Ring-Fencing Transfer Scheme

Transcription

1 HSBC Bank plc and HSBC UK Bank plc 12 January 2018 Ring-Fencing Transfer Scheme Summary of the Scheme Report 1

2 WHAT IS THIS DOCUMENT FOR? We are separating, or ring-fencing, the UK retail and business banking activities of HSBC Bank plc from its investment and global banking activities by transferring the UK retail and business banking activities to a newly established separate bank, HSBC UK Bank plc. This transfer needs Court approval and Dr Thomas Huertas of Ernst & Young LLP has been appointed to review our transfer and prepare a report for the Court to consider. This document is our summary of the report written by him. In particular, this document summarises his conclusions in respect of any customers and other persons likely to be adversely affected by our ring-fencing transfer scheme. WHAT S IN THIS DOCUMENT? Page 5 sets out Dr Huertas conclusions in general and pages 6 and 7 set out changes to the business of HSBC Bank plc as a result of the ring-fencing transfer scheme. To find information specific to you: Customers of HSBC Bank plc and M&S Bank and UK Private Banking customers see the index table on page 8 Employees and pension scheme members see page 28 Other persons see the index table on page 29 If you would like to read a full version of Dr Huertas report, it can be obtained online at or can be requested free of charge as indicated on this website. 2

3 1. HOW WE RE GOING ABOUT OUR RING-FENCING 1.1 What is ring-fencing and why are we doing it? Following the financial crisis, the UK Government required the major UK banks to change the way they are run. They were told to separate, or ring-fence, their retail and small business banking activities from their investment and global banking activities by putting them in separate banks. By law, these banks, including us, have to do this by 1 January Our ring-fencing transfer scheme (the RFTS) will transfer our retail and business banking activities from our main UK bank, which is called HSBC Bank plc (HBEU), into a separate bank called HSBC UK Bank plc (HBUK). The RFTS is a process under Part VII of the Financial Services and Markets Act 2000 (the Act) and has to be approved by the High Court. We expect the RFTS to take effect on 1 July 2018 (the Effective Date). The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have regulatory oversight of the implementation of ring-fencing. The Act requires an independent expert (the Skilled Person) to prepare a report on the RFTS (the Scheme Report) that will be considered by the High Court in deciding whether to approve the RFTS. 1.2 What does the Skilled Person do? We nominated Dr Thomas Huertas of Ernst & Young LLP as the Skilled Person for the RFTS. The PRA discussed our nomination of Dr Huertas with the FCA and then approved his appointment as the Skilled Person. Dr Huertas has looked at the RFTS and written the Scheme Report. The PRA (in consultation with the FCA) also has to approve the form the Scheme Report takes, which they have done. The Act requires the Scheme Report to state: whether anyone, other than HBEU, is likely to be adversely affected by the RFTS; and if so, whether the adverse effect is likely to be greater than is reasonably necessary in order to enable HBUK to carry on core activities as a ring-fenced body in compliance with the ring-fencing provisions. This question takes into account the fact that HBUK has to do certain things as a ring-fenced body to comply with ring-fencing. In the Scheme Report, Dr Huertas calls this question the Statutory Question. 1.3 How did Dr Huertas write the Scheme Report? To write the Scheme Report: Dr Huertas looked at what will change as a result of the RFTS and how we prepared for these changes. He considered the changes to our business that have already happened as at the date of his report and what will change before the Effective Date. 3

4 He assessed any adverse effects that the RFTS would have on different groups of customers and other persons with similar characteristics (which he calls cohorts). To do this, he looked at the effects that came from thematic changes as well as factors specific to each cohort. Then he considered how likely it was that there would be an adverse effect on each cohort. He drew up a list of cohorts that were likely to be adversely affected by the RFTS. Lastly, he used his professional judgement to decide whether any of these adverse effects is likely to be greater than is reasonably necessary in order to enable HBUK to carry on core activities as a ring-fenced body in compliance with the ring-fencing provisions. 1.4 Has Dr Huertas checked this summary of his Scheme Report? Dr Huertas has checked this summary of his Scheme Report and confirmed that it is clear, fair and not misleading. 4

5 2. THE SKILLED PERSON S CONCLUSIONS Dr Huertas has concluded that: customers will have access to the same products and services following the RFTS as they currently have, subject to two immaterial exceptions relating to certain customers remaining with HBEU; the RFTS will not change the terms and conditions of the products and services provided to customers other than in relation to technical changes to the distribution model of certain products and services that will be provided by HBEU to customers of HBUK and its private bank and by HBUK to customers of HBEU; customers will not incur any additional cost in relation to prices and fees for products and services as a result of the RFTS; customers and other persons will generally not incur increased risk as a result of the RFTS. HBUK and HBEU will have solid investment grade credit ratings and will be attractive counterparties following the RFTS; customers and other persons who may wish to allege that they would be adversely affected by the carrying out of the RFTS have been properly identified for the purposes of HBEU s proposed communication plan; and HBEU s proposed communication plan includes individual notifications of the RFTS to customers and other persons (approximately 15 million in aggregate) and a general ringfencing awareness programme. The plan provides adequate and timely information to enable customers and other persons who may wish to allege that they will be adversely affected by the carrying out of the RFTS to consider the likely adverse effects of the RFTS on them so that they may consider whether to exercise their statutory right to make representations against the RFTS and how to do so. In respect of the Statutory Question and the RFTS, Dr Huertas has concluded as follows: customers and other persons will experience a small number of adverse effects as a result of the RFTS; none of the adverse effects that he has identified is material; and no adverse effect that he has identified is likely to be greater than is reasonably necessary in order to enable HBUK to carry on core activities as a ring-fenced body in compliance with the ring-fencing provisions. Further information about Dr Huertas conclusions can be found at section 1.9 of the Scheme Report. 5

6 3. CHANGES TO HBEU S BUSINESS RESULTING FROM THE RFTS As part of his assessment of the Statutory Question, Dr Huertas identified the changes to HBEU s business that would result from the RFTS. 3.1 HBEU s current business The HSBC Group operates four global businesses: retail banking and wealth management (RBWM), commercial banking (CMB), global banking and markets (GBM) and global private banking (GPB). In addition, the HSBC Group has ten global functions, as well as HSBC Operations, Services and Technology (HOST), whose main purpose is to support the global businesses. HSBC s UK banking business predominantly resides within HBEU, which is a wholly owned subsidiary of HSBC Holdings plc (HGHQ), the ultimate parent company of the HSBC Group. HBEU provides RBWM, CMB, and GBM products. The UK GPB business is carried on by HSBC Private Bank (UK) Limited (PBGB), a wholly owned subsidiary of HBEU. 3.2 Business design principles In order to meet the requirements of the ring-fencing legislation in a manner that would lead to the easiest separation of HBEU and cause the least disruption to customers as well as to the global businesses themselves, HBEU developed its future business design from the following principles: minimise disruption to HBEU s customers and its global businesses (RBWM, CMB, GBM and GPB); customers should continue to have access to broadly the same range of products and services from HBEU and HBUK as they do today; the UK business and operations of each of RBWM, CMB, GBM and GPB should be allocated to either HBEU or HBUK as a whole, as far as possible; and HBEU s existing EEA branches (outside the UK) should remain with HBEU so that HBUK can focus on its UK customer base. 3.3 Business design and the RFTS HBEU has opted for a business design for HBEU (the non ring-fenced bank) and HBUK (the ringfenced bank) which will: transfer substantially all of HBEU s UK RBWM and CMB businesses to HBUK; transfer all of its shares in its joint ventures regarding M&S Bank and the John Lewis consumer finance business to HBUK; leave substantially all of the UK GBM business in HBEU; and transfer PBGB to become a wholly owned subsidiary of HBUK. 3.4 Changes to HBEU before the RFTS The Athens Branch of HBEU held core deposits for some of its RBWM customers. Under the ringfencing provisions, a UK entity that holds core deposit in its EEA branch has to be a ring-fenced entity. However, as HBEU s design principles preclude HBUK from having EEA branches, the 6

7 business of the Athens Branch of HBEU was transferred to HSBC France instead. This is not included within the RFTS but Dr Huertas included it within the scope of his assessment as it arose due to the need to comply with ring fencing provisions. 3.5 Skilled Person s conclusion on business design Dr Huertas concluded that HBEU s allocation of RBWM and CMB customers to HBUK was reasonable and would result in the least disruption to customers, for the following reasons: it minimises the effect on customers, as it keeps the current business structure broadly the same in terms of customers and customer propositions; it eases the implementation of the RFTS, as the four global businesses will remain substantially as they currently operate; and it enables the most efficient way of allocating sort codes and other bank identifiers between HBEU and HBUK. Dr Huertas also considered the alternative option of HBEU instead transferring its non-ring fenced bank business to HBUK and leaving the ring-fenced business in HBEU, and concluded that: this alternative option would increase the risk of customers being adversely affected by the RFTS due to the complexity of designing this alternative option and implementing it before the ring-fencing regulatory deadline; and compared to this alternative option, the chosen option of moving the ring-fenced business to HBUK, reduces the risk of an adverse effect to customers and other persons. Further information about HBEU s business design and the RFTS can be found at section 3 of the Scheme Report. 7

8 4. WHAT ADVERSE EFFECTS WILL THE RFTS HAVE ON CUSTOMERS? We ve worked hard to make sure any adverse effects people experience because of the RFTS aren t greater than they reasonably need to be. That takes into account the fact that HBUK will have to follow certain rules as a ring-fenced bank. In Dr Huertas opinion, none of the small number of likely adverse effects he s identified is material. In most cases the likely adverse effect is administrative inconvenience, such as minor and technical changes to terms and conditions. How will you be affected? There are different sections in this document that explain how different customer groups will be affected. Have a look in the red index box below to find the section about your customer group. We ve also included a section (on page 9) about general effects that could affect customers across lots of different customer groups. Customer Segment Page General effects that could affect lots of customers 9 UK Personal customers (HSBC and first direct) 11 Customers with a bank account with M&S Bank 13 UK Business Banking and Corporate Banking customers (who are not Relevant Financial Institutions or Corporate Banking Non-Bank Financial Institutions) UK Business Banking and Corporate Banking customers who are Relevant Financial Institutions or Corporate Banking Non-Bank Financial Institutions UK Wholesale and Investment Banking customers 20 UK Private Banking customers 23 Personal and Corporate customers of HBEU s Channel Islands and Isle of Man branches 24 Customers of HBEU s EEA branches or its European Corporate Banking Centre 26 Customers of HBEU s Athens branch 27 8

9 5. GENERAL EFFECTS There are general effects that could affect lots of customers What has or could happen? When? Where can you find out more? UK Personal customers (HSBC and first direct) 5.1 UK Business Banking and Corporate Banking customers (who are not Relevant Financial Institutions or Corporate Banking Non-Bank Financial Institutions) 5.1 Changes to terms and conditions We will change some of the terms and conditions on some of your products and services. They ll only be technical changes. We ll tell you before we make any changes. UK and EEA Branch Business Banking and Corporate Banking customers who are Relevant Financial Institutions or Corporate Banking Non-Bank Financial Institutions 5.2 UK and EEA Branch Wholesale and Investment Banking customers 5.2 UK Private Banking customers 5.1 Personal and Corporate customers of HBEU s Channel Islands and Isle of Man branches 5.2 Fraud Dr Huertas has concluded that this was not likely to be an adverse effect. However, as the major UK banks go through the ringfencing process, it s possible that the number and types of fraud attacks might increase. This issue will be ongoing. All customers 5.3 9

10 5.1 Changes to the terms of conditions of HBEU products and services Because of ring-fencing, HBUK and PBGB will not be allowed to provide certain types of global markets, global banking and other securities products and services in the way they are currently provided. But we will be allowed to provide these products and services if we change our process a little. When we do this, the terms and conditions of these products and services have to be updated too. In the Scheme Report, Dr Huertas came to the conclusion that customers who get these products and services under our new process would see some minor inconvenience when their terms and conditions changed. But they wouldn t incur any costs as a result of these changes. You can read more about this in the Scheme Report. If you re a Personal Banking customer, go to section 5.1 of the report. It s section 5.2 for Business Banking and Corporate Banking customers and section 5.4 for Private Bank customers. 5.2 Changes to the terms and conditions of HBUK products and services After the RFTS, a small number of products and services that are currently provided by HBEU to customers remaining with HBEU will be provided by HBUK instead. To do this, we ll need to change our process a little, which means the terms and conditions of those products and services will be updated too. In the Scheme Report, Dr Huertas came to the conclusion that there would be some minor inconvenience for customers who get products and services under our new process. That s because their terms and conditions would change. But they wouldn t incur any costs as a result of these changes. You can read more about this in the Scheme Report. If you re a Business Banking or Corporate Banking customer, go to section 5.2 of the report. And if you re a Wholesale or Investment Banking customer, go to section Fraud attacks could become more likely Our business and our customers are often targeted by people trying to commit fraud. Unfortunately, it s a normal part of our working life. But while we re doing our ring-fencing, it s possible that the number of fraud attacks will increase, and that they ll last longer and be more sophisticated. We might even have to deal with new types of fraud that the banking industry hasn t come across before. But this is less likely. We think (and so does the rest of the banking industry) that the number and types of fraud attacks in the UK will stay the same while we do our ring-fencing. It is possible, though, that some of the changes we make during our RFTS could confuse some of our customers, making them more likely to being taken in by fraudulent schemes. We ve come up with a plan to stop that happening. The biggest part of that plan is to keep talking to our customers about the changes we re making. That way they ll know exactly what should be happening, and will be able to spot anything suspicious. In the Scheme Report, Dr Huertas said our plan was a reasonable way to deal with the increased risk of fraud. He also said he expects us to be able to deal with any increase in fraud attacks before, during and after our ring-fencing process. You can read more about this in section 4.14 of the Scheme Report. 10

11 6. UK PERSONAL CUSTOMERS (HSBC AND FIRST DIRECT) Are you a UK Personal Customer - HSBC Premier, HSBC Advance, HSBC Personal Banking or first direct customer? That means you will be transferring to our new bank, HBUK and you ll continue to be looked after by our Retail Banking and Wealth Management team. It also means you could be affected (or have already been affected) by the following changes: What has or could happen? When? Where can you find out more? Changes to some of your account details If you have an HSBC bank account, your BIC and IBAN have changed. Less than 1% of customers also received a new sort code, in which case we have sent you a new card. You might need to give your new account details to anyone who s making payments to you, including from abroad, or who you make payments to. For most customers, this change has already happened and we ve let you know. If you have a foreign currency account, the change will happen soon. 6.1 Tax position for overseasresident customers If you re an overseas customer, you might want to get some advice about your tax position, as it might change because of the RFTS. If you re a UK-resident customer, your UK tax position is not expected to change. If there is any change to your tax position it might happen on or after 1 July 2018, the expected Effective Date

12 6.1 Changes to some of your account details After ring-fencing, HBUK, the new bank for our retail and business banking customers, can t use the same sort codes, Bank Identifier Codes (BICs) or International Bank Account Numbers (IBANs) as our original banking business, HBEU. These have to be different across the different banks. Changes to sort codes, BICs and IBANs have already happened for most customers in For customers with foreign currency accounts, they ll happen in the first half of In the Scheme Report, Dr Huertas came to the conclusion that these changes may cause some inconvenience for these customers. In particular: If customers have direct debits or standing orders set up, at a future time, they might need to give their new account details to the person or business they re paying. They might also need to give their new account details to people or businesses that they receive payments from, otherwise these payment may not go through. Customers who get new cards will need to: (i) (ii) (iii) Activate their new cards and destroy their old ones. Update their card verification code and expiry dates with all organisations that have their details stored on file for automatic payments. Give their new card details to their card insurers. Customers who don t update their payment details and who receive foreign currency payments immediately before the cut-off time for processing these payments might see a delay in those payments coming in while they re redirected. This means they could lose overnight interest or have to pay overdraft fees on those payments. In the Scheme Report, Dr Huertas explained that we couldn t have avoided changing people s sort code or other bank identifiers. We had to do it to comply with ring-fencing. He also said that the way we allocated the sort codes and bank identifiers between our banks was sensible. It meant we could keep the number of customers who had their account details changed to a minimum. You can read more about this in section 5.1 of the Scheme Report. 6.2 Tax position for overseas-resident customers The transfer or disposal of assets from one person to another can sometimes have tax consequences. Dr Huertas came to the conclusion that, from a UK tax perspective, there shouldn t be a taxable disposal for UK tax resident customers, because the RFTS is not characterised under English law as a novation of assets and liabilities (and so there is no disposal). He also said the RFTS might create certain tax consequences for a small number of customers who are tax resident in some jurisdictions outside of the UK. These customers should consider their tax position so that they can take any steps they think are necessary. You can read more about this in section 5.1 of the Scheme Report. 12

13 7. CUSTOMERS WITH A BANK ACCOUNT WITH M&S BANK Do you have a bank account with M&S Bank? While your bank account stays with M&S Bank, you will have a change of BIC and IBAN. This means you re looked after by M&S Bank. It also means you could have already been affected by the following changes: What has or could happen? When? Where can you find out more? Changes to some of your account details Your BIC and IBAN have changed. You might need to give your new account details to anyone who s making payments to you, including from abroad, or who you make payments to. This has already happened, and we ve let you know Changes to some of your account details After ring-fencing, M&S Bank can t use the same Bank Identifier Codes (BICs) and International Bank Account Numbers (IBANs) as HBEU. These have to be different across the different banks. Changes to BICs and IBANs happened in 2017, which Dr Huertas says caused some inconvenience for these customers. In particular: If customers have direct debits or standing orders set up, at a future time, they might need to give their new account details to the person or business they re paying. They might also need to give their new account details to people or businesses that they receive payments from, otherwise these payment may not go through. Customers who don t update their payment details and who receive foreign currency payments immediately before the cut-off time for processing these payments might see a delay in those payments coming in while they re redirected. This means they could lose overnight interest or have to pay overdraft fees on those payments. In the Scheme Report, Dr Huertas explained that we couldn t have avoided changing people s BIC and IBAN. We had to do it to comply with ring-fencing. He also said that the way we allocated the BIC and IBAN between our banks was sensible. It meant we could keep the number of customers who had their account details changed to a minimum. You can read more about this in section 5.1 of the Scheme Report. 13

14 8. UK BUSINESS BANKING AND CORPORATE BANKING CUSTOMERS (WHO ARE NOT RELEVANT FINANCIAL INSTITUTIONS OR CORPORATE BANKING NON-BANK FINANCIAL INSTITUTIONS) Are you a UK Business Banking or Corporate Banking customer? You ll be moving to HBUK (unless your re a Relevant Financial Institution or we ve told you you re a UK Corporate Banking customer who ll be looked after by the Non-Bank Financial Institution team - see the next table). This means you re looked after by our Business Banking, Large Corporate, Mid Market Enterprises, or Corporate Real Estate teams. It also means that you could be affected (or already have been affected) by the following changes: What has or could happen? When? Where can you find out more? Changes to some of your account details If you have an HSBC bank account, your BIC and IBAN have changed. Less than 1% of customers also received a new sort code, in which case we have sent you a new card. You might need to give your new account details to anyone who s making payments to you, including from abroad, or who you make payments to. Also, the changes might cause extra admin or extra IT costs for you. For most customers, this has already happened, and we ve let you know. If you have a foreign currency account, it will happen soon. 8.1 Extra admin to transfer overseas security If you ve provided overseas security, you might need to assist us to transfer it, which means you could incur potential extra costs. This is about to happen for some customers. 8.2 Changes to trade finance arrangements We need to make some technical changes to trade finance arrangements. This is about to happen. 8.3 Potential reduction of HBEU s credit rating effect on trade finance arrangements If HBEU s credit rating is downgraded by two notches from AA-/Aa3, a small number of trade finance customers might need to replace guarantees and letters of credit issued by HBEU, creating extra admin and costs. This will happen if credit ratings agencies downgrade HBEU in this way. 8.4 Tax position for overseas-resident customers If you re an overseas customer, you might want to get some advice about your tax position, as it might change because of the RFTS. If you re a UK-resident customer, your UK tax position is not expected to change. If there is any change to your tax position it might happen on or after 1 July 2018, the expected Effective Date

15 8.1 Changes to some of your account details After ring-fencing, HBUK, the new bank for our retail and business banking customers, can t use the same sort codes, Bank Identifier Codes (BICs) or International Bank Account Numbers (IBANs) as our original banking business, HBEU. These have to be different across the different banks. Changes to sort codes, BICs and IBANs have already happened for most customers in For customers with foreign currency accounts, they ll happen in the first half of In the Scheme Report, Dr Huertas came to the conclusion that these changes may cause some inconvenience for these customers. In particular: If customers have direct debits or standing orders set up, at a future time, they might need to give their new account details to the person or business they re paying. They might also need to give their new account details to people or businesses that they receive payments from, otherwise these payment may not go through. Customers who get new cards will need to: (i) (ii) (iii) Destroy their old ones. Update their card verification code and expiry dates with all organisations that have their details stored on file for automatic payments. Give their new card details to their card insurers. Customers who don t update their payment details and who receive foreign currency payments immediately before the cut-off time for processing these payments might see a delay in those payments coming in while they re redirected. This means they could lose overnight interest or have to pay overdraft fees on those payments. These changes also required some customers to carry out IT and administrative amendments and they may have incurred additional cost as a result. Those customers whose accounts are migrated manually will be able to access historical account information about their old account for a period of 180 days from the date of the last transaction before the closure of the account. After that, they won t have direct access to this information themselves and will need to ask HBEU or HBUK for it, who will keep it on file for seven years. In the Scheme Report, Dr Huertas explained that we couldn t have avoided changing people s sort code or other bank identifiers. We had to do it to comply with ring-fencing. He also said that the way we allocated the sort codes and bank identifiers between our banks was sensible. It meant we could keep the number of customers who had their account details changed to a minimum. You can read more about this in section 5.2 of the Scheme Report. 8.2 Extra admin to transfer overseas security A small number of customers have granted HBEU foreign law governed security over their assets. In some cases, we may need to ask them for assistance so we can perfect the transfer of this security. This might cause them to incur internal costs and possibly external legal costs. HBEU will consider covering such costs in light of the particular circumstances of each case and reimbursements may be made in appropriate circumstances. In the Scheme Report, Dr Huertas has concluded that he would not expect the cost to the customer to be material and should be capable of being borne by them. 15

16 You can read more about this in section 5.2 of the Scheme Report. 8.3 Changes to trade finance arrangements Trade finance customer-facing arrangements will be transferred to HBUK, while the third party facing guarantees and letters of credit will remain with HBEU. This approach has been taken to minimise the effect on foreign law governed business that needs to be transferred to HBUK, which should cause the least impact and inconvenience on customers. Technical changes will be made to the trade finance customer-facing arrangements. In the Scheme Report, Dr Huertas has concluded that these changes will result in some minor administrative inconvenience for these customers. You can read more about this in section 5.2 of the Scheme Report. 8.4 Potential reduction of HBEU s credit rating effect on trade finance customers In Dr Huertas opinion, a worst reasonable case scenario for a credit rating downgrade of HBEU as a result of the RFTS is a maximum of two notches from AA-/Aa3. In the event of such a credit rating downgrade, trade finance customers may be required to replace guarantees or letters of credit issued by HBEU. Dr Huertas concluded that this may result in administrative inconvenience and cost for these customers. Please refer to 17.2 of this summary for further information regarding the viability and financial strength of HBEU and HBUK. You can read more about this in section 5.2 of the Scheme Report. 8.5 Tax position for overseas-resident customers The transfer or disposal of assets from one person to another can sometimes have tax consequences. Dr Huertas came to the conclusion that, from a UK tax perspective, there shouldn t be a taxable disposal for UK tax resident customers, because the RFTS is not characterised under English law as a novation of assets and liabilities (and so there is no disposal). He also said the RFTS might create certain tax consequences for a small number of customers who are tax resident in some jurisdictions outside of the UK. These customers should consider their tax position so that they can take any steps they think are necessary. You can read more about this in section 5.2 of the Scheme Report. 16

17 9. UK BUSINESS BANKING AND CORPORATE BANKING CUSTOMERS WHO ARE RELEVANT FINANCIAL INSTITUTIONS OR CORPORATE BANKING NON-BANK FINANCIAL INSTITUTIONS Are you a UK Business Banking or Corporate Banking Relevant Financial Institution? Or a UK Corporate Banking Non-Bank Financial Institution? If so, you ll be staying with HBEU. This means you re looked after by our Relevant Financial Institution team or our Non-Bank Financial Institution team. It also means that you could be affected (or already have been affected) by the following changes: What has or could happen? When? Where can you find out more? Changes to some of your account details If you have a UK corporate card, your BIN has changed. Also, some customers (less than 1%) received a new sort code and IBAN. We have sent you a new card. You might need to give your new account details to anyone who s making payments to you, including from abroad, or who you make payments to. This has already happened, and we ve already let you know. 9.1 Also, the changes might cause extra admin or extra IT costs for you. Not able to buy new HBUK products in branch any more You won t be able to buy new HBUK products in our mainland UK branches any more but you will still be able to buy them through your relationship manager or over the phone or online. And you ll still be able to do everything else you d normally do in branch (e.g. taking out cash and paying in cheques). This is about to happen. 9.2 Extra admin for some customers to keep banking with HBEU A small number of customers had to provide additional details to confirm that they qualify to bank with a non-ring-fenced bank to make sure they can keep banking with HBEU after ring-fencing happens. This has already happened, and we ve already let you know

18 9.1 Changes to some of your account details After ring-fencing, HBUK, the new bank for our retail and business banking customers, can t use the same sort codes, International Bank Account Numbers (IBANs) or Bank Identification Numbers (BINs) as our original banking business, HBEU. These need to be different across the different banks. Changes to sort codes, IBANs and BINs have already happened for customers in In the Scheme Report, Dr Huertas came to the conclusion that these changes may cause some inconvenience for these customers. In particular: If customers have direct debits or standing orders set up, at a future time, they might need to give their new account details to the person or business they re paying. They might also need to give their new account details to people or businesses that they receive payments from, otherwise these payment may not go through. Customers who get new cards will need to: (i) (ii) (iii) Destroy their old ones. Update their card verification code and expiry dates with all organisations that have their details stored on file for automatic payments. Give their new card details to their card insurers. Customers who don t update their payment details and who receive foreign currency payments immediately before the cut-off time for processing these payments might see a delay in those payments coming in while they re redirected. This means they could lose overnight interest or have to pay overdraft fees on those payments. These changes also required some customers to carry out IT and administrative amendments and they may have incurred additional cost as a result. Those customers whose accounts are migrated manually will be able to access historical account information about their old account for a period of 180 days from the date of the last transaction before the closure of the account. After that, they won t have direct access to this information themselves and will need to ask HBEU for it, who will keep it on file for seven years. In the Scheme Report, Dr Huertas explained that we couldn t have avoided changing people s sort code or other bank identifiers. We had to do it to comply with ring-fencing. He also said that the way we allocated the sort codes and bank identifiers between our banks was sensible. It meant we could keep the number of customers who had their account details changed to a minimum. You can read more about this in section 5.2 of the Scheme Report. 9.2 Not able to buy new HBUK products in branch any more Customers who stay with HBEU won t be able to buy new HBUK products in our UK mainland branches any more. But they will still be able to buy these products through their relationship managers or over the phone or online. And they ll still be able to do everything else they d normally do in branch (e.g. taking out cash and paying in cheques). You can read more about this in section 5.2 of the Scheme Report. 18

19 9.3 Extra admin for some customers to keep banking with HBEU Some of our customers who are staying with HBEU had to carry out some extra admin to confirm to us they still qualify to keep banking with HBEU. You can read more about this in section 5.2 of the Scheme Report. 19

20 10. UK WHOLESALE AND INVESTMENT BANKING CUSTOMERS Are you a Wholesale or Investment Banking customer? You ll be staying with HBEU. This means you re looked after by Global Banking and Markets team. It also means that you could be affected (or already have been affected) by the following changes: What has or could happen? When? Where can you find out more? Changes to some of your account details If you have a UK corporate card, your BIN has changed. Also, some customers received a new sort code and IBAN. We have sent you a new card. You might need to give your new account details to anyone who s making payments to you, including from abroad, or who you make payments to. This has already happened, and we ve already let you know Also, the changes might cause extra admin or extra IT costs for you. Potential reduction of HBEU s credit rating effect on certain derivative and also CTLA arrangements If HBEUs credit rating is downgraded by two notches from AA-/Aa3, a small number of derivative and also CTLA counterparties may have termination rights, which may result in extra admin and costs for them. This will happen if credit ratings agencies downgrade HBEU in this way Extra admin for some customers to keep banking with HBEU A small number of customers had to provide additional details to confirm that they qualify to bank with a non-ring-fenced bank to make sure they can keep banking with HBEU after ringfencing happens. This has already happened, and we ve let you know

21 10.1 Changes to some of your account details After ring-fencing, HBUK, the new bank for our retail and business banking customers, can t use the same, International Bank Account Number (IBANs) and Bank Identification Numbers (BINs) as our original banking business, HBEU. These need to be different across the different banks. Changes to sort codes, IBANs and BINs has already happened for customers in In the Scheme Report, Dr Huertas came to the conclusion that these changes may cause some inconvenience for these customers. In particular: If customers have direct debits or standing orders set up, at a future time, they might need to give their new account details to the person or business they re paying. They might also need to give their new account details to people or businesses that they receive payments from, otherwise these payment may not go through. Customers who get new cards will need to: (i) (ii) (iii) Destroy their old ones. Update their card verification code and expiry dates with all organisations that have their details stored on file for automatic payments. Give their new card details to their card insurers. Customers who don t update their payment details and who receive foreign currency payments immediately before the cut-off time for processing these payments might see a delay in those payments coming in while they re redirected. This means they could lose overnight interest or have to pay overdraft fees on those payments. These changes also required some customers to carry out IT and administrative amendments and they may have incurred additional cost as a result. Those customers whose accounts are migrated manually will be able to access historical account information about their old account for a period of 180 days from the date of the last transaction before the closure of the account. After that, they won t have direct access to this information themselves and will need to ask HBEU for it, who will keep it on file for seven years. In the Scheme Report, Dr Huertas explained that we couldn t have avoided changing people s sort code or other bank identifiers. We had to do it to comply with ring-fencing. He also said that the way we allocated the sort codes and bank identifiers between our banks was sensible. It meant we could keep the number of customers who had their account details changed to a minimum. You can read more about this in section 5.3 of the Scheme Report Potential reduction of HBEU s credit rating derivative and CTLA counterparties In Dr Huertas opinion, a worst reasonable case scenario for a credit rating downgrade of HBEU as a result of the RFTS is a maximum of two notches from AA-/Aa3. In the event of such a credit rating downgrade, a small number of derivatives counterparties may have the contractual right to terminate their derivative arrangements. Dr Huertas has concluded that such counterparties would not necessarily exercise their rights because HBEU would still have a solid investment grade rating. However, some administrative inconvenience and cost would be incurred if they were to exercise these rights. 21

22 In relation to HBEU s CTLA business, a downgrade of two notches in HBEU s credit rating may trigger termination provisions in relation to a small number of accounts where HBEU undertakes the custody and account bank role. Customers would have the option to replace HBEU in this role, which if they did, Dr Huertas has concluded that this would result in some administrative inconvenience and cost to them. If customers choose not to replace HBEU, customers and HBEU may need to take steps to demonstrate that HBEU remains an appropriate choice to carry on performing the role. Dr Huertas has concluded that this may result in some minor administrative inconvenience. For more about the financial viability and strength of HBEU and HBUK see 17.2 of this summary. You can read more about this in section 5.3 of the Scheme Report Extra admin for some customers to keep banking with HBEU Some of our customers who are staying with HBEU had to carry out some extra admin to confirm to us they still qualify to keep banking with HBEU. You can read more about this in section 5.3 of the Scheme Report. 22

23 11. UK PRIVATE BANKING CUSTOMERS Are you a UK Private Banking customer? This means you re looked after by HSBC Private Bank UK. It also means that you could be affected (or already have been affected) by the following changes: What has or could happen? When? Where can you find out more? Extra admin for RFI customers If you were an RFI customer, you were required to move to HBEU or another bank. This has already happened, and we ve let you know Extra admin for RFI customers After ring-fencing, RFI customers won t be able to bank with our Private Bank any more. That means they had to transfer to HBEU or another bank. These transfers happened in Dr Huertas has concluded that this caused these customers minor administrative inconvenience. You can read more about this in section 5.4 of the Scheme Report. 23

24 12. PERSONAL AND CORPORATE CUSTOMERS OF HBEU S CHANNEL ISLANDS AND ISLE OF MAN BRANCHES Are you a customer in HBEU s Channel Islands and Isle of Man branches? You ll be staying with HBEU. This means you re looked after by our Retail Banking and Wealth Management or Corporate Banking team. It also means you could be affected (or already have been affected) by the following changes: What has or could happen? When? Where can you find out more? Changes to your BIN If you have a UK card, your BIN has changed. We have sent you a new card. You might need to give your card details to anyone who you make payments to. This has already happened, and we ve let you know Not able to buy new HBUK products in branch any more You won t be able to buy new HBUK products in our UK mainland branches any more but you will still be able to do everything you normally do in branch (e.g. taking out cash and paying in cheques). This is about to happen New Online Banking Portal Personal customers will be using a different online banking site than before which means you ll have had to update your login details. This has already happened, and we ve let you know

25 12.1 Changes to bank identifiers After ring-fencing, HBUK, the new bank for our retail and business banking customers, can t use the same Bank Identification Numbers (BINs) as our original banking business, HBEU. These need to be different across the different banks. Changes to these BINs happened in In his Scheme Report, Dr Huertas came to the conclusion that that these changes caused some inconvenience for these customers. Any customers who got new cards will have needed to: Activate their new cards (personal customers) and destroy their old ones. Update their card verification code and expiry dates with all organisations who have their details on file for automatic payments. Give their new details to their card insurers. You can read more about this in section 5.5 of the Scheme Report Not able to buy new HBUK products in branch any more Customers of HBEU s Channel Islands and Isle of Man branches won t be able to buy new HBUK products in our UK mainland branches any more. But they will still be able to do everything else they d normally do in branch (e.g. taking out cash and paying in cheques). You can read more about this in section 5.5 of the Scheme Report New online banking portal Personal customers of HBEU s Channel Islands and Isle of Man branches have a separate version of our online banking site. That means they will have had to change their Country of Residence from UK to Channel Islands / Isle of Man in our internet banking site and mobile banking app. You can read more about this in section 5.5 of the Scheme Report. 25

26 13. CUSTOMERS OF HBEU S EEA BRANCHES OR ITS EUROPEAN CORPORATE BANKING CENTRE Are you a customer in HBEU s EEA branches? Or a customer of our European Corporate Banking Centre? You ll be staying with HBEU. This means you re looked after by our EEA branches team or ECBC team. It also means you could be affected (or already have been affected) by the following change: What has or could happen? When? Where can you find out more? Extra admin for some customers to keep banking with HBEU A small number of customers had to provide additional details to confirm that they qualify to bank with a non-ring-fenced bank to make sure they can keep banking with HBEU after ringfencing happens. This has already happened, and we ve let you know Extra admin for some customers to keep banking with HBEU Some of our customers who are staying with HBEU had to carry out some extra admin to confirm to us they still qualify to keep banking with HBEU. You can read more about this in the Scheme Report. If you re a CMB EEA branch or ECBC customer, see sections of the report. And if you re a GBM EEA branch customer, go to section

27 14. CUSTOMERS OF HBEU S ATHENS BRANCH Were you a former customer of HBEU, Athens branch? You have transferred to HSBC France, Athens Branch. If so, you could have been impacted by this transfer as follows: What has or could happen? When? Where can you find out more? Subject to a single depositor protection scheme If you already hold an account with HSBC France, you will now be subject to a single 100,000 compensation limit for all of your HSBC France accounts and will no longer also have the UK FSCS compensation limit. This is happening, and we ve let you know Changes to terms and conditions Your existing terms and conditions will be amended to reflect French regulatory requirements these are only technical changes though. This is happening, and we ve let you know Subject to a single depositor protection scheme As a result of the transfer of the Athens branch from HBEU to HSBC France, eligible deposits will be covered under the French deposit guarantee scheme to a limit of 100,000 rather than the UK scheme to a limit of 85,000. This may result in a reduction of deposit insurance coverage for any Athens branch customers who also have an existing account at HSBC France. If the balance in the customer s accounts at HSBC France exceeds 100,000, the customer will lose deposit guarantee coverage on the amount in excess of 100,000. Dr Huertas has concluded that, in his view, a small number of Athens branch customers may be impacted by having deposits in excess of the protection limit under the French scheme, but the transfer of these customers to HBFR did not arise due to the RFTS and there were no viable alternatives that would not have caused greater impacts on customers. He concluded that HBEU has adequately explained the change of the depositor protection scheme in customer communications to Athens branch customers. You can read more about this in section 5.6 of the Scheme Report Changes to terms and conditions Technical amendments have been made to product terms and conditions to reflect French regulatory requirements. Dr Huertas has concluded that the Athens branch customers suffered some administrative inconvenience in respect of this issue, but the transfer of these customers to HBFR did not arise due to the RFTS and there were no viable alternatives that would not have caused greater impacts on customers. You can read more about this in section 5.6 of the Scheme Report. 27

28 15. EMPLOYEES AND PENSION SCHEME MEMBERS 15.1 Employees Approximately 21,500 employees of HBEU were transferred to HBUK on 1 October A small number of GBM roles will transfer in The Transfer of Undertakings (Protection of Employment) Regulations 2006 applied or will apply to both of these transfers. As a result, all existing terms and conditions of employment for the transferring employees remained the same, with the exception of their employing entity, which changed from HBEU to HBUK. Further information can be found at appendix F.13 of the Scheme Report Pension scheme members Under the Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015 (the Pensions Regulations), from 1 January 2026 a ring-fenced body will be prohibited from participating as an employer of a defined benefits pension scheme if non ring-fenced employers also participate in that scheme on an unsegregated basis. This would require HBEU to carry out certain restructuring steps. Although the legislation does not require pension schemes to be ring-fenced until 2026, HBEU preferred to effect the pension ring-fencing in conjunction with the wider ring-fencing programme. Dr Huertas has concluded that whilst the RFTS will result in some level of deterioration in the financial covenant of the UK pension scheme, its overall ongoing covenant strength is likely to remain strong and UK pension scheme members will receive an adequate level of protection to mitigate against any deterioration in covenant. Further information can be found at appendix F.12 of the Scheme Report. 28