to:
 
 
Credit risk

CCR

Securitisation

 
Footnotes
$bn

$bn

$bn

Asset carrying value amount under scope of regulatory consolidation
 
1,533.9

478.4

22.8

– differences due to reversal of IFRS netting
 
14.6

110.3


– differences due to financial collateral on standardised approach
 
(12.3
)


– differences due to consideration of provisions on IRB approach
 
6.0



– differences due to modelling and standardised CCFs for credit risk and other differences
1
250.7


12.4

– differences due to credit risk mitigation and potential exposures for counterparty risk
 

(426.4
)

– differences due to free deliveries and sundry balances
 

2.5


Exposure values considered for regulatory purposes at 31 Dec 2016
 
1,792.9

164.8

35.2

 
 
 
 
 
Asset carrying value amount under scope of regulatory consolidation
 
1,804.0

457.2

21.7

– differences due to reversal of IFRS netting
2
31.7

110.0


– differences due to financial collateral on standardised approach
 
(13.8
)


– differences due to consideration of provisions on IRB approach
 
7.2


0.6

– differences due to modelling and standardised CCFs for credit risk and other differences
1
275.8


19.3

– differences due to credit risk mitigation and potential exposures for counterparty risk
 

(395.5
)

– differences due to free deliveries and sundry balances
 

6.9


Exposure values considered for regulatory purposes at 31 Dec 2015
 
2,104.9

178.6

41.6

1
This includes the undrawn portion of committed facilities, various trade finance commitments and guarantees, by applying CCFs to these items.
2
In the comparative period, ‘differences due to reversal of IFRS netting’ have been reallocated from ‘differences due to credit risk mitigation and potential exposures for counterparty risk’.
Explanations of differences between accounting and regulatory exposure amounts
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.
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.
 
While bid/offer are often commensurate with market price dispersion, these adjustments essentially capture an execution cost and not market uncertainty. However, it is recognised that a variety of valuation techniques combined with the range of plausible market parameters at a given PIT 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 and that may differ 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 spread and funding fair value adjustment (‘FFVA’).
AVAs are not limited to level 3 exposures, for which a 95% uncertainty range is already computed and disclosed, but must be also calculated for any exposure for which the exit price cannot be determined without a degree of uncertainty.


12
HSBC Holdings plc Pillar 3 2016


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016

Capital and RWAs
Capital management
Approach and policy
Our approach to capital management is designed to ensure we meet current regulatory requirements and that we respect the payment priority of our capital providers. We aim to maintain a strong capital base, to support the risks inherent in our business and to invest in accordance with our six filters framework, 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 2016, 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. Also, there are no foreseen restrictions 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 does not have any Group Financial Support Agreements outstanding.
All capital securities included in the capital base of HSBC have been either 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 capital (‘T2 capital’), are set out on the HSBC website, www.hsbc.com.
The values disclosed are the IFRSs balance sheet carrying amounts, not the amounts that these securities contribute to regulatory capital. For example, the IFRSs accounting and the regulatory treatments differ in their approaches to issuance costs, regulatory amortisation and regulatory eligibility limits prescribed in the grand-fathering 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 2016. 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 165 of the Annual Report and Accounts 2016.



Own funds
Table 5: Own funds disclosure
 
 
 
At
31 Dec
2016

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
 
21,310

 
21,310

 
– ordinary shares
a
21,310

 
21,310

2
Retained earnings
b
125,442

 
125,442

3
Accumulated other comprehensive income (and other reserves)
c
560

 
560

5
Minority interests (amount allowed in consolidated CET1)
d
3,878

 
3,878

5a
Independently reviewed interim net profits net of any foreseeable charge or dividend
b
(1,899
)
 
(1,899
)
6
Common equity tier 1 capital before regulatory adjustments
 
149,291

 
149,291

 
Common equity tier 1 capital: regulatory adjustments
 
 
 
 
7
Additional value adjustments
 
(1,358
)
 
(1,358
)
8
Intangible assets (net of related deferred tax liability)
e
(15,037
)
 
(15,037
)
10
Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability)
f
(1,696
)
 
(1,696
)
11
Fair value reserves related to gains or losses on cash flow hedges
g
(52
)
 
(52
)
12
Negative amounts resulting from the calculation of expected loss amounts
h
(4,025
)
 
(4,025
)
14
Gains or losses on liabilities valued at fair value resulting from changes in own credit standing

1,052

 
1,052

15
Defined-benefit pension fund assets
i
(3,680
)
 
(3,680
)
16
Direct and indirect holdings of own CET1 instruments

(1,573
)
 
(1,573
)
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)
 
(6,370
)
 
(6,370
)
22
Amount exceeding the 15%/17.65% threshold
 

(568
)
(568
)
23
– direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities
 

(388
)
(388
)

HSBC Holdings plc Pillar 3 2016
13


Capital and Risk Management Pillar 3 Disclosures at 31 December 2016


Table 5: Own funds disclosure (continued)
 
 
 
At
31 Dec
2016

CRD IV
prescribed
residual
amount

Final
CRD IV
text

Ref*
 
Ref†
$m

$m

$m

25
– deferred tax assets arising from temporary differences
 

(180
)
(180
)
28
Total regulatory adjustments to Common equity tier 1
 
(32,739
)
(568
)
(33,307
)
29
Common equity tier 1 capital
 
116,552

(568
)
115,984

 
Additional tier 1 (‘AT1’) capital: instruments
 
 
 
 
30
Capital instruments and the related share premium accounts
 
11,259



11,259

31
– classified as equity under IFRSs
j
11,259



11,259

33
Amount of qualifying items and the related share premium accounts subject to phase out
from AT1
k
7,946

(7,946
)

34
Qualifying tier 1 capital included in consolidated AT1 capital (including minority interests not included in CET1) issued by subsidiaries and held by third parties
l, m
2,419

(2,267
)
152

35
– of which: instruments issued by subsidiaries subject to phase out
m
1,522

(1,522
)

36
Additional tier 1 capital before regulatory adjustments
 
21,624

(10,213
)
11,411

 
Additional tier 1 capital: regulatory adjustments
 
 
 
 
37
Direct and indirect holdings of own AT1 instruments
 
(60
)
 
(60
)
41b
Residual amounts deducted from AT1 capital with regard to deduction from tier 2 (‘T2’) capital during the transitional period
 
(94
)
94


 
– direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities
 
(94
)
94


43
Total regulatory adjustments to additional tier 1 capital
 
(154
)
94

(60
)
44
Additional tier 1 capital
 
21,470

(10,119
)
11,351

45
Tier 1 capital (T1 = CET1 + AT1)
 
138,022

(10,687
)
127,335

 
Tier 2 capital: instruments and provisions
 
 
 
 
46
Capital instruments and the related share premium accounts
n
16,732

 
16,732

47
Amount of qualifying items and the related share premium accounts subject to phase out
from T2
o
5,695

(5,695
)

48
Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in CET1 or AT1) issued by subsidiaries and held by third parties
p, q
12,323

(12,258
)
65

49
– of which: instruments issued by subsidiaries subject to phase out
q
12,283

(12,283
)

51
Tier 2 capital before regulatory adjustments
 
34,750

(17,953
)
16,797

 
Tier 2 capital: regulatory adjustments
 
 
 
 
52
Direct and indirect holdings of own T2 instruments
 
(40
)
 
(40
)
55
Direct and indirect holdings by the institution of the T2 instruments and subordinated loans of financial sector entities where the institution has a significant investment in those entities (net of eligible short positions)
 
(374
)
(94
)
(468
)
57
Total regulatory adjustments to tier 2 capital
 
(414
)
(94
)
(508
)
58
Tier 2 capital
 
34,336

(18,047
)
16,289

59
Total capital (TC = T1 + T2)
 
172,358

(28,734
)
143,624

59a
Risk-weighted assets in respect of amounts subject to pre-capital requirements regulation treatment and transitional treatments subject to phase out as prescribed in Regulation (EU) No 575/2013
 
1,419

(1,419
)

 
– items not deducted from CET1: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities
 
971

(971
)

 
– items not deducted from CET1: deferred tax assets arising from temporary differences
 
448

(448
)

60
Total risk-weighted assets
 
857,181

(1,419
)
855,762

 
Capital ratios and buffers
 
 
 
 
61
Common equity tier 1
 
13.6
%
 
13.6
%
62
Tier 1
 
16.1
%
 
14.9
%
63
Total capital
 
20.1
%
 
16.8
%