London, Aug. 4 (Reuters): HSBC, Europe’s largest bank, warned that regulators’ zeal to punish wrongdoing was putting its staff off taking reasonable business risks, as it reported a 12 per cent drop in first-half profit.
HSBC chairman Douglas Flint on Monday called on international regulators to clarify what they expected of bank staff after recent record sanctions for misconduct, including a $9-billion US fine against France’s BNP Paribas, had left them fearful of retribution.
“There’s a creeping concern that staff are clearly very focused on the penalties for getting things wrong and are building risk-aversion into the way they think,” Flint told reporters in a conference call.
“We’ve got to avoid getting to the state where there’s a zero risk tolerance.”
Flint said rules that were too harsh could hurt lending in areas such as wealth management or commercial banking where products can be complicated. Industry sources have warned of unintended consequences from the regulatory clampdown, including the threat that lending will be cut to people or businesses in poorer countries.
Since the action against BNP Paribas for breaching US sanctions, international banks have become hyper vigilant about following new rules, including recent moves by Washington and Brussels to freeze some Russian state-controlled firms out of western capital markets.
HSBC was fined a record $1.9 billion in 2012 for breaching US sanctions on money laundering in Mexico and since then has pulled out of business areas and countries, including Panama, to cut the risk of future problems.
The bank said it was spending about $800 million a year more than in 2011 on compliance across its operations in 74 countries.
HSBC and its rivals still face the risk of future fines and legal costs from ongoing investigations, including a global probe into alleged manipulation in the foreign exchange markets.
Under new UK rules, the bank also has to separate its UK retail operations from its riskier investment banking arm and on Monday it warned of a substantial one-off cost to do that.
Lost revenues from closing businesses and a slowdown in investment banking pushed HBSC to a 12 per cent drop in pre-tax profits in the six months to the end of June to $12.3 billion, just below an average forecast of $12.5 billion from 15 analysts polled by the company.
Overall, revenue dropped 9 per cent to $31.2 billion, including disposals.