HSBC Bank Malta Plc

National Storage Mechanism | Additional information RNS Number : 5915Q HSBC Bank plc 21 February 2023 Our businesses HSBC provides a comprehensive range of banking and related financial services to its customers through its global businesses. The products and services offered to customers are organised by these global businesses. Our operating model has the following material segments: WPB; CMB; a GBM business which is further split into three reportable segments MSS, GB and GBM Other reflecting the reorganisation of the GBM management structure during 2021 and a Corporate Centre. These segments are supported by Digital Business Services and eleven global functions, including Risk, Finance, Compliance, Legal, Marketing and Human Resources. These business segment are our reportable segments under IFRS 8 'Operating Segments'. By operating segment: Adjusted profit/(loss) before tax 2022 MSS GB GBM Other CMB WPB Corporate Centre Total ��m ��m ��m ��m ��m ��m ��m Net operating income before change in expected credit losses and other credit impairment charges 2,413 1,571 (8) 1,432 1,492 (118) 6,782 - of which: net interest income/(expense) (54) 903 (16) 925 710 (564) 1,904 Change in expected credit losses and other credit impairment charges (1) (153) (1) (54) (7) (6) (222) Net operating income/(expense) 2,412 1,418 (9) 1,378 1,485 (124) 6,560 Total operating expenses (1,940) (932) (318) (593) (908) (115) (4,806) Operating profit/(loss) 472 486 (327) 785 577 (239) 1,754 Share of loss in associates and joint ventures - - (2) - - (28) (30) Adjusted profit/(loss) before tax 472 486 (329) 785 577 (267) 1,724 % % % % % % Adjusted cost efficiency ratio 80.4 59.3 n/a 41.4 60.9 70.9 2021 Net operating income/(expense) before change in expected credit losses and other credit impairment charges1 2,055 1,367 579 1,095 1,275 (41) 6,330 - of which: net interest income/(expense) (232) 568 224 649 567 (22) 1,754 Change in expected credit losses and other credit impairment charges 1 140 5 7 23 (2) 174 Net operating income/(expense) 2,056 1,507 584 1,102 1,298 (43) 6,504 Total operating expenses (2,064) (918) (485) (612) (975) (64) (5,118) Operating profit/(loss) (8) 589 99 490 323 (107) 1,386 Share of profit in associates and joint ventures - - - - - 191 191 Adjusted profit/(loss) before tax (8) 589 99 490 323 84 1,577 % % % % % % Adjusted cost efficiency ratio 100.4 67.2 83.9 55.9 76.5 80.9 2020 Net operating income/(expense) before change in expected credit losses and other credit impairment charges1 1,968 1,381 624 1,133 1,035 (144) 5,997 - of which: net interest income/(expense) (96) 651 46 686 664 (53) 1,898 Change in expected credit losses and other credit impairment charges 1 (448) (4) (322) (39) 4 (808) Net operating income/(expense) 1,969 933 620 811 996 (140) 5,189 Total operating expenses (1,949) (878) (672) (659) (1,128) (86) (5,372) Operating profit/(loss) 20 55 (52) 152 (132) (226) (183) Share of profit in associates and joint ventures - - - - - (1) (1) Adjusted profit/(loss) before tax 20 55 (52) 152 (132) (227) (184) % % % % % % Adjusted cost efficiency ratio 99.0 63.6 107.7 58.2 109.0 89.6 1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue. It includes inter-segment revenue which is eliminated in Corporate centre, amounting to ��120m (2021: ��124m; 2020: ��167m). Reported external net operating income is attributed to countries on the basis of the location of the branch responsible for reporting the results or advancing the funds: 2022 2021 2020 ��m ��m ��m Reported external net operating income by country 4,646 6,120 5,900 - United Kingdom 3,161 2,937 2,914 - France1 171 1,677 1,528 - Germany 732 887 814 - Other countries1 582 619 644 1 2022 balances include losses on disposal of businesses classified as held-for-sale as part of a broader restructuring of our European business. Adjusted results reconciliation 2022 2021 2020 Adjusted Significant items Reported Adjusted Significant items Reported Adjusted Significant items Reported ��m ��m ��m ��m ��m ��m ��m ��m ��m Revenue1 6,782 (2,136) 4,646 6,330 (210) 6,120 5,997 (97) 5,900 ECL (222) - (222) 174 - 174 (808) - (808) Operating expenses (4,806) (547) (5,353) (5,118) (344) (5,462) (5,372) (1,333) (6,705) Share of profit/(loss) in associates and joint ventures (30) - (30) 191 - 191 (1) - (1) Profit/(loss) before tax 1,724 (2,683) (959) 1,577 (554) 1,023 (184) (1,430) (1,614) 1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue. Adjusted profit/(loss) reconciliation 2022 2021 2020 ��m ��m ��m Year ended 31 Dec Adjusted profit/(loss) before tax 1,724 1,577 (184) Significant items (2,683) (554) (1,430) - fair value movements on financial instruments1 43 (5) (3) - European restructurings (2,034) (23) - - restructuring and other related costs (692) (526) (773) - settlements and provisions in connection with legal and regulatory matters - - (9) - impairment of other intangible assets - - (645) Reported profit/(loss) before tax (959) 1,023 (1,614) 1 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives. Balance sheet by business MSS GB GBM Other CMB WPB Corporate Centre Total ��m ��m ��m ��m ��m ��m ��m 31 Dec 2022 Loans and advances to customers 2,785 37,523 115 25,219 6,826 146 72,614 Customer accounts 45,320 79,606 5,903 55,749 29,211 159 215,948 31 Dec 2021 Loans and advances to customers 2,016 37,685 197 23,529 27,574 176 91,177 Customer accounts 34,243 74,179 4,355 50,297 41,939 228 205,241 10 Trading assets The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Treasury and other eligible bills 3,712 2,451 3,061 1,872 Debt securities 21,873 27,004 13,960 17,794 Equity securities 38,330 40,930 35,407 38,570 Trading securities 63,915 70,385 52,428 58,236 Loans and advances to banks1 3,987 4,142 3,872 3,559 Loans and advances to customers1 11,976 9,179 11,323 8,995 At 31 Dec 79,878 83,706 67,623 70,790 1 Loans and advances to banks and customers include reverse repos, stock borrowing and other accounts. 11 Fair values of financial instruments carried at fair value Control framework Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the risk taker. For all financial instruments where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price determination or validation is utilised. In inactive markets, the group will source alternative market information to validate the financial instrument's fair value, with greater weight given to information that is considered to be more relevant and reliable. The factors that are considered in this regard are, inter alia: �� the extent to which prices may be expected to represent genuine traded or tradable prices; �� the degree of similarity between financial instruments; �� the degree of consistency between different sources; �� the process followed by the pricing provider to derive the data; �� the elapsed time between the date to which the market data relates and the balance sheet date; and �� the manner in which the data was sourced. For fair values determined using valuation models, the control framework may include, as applicable, development or validation by independent support functions of: (i) the logic within valuation models; (ii) the inputs to these models; (iii) any adjustments required outside the valuation models; and (iv) where possible, model outputs. Valuation models are subject to a process of due diligence and calibration before becoming operational and are calibrated against external market data on an ongoing basis. Financial liabilities measured at fair value In certain circumstances, the group records its own debt in issue at fair value, based on quoted prices in an active market for the specific instrument. When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which are based either on quoted prices in an inactive market for the instrument or are estimated by comparison with quoted prices in an active market for similar instruments. In both cases, the fair value includes the effect of applying the credit spread that is appropriate to the group's liabilities. Structured notes issued and certain other hybrid instruments are included within trading liabilities and are measured at fair value. The spread applied to these instruments is derived from the spreads at which the group issues structured notes. Fair value hierarchy Fair values of financial assets and liabilities are determined according to the following hierarchy: �� Level 1 - valuation technique using quoted market price: financial instruments with quoted prices for identical instruments in active markets that HSBC can access at the measurement date. �� Level 2 - valuation technique using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable. �� Level 3 - valuation technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable. Financial instruments carried at fair value and bases of valuation 2022 2021 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total The group ��m ��m ��m ��m ��m ��m ��m ��m Recurring fair value measurements at 31 Dec Assets Trading assets 52,493 24,647 2,738 79,878 59,813 22,549 1,344 83,706 Financial assets designated and otherwise mandatorily measured at fair value through profit or loss 6,183 6,380 3,318 15,881 6,332 9,146 3,171 18,649 Derivatives 2,296 221,205 1,737 225,238 1,987 137,418 1,816 141,221 Financial investments 19,007 8,902 1,447 29,356 29,668 10,235 1,387 41,290 Liabilities Trading liabilities 26,258 14,592 415 41,265 32,886 12,967 580 46,433 Financial liabilities designated at fair value 938 23,888 2,461 27,287 1,020 30,467 2,121 33,608 Derivatives 1,744 214,645 2,478 218,867 1,105 135,809 2,454 139,368 The bank Recurring fair value measurements at 31 Dec Assets Trading assets 41,524 23,940 2,159 67,623 49,435 20,021 1,334 70,790 Financial assets designated and otherwise mandatorily measured at fair value through profit or loss 252 1,094 272 1,618 298 2,556 361 3,215 Derivatives 2,037 192,778 1,899 196,714 1,413 122,422 1,952 125,787 Financial investments 11,214 976 71 12,261 21,806 1,346 53 23,205 Liabilities Trading liabilities 11,771 13,591 403 25,765 19,367 11,240 554 31,161 Financial liabilities designated at fair value - 17,565 1,850 19,415 - 19,306 1,563 20,869 Derivatives 1,691 189,908 1,737 193,336 1,066 123,863 2,722 127,651 Transfers between Level 1 and Level 2 fair values Assets Liabilities Financial investments Trading assets Designated and otherwise mandatorily measured at fair value through profit or loss Derivatives Trading liabilities Designated at fair value Derivatives ��m ��m ��m ��m ��m ��m ��m At 31 Dec 2022 Transfers from Level 1 to Level 2 126 1,194 - 39 - - - Transfers from Level 2 to Level 1 189 682 - 32 - - - At 31 Dec 2021 Transfers from Level 1 to Level 2 366 1,731 757 - 27 - - Transfers from Level 2 to Level 1 244 990 399 - 91 - - Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are normally attributable to observability of valuation inputs and price transparency. Fair value adjustments Fair value adjustments are adopted when the group determines there are additional factors considered by market participants that are not incorporated within the valuation model. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits or losses within the income statement, such as when models are enhanced and fair value adjustments may no longer be required. Fair value adjustments 2022 2021 MSS Corporate MSS Corporate ��m ��m ��m ��m Type of adjustment Risk-related 359 33 505 31 - bid-offer 188 - 190 - - uncertainty 50 - 37 1 - credit valuation adjustment 98 29 99 26 - debt valuation adjustment (64) - (27) - - funding fair value adjustment 87 4 206 4 - other - - - - Model-related 31 - 19 - - model limitation 31 - 19 - - other - - - - Inception profit (Day 1 P&L reserves) 64 - 65 - At 31 Dec 454 33 589 31 Bid-offer IFRS 13 'Fair value measurement' requires use of the price within the bid-offer spread that is most representative of fair value. Valuation models will typically generate mid-market values. The bid-offer adjustment reflects the extent to which bid-offer costs would be incurred if substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or unwinding the position. Uncertainty Certain model inputs may be less readily determinable from market data, and/or the choice of model itself may be more subjective. In these circumstances, an adjustment may be necessary to reflect the likelihood that market participants would adopt more conservative values for uncertain parameters and/or model assumptions than those used in the valuation model. Credit and debit valuation adjustments The CVA is an adjustment to the valuation of over-the-counter ('OTC') derivative contracts to reflect the possibility that the counterparty may default, and that the group may not receive the full market value of the transactions. The DVA is an adjustment to the valuation of OTC derivative contracts to reflect the possibility that HSBC may default, and that it may not pay the full market value of the transactions. HSBC calculates a separate CVA and DVA for each legal entity, and for each counterparty to which the entity has exposure. With the exception of central clearing parties, all third-party counterparties are included in the CVA and DVA calculations, and these adjustments are not netted across the Group's entities. HSBC calculates the CVA by applying the probability of default ('PD') of the counterparty, conditional on the non-default of HSBC, to HSBC's expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default. Conversely, HSBC calculates the DVA by applying the PD of HSBC, conditional on the non-default of the counterparty, to the expected positive exposure of the counterparty to HSBC and multiplying the result by the proportional loss expected in the event of default. Both calculations are performed over the life of the potential exposure. For most products, HSBC uses a simulation methodology, which incorporates a range of potential exposures over the life of the portfolio, to calculate the expected positive exposure to a counterparty. The simulation methodology includes credit mitigants, such as counterparty netting agreements and collateral agreements with the counterparty. The methodologies do not, in general, account for 'wrong-way risk', which arises when the underlying value of the derivative prior to any CVA is positively correlated to the PD of the counterparty. When there is significant wrong-way risk, a trade-specific approach is applied to reflect this risk in the valuation. Funding fair value adjustment The FFVA is calculated by applying future market funding spreads to the expected future funding exposure of any uncollateralised component of the OTC derivative portfolio. The expected future funding exposure is calculated by a simulation methodology, where available, and is adjusted for events that may terminate the exposure, such as the default of HSBC or the counterparty. The FFVA and DVA are calculated independently. Model limitation Models used for portfolio valuation purposes may be based upon a simplified set of assumptions that do not capture all current and future material market characteristics. In these circumstances, model limitation adjustments are adopted. Inception profit (Day 1 P&L reserves) Inception profit adjustments are adopted when the fair value estimated by a valuation model is based on one or more significant unobservable inputs. The accounting for inception profit adjustments is discussed in Note 1. Fair value valuation bases Financial instruments measured at fair value using a valuation technique with significant unobservable inputs - Level 3 Assets Liabilities Financial Investments Held for trading Designated and otherwise mandatorily measured at fair value through profit or loss Derivatives Total Held for trading Designated at fair value Derivatives Total The group ��m ��m ��m ��m ��m ��m ��m ��m ��m Private equity including strategic investments 85 59 3,058 - 3,202 104 - - 104 Asset-backed securities 275 170 78 - 523 - - - - Structured notes - - - - - - 2,461 - 2,461 Derivatives - - - 1,737 1,737 - - 2,478 2,478 Other portfolios 1,087 2,509 182 - 3,778 311 - - 311 At 31 Dec 2022 1,447 2,738 3,318 1,737 9,240 415 2,461 2,478 5,354 Private equity including strategic investments 79 1 2,898 - 2,978 7 - - 7 Asset-backed securities 495 97 - - 592 - - - - Structured notes - - - - - - 2,120 - 2,120 Derivatives - - - 1,816 1,816 - - 2,454 2,454 Other portfolios 813 1,246 273 - 2,332 573 1 - 574 At 31 Dec 2021 1,387 1,344 3,171 1,816 7,718 580 2,121 2,454 5,155 The bank Private equity including strategic investments 54 58 272 - 384 103 - - 103 Asset-backed securities 17 170 - - 187 - - - - Structured notes - - - - - - 1,850 - 1,850 Derivatives - - - 1,899 1,899 - - 1,728 1,728 Other portfolios - 1,931 - - 1,931 300 - 9 309 At 31 Dec 2022 71 2,159 272 1,899 4,401 403 1,850 1,737 3,990 Private equity including strategic investments 53 - 353 - 406 6 - - 6 Asset-backed securities - 97 - - 97 - - - - Structured notes - - - - - - 1,563 - 1,563 Derivatives - - - 1,952 1,952 - - 2,722 2,722 Other portfolios - 1,237 8 - 1,245 548 - - 548 At 31 Dec 2021 53 1,334 361 1,952 3,700 554 1,563 2,722 4,839 Level 3 instruments are present in both ongoing and legacy businesses. Loans held for securitisation, certain derivatives and predominantly all Level 3 Asset-backed securities are legacy positions. HSBC has the capability to hold these positions. Private equity including strategic investments The investment's fair value is estimated: on the basis of an analysis of the investee's financial position and results, risk profile, prospects and other factors; by reference to market valuations for similar entities quoted in an active market; the price at which similar companies have changed ownership; or from published net asset values ('NAVs') received. If necessary, adjustments are made to the NAV of funds to obtain the best estimate of fair value. Asset-backed securities While quoted market prices are generally used to determine the fair value of these securities, valuation models are used to substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market prices are required. For certain ABSs, such as residential mortgage-backed securities, the valuation uses an industry standard model with assumptions relating to prepayment speeds, default rates and loss severity based on collateral type, and performance, as appropriate. The valuations output is benchmarked for consistency against observable data for securities of a similar nature. Structured notes The fair value of Level 3 structured notes is derived from the fair value of the underlying debt security, and the fair value of the embedded derivative is determined as described in the paragraph below on derivatives. These structured notes comprise principally equity-linked notes, issued by HSBC, which provide the counterparty with a return linked to the performance of equity securities and other portfolios. Examples of the unobservable parameters include long-dated equity volatilities and correlations between equity prices, and interest and foreign exchange rates. Derivatives OTC derivative valuation models calculate the present value of expected future cash flows, based upon 'no-arbitrage' principles. For many vanilla derivative products, the modelling approaches used are standard across the industry. For more complex derivative products, there may be some differences in market practice. Inputs to valuation models are determined from observable market data, wherever possible, including prices available from exchanges, dealers, brokers or providers of consensus pricing. Certain inputs may not be observable in the market directly, but can be determined from observable prices through model calibration procedures or estimated from historical data or other sources. Reconciliation of fair value measurements in Level 3 of the fair value hierarchy Movement in Level 3 financial instruments Assets Liabilities Financial Investments Trading assets Designated and otherwise mandatorily measured at fair value through profit or loss Derivatives Trading liabilities Designated at fair value Derivatives The group ��m ��m ��m ��m ��m ��m ��m At 1 Jan 2022 1,387 1,344 3,171 1,816 580 2,121 2,454 Total gains/(losses) on assets and total (gains)/losses on liabilities recognised in profit or loss (6) (415) (84) 564 (223) (638) 723 - net income from financial instruments held for trading or managed on a fair value basis - (415) - 564 (223) - 723 - changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss - - (84) - - (638) - - gains less losses from financial investments at fair value through other comprehensive income (6) - - - - - - Total gains/(losses) recognised in other comprehensive income ('OCI')1 (145) 12 238 3 1 29 17 - financial investments: fair value gains/(losses) (232) - - - - - - - exchange differences 87 12 238 3 1 29 17 Purchases 601 2,067 562 - 151 - - New issuances - - - - 7 1,705 - Sales (142) (716) (594) - (120) (78) - Settlements (90) (323) (51) (731) (407) (575) (701) Transfers out (199) (283) (2) (473) (15) (564) (582) Transfers in 41 1,052 78 558 441 461 567 At 31 Dec 2022 1,447 2,738 3,318 1,737 415 2,461 2,478 Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 31 Dec 2022 - (5) 49 565 2 30 2,339 - trading income/(expense) excluding net interest income - (5) - 565 2 - 2,339 - net income/(expense) from other financial instruments designated at fair value - - 49 - - 30 - At 1 Jan 2021 1,635 1,611 3,467 1,974 118 1,150 3,096 Total gains/(losses) on assets and total (gains)/losses on liabilities recognised in profit or loss 15 (77) 148 1,608 11 (316) 1,362 - net income from financial instruments held for trading or managed on a fair value basis - (77) - 1,608 11 - 1,362 - changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss - - 148 - - (316) - - gains less losses from financial investments at fair value through other comprehensive income 15 - - - - - - Total gains/(losses) recognised in other comprehensive income ('OCI')1 (75) (4) (152) (6) (1) (32) (8) - financial investments: fair value gains/(losses) (27) - - - - - - - exchange differences (48) (4) (152) (6) (1) (32) (8) Purchases 555 686 543 - 742 1 - New issuances - - - - 25 2,213 - Sales (417) (209) (813) - (3) (20) - Settlements (109) (506) (5) (1,722) (504) (1,053) (2,343) Transfers out (218) (668) (41) (368) (5) (137) (465) Transfers in 1 511 24 330 197 315 812 At 31 Dec 2021 1,387 1,344 3,171 1,816 580 2,121 2,454 Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 31 Dec 2021 - (11) 51 846 - 102 (721) - trading income/(expense) excluding net interest income - (11) - 846 - - (721) - net income from other financial instruments designated at fair value - - 51 - - 102 - 1 Included in 'financial investments: fair value gains/(losses)' in the current year and 'exchange differences' in the consolidated statement of comprehensive income. Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency. Movement in Level 3 financial instruments (continued) Assets Liabilities Financial Investments Trading Assets Designated and otherwise mandatorily measured at fair value through profit or loss Derivatives Trading Liabilities Designated at fair value Derivatives The bank ��m ��m ��m ��m ��m ��m ��m At 1 Jan 2022 53 1,334 361 1,952 554 1,563 2,722 Total gains/(losses) on assets and total (gains)/losses on liabilities recognised in profit or loss 2 (419) (91) 665 (216) (569) 45 - net income from financial instruments held for trading or managed on a fair value basis - (419) - 665 (216) - 45 - changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss - - (91) - - (569) - - gains less losses from financial investments at fair value through other comprehensive income 2 - - - - - - Total gains/(losses) recognised in other comprehensive income ('OCI')1 1 - 24 - - - - - financial investments: fair value gains/(losses) 1 - - - - - - - exchange differences - - 24 - - - - Purchases - 1,495 - - 151 - - New issuances - - - - - 1,682 - Sales - (659) (12) - (120) - - Settlements - (323) (8) (850) (392) (557) (1,025) Transfers out - (283) (2) (541) (15) (471) (606) Transfers in 15 1,014 - 673 441 202 601 At 31 Dec 2022 71 2,159 272 1,899 403 1,850 1,737 Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 31 Dec 2022 - - - 688 - 19 3,020 - trading income/(expense) excluding net interest income - - - 688 - - 3,020 - net income/(expense) from other financial instruments designated at fair value - - - - - 19 - At 1 Jan 2021 141 1,583 311 2,032 103 651 3,287 Total gains/(losses) on assets and total (gains)/losses on liabilities recognised in profit or loss 1 (76) 77 1,730 12 (246) 1,443 - net income from financial instruments held for trading or managed on a fair value basis - (76) - 1,730 12 - 1,443 - changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss - - 77 - - (246) - - gains less losses from financial investments at fair value through other comprehensive income 1 - - - - - - Total gains/(losses) recognised in other comprehensive income ('OCI')1 (1) (3) (11) - - - - - financial investments: fair value gains/(losses) (1) - - - - - - - exchange differences - (3) (11) - - - - Purchases - 683 2 - 741 - - New issuances - - - - - 2,128 - Sales (2) (186) (13) - - - - Settlements (3) (505) (5) (1,778) (494) (950) (2,297) Transfers out (83) (668) - (375) (5) (153) (511) Transfers in - 506 - 343 197 133 800 At 31 Dec 2021 53 1,334 361 1,952 554 1,563 2,722 Unrealised gains/(losses) recognised in profit or loss relating to assets and liabilities held at 31 Dec 2021 - (11) 1 973 - 46 (949) - trading income/(expense) excluding net interest income - (11) - 973 - - (949) - net income from other financial instruments designated at fair value - - 1 - - 46 - 1 Included in 'financial investments: fair value gains/(losses)' in the current year and 'exchange differences' in the consolidated statement of comprehensive income. Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency. Effect of changes in significant unobservable assumptions to reasonably possible alternatives Sensitivity of Level 3 fair values to reasonably possible alternative assumptions 2022 2021 Reflected in profit or loss Reflected in OCI Reflected in profit or loss Reflected in OCI Favourable changes Un- favourable changes Favourable changes Un- favourable changes Favourable changes Un- favourable changes Favourable changes Un- favourable changes The group ��m ��m ��m ��m ��m ��m ��m ��m Derivatives, trading assets and trading liabilities1 201 (261) - - 92 (70) - - Designated and otherwise mandatorily measured at fair value through profit or loss 236 (235) - - 247 (247) - - Financial investments 9 (9) 27 (19) 15 (15) 51 (50) Year ended 31 Dec 446 (505) 27 (19) 354 (332) 51 (50) The bank Derivatives, trading assets and trading liabilities1 193 (253) - - 93 (72) - - Designated and otherwise mandatorily measured at fair value through profit or loss 45 (45) - - 64 (64) - - Financial investments - - 14 (6) 0 - 6 (5) Year ended 31 Dec 238 (298) 14 (6) 157 (136) 6 (5) 1 Derivatives, trading assets and trading liabilities are presented as one category to reflect the manner in which these instruments are risk managed. Sensitivity of Level 3 fair values to reasonably possible alternative assumptions by instrument type 2022 2021 Reflected in profit or loss Reflected in OCI Reflected in profit or loss Reflected in OCI Favourable changes Un-favourable changes Favourable changes Un-favourable changes Favourable changes Un-favourable changes Favourable changes Un-favourable changes ��m ��m ��m ��m ��m ��m ��m ��m Private equity including strategic investments 225 (389) 8 (7) 232 (234) 7 (7) Asset-backed securities 28 (17) 12 (5) 39 (20) 1 - Structured notes 5 (5) - - 6 (6) - - Derivatives 44 (44) - - 29 (34) - - Other portfolios 144 (50) 7 (7) 48 (38) 43 (43) Total 446 (505) 27 (19) 354 (332) 51 (50) The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data. When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most favourable or the most unfavourable change from varying the assumptions individually. Key unobservable inputs to Level 3 financial instruments Quantitative information about significant unobservable inputs in Level 3 valuations Fair value 2022 2021 Assets Liabilities Valuation techniques Key unobservable inputs Full range of inputs Full range of inputs ��m ��m Lower Higher Lower Higher Private equity including strategic investments 3,202 104 See below See below N/A N/A N/A N/A Asset-backed securities 523 - - CLO/CDO1 156 - Market proxy Bid quotes - 92 - 100 - Other ABSs 367 - Market proxy Bid quotes - 99 - 100 Structured notes - 2,461 - equity-linked notes - 2,042 Model - Option model Equity Volatility 6% 99% 6% 124% Equity Correlation 32% 99% 34% 99% - fund-linked notes - - Model - Option model Fund Volatility - FX-linked notes - 3 Model - Option model FX Volatility 3% 20% 3% 99% - other - 416 Derivatives 1,737 2,478 - Interest rate derivatives: 507 633 securitisation swaps 215 173 Model - Discounted cash flow Constant Prepayment 5% 10% 5% 50% long-dated swaptions 44 56 Model - Option model IR Volatility 9% 33% 15% 35% other 248 404 - FX derivatives: 447 304 FX options 418 294 Model - Option model FX Volatility 3% 46% 2% 99% other 29 10 - Equity derivatives: 688 1,324 long-dated single stock options 344 376 Model - Option model Equity Volatility 7% 153% 4% 138% other2 344 948 - Credit derivatives: 95 217 other 95 217 Other portfolios 3,778 311 - repurchase agreements 387 272 Model - Discounted cash flow IR Curve 1% 9% 1% 5% - other3 3,391 39 At 31 Dec 9,240 5,354 1 Collateralised loan obligation/collateralised debt obligation. 2 Other Equity Derivatives consists mainly of Swaps and OTC Options. 3 Other consists of various instruments including investment in funds, repurchase agreement and bonds. Private equity including strategic investments Given the bespoke nature of the analysis in respect of each holding, it is not practical to quote a range of key unobservable inputs. The key unobservable inputs would be price and correlation. The valuation approach includes using a range of inputs that include company specific financials, traded comparable companies multiples, published net asset values and qualitative assumptions, which are not directly comparable or quantifiable. Prepayment rates Prepayment rates are a measure of the anticipated future speed at which a loan portfolio will be repaid in advance of the due date. They vary according to the nature of the loan portfolio and expectations of future market conditions, and may be estimated using a variety of evidence, such as prepayment rates implied from proxy observable security prices, current or historical prepayment rates and macroeconomic modelling. Market proxy Market proxy pricing may be used for an instrument when specific market pricing is not available, but there is evidence from instruments with common characteristics. In some cases, it might be possible to identify a specific proxy, but more generally evidence across a wider range of instruments will be used to understand the factors that influence current market pricing and the manner of that influence. Volatility Volatility is a measure of the anticipated future variability of a market price. It varies by underlying reference market price, and by strike and maturity of the option. Certain volatilities, typically those of a longer-dated nature, are unobservable and estimated from observable data. The range of unobservable volatilities reflects the wide variation in volatility inputs by reference market price. The core range is significantly narrower than the full range because these examples with extreme volatilities occur relatively rarely within the HSBC portfolio. Correlation Correlation is a measure of the inter-relationship between two market prices, and is expressed as a number between minus one and one. It is used to value more complex instruments where the payout is dependent upon more than one market price. There is a wide range of instruments for which correlation is an input, and consequently a wide range of both same-asset correlations and cross-asset correlations is used. In general, the range of same-asset correlations will be narrower than the range of cross-asset correlations. Unobservable correlations may be estimated based upon a range of evidence, including consensus pricing services, HSBC trade prices, proxy correlations and examination of historical price relationships. The range of unobservable correlations quoted in the table reflects the wide variation in correlation inputs by market price pair. Credit spread Credit spread is the premium over a benchmark interest rate required by the market to accept lower credit quality. In a discounted cash flow model, the credit spread increases the discount factors applied to future cash flows, thereby reducing the value of an asset. Credit spreads may be implied from market prices and may not be observable in more illiquid markets. Inter-relationships between key unobservable inputs Key unobservable inputs to Level 3 financial instruments may not be independent of each other. As described above, market variables may be correlated. This correlation typically reflects the manner in which different markets tend to react to macroeconomic or other events. Furthermore, the effect of changing market variables on the HSBC portfolio will depend on HSBC's net risk position in respect of each variable. 12 Fair values of financial instruments not carried at fair value Fair values of financial instruments not carried at fair value and bases of valuation Fair value Carrying amount Quoted market price Level 1 Observable inputs Level 2 Significant unobservable inputs Level 3 Total The group ��m ��m ��m ��m ��m At 31 Dec 2022 Assets Loans and advances to banks 17,109 - 17,112 - 17,112 Loans and advances to customers 72,614 - - 72,495 72,495 Reverse repurchase agreements - non-trading 53,949 - 53,949 - 53,949 Financial investments - at amortised cost 3,248 2,336 848 8 3,192 Liabilities Deposits by banks 20,836 - 20,900 - 20,900 Customer accounts 215,948 - 215,955 - 215,955 Repurchase agreements - non-trading 32,901 - 32,901 - 32,902 Debt securities in issue 7,268 - 7,124 132 7,256 Subordinated liabilities 14,528 - 14,434 - 14,434 At 31 Dec 2021 Assets Loans and advances to banks 10,784 - 10,786 - 10,786 Loans and advances to customers 91,177 - - 91,276 91,276 Reverse repurchase agreements - non-trading 54,448 - 54,448 - 54,448 Financial investments - at amortised cost 10 2 - 8 10 Liabilities Deposits by banks 32,188 - 32,102 - 32,102 Customer accounts 205,241 - 205,236 - 205,236 Repurchase agreements - non-trading 27,259 - 27,259 - 27,259 Debt securities in issue 9,428 - 9,286 144 9,430 Subordinated liabilities 12,488 - 13,118 - 13,118 Fair values of selected financial instruments not carried at fair value and bases of valuation - assets and disposal groups held for sale Fair value Carrying amount Quoted market price Level 1 Observable inputs Level 2 Significant unobservable inputs Level 3 Total $m $m $m $m $m At 31 Dec 2022 Assets Loans and advances to banks 127 - 131 - 131 Loans and advances to customers 21,067 - - 19,481 19,481 Reverse repurchase agreements - non-trading 208 - 208 - 208 Liabilities Deposits by banks 2 - 2 - 2 Customer accounts 20,478 - 20,393 - 20,393 Debt securities in issue 1,100 - 1,100 - 1,100 Fair values of financial instruments not carried at fair value and bases of valuation Fair value Carrying amount Quoted market price Level 1 Observable inputs Level 2 Significant unobservable inputs Level 3 Total The bank ��m ��m ��m ��m ��m At 31 Dec 2022 Assets Loans and advances to banks 14,486 - 14,508 - 14,508 Loans and advances to customers 36,992 - - 36,875 36,875 Reverse repurchase agreements - non-trading 43,055 - 43,055 - 43,055 Financial investments - at amortised cost 6,378 1,984 4,305 - 6,289 Liabilities Deposits by banks 13,594 - 13,594 - 13,594 Customer accounts 141,714 - 141,714 - 141,714 Repurchase agreements - non-trading 29,638 - 29,638 - 29,638 Debt securities in issue 4,656 - 4,656 - 4,656 Subordinated liabilities 14,252 - 14,139 - 14,139 At 31 Dec 2021 Assets Loans and advances to banks 6,778 - 6,881 - 6,881 Loans and advances to customers 33,936 - - 33,921 33,921 Reverse repurchase agreements - non-trading 39,708 - 39,708 - 39,708 Financial investments - at amortised cost1 3,337 - 3,300 - 3,300 Liabilities Deposits by banks 14,655 - 14,655 - 14,655 Customer accounts 124,706 - 124,706 - 124,706 Repurchase agreements - non-trading 22,344 - 22,344 - 22,344 Debt securities in issue 5,658 - 5,658 - 5,658 Subordinated liabilities 12,218 - 12,851 - 12,851 1 Fair value of Financial investment is represented to include the impact of inter-company. Other financial instruments not carried at fair value are typically short-term in nature and reprice to current market rates frequently. Accordingly, their carrying amount is a reasonable approximation of fair value. They include cash and balances at central banks and items in the course of collection from and transmission to other banks, all of which are measured at amortised cost. Valuation Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It does not reflect the economic benefits and costs that HSBC expects to flow from an instrument's cash flow over its expected future life. Our valuation methodologies and assumptions in determining fair values for which no observable market prices are available may differ from those of other companies. Loans and advances to banks and customers To determine the fair value of loans and advances to banks and customers, loans are segregated, as far as possible, into portfolios of similar characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values are estimated using valuation models incorporating a range of input assumptions. These assumptions may include: value estimates from third-party brokers reflecting over-the-counter trading activity; forward-looking discounted cash flow models, taking account of expected customer prepayment rates, using assumptions that HSBC believes are consistent with those that would be used by market participants in valuing such loans; new business rates estimates for similar loans; and trading inputs from other market participants including observed primary and secondary trades. From time to time, we may engage a third-party valuation specialist to measure the fair value of a pool of loans. The fair value of loans reflects expected credit losses at the balance sheet date and estimates of market participants' expectations of credit losses over the life of the loans, and the fair value effect of repricing between origination and the balance sheet date. For credit impaired loans, fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered. Financial investments The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments are determined using valuation techniques that incorporate the prices and future earnings streams of equivalent quoted securities. Deposits by banks and customer accounts The fair values of on-demand deposits are approximated by their carrying value. For deposits with longer-term maturities, fair values are estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities. Debt securities in issue and subordinated liabilities Fair values are determined using quoted market prices at the balance sheet date where available, or by reference to quoted market prices for similar instruments. When quoted market prices are unavailable, these instruments are valued using valuation techniques, the inputs for which are derived from observable market data and, where relevant, from assumptions in respect of unobservable inputs. Repurchase and reverse repurchase agreements - non-trading Fair values approximate carrying amounts as balances are generally short dated. 13 Financial assets designated and otherwise mandatorily measured at fair value through profit or loss The group The bank 2022 2021 2022 2021 Designated at fair value and otherwise mandatorily measured at fair value Designated at fair value and otherwise mandatorily measured at fair value Designated at fair value and otherwise mandatorily measured at fair value Designated at fair value and otherwise mandatorily measured at fair value ��m ��m ��m ��m Securities 14,581 15,738 318 418 - debt securities 1,975 2,584 44 146 - equity securities 12,606 13,154 274 272 Loans and advances to banks and customers 971 2,613 971 2,498 Other 329 298 329 299 At 31 Dec 15,881 18,649 1,618 3,215 14 Derivatives Notional contract amounts and fair values of derivatives by product contract type Notional contract amount Fair value - Assets Fair value - Liabilities Trading Hedging Trading Hedging Total Trading Hedging Total The group ��m ��m ��m ��m ��m ��m ��m ��m Foreign exchange 6,101,153 582 88,244 2 88,246 (86,119) (57) (86,176) Interest rate 10,141,018 56,144 206,689 433 207,122 (201,419) (819) (202,238) Equities 465,626 - 7,751 - 7,751 (8,175) - (8,175) Credit 146,522 - 865 - 865 (1,012) - (1,012) Commodity and other 57,594 - 1,053 - 1,053 (1,065) - (1,065) Offset (Note 28) (79,799) 79,799 At 31 Dec 2022 16,911,913 56,726 304,602 435 225,238 (297,790) (876) (218,867) Foreign exchange 4,737,254 4,045 49,775 266 50,041 (48,613) (67) (48,680) Interest rate 8,727,934 39,553 99,744 144 99,888 (96,297) (270) (96,567) Equities 498,980 - 9,718 - 9,718 (11,881) - (11,881) Credit 134,440 - 1,582 - 1,582 (2,159) - (2,159) Commodity and other 42,677 - 681 - 681 (770) - (770) Offset (Note 28) (20,689) 20,689 At 31 Dec 2021 14,141,285 43,598 161,500 410 141,221 (159,720) (337) (139,368) The notional contract amounts of derivatives held for trading purposes and derivatives designated in hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk. Derivative asset and liability fair values increased during 2022, driven by yield curve movements and changes in foreign exchange rates. Notional contract amount Fair value - Assets Fair value - Liabilities Trading Hedging Trading Hedging Total Trading Hedging Total The bank ��m ��m ��m ��m ��m ��m ��m ��m Foreign exchange 6,049,682 582 87,459 2 87,461 (84,885) (56) (84,941) Interest rate 7,665,449 33,408 158,492 244 158,736 (157,315) (780) (158,095) Equities 439,588 - 7,626 - 7,626 (7,325) - (7,325) Credit 144,972 - 847 - 847 (982) - (982) Commodity and other 57,346 - 1,051 - 1,051 (1,000) - (1,000) Offset (59,007) 59,007 At 31 Dec 2022 14,357,037 33,990 255,475 246 196,714 (251,507) (836) (193,336) Foreign exchange 4,713,729 3,829 48,651 247 48,898 (47,771) (67) (47,838) Interest rate 6,846,965 27,206 80,798 193 80,991 (80,281) (240) (80,521) Equities 478,832 - 9,153 - 9,153 (11,896) - (11,896) Credit 132,582 - 1,558 - 1,558 (2,121) - (2,121) Commodity and other 41,308 - 677 - 677 (765) - (765) Offset (15,490) 15,490 At 31 Dec 2021 12,213,416 31,035 140,837 440 125,787 (142,834) (307) (127,651) Use of derivatives We undertake derivatives activity for three primary purposes: to create risk management solutions for clients, to manage the portfolio risks arising from client business, and to manage and hedge our own risks. Trading derivatives Most of the group's derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of derivative products to customers to enable them to take, transfer, modify or reduce current or expected risks. Trading activities include market-making and risk management. Market-making entails quoting bid and offer prices to other market participants for the purpose of generating revenues based on spread and volume. Risk management activity is undertaken to manage the risk arising from client transactions, with the principal purpose of retaining client margin. Other derivatives classified as held for trading include non-qualifying hedging derivatives. Substantially all of the group's derivatives entered into with subsidiaries are managed in conjunction with financial liabilities designated at fair value. Derivatives valued using models with unobservable inputs The difference between the fair value at initial recognition (the transaction price) and the value that would have been derived had the valuation techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is in the following table: Unamortised balance of derivatives valued using models with significant unobservable inputs The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Unamortised balance at 1 Jan 64 60 64 56 Deferral on new transactions 110 156 99 155 Recognised in the income statement during the year: (111) (152) (107) (147) - amortisation (59) (88) (56) (88) - subsequent to unobservable inputs becoming observable - (2) - (2) - maturity, termination or offsetting derivative (52) (60) (51) (57) - risk hedged - (2) - - Exchange differences and other 1 - - - Unamortised balance at 31 Dec1 64 64 56 64 1 This amount is yet to be recognised in the consolidated income statement. Hedge accounting derivatives The group applies hedge accounting to manage the following risks: interest rate and foreign exchange. The Report of the Directors - Risk presents more details on how these risks arise and how they are managed by the group. Hedged risk components HSBC designates a portion of cash flows of a financial instrument or a group of financial instruments for a specific interest rate or foreign currency risk component in a fair value or cash flow hedge. The designated risks and portions are either contractually specified or otherwise separately identifiable components of the financial instrument that are reliably measurable. Risk-free or benchmark interest rates generally are regarded as being both separately identifiable and reliably measurable, except for the IBOR Reform transition where HSBC designates Alternative Benchmark Rates as the hedged risk which may not have been separately identifiable upon initial designation, provided HSBC reasonably expects it will meet the requirement within 24 months from the first designation date. The designated risk component accounts for a significant portion of the overall changes in fair value or cash flows of the hedged item(s). Fair value hedges The group enters into fixed-for-floating-interest-rate swaps to manage the exposure to changes in fair value due to movements in market interest rates on certain fixed rate financial instruments which are not measured at fair value through profit or loss, including debt securities held and issued. Hedging instrument by hedged risk Hedging instrument Carrying amount The group Notional amount1 Assets Liabilities Balance sheet presentation Change in fair value2 Hedged risk ��m ��m ��m ��m Interest rate3 26,649 428 (799) Derivatives 981 At 31 Dec 2022 26,649 428 (799) 981 Interest rate3 24,486 139 (270) Derivatives 159 At 31 Dec 2021 24,486 139 (270) 159 1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk. 2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component. 3 The hedged risk 'interest rate' includes inflation risk. Hedged item by hedged risk Hedged item Ineffectiveness Carrying amount Accumulated fair value hedge adjustments included in carrying amount2 Change in fair value1 Recognised in profit and loss Profit and loss presentation The group Assets Liabilities Assets Liabilities Balance sheet presentation Hedged risk ��m ��m ��m ��m ��m ��m Interest rate3 15,446 - (1,095) - Financial assets at fair value through other comprehensive income (1,850) 31 Net income from financial instruments held for trading or managed on a fair value basis - - - - Loans and advances to banks - 713 - (31) - Loans and advances to customers (40) 431 - (15) - Reverse Repos (14) - 1,576 - (169) Debt securities in issue 398 - 5,686 - (659) Subordinated liabilities and deposits by banks4 556 At 31 Dec 2022 16,590 7,262 (1,141) (828) (950) 31 Interest rate3 14,099 - 167 - Financial assets at fair value through other comprehensive income (278) (9) Net income from financial instruments held for trading or managed on a fair value basis 1 - (2) - Loans and advances to banks (2) 997 - 7 - Loans and advances to customers (16) - 2,844 - 71 Debt securities in issue 24 - 5,841 - (77) Subordinated liabilities and deposits by banks4 104 At 31 Dec 2021 15,097 8,685 172 (6) (168) (9) 1 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component. 2 The accumulated amounts of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted for hedging gains and losses were ��10m (2021: ��21m) for 'Financial assets at fair value through other comprehensive income', is nil (2021: nil) for 'Deposits by banks' and ��13m (2021: ��19m) for 'Debt securities in issue'. 3 The hedged risk 'interest rate' includes inflation risk. 4 The notional amount of non-dynamic fair value hedges was ��6,312m (2021: ��5,886m) of which the weighted-average maturity is March 2026 and the weighted average swap rate is 0.06% (2021: 0.06%) (negative). ��6,312m (2021: ��5,886m) of these hedges are internal to HSBC Group and composed by internal funding between HSBC Holdings and the group. Hedging instrument by hedged risk Hedging instrument Carrying amount Change in fair value2 The bank Notional amount1 Assets Liabilities Balance sheet presentation Hedged risk ��m ��m ��m ��m Interest rate3 18,391 242 (773) Derivatives 466 At 31 Dec 2022 18,391 242 (773) 466 Interest rate3 18,016 188 (234) Derivatives 27 At 31 Dec 2021 18,016 188 (234) 27 1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk. 2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component. 3 The hedged risk 'interest rate' includes inflation risk. Hedged item by hedged risk Hedged item Ineffectiveness Carrying amount Accumulated fair value hedge adjustments included in carrying amount2 Change in fair value1 Recognised in profit and loss The bank Assets Liabilities Assets Liabilities Balance sheet presentation Profit and loss presentation Hedged risk ��m ��m ��m ��m ��m ��m Interest rate3 9,072 - (642) - Financial assets at fair value through other comprehensive income (1,389) 31 Net income from financial instruments held for trading or managed on a fair value basis 7 - 3 - Loans and advances to customers - - - - - Reverse Repos - - 1,576 - (169) Debt securities in issue 398 - 5,653 - (659) Subordinated liabilities and deposits by banks4 556 At 31 Dec 2022 9,079 7,229 (639) (828) (435) 31 Hedged item by hedged risk (continued) Hedged item Ineffectiveness Carrying amount Accumulated fair value hedge adjustments included in carrying amount2 Change in fair value1 Recognised in profit and loss The bank Assets Liabilities Assets Liabilities Balance sheet presentation Profit and loss presentation Hedged risk ��m ��m ��m ��m ��m ��m Interest rate3 9,232 - 159 - Financial assets at fair value through other comprehensive income (163) (8) Net income from financial instruments held for trading or managed on a fair value basis 6 - - - Loans and advances to customers - - 2,844 - 71 Debt securities in issue 24 - 5,810 - (77) Subordinated liabilities and deposits by banks4 104 At 31 Dec 2021 9,238 8,654 159 (6) (35) (8) 1 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component. 2 The accumulated amounts of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted for hedging gains and losses were ��10m (2021: ��21m) for 'Financial assets at fair value through other comprehensive income', nil (2021: nil) for 'Deposits by banks' and ��13m (2021: ��19m) for 'Debt securities in issue'. 3 The hedged risk 'interest rate' includes inflation risk. 4 The notional amount of non-dynamic fair value hedges was ��6,312m (2021: ��5,886m), of which the weighted-average maturity is March 2026 and the weighted average swap rate is 0.06% (2021: 0.06%) (negative). Those hedges are internal to HSBC Group and composed by internal funding between HSBC Holdings and the group. Cash flow hedges The group's cash flow hedging instruments consist principally of interest rate swaps and cross-currency swaps that are used to manage the variability in future interest cash flows of non-trading financial assets and liabilities, arising due to changes in market interest rates and foreign-currency basis. The group applies macro cash flow hedging for interest-rate risk exposures on portfolios of replenishing current and forecasted issuances of non-trading assets and liabilities that bear interest at variable rates, including rolling such instruments. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their contractual terms and other relevant factors, including estimates of prepayments and defaults. The aggregate cash flows representing both principal balances and interest cash flows across all portfolios are used to determine the effectiveness and ineffectiveness. Macro cash flow hedges are considered to be dynamic hedges. The group also hedges the variability in future cash-flows on foreign-denominated financial assets and liabilities arising due to changes in foreign exchange market rates with cross-currency swaps; these are considered dynamic hedges. Hedging instrument by hedged risk4 Hedging instrument Hedged item Ineffectiveness Carrying amount Change in fair value2 Change in fair value3 Recognised in profit and loss Profit and loss presentation The group Notional amount1 Assets Liabilities Balance sheet presentation Hedged risk ��m ��m ��m ��m ��m ��m Foreign exchange 582 2 (57) Derivatives (84) (84) - Net income from financial instruments held for trading or managed on a fair value basis Interest rate 29,495 5 (20) (1,345) (1,334) (11) At 31 Dec 2022 30,077 7 (77) (1,429) (1,418) (11) Foreign exchange 4,042 266 (67) Derivatives 127 127 - Net income from financial instruments held for trading or managed on a fair value basis Interest rate 15,067 5 (2) (178) (167) (11) At 31 Dec 2021 19,109 271 (69) (51) (40) (11) Hedging instrument Hedged item Ineffectiveness Carrying amount Change in fair value2 Change in fair value3 Recognised in profit and loss Profit and loss presentation The bank Notional amount1 Assets Liabilities Balance sheet presentation Hedged risk ��m ��m ��m ��m ��m ��m Foreign exchange 582 2 (56) Derivatives (84) (84) - Net income from financial instruments held for trading or managed on a fair value basis Interest rate 15,017 2 (7) (1,021) (1,021) - At 31 Dec 2022 15,599 4 (63) (1,105) (1,105) - Hedging instrument by hedged risk4 (continued) Hedging instrument Hedged item Ineffectiveness Carrying amount Change in fair value2 Change in fair value3 Recognised in profit and loss Profit and loss presentation The bank Notional amount1 Assets Liabilities Balance sheet presentation Hedged risk ��m ��m ��m ��m ��m ��m Foreign exchange 3,829 247 (67) Derivatives 127 127 - Net income from financial instruments held for trading or managed on a fair value basis Interest rate 9,190 5 (2) (119) (116) (3) At 31 Dec 2021 13,019 252 (69) 8 11 (3) 1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk. 2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component. 3 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component. 4 The amounts in the above table predominantly represent the bank's exposure. Sources of hedge ineffectiveness may arise from basis risk including, but not limited to timing differences between the hedged items and hedging instruments, and hedges using instruments with a non-zero fair value. Reconciliation of equity and analysis of other comprehensive income by risk type Interest rate Foreign exchange ��m ��m Cash flow hedging reserve at 1 Jan 2022 32 (39) Fair value (losses)/gains (1,334) (84) Fair value (gains) reclassified from cash flow hedge reserve to income statement in respect of: - hedged items that have affected profit or loss 53 74 Income taxes 348 - Cash flow hedging reserve at 31 Dec 2022 (901) (49) Cash flow hedging reserve at 1 Jan 2021 147 11 Fair value gains/(losses) (167) 127 Fair value (gains)/losses reclassified from cash flow hedge reserve to income statement in respect of: - hedged items that have affected profit or loss (25) (177) Income taxes 77 - Cash flow hedging reserve at 31 Dec 2021 32 (39) Interest rate benchmark reform: amendments to IFRS 9 and IAS 39 'Financial Instruments' HSBC has applied both the first set of amendments ('Phase 1') and the second set of amendments ('Phase 2') to IFRS 9 and IAS 39 applicable to hedge accounting. The hedge accounting relationships that are affected by Phase 1 and Phase 2 amendments are presented in the balance sheet as 'Financial assets designated and otherwise mandatorily measured at fair value through other comprehensive income', 'Loans and advances to customers', 'Debt securities in issue' and 'Deposits by banks'. The notional value of the derivatives impacted by the Ibors reform, including those designated in hedge accounting relationships, is disclosed on page 31 in the section 'Financial instruments impacted by the Ibor reform'. For further details of Ibor transition, see 'Top and emerging risks' on page 28. During 2022, the group transitioned all of its hedging instruments referencing sterling Libor, European Overnight Index Average rate ('Eonia') and Japanese yen Libor. The group also transitioned some of the hedging instruments referencing US dollar Libor. There is no significant judgement applied for these benchmarks to determine whether and when the transition uncertainty has been resolved. The most significant Ibor benchmark in which the group continues to have hedging instruments is US dollar Libor. The transition out of US dollar Libor hedging derivatives has been largely completed by the end of 2022. These transitions do not necessitate new approaches compared with any of the mechanisms used so far for transition and it will not be necessary to change the transition risk management strategy. For some of the Ibors included under the 'Other' header, in the table below, judgment has been needed to establish whether a transition is required, since there are Ibor benchmarks which are subject to computation methodology improvements and insertion of fallback provisions without full clarity being provided by their administrators on whether these Ibor benchmarks will be demised. The notional amounts of Interest Rate derivatives designated in hedge accounting relationships do not represent the extent of the risk exposure managed by the group but they are expected to be directly affected by market-wide Ibor reform and in scope of Phase 1 amendments and are shown in the table below. The cross-currency swaps designated in hedge accounting relationships and affected by Ibor reform are not significant and have not been presented below. Hedging instrument impacted by Ibor Reform Hedging instrument Impacted by Ibor Reform NOT Impacted by Ibor Reform Notional Amount1 EUR2 GBP USD Other3 Total The group ��m ��m ��m ��m ��m ��m ��m Fair Value Hedges 7,581 - 225 105 7,911 18,738 26,649 Cash Flow Hedges 7,359 - - - 7,359 22,136 29,495 At 31 Dec 2022 14,940 - 225 105 15,270 40,874 56,144 Fair Value Hedges 6,407 - 336 124 6,867 17,619 24,486 Cash Flow Hedges 5,877 - - - 5,877 9,190 15,067 At 31 Dec 2021 12,284 - 336 124 12,744 26,809 39,553 The bank Fair Value Hedges 5,184 - 4 104 5,292 13,099 18,391 Cash Flow Hedges - - - - - 15,017 15,017 At 31 Dec 2022 5,184 - 4 104 5,292 28,116 33,408 Fair Value Hedges 4,920 - 6 124 5,050 12,966 18,016 Cash Flow Hedges - - - - - 9,190 9,190 At 31 Dec 2021 4,920 - 6 124 5,050 22,156 27,206 1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions outstanding at the balance sheet date; they do not represent amounts at risk. 2 The notional contract amounts of euro interest rate derivatives impacted by Ibor reform mainly comprise hedges with a Euribor benchmark, which are Fair value hedges of ��7,581m (31 Dec 2021: ��6,407m) and Cash flow hedges ��7,359m (31 Dec 2021: ��5,877m). 3 Other benchmarks impacted by Ibor reform comprise derivatives that are expected to transition, but do not have a published cessation date. 15 Financial investments Carrying amount of financial investments The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Financial investments measured at fair value through other comprehensive income 29,356 41,290 12,261 23,205 - treasury and other eligible bills 1,447 2,229 693 1,441 - debt securities 27,710 38,924 11,514 21,711 - equity securities 109 103 54 53 - other instruments1 90 34 - - Debt instruments measured at amortised cost 3,248 10 6,378 3,337 - treasury and other eligible bills 1,030 2 976 - - debt securities2 2,218 8 5,402 3,337 At 31 Dec 32,604 41,300 18,639 26,542 1 'Other instruments' are comprised of loans and advances. 2 The ��4.2bn (2021: ��3.3bn) of debt securities in the bank relates to Senior Non-Preferred debt issued by HSBC Continental Europe to comply with Single Resolution Board requirements on Minimum Required Eligible Liabilities. Equity instruments measured at fair value through other comprehensive income Instruments held at year end Fair value Dividends recognised Type of equity instruments ��m ��m Business facilitation 77 - Investments required by central institutions 31 - Others 1 - At 31 Dec 2022 109 - Business facilitation 76 - Investments required by central institutions 26 - Others 1 - At 31 Dec 2021 103 - 16 Assets pledged, collateral received and assets transferred Assets pledged1 Financial assets pledged as collateral The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Treasury bills and other eligible securities 1,649 990 877 990 Loans and advances to banks 3,300 - 3,300 - Loans and advances to customers 4,996 18,403 - - Debt securities 17,407 20,247 9,699 11,415 Equity securities 25,408 23,612 25,014 25,452 Cash collateral 45,034 29,963 32,255 22,961 Other 330 298 329 298 Assets pledged at 31 Dec 98,124 93,513 71,474 61,116 Financial assets pledged as collateral which the counterparty has the right to sell or repledge The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Trading assets 38,896 39,594 32,371 35,311 Financial investments 3,588 1,436 1,974 542 At 31 Dec 42,484 41,030 34,345 35,853 Assets pledged as collateral includes all assets categorised as encumbered in the disclosure on page 84 except for assets held for sale. The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, in the case of securitisations and covered bonds, the amount of liabilities issued, plus mandatory over-collateralisation, is less than the book value of the pool of assets available for use as collateral. This is also the case where assets are placed with a custodian or a settlement agent that has a floating charge over all the assets placed to secure any liabilities under settlement accounts. These transactions are conducted under terms that are usual and customary to collateralised transactions including, where relevant, standard securities lending and borrowing, repurchase agreements and derivative margining. The group places both cash and non-cash collateral in relation to derivative transactions. Collateral received1 The fair value of assets accepted as collateral, relating primarily to standard securities lending, reverse repurchase agreements and derivative margining, that the group is permitted to sell or repledge in the absence of default was ��180,233m (2021: ��202,794m) (the bank: 2022: ��154,376m; 2021: ��167,737m). The fair value of any such collateral sold or repledged was ��136,777m (2021: ��151,378m) (the bank: 2022: ��113,917m; 2021: ��120,436m). The group is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard securities lending, reverse repurchase agreements and derivative margining. Assets transferred1 The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt securities held by counterparties as collateral under repurchase agreements and equity securities lent under securities lending agreements, as well as swaps of equity and debt securities. For secured borrowings, the transferred asset collateral continues to be recognised in full and a related liability, reflecting the group's obligation to repurchase the assets for a fixed price at a future date is also recognised on the balance sheet. Where securities are swapped, the transferred asset continues to be recognised in full. There is no associated liability as the non-cash collateral received is not recognised on the balance sheet. The group is unable to use, sell or pledge the transferred assets for the duration of these transactions, and remains exposed to interest rate risk and credit risk on these pledged assets. The counterparty's recourse is not limited to the transferred assets. Transferred financial assets not qualifying for full derecognition and associated financial liabilities Carrying amount of: Transferred assets Associated liabilities The group ��m ��m At 31 Dec 2022 Repurchase agreements 13,349 13,371 Securities lending agreements 29,171 3,442 At 31 Dec 2021 Repurchase agreements 11,710 11,732 Securities lending agreements 29,321 2,129 1 Excludes assets classified as held for sale. Transferred financial assets not qualifying for full derecognition and associated financial liabilities Carrying amount of: Transferred assets Associated liabilities The bank ��m ��m At 31 Dec 2022 Repurchase agreements 5,795 5,795 Securities lending agreements 28,550 3,467 At 31 Dec 2021 Repurchase agreements 4,489 4,488 Securities lending agreements 31,365 2,132 17 Interests in associates and joint ventures Principal associates of the group and the bank Business Growth Fund Group plc ('BGF') is a principal associate of the group. BGF is an independent company, established in 2011 to provide investment to growing small to medium-sized British businesses. BGF is backed by five of the UK's main banking groups: Barclays, HSBC, Lloyds, RBS and Standard Chartered. At 31 Dec 2022, the group had a 24.62% interest in the equity capital of BGF. Share of (Loss)/profit in BGF is ��(22)m (2021: ��192m; 2020: ��5m) and carrying amount of interest in BGF is ��673m (2021: ��702m; 2020: ��471m). Interests in joint ventures A list of all associates is set out on page 189. 18 Investments in subsidiaries Main subsidiaries of HSBC Bank plc1 At 31 Dec 2022 Country of incorporation or registration HSBC Bank plc's interest in equity capital Share class % HSBC Investment Bank Holdings Limited England and Wales 100.00 ��1 Ordinary HSBC Life (UK) Limited England and Wales 100.00 ��1 Ordinary HSBC Trinkaus & Burkhardt GmbH Germany 99.99 ��1 Ordinary HSBC Continental Europe France 99.99 ��5 Actions HSBC Bank Malta p.l.c Malta 70.03 ��0.3 Ordinary 1 Main subsidiaries are either held directly or indirectly via intermediate holding companies. All the above prepare their financial statements up to 31 December. Details of all group subsidiaries, as required under Section 409 of the Companies Act 2006, are set out in Note 36. The principal countries of operation are the same as the countries of incorporation. Impairment testing of investments in subsidiaries At each reporting period end, HSBC Bank plc reviews investments in subsidiaries for indicators of impairment. An impairment is recognised when the carrying amount exceeds the recoverable amount for that investment. The recoverable amount is the higher of the investment's fair value less costs of disposal and its value in use, in accordance with the requirements of IAS 36. The value in use is calculated by discounting management's cash flow projections for the investment. The cash flows represent the Free Cash Flows ('FCF') based on the subsidiary's binding capital requirements. �� The cash flow projections for each investment are based on the latest approved plans, which includes forecast capital available for distribution based on the capital requirements of the subsidiary taking into account minimum and core capital requirements. Our cash flow projections include known climate-related opportunities and costs associated with our sustainable offering. A long term growth rate is used to extrapolate the free cash flows in perpetuity. �� The growth rate reflects inflation for the country within which the investment operates and is based on the long-term average growth rates. �� The rate used to discount the cash flows is based on the cost of capital assigned to each investment, which is derived using a capital asset pricing model ('CAPM'). CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market's assessment of the economic variables and management's judgement. The discount rates for each investment are refined to reflect the rates of inflation for the countries within which the investment operates. In addition, for the purposes of testing investments for impairment, management supplements this process by comparing the discount rates derived using the internally generated CAPM, with cost of capital rates produced by external sources for businesses operating in similar markets. During 2022, an additional investment of ��3.4bn is made in HSBC Continental Europe. Further, an impairment reversal of ��2bn was recognised in the fourth quarter as a result of the impairment test performed which relates to the investment in subsidiary i.e. HSBC Continental Europe. This was due to updates to inputs and assumptions in the model used to estimate value-in-use ('VIU') and increase in forecast free cash flows, resulting from acquisition of HSBC Bank Malta plc and HSBC Trinkaus & Burkhardt GmbH as well as interest rates rise in the Eurozone. No investments in subsidiaries were impaired or reversed in 2021. There is no impact on the group financial statement due to these transactions. Impairment test results Investments Carrying amount Value in use Discount rate Long-term growth rate Headroom HSBC Continental Europe ��m ��m % % ��m At 31 Dec 2022 7,743 11,507 9.95 1.56 3,764 At 31 Dec 2021 4,331 4,429 8.34 1.53 98 Sensitivities of key assumptions in calculating VIU At 31 December 2022, the investment in HSBC Continental Europe was sensitive to reasonably possible changes in the key assumptions supporting the recoverable amount. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each input to the model. These include the external range of observable discount rates, historical performance against forecast, and risks attaching to the key assumptions underlying cash flow projections. The following table presents a summary of the key assumptions underlying the most sensitive inputs to the model for HSBC Continental Europe, the key risks attaching to each, and details of a reasonably possible change to assumptions where, in the opinion of management, there is a sufficient headroom to cover the changes which could not result in an impairment. Reasonably possible changes in key assumptions Investment HSBC Continental Europe Free Cash Flows projections �� Level of interest rates and yield curves. �� Competitors' positions within the market. �� Level and change in unemployment rates. �� Customer remediation and regulatory actions. �� Achievement of strategic actions relating to revenue and costs. �� FCF projections decrease by 10% . �� Achievement of revenue and cost targets. Discount rate �� Discount rate used is a reasonable estimate of a suitable market rate for the profile of the business. �� External evidence arises to suggest that the rate used is not appropriate to the business. �� Discount rate increases by 1%. Sensitivity of VIU to reasonably possible changes in key assumptions and changes to current assumptions to reduce headroom to nil Increase/(decrease) Investments Carrying amount Value in use Discount rate Free Cash flows At 31 Dec 2022 ��m ��m bps % HSBC Continental Europe 7,743 11,507 614 (33.3) 19 Structured entities The group is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets, conduits and investment funds, established either by the group or a third party. Consolidated structured entities Total assets of the group's consolidated structured entities, split by entity type Conduits Securitisations HSBC managed funds Other Total ��m ��m ��m ��m ��m At 31 Dec 2022 3,479 192 3,981 463 8,115 At 31 Dec 2021 3,233 287 4,653 568 8,741 Conduits The group has established and manages two types of conduits: securities investment conduits ('SICs') and multi-seller conduits. Securities investment conduits The SICs purchase highly rated ABSs to facilitate tailored investment opportunities. At 31 Dec 2022, Solitaire, the group's principal SIC held ��1.1bn of ABSs (2021: ��1.2bn). It is currently funded entirely by commercial paper ('CP') issued to the group. At 31 Dec 2022, the group held ��1.3bn of CP (2021: ��1.3bn). Multi-seller conduits The group's multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, the group bears risk equal to transaction-specific facility offered to the multi-seller conduits, amounting to ��4.7bn at 31 December 2022 (2021: ��4.6bn). First loss protection is provided by the originator of the assets, and not by the group, through transaction-specific credit enhancements. A layer of secondary loss protection is provided by the group in the form of programme-wide enhancement facilities. Securitisations The group uses structured entities to securitise customer loans and advances it originates in order to diversify the sources of funding for asset origination and capital efficiency purposes. The loans and advances are transferred by the group to the structured entities for cash or synthetically through credit default swaps, and the structured entities issue debt securities to investors. HSBC managed funds The group together with other HSBC entities has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent in its role as investment manager, the group controls these funds. Other The group has entered into a number of transactions in the normal course of business, which include asset and structured finance transactions where it has control of the structured entity. In addition, the group is deemed to control a number of third-party managed funds through its involvement as a principal in the funds. Unconsolidated structured entities The term 'unconsolidated structured entities' refers to all structured entities not controlled by the group. The group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities. Nature and risks associated with the group's interests in unconsolidated structured entities Securitisations HSBC managed funds Non-HSBC managed funds Other Total Total asset values of the entities (��m) 0 - 400 2 155 966 12 1,135 400 - 1,500 1 55 757 1 814 1,500 - 4,000 - 19 304 - 323 4,000 - 20,000 - 16 155 - 171 20,000+ - 3 14 - 17 Number of entities at 31 Dec 2022 3 248 2,196 13 2,460 ��m ��m ��m ��m ��m Total assets in relation to the group's interests in the unconsolidated structured entities 220 4,671 4,425 925 10,241 - trading assets - 1 104 - 105 - financial assets designated and otherwise mandatorily measured at fair value - 4,665 3,869 - 8,534 - loans and advances to banks - - - - - - loans and advances to customers 220 - 452 497 1,169 - financial investments - 5 - - 5 - other assets - - - 428 428 Total liabilities in relation to the group's interests in the unconsolidated structured entities - 4 - - 4 Other off-balance sheet commitments 34 - 571 24 629 The group's maximum exposure at 31 Dec 2022 254 4,667 4,996 949 10,866 Total asset values of the entities (��m) 0 - 400 2 157 1,194 14 1,367 400 - 1,500 - 81 774 - 855 1,500 - 4,000 - 16 354 - 370 4,000 - 20,000 - 12 149 - 161 20,000+ - 2 9 - 11 Number of entities at 31 Dec 2021 2 268 2,480 14 2,764 ��m ��m ��m ��m ��m Total assets in relation to the group's interests in the unconsolidated structured entities 193 4,414 5,225 631 10,463 - trading assets - 1 1,807 - 1,808 - financial assets designated at fair value - 4,409 3,273 - 7,682 - loans and advances to customers 193 - 49 631 873 - financial investments - 4 96 - 100 - other assets - - - - - Total liabilities in relation to group's interests in the unconsolidated structured entities - - 2 - 2 Other off-balance sheet commitments 20 4 916 38 978 The group's maximum exposure at 31 Dec 2021 213 4,418 6,139 669 11,439 The maximum exposure to loss from the group's interests in unconsolidated structured entities represents the maximum loss it could incur as a result of its involvement with these entities regardless of the probability of the loss being incurred. �� For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential future losses. �� For retained and purchased investments and loans to unconsolidated structured entities, the maximum exposure to loss is the carrying value of these interests at the balance sheet reporting date. The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements entered into to mitigate the group's exposure to loss. Securitisations The group has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, the group has investments in ABSs issued by third-party structured entities. HSBC managed funds The group together with other HSBC entities establishes and manages money market funds and non-money market investment funds to provide customers with investment opportunities. The group, as fund manager, may be entitled to receive management and performance fees based on the assets under management. The group may also retain units in these funds. Non-HSBC managed funds The group purchases and holds units of third-party managed funds in order to facilitate business and meet customer needs. Other The group has established structured entities in the normal course of business, such as structured credit transactions for customers, to provide finance to public and private sector infrastructure projects, and for asset and structured finance transactions. In addition to the interests disclosed above, the group enters into derivative contracts, reverse repos and stock borrowing transactions with structured entities. These interests arise in the normal course of business for the facilitation of third-party transactions and risk management solutions. Group sponsored structured entities The amount of assets transferred to and income received from such sponsored entities during 2022 and 2021 was not significant. 20 Goodwill and intangible assets The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Goodwill - - 19 19 Present value of in-force long-term insurance business 1,076 811 - - Other intangible assets1 91 83 22 15 At 31 Dec 1,167 894 41 34 1 Included within the group's other intangible assets is internally generated software with a net carrying value of ��87m (2021: ��77m). During 2022, capitalisation of internally generated software was ��47m (2021: ��46m), impairment was ��21m (2021: ��45m) and amortisation was ��34m (2021: ��15m). Present value of in-force long-term insurance business When calculating the present value of in-force long-term ('PVIF') insurance business, expected cash flows are projected after adjusting for a variety of assumptions made by each insurance operation to reflect local market conditions and management's judgement of future trends and uncertainty in the underlying assumptions is reflected by applying margins (as opposed to a cost of capital methodology) including valuing the cost of policyholder options and guarantees using stochastic techniques. Financial reporting Committees of each key insurance entity meet on a quarterly basis to review and approve PVIF assumptions. All changes to non-economic assumptions, economic assumptions that are not observable and model methodology must be approved by the Financial Reporting Committee. Movements in PVIF 2022 2021 ��m ��m PVIF at 1 Jan 811 647 Change in PVIF of long-term insurance business 226 200 - value of new business written during the year 79 67 - expected return1 (53) (70) - assumption changes and experience variances2,3 (see below) 200 202 - other adjustments - 1 Exchange differences 39 (36) PVIF at 31 Dec 1,076 811 1 'Expected return' represents the unwinding of the discount rate and reversal of expected cash flows for the period. 2 Represents the effect of changes in assumptions on expected future profits and the difference between assumptions used in the previous PVIF calculation and actual experience observed during the year to the extent that this affects future profits. The gain of ��200m in the year (2021: gain of ��202m) was primarily driven by a reduction in the cost of financial guarantees in France as a result of rising interest rates during 2022. 3 2022 includes ��52m impact recognised on the classification of France retail as discontinued operations. Key assumptions used in the computation of PVIF for main life insurance operations Economic assumptions are set in a way that is consistent with observable market values. The valuation of PVIF is sensitive to observed market movements and the impact of such changes is included in the sensitivities presented below. 2022 2021 UK France1 UK France1 % % % % Weighted average risk-free rate 3.71 2.80 0.95 0.69 Weighted average risk discount rate 3.71 4.44 0.95 1.55 Expense inflation 3.70 4.26 3.80 1.80 1 For 2022, the calculation of France's PVIF assumes a risk discount rate of 4.44% (2021: 1.55%) plus a risk margin of ��83m (2021: ��156m). Sensitivity to changes in economic assumptions The group sets the risk discount rate applied to the PVIF calculation by starting from a risk-free rate curve and adding explicit allowances for risks not reflected in the best estimate cash flow modelling. Where the insurance operations provide options and guarantees to policyholders, the cost of these options and guarantees is accounted for as a deduction from the present value of in-force 'PVIF' asset, unless the cost of such guarantees is already allowed for as an explicit addition to liabilities under insurance contracts. See page 92 for further details of these guarantees and the impact of changes in economic assumptions on our insurance manufacturing subsidiaries. Sensitivity to changes in non-economic assumptions Policyholder liabilities and PVIF are determined by reference to non-economic assumptions including mortality and/or morbidity, lapse rates and expense rates. See page 93 for further details on the impact of changes in non-economic assumptions on our insurance manufacturing operations. 21 Prepayments, accrued income and other assets The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Cash collateral and margin receivables 44,932 29,947 32,255 22,961 Settlement accounts 6,926 4,960 5,441 4,604 Bullion 3,464 2,253 3,464 2,253 Prepayments and accrued income 1,769 1,365 994 531 Property, plant and equipment 761 846 9 10 Right-of-use assets 166 251 32 37 Reinsurers' share of liabilities under insurance contracts (Note 4) 140 146 - - Employee benefit assets (Note 5) 73 54 12 43 Endorsements and acceptances 243 196 218 172 Other accounts 2,905 3,100 1,482 879 At 31 Dec 61,379 43,118 43,907 31,490 Prepayments, accrued income and other assets include ��55,801m (2021: ��39,064m) of financial assets, the majority of which are measured at amortised cost. 22 Trading liabilities The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Deposits by banks1 4,337 3,122 4,350 3,141 Customer accounts1 5,812 6,386 5,692 6,216 Other debt securities in issue 812 1,324 61 30 Other liabilities - net short positions in securities 30,304 35,601 15,662 21,774 At 31 Dec 41,265 46,433 25,765 31,161 1 'Deposits by banks' and 'Customer accounts' include repos, stock lending and other amounts. 23 Financial liabilities designated at fair value The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Deposits by banks and customer accounts 4,864 4,302 4,864 4,245 Liabilities to customers under investment contracts 948 1,032 - - Debt securities in issue 20,666 26,049 13,742 14,399 Subordinated liabilities (Note 26) 809 2,225 809 2,225 At 31 Dec 27,287 33,608 19,415 20,869 The group The carrying amount of financial liabilities designated at fair value was ��(3,431)m lower than the contractual amount at maturity (2021: ��(1,568)m lower). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of ��(292)m (2021: loss of ��165m). The bank The carrying amount of financial liabilities designated at fair value was ��(2,230)m lower than the contractual amount at maturity (2021: ��(2,146)m lower). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of ��(139)m (2021: loss of ��72m). 24 Accruals, deferred income and other liabilities The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Cash collateral and margin payables 55,470 32,309 40,356 24,204 Settlement accounts 4,915 4,767 4,485 3,996 Accruals and deferred income 1,903 1,507 1,241 859 Amount due to investors in funds consolidated by the group 991 1,315 - - Lease liabilities 269 386 45 55 Employee benefit liabilities (Note 5) 121 196 56 74 Share-based payment liability to HSBC Holdings 98 129 72 102 Endorsements and acceptances 231 189 218 172 Other liabilities 2,947 2,658 1,509 708 At 31 Dec 66,945 43,456 47,982 30,170 For the group, accruals, deferred income and other liabilities include ��66,356m (2021: ��42,887m), and for the bank ��47,683m (2021: ��29,913m) of financial liabilities, the majority of which are measured at amortised cost. 25 Provisions Restructuring costs Legal proceedings and regulatory matters Customer remediation Other provisions Total The group ��m ��m ��m ��m ��m Provisions (excluding contractual commitments) At 1 Jan 2022 164 175 21 99 459 Additions 117 61 4 63 245 Amounts utilised (124) (152) (6) (34) (316) Unused amounts reversed (35) (4) (6) (23) (68) Exchange and other movements 4 (3) - (2) (1) At 31 Dec 2022 126 77 13 103 319 Contractual commitments1 At 1 Jan 2022 103 Net change in expected credit loss provision and other movements 2 At 31 Dec 2022 105 Total Provisions At 31 Dec 2021 562 At 31 Dec 2022 424 Provisions (excluding contractual commitments) At 1 Jan 2021 309 237 25 103 674 Additions 91 32 11 86 220 Amounts utilised (170) (63) (10) (32) (275) Unused amounts reversed (63) (25) (6) (58) (152) Exchange and other movements (3) (6) 1 - (8) At 31 Dec 2021 164 175 21 99 459 Contractual commitments1 At 1 Jan 2021 187 Net change in expected credit loss provision and other movements (84) At 31 Dec 2021 103 Total Provisions At 31 Dec 2020 861 At 31 Dec 2021 562 1 The contractual commitments include provision for off-balance sheet loan commitments and guarantees, for which expected credit losses are provided under IFRS 9. Further analysis of the movement in the expected credit loss is disclosed within the 'Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees' table on page 53. Restructuring costs Legal proceedings and regulatory matters Customer remediation Other provisions Total The bank ��m ��m ��m ��m ��m Provisions (excluding contractual commitments) At 1 Jan 2022 12 155 13 27 207 Additions 36 51 1 32 120 Amounts utilised (14) (146) (3) (11) (174) Unused amounts reversed (17) (3) (3) (13) (36) Exchange and other movements - - - - - At 31 Dec 2022 17 57 8 35 117 Contractual commitments1 At 1 Jan 2022 43 Net change in expected credit loss provision and other movements 7 At 31 Dec 2022 50 Total Provisions At 31 Dec 2021 250 At 31 Dec 2022 167 Restructuring costs Legal proceedings and regulatory matters Customer remediation Other provisions Total The bank ��m ��m ��m ��m ��m Provisions (excluding contractual commitments) At 1 Jan 2021 39 198 17 52 306 Additions 54 23 7 30 114 Amounts utilised (54) (32) (8) (15) (109) Unused amounts reversed (26) (24) (4) (40) (94) Exchange and other movements (1) (10) 1 - (10) At 31 Dec 2021 12 155 13 27 207 Contractual commitments1 At 1 Jan 2021 107 Net change in expected credit loss provision and other movements (64) At 31 Dec 2021 43 Total Provisions At 31 Dec 2020 413 At 31 Dec 2021 250 1 The contractual commitments provision includes off-balance sheet loan commitments and guarantees, for which expected credit losses are provided under IFRS 9. Further analysis of the movement in the expected credit loss is disclosed within the 'Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including loan commitments and financial guarantees' table on page 53. Restructuring costs These provisions comprise the estimated cost of restructuring, including redundancy costs where an obligation exists. Additions made during the year relate to formal restructuring plans made within the group. Legal proceedings and regulatory matters Further details of legal proceedings and regulatory matters are set out in Note 32. Legal proceedings include civil court, arbitration or tribunal proceedings brought against HSBC companies (whether by way of claim or counterclaim), or civil disputes that may, if not settled, result in court, arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the actions of, regulatory or law enforcement agencies in connection with alleged wrongdoing. 26 Subordinated liabilities Subordinated liabilities The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m At amortised cost 14,528 12,488 14,252 12,218 - subordinated liabilities 13,828 11,788 14,252 12,218 - preferred securities 700 700 - - Designated at fair value (Note 23) 809 2,225 809 2,225 - subordinated liabilities 809 2,225 809 2,225 At 31 Dec 15,337 14,713 15,061 14,443 Subordinated liabilities rank behind senior obligations and consist of capital instruments and other instruments. Capital securities may be called and redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If not redeemed at the first call date, coupons payable may reset or become floating rate based on relevant market rates. On subordinated liabilities other than floating rate notes, interest is payable at fixed rates of up to 7.65%. The balance sheet amounts disclosed below are presented on an IFRS basis and do not reflect the amount that the instruments contribute to regulatory capital due to the inclusion of issuance costs, regulatory amortisation and regulatory eligibility limits. Subordinated liabilities of the group Carrying amount 2022 2021 ��m ��m Additional tier 1 instruments guaranteed by the bank ��700m 5.844% Non-cumulative Step-up Perpetual Preferred Securities1,5,6 569 700 Tier 2 instruments $750m 3.43% Subordinated Loan 2022 - 558 ��300m 6.5% Subordinated Notes 20233 134 300 ��1,500m Floating Rate Subordinated Loan 2023 - 1,260 ��1,500m Floating Rate Subordinated Loan 2032 1,326 - ��1,500m Floating Rate Subordinated Loan 2024 1,329 1,260 $300m 7.65% Subordinated Notes 20252 141 222 $750m HSBC Bank plc 4.19% Subordinated Loan 2027 593 604 ��300m Floating Rate Subordinated Loan 2027 - 252 ��200m Floating Rate Subordinated Loan 2028 200 200 ��300m Floating Rate Subordinated Loan 2028 266 252 ��260m Floating Rate Subordinated Loan 2029 230 218 ��350m 5.375% Callable Subordinated Step-up Notes 20303,4,6 60 398 $2,000m HSBC Bank plc 1.625% Subordinated Loan 2031 1,497 1,457 ��2,000m HSBC Bank plc 0.375% Subordinated Loan 2031 1,583 1,658 ��2,000m HSBC Bank plc 0.375% Subordinated Loan 2031 1,583 1,658 ��1,250m HSBC Bank plc 0.25% Subordinated Loan 2031 990 1,036 ��500m 5.375% Subordinated Notes 20333 152 665 ��225m 6.25% Subordinated Notes 20413 47 224 ��600m 4.75% Subordinated Notes 20463 191 595 $750m Undated Floating Rate Primary Capital Notes 624 554 $500m Undated Floating Rate Primary Capital Notes 415 369 $300m Undated Floating Rate Primary Capital Notes (Series 3) 249 222 $1,250m HSBC Bank plc floating Subordinated Loan 2028 1,035 - $1,100m HSBC Bank plc floating Subordinated Loan 2033 910 - ��400m HSBC Bank plc floating Subordinated Loan 2028 362 - ��400m HSBC Bank plc floating Subordinated Loan 2027 361 - ��500m HSBC Bank plc floating Subordinated Loan 2028 443 - Other Tier 2 instruments each less than ��100m 47 51 At 31 Dec 15,337 14,713 1 The value of the security partially decreased as a result of a fair value hedge gain. The instrument was held at amortised cost in 2021. Also, the interest rate payable after November 2031 is the sum of the compounded daily Sonia rate plus 2.0366%. 2 The bank tendered for this security in November 2022. The principal balance is $180m. The original notional value of the security is $300m. 3 The bank tendered for these securities in November 2022. The principal balance is ��135m, ��61m, ��157m, ��70m and ��237m respectively. The original notional values of these securities are ��300m, ��350m, ��500m, ��225m and ��600m respectively. 4 The interest rate payable after November 2025 is the sum of the compounded daily Sonia rate plus 1.6193%. 5 See paragraph below, 'Guaranteed by HSBC Bank plc'. 6 These securities are ineligible for inclusion in the capital base of the group. Guaranteed by HSBC Bank plc A capital security guaranteed by the bank was issued by a Jersey limited partnership. The proceeds of this was lent to the bank by the limited partnership in the form of a subordinated note. It qualified as additional tier 1 capital for the group (on a solo and consolidated basis) under CRR II until 31 December 2021 by virtue of the application of grandfathering provisions. Since 31 December 2021, this security has no longer qualified as regulatory capital for the group. This preferred security, together with the guarantee, is intended to provide investors with rights to income, capital distributions and distributions upon liquidation of the company that are equivalent to the rights that they would have had if they had purchased non-cumulative perpetual preference shares of the company. There are limitations on the payment of distributions if such payments are prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC's capital adequacy requirements, or if the bank has insufficient distributable reserves (as defined). The bank has individually covenanted that, if prevented under certain circumstances from paying distributions on the preferred security in full, it will not pay dividends or other distributions in respect of its ordinary shares, or repurchase or redeem its ordinary shares, until the distribution on the preferred security has been paid in full. If the preferred security guaranteed by the bank is outstanding in November 2048, or if the total capital ratio of the group (on a solo or consolidated basis) falls below the regulatory minimum required, or if the Directors expect it to do so in the near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of the bank, the holders' interests in the preferred security guaranteed by the bank will be exchanged for interests in preference shares issued by the bank that have economic terms which are in all material respects equivalent to the preferred security and its guarantee. Tier 2 securities Tier 2 capital securities are either perpetual or dated subordinated securities on which there is an obligation to pay coupons. These capital securities are included within the group's regulatory capital base as tier 2 capital under CRR II, either as fully eligible capital or by virtue of the application of grandfathering provisions. In accordance with CRR II, the capital contribution of all tier 2 securities is amortised for regulatory purposes in their final five years before maturity. 27 Maturity analysis of assets, liabilities and off-balance sheet commitments Contractual maturity of financial liabilities The balances in the table below do not agree directly with those in our consolidated balance sheet as the table incorporates, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for trading liabilities and derivatives not treated as hedging derivatives). Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Trading liabilities and derivatives not treated as hedging derivatives are included in the 'Due not more than 1 month' time bucket and not by contractual maturity. In addition, loans and other credit-related commitments, and financial guarantees are generally not recognised on our balance sheet. The undiscounted cash flows potentially payable under loan and other credit-related commitments and financial guarantees are classified on the basis of the earliest date they can be called. Cash flows payable under financial liabilities by remaining contractual maturities Due not more than 1 month Due over 1 month but not more than 3 months Due between 3 and 12 months Due between 1 and 5 years Due after 5 years Total The group ��m ��m ��m ��m ��m ��m Deposits by banks 16,178 36 2,479 1,994 256 20,943 Customer accounts 197,400 11,821 6,441 127 285 216,074 Repurchase agreements - non-trading 30,572 1,793 203 427 - 32,995 Trading liabilities 41,265 - - - - 41,265 Financial liabilities designated at fair value 9,558 1,950 4,887 7,200 6,857 30,452 Derivatives 218,015 88 391 1,382 437 220,313 Debt securities in issue 832 3,047 2,352 812 851 7,894 Subordinated liabilities 9 137 427 3,300 14,713 18,586 Other financial liabilities1 65,305 272 824 180 1,080 67,661 579,134 19,144 18,004 15,422 24,479 656,183 Loan and other credit-related commitments 127,913 - - - - 127,913 Financial guarantees2 5,327 - - - - 5,327 At 31 Dec 2022 712,374 19,144 18,004 15,422 24,479 789,423 Deposits by banks 16,783 1,555 1,106 12,277 401 32,122 Customer accounts 196,609 5,599 2,770 199 101 205,278 Repurchase agreements - non-trading 24,273 1,924 1,061 7 - 27,265 Trading liabilities 46,433 - - - - 46,433 Financial liabilities designated at fair value 9,358 2,790 4,310 8,269 11,873 36,600 Derivatives 139,040 46 104 406 581 140,177 Debt securities in issue 2,755 2,952 2,145 1,328 335 9,515 Subordinated liabilities 14 62 123 3,969 10,734 14,902 Other financial liabilities1 40,292 423 442 234 1,417 42,808 475,557 15,351 12,061 26,689 25,442 555,100 Loan and other credit-related commitments 119,476 - - - - 119,476 Financial guarantees2 11,054 - - - - 11,054 At 31 Dec 2021 606,087 15,351 12,061 26,689 25,442 685,630 Cash flows payable under financial liabilities by remaining contractual maturities (continued) Due not more than 1 month Due over 1 month but not more than 3 months Due between 3 and 12 months Due between 1 and 5 years Due after 5 years Total The bank ��m ��m ��m ��m ��m ��m Deposits by banks 13,327 6 214 53 - 13,600 Customer accounts 129,308 8,578 3,867 3 - 141,756 Repurchase agreements - non-trading 27,436 1,663 203 427 - 29,729 Trading liabilities 25,765 - - - - 25,765 Financial liabilities designated at fair value 9,446 646 4,303 3,820 3,967 22,182 Derivatives 192,521 88 365 1,372 434 194,780 Debt securities in issue - 2,878 1,525 83 314 4,800 Subordinated liabilities 9 137 417 3,283 14,874 18,720 Other financial liabilities 48,283 180 297 18 18 48,796 446,095 14,176 11,191 9,059 19,607 500,128 Loan and other credit-related commitments 36,474 - - - - 36,474 Financial guarantees2 1,363 - - - - 1,363 At 31 Dec 2022 483,932 14,176 11,191 9,059 19,607 537,965 Deposits by banks 18,053 4,781 1,516 1,453 - 25,803 Customer accounts 119,749 3,504 1,453 2 - 124,708 Repurchase agreements - non-trading 19,707 1,575 1,061 7 - 22,350 Trading liabilities 31,161 - - - - 31,161 Financial liabilities designated at fair value 9,241 1,597 3,723 2,360 7,055 23,976 Derivatives 127,352 46 104 379 574 128,455 Debt securities in issue 1,480 1,915 845 1,118 327 5,685 Subordinated liabilities 14 62 111 3,700 11,202 15,089 Other financial liabilities 29,248 320 148 28 22 29,766 356,005 13,800 8,961 9,047 19,180 406,993 Loan and other credit-related commitments 32,471 - - - - 32,471 Financial guarantees2 1,270 - - - - 1,270 At 31 Dec 2021 389,746 13,800 8,961 9,047 19,180 440,734 1 Excludes financial liabilities of disposal groups. 2 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied. Maturity analysis of financial assets and financial liabilities The following table provides an analysis of financial assets and liabilities by residual contractual maturity at the balance sheet date. These balances are included in the maturity analysis as follows: �� Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the 'Due after more than 1 year' time bucket. Undated or perpetual instruments are classified based on the contractual notice period, which the counterparty of the instrument is entitled to give. Where there is no contractual notice period, undated or perpetual contracts are included in the 'Due after more than 1 year' time bucket. �� Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the contractual maturity of the underlying instruments and not on the basis of the disposal transaction. �� Liabilities under investment contracts are classified in accordance with their contractual maturity. Undated investment contracts are included in the 'Due after more than 1 year' time bucket, however, such contracts are subject to surrender and transfer options by the policyholders. Maturity analysis of financial assets and financial liabilities 2022 2021 Due within 1 year Due after more than 1 year Total Due within 1 year Due after more than 1 year Total The group ��m ��m ��m ��m ��m ��m Assets Financial assets designated or otherwise mandatorily measured at fair value 1,391 14,490 15,881 3,225 15,424 18,649 Loans and advances to banks 15,867 1,242 17,109 8,841 1,943 10,784 Loans and advances to customers 38,405 34,209 72,614 40,837 50,340 91,177 Reverse repurchase agreement - non-trading 52,324 1,625 53,949 53,079 1,369 54,448 Financial investments 7,201 25,403 32,604 6,748 34,552 41,300 Other financial assets 55,369 428 55,797 38,851 203 39,054 Assets held for sale 4,174 17,040 21,214 9 - 9 At 31 Dec 174,731 94,437 269,168 151,590 103,831 255,421 Liabilities Deposits by banks 18,674 2,162 20,836 19,439 12,749 32,188 Customer accounts 215,562 386 215,948 204,973 268 205,241 Repurchase agreements - non-trading 32,486 415 32,901 27,252 7 27,259 Financial liabilities designated at fair value 16,281 11,006 27,287 16,329 17,279 33,608 Debt securities in issue 6,149 1,119 7,268 7,840 1,588 9,428 Other financial liabilities 65,108 1,248 66,356 41,131 1,754 42,885 Subordinated liabilities 142 14,386 14,528 8 12,480 12,488 Liabilities of disposal groups held for sale 21,621 3,090 24,711 - - - At 31 Dec 376,023 33,812 409,835 316,972 46,125 363,097 The bank Assets Financial assets designated or otherwise mandatorily measured at fair value 1,287 331 1,618 2,796 419 3,215 Loans and advances to banks 13,338 1,148 14,486 5,267 1,511 6,778 Loans and advances to customers 25,814 11,178 36,992 23,609 10,327 33,936 Reverse repurchase agreement - non-trading 41,430 1,625 43,055 38,759 949 39,708 Financial investments 3,415 15,224 18,639 4,580 21,962 26,542 Other financial assets 39,605 2 39,607 28,812 - 28,812 At 31 Dec 124,889 29,508 154,397 103,823 35,168 138,991 Liabilities Deposits by banks 13,543 51 13,594 14,655 - 14,655 Customer accounts 141,712 2 141,714 124,704 2 124,706 Repurchase agreements - non-trading 29,223 415 29,638 22,337 7 22,344 Financial liabilities designated at fair value 14,290 5,125 19,415 14,425 6,444 20,869 Debt securities in issue 4,341 315 4,656 4,240 1,418 5,658 Other financial liabilities 47,651 32 47,683 29,868 44 29,912 Subordinated liabilities 133 14,119 14,252 - 12,218 12,218 At 31 Dec 250,893 20,059 270,952 210,229 20,133 230,362 28 Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously ('the offset criteria'). In the following table, the 'Amounts not set off in the balance sheet' include transactions where: �� the counterparty has an offsetting exposure with the group and a master netting or similar arrangement is in place with a right of set off only in the event of default, insolvency or bankruptcy, or the offset criteria are not otherwise satisfied; and �� in the case of derivatives and reverse repurchase/repurchase, stock borrowing/lending and similar agreements, cash and non-cash collateral (debt securities and equities) has been received/pledged to cover net exposure in the event of a default or other predetermined events. The effect of over-collateralisation is excluded. 'Amounts not subject to enforceable master netting agreements' include contracts executed in jurisdictions where the rights of set off may not be upheld under the local bankruptcy laws, and transactions where a legal opinion evidencing enforceability of the right of offset may not have been sought, or may have been unable to obtain. For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the relevant customer agreements are subject to review and updated, as necessary, to ensure that the legal right of offset remains appropriate. Amounts subject to enforceable netting arrangements Amounts not subject to enforceable netting arrangements5 Total Amounts not set off in the balance sheet Gross amounts Amounts offset Net amounts in the balance sheet Financial instruments, including non-cash collateral6 Cash collateral Net amount ��m ��m ��m ��m ��m ��m ��m ��m Financial assets Derivatives (Note 14)1 303,911 (79,799) 224,112 (193,720) (29,998) 394 1,126 225,238 Reverse repos, stock borrowing and similar agreements classified as2: - trading assets 14,490 (196) 14,294 (14,293) - 1 63 14,357 - non-trading assets 103,839 (52,268) 51,571 (51,310) (260) 1 2,378 53,949 Loans and advances to customers3 17,979 (8,105) 9,874 (8,143) - 1,731 1 9,875 At 31 Dec 2022 440,219 (140,368) 299,851 (267,466) (30,258) 2,127 3,568 303,419 Derivatives (Note 14)1 160,801 (20,689) 140,112 (114,985) (24,277) 850 1,109 141,221 Reverse repos, stock borrowing and similar agreements classified as2: - trading assets 11,960 (156) 11,804 (11,804) - - 40 11,844 - non-trading assets 125,935 (72,788) 53,147 (53,044) (103) - 1,301 54,448 Loans and advances to customers3 14,741 (6,091) 8,650 (7,053) - 1,597 5 8,655 At 31 Dec 2021 313,437 (99,724) 213,713 (186,886) (24,380) 2,447 2,455 216,168 Financial liabilities Derivatives (Note 14)1 297,341 (79,799) 217,542 (197,201) (19,662) 679 1,325 218,867 Repos, stock lending and similar agreements classified as2: - trading liabilities 10,180 (196) 9,984 (9,983) - 1 2 9,986 - non-trading liabilities 85,168 (52,268) 32,900 (32,719) (182) (1) 1 32,901 Customer accounts4 24,082 (8,105) 15,977 (8,143) - 7,834 10 15,987 At 31 Dec 2022 416,771 (140,368) 276,403 (248,046) (19,844) 8,513 1,338 277,741 Derivatives (Note 14)1 159,169 (20,689) 138,480 (124,745) (13,273) 462 888 139,368 Repos, stock lending and similar agreements classified as2: - trading liabilities 9,444 (156) 9,288 (9,288) - - 13 9,301 - non-trading liabilities 100,031 (72,788) 27,243 (27,090) (153) - 16 27,259 Customer accounts4 21,846 (6,091) 15,755 (7,053) - 8,702 11 15,766 At 31 Dec 2021 290,490 (99,724) 190,766 (168,176) (13,426) 9,164 928 191,694 1 At 31 Dec 2022, the amount of cash margin received that had been offset against the gross derivatives assets was ��2,373m (2021: ��2,590m). The amount of cash margin paid that had been offset against the gross derivatives liabilities was ��7,279m (2021: ��6,180m). 2 For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within 'Trading assets' and 'Trading liabilities', see the 'Funding sources and uses' table on page 83. 3 At 31 Dec 2022, the total amount of 'Loans and advances to customers' recognised on the balance sheet was ��72,614m (2021: ��91,177m) of which ��9,874m (2021: ��8,650m) was subject to offsetting. 4 At 31 Dec 2022, the total amount of 'Customer accounts' recognised on the balance sheet was ��215,948m (2021: ��205,241m) of which ��15,977m (2021: ��15,755m) was subject to offsetting. 5 These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing enforceability of the right of offset. 6 The disclosure has been enhanced this year to support consistency across Group entities. All financial instruments (whether recognised on our balance sheet or as non-cash collateral received or pledged) are presented within 'financial instruments, including non-cash collateral' as balance sheet classification has no effect on the rights of set-off associated with financial instruments. Comparative data have been represented accordingly. 29 Called up share capital and other equity instruments Issued and fully paid HSBC Bank plc ��1.00 ordinary shares 2022 2021 Number ��m Number ��m At 1 Jan 796,969,111 797 796,969,111 797 At 31 Dec 796,969,112 797 796,969,111 797 HSBC Bank plc share premium 2022 2021 ��m ��m At 31 Dec 420 - Total called up share capital and share premium 2022 2021 ��m ��m At 31 Dec 1,217 797 HSBC Bank plc $0.01 non-cumulative third dollar preference shares 2022 2021 Number ��000 Number ��000 At 1 Jan and 31 Dec 35,000,000 172 35,000,000 172 The bank has no obligation to redeem the preference shares but may redeem them in part or in whole at any time, subject to prior notification to the Prudential Regulation Authority ('PRA'). Dividends on the preference shares in issue are paid annually at the sole and absolute discretion of the Board of Directors. The Board of Directors will not declare a dividend on the preference shares in issue if (i) payment of the dividend would cause a breach of the capital adequacy requirements of the bank (or its subsidiary undertakings) under applicable laws or regulations or (ii) the distributable profits of the bank are insufficient to enable the payment in full or in part (as applicable) of the dividends on the preference shares in issue. If either the solo or consolidated Common Equity Tier 1 Capital Ratio of the bank as of any date falls below 7.00% (a so-called 'right conversion event'), the rights attaching to the preference shares shall be altered irrevocably and permanently such that they have the same rights attaching to them as ordinary shares. Holders of the preference shares in issue will be able to attend any general meetings of shareholders of the bank and to vote on any resolution proposed to vary or abrogate any of the rights attaching to the preference shares or any resolution proposed to reduce the paid up capital of the preference shares. If the dividend payable on the preference shares in issue has not been paid in full for the most recent dividend period, if a rights conversion event has occured or if any resolution is proposed for the winding-up of the bank or the sale of its entire business then, in such circumstances, holders of preference shares will be entitled to vote on all matters put to general meetings. In the case of unpaid dividends, the holders of preference shares in issue will be entitled to attend and vote at any general meetings until such time as dividends on the preference shares for the most recent dividend period have been paid in full, or a sum set aside for such payment in full, in respect of one dividend period. All shares in issue are fully paid. Other equity instruments HSBC Bank plc additional tier 1 instruments 2022 2021 ��m ��m ��1,900m Undated Subordinated Resettable Additional Tier 1 instrument issued 2015 (Callable December 2020 onwards) 1,388 1,388 ��235m Undated Subordinated Resettable Additional Tier 1 instrument issued 2016 (Callable January 2022 onwards) 197 197 ��300m Undated Subordinated Resettable Additional Tier 1 instrument 2018 (Callable March 2023 onwards) 263 263 ��555m Undated Subordinated Resettable Additional Tier 1 instrument 2018 (Callable March 2023 onwards) 555 555 ��500m Undated Subordinated Resettable Additional Tier 1 instrument 2019 (Callable November 2024 onwards) 500 500 ��250m Undated Subordinated Resettable Additional Tier 1 instrument 2019 (Callable November 2024 onwards) 213 213 ��431m Undated Subordinated Resettable Additional Tier 1 instrument 2019 (Callable December 2024 onwards) 431 431 ��200m Undated Subordinated Resettable Additional Tier 1 instrument 2019 (Callable January 2025 onwards) 175 175 ��250m Undated Subordinated Resettable Additional Tier 1 instruments issued 2022 (Callable March 2027 onwards) 208 - At 31 Dec 3,930 3,722 These instruments are held by HSBC Holdings plc. The bank has issued capital instruments that are included in the group's capital base as fully CRR II compliant additional tier 1 capital. Interest on these instruments will be due and payable only at the sole discretion of the bank, and the bank has sole and absolute discretion at all times and for any reason to cancel (in whole or in part) any interest payment that would otherwise be payable on any date. There are limitations on the payment of principal, interest or other amounts if such payments are prohibited under UK banking regulations, or other requirements, if the bank has insufficient distributable items reserves or if the bank fails to satisfy the solvency condition as defined in the instruments terms. The instruments are undated and are repayable, at the option of the bank, in whole at the initial call date, or on any Interest Payment Date after the initial call date. In addition, the instruments are repayable at the option of the bank in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the Prudential Regulation Authority. These instruments rank pari passu with the bank's most senior class or classes of issued preference shares and therefore ahead of ordinary shares. These instruments will be written down in whole, together with any accrued but unpaid interest if either the group's solo or consolidated Common Equity Tier 1 Capital Ratio falls below 7.00%. 30 Contingent liabilities, contractual commitments, guarantees and contingent assets The group The bank 2022 2021 2022 2021 ��m ��m ��m ��m Guarantees and other contingent liabilities: - financial guarantees 5,327 11,054 1,363 1,270 - performance and other guarantees 17,136 15,833 6,886 7,334 - other contingent liabilities 353 367 342 364 At 31 Dec 22,816 27,254 8,591 8,968 Commitments:1 - documentary credits and short-term trade-related transactions 2,317 1,928 820 778 - forward asset purchases and forward deposits placed 33,684 30,005 3,317 1,138 - standby facilities, credit lines and other commitments to lend 91,912 87,543 32,337 30,555 At 31 Dec 127,913 119,476 36,474 32,471 1 Includes ��126,457m of commitments (2021: ��115,695m), to which the impairment requirements in IFRS 9 are applied where the group has become party to an irrevocable commitment. The above table discloses the nominal principal amounts, which represent the maximum amounts at risk should the contracts be fully drawn upon and clients default. As a significant portion of guarantees and commitments is expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity requirements. UK branches of HSBC overseas entities In December 2017, HM Revenue & Customs ('HMRC') challenged the VAT status of certain UK branches of HSBC overseas entities. HMRC has also issued notices of assessment covering the period from 1 October 2013 to 31 December 2017 totalling ��262m, with interest to be determined. No provision has been recognised in respect of these notices. In Q1 2019, HMRC reaffirmed its assessment that the UK branches are ineligible to be members of the UK VAT group and, consequently, HSBC paid HMRC the sum of ��262m and filed appeals. In February 2022, the Upper Tribunal issued a judgement addressing several preliminary legal issues, which was partially in favour of HMRC and partially in favour of HSBC. The case will now return to the First-tier Tax tribunal for full trial and we await confirmation of the trial window. Since January 2018, HSBC's returns have been prepared on the basis that the UK branches are not in the UK VAT group. In the event that HSBC's appeals are successful, HSBC will seek a refund of this VAT, of which ��174m is estimated to be attributable to HSBC Bank plc. Contingent liabilities arising from legal proceedings, regulatory and other matters against group companies are disclosed in Note 32. Financial Services Compensation Scheme The Financial Services Compensation Scheme ('FSCS') provides compensation, up to certain limits, to eligible customers of financial services firms that are unable, or likely to be unable, to pay claims against them. The FSCS may impose a further levy on the group to the extent the industry levies imposed to date are not sufficient to cover the compensation due to customers in any future possible collapse. The ultimate FSCS levy to the industry as a result of collapse cannot be estimated reliably. It is dependent on various uncertain factors including the potential recovery of assets by the FSCS, changes in the level of protected products (including deposits and investments) and the population of FSCS members at the time. In December 2022, the FCA announced that it expects to review various elements of the scheme to ensure consumers are appropriately and proportionately protected, with costs distributed across industry levy payers in a fair and sustainable way, with a view to deliver the majority of changes by the end of the 2023/24 financial year. Guarantees The group The bank 2022 2021 2022 2021 In favour of third parties By the group in favour of other HSBC Group entities In favour of third parties By the group in favour of other HSBC Group entities In favour of third parties By the bank in favour of other HSBC Group entities In favour of third parties By the bank in favour of other HSBC Group entities ��m ��m ��m ��m ��m ��m ��m ��m Financial guarantees1 4,158 1,169 10,635 419 1,105 258 824 446 Performance and other guarantees 15,475 1,661 14,433 1,400 5,516 1,370 6,119 1,215 Total 19,633 2,830 25,068 1,819 6,621 1,628 6,943 1,661 1 Financial guarantees contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor fails to make payment when due, in accordance with the original or modified terms of a debt instrument. The amounts in the above table are nominal principal amounts. 'Financial guarantees' to which the impairment requirements in IFRS 9 are applied have been presented separately from other guarantees to align with credit risk disclosures. The group provides guarantees and similar undertakings on behalf of both third-party customers and other entities within HSBC Group. These guarantees are generally provided in the normal course of the group's banking businesses. Guarantees with terms of more than one year are subject to the group's annual credit review process. 31 Finance lease receivables The group leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to recover the cost of assets less their residual value, and earn finance income. 2022 2021 Total future minimum payments Unearned finance income Present value Total future minimum payments Unearned finance income Present Value ��m ��m ��m ��m ��m ��m Lease receivables: No later than one year 211 (24) 187 409 (20) 389 One to two years 214 (26) 188 251 (19) 232 Two to three years 207 (21) 186 187 (17) 170 Three to four years 117 (16) 101 177 (13) 164 Four to five years 100 (13) 87 90 (9) 81 Later than one year and no later than five years 638 (76) 562 705 (58) 647 Later than five years 457 (50) 407 556 (33) 523 At 31 Dec 1,306 (150) 1,156 1,670 (111) 1,559 32 Legal proceedings and regulatory matters The group is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from the matters described below, the group considers that none of these matters are material. The recognition of provisions is determined in accordance with the accounting policies set out in Note 1. While the outcomes of legal proceedings and regulatory matters are inherently uncertain, management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at 31 December 2022 (see Note 25). Where an individual provision is material, the fact that a provision has been made is stated and quantified, except to the extent that doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or legal liability. It is not practicable to provide an aggregate estimate of potential liability for our legal proceedings and regulatory matters as a class of contingent liabilities. Bernard L. Madoff Investment Securities LLC Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US whose assets were invested with Bernard L. Madoff Investment Securities LLC ('Madoff Securities'). Based on information provided by Madoff Securities as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff. Based on information available to HSBC, the funds' actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as defendants in lawsuits arising out of Madoff Securities' fraud. US litigation: The Madoff Securities Trustee has brought lawsuits against various HSBC companies and others, seeking recovery of transfers from Madoff Securities to HSBC in an amount not specified, and these lawsuits remain pending in the US Bankruptcy Court for the Southern District of New York (the 'US Bankruptcy Court'). Certain Fairfield entities (together, 'Fairfield') (in liquidation since July 2009) have brought a lawsuit in the US against fund shareholders, including HSBC companies that acted as nominees for clients, seeking restitution of redemption payments. In August 2022, the US District Court for the Southern District of New York (the 'New York District Court') affirmed earlier decisions by the US Bankruptcy Court that dismissed the majority of the liquidators' claims (against most of the HSBC companies). In September 2022, the remaining defendants before the US Bankruptcy Court sought leave to appeal and the liquidators filed appeals to the US Court of Appeals for the Second Circuit, which are currently pending. Meanwhile, proceedings before the US Bankruptcy Court with respect to the remaining claims are ongoing. UK litigation: The Madoff Securities Trustee has filed a claim against various HSBC companies in the High Court of England and Wales, seeking recovery of transfers from Madoff Securities to HSBC. The claim has not yet been served and the amount claimed has not been specified. Cayman Islands litigation: In February 2013, Primeo Fund ('Primeo') (in liquidation since April 2009) brought an action against HSBC Securities Services Luxembourg ('HSSL') and Bank of Bermuda (Cayman) Limited (now known as HSBC Cayman Limited), alleging breach of contract and breach of fiduciary duty and claiming monetary damages. Following dismissal of Primeo's action by the lower and appellate courts in the Cayman Islands, in 2019, Primeo appealed to the UK Privy Council. During 2021, the UK Privy Council held two separate hearings in connection with Primeo's appeal. Judgment was given against HSBC in respect of the first hearing and judgment is pending in respect of the second hearing. Luxembourg litigation: In April 2009, Herald Fund SPC ('Herald') (in liquidation since July 2013) brought an action against HSSL before the Luxembourg District Court, seeking restitution of cash and securities that Herald purportedly lost because of Madoff Securities' fraud, or money damages. The Luxembourg District Court dismissed Herald's securities restitution claim, but reserved Herald's cash restitution and money damages claims. Herald has appealed this judgment to the Luxembourg Court of Appeal, where the matter is pending. In late 2018, Herald brought additional claims against HSSL and HSBC Bank plc before the Luxembourg District Court, seeking further restitution and damages. In October 2009, Alpha Prime Fund Limited ('Alpha Prime') brought an action against HSSL before the Luxembourg District Court, seeking the restitution of securities, or the cash equivalent, or money damages. In December 2018, Alpha Prime brought additional claims seeking damages against various HSBC companies. These matters are currently pending before the Luxembourg District Court. In December 2014, Senator Fund SPC ('Senator') brought an action against HSSL before the Luxembourg District Court, seeking restitution of securities, or the cash equivalent, or money damages. In April 2015, Senator commenced a separate action against the Luxembourg branch of HSBC Bank plc asserting identical claims. In December 2018, Senator brought additional claims against HSSL and HSBC Bank plc Luxembourg branch, seeking restitution of Senator's securities or money damages. These matters are currently pending before the Luxembourg District Court. There are many factors that may affect the range of possible outcomes, and any resulting financial impact, of the various Madoff-related proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the information currently available, management's estimate of the possible aggregate damages that might arise as a result of all claims in the various Madoff-related proceedings is around $600m, excluding costs and interest. Due to uncertainties and limitations of this estimate, any possible damages that might ultimately arise could differ significantly from this amount. Anti-money laundering and sanctions-related matters In December 2012, HSBC Holdings plc ('HSBC Holdings') entered into a number of agreements, including an undertaking with the UK Financial Services Authority (replaced with a Direction issued by the UK Financial Conduct Authority ('FCA') in 2013 and again in 2020) as well as a cease-and-desist order with the US Federal Reserve Board ('FRB'), both of which contained certain forward-looking anti-money laundering ('AML') and sanctions-related obligations. For several years thereafter, HSBC retained a Skilled Person under section 166 of the Financial Services and Markets Act and an Independent Consultant under the FRB cease-and-desist order to produce periodic assessments of the Group's AML and sanctions compliance programme. The Skilled Person completed its engagement in the second quarter of 2021, and the FCA determined that no further Skilled Person work is required. Separately, the Independent Consultant's engagement is now complete and, in August 2022, the FRB terminated its cease-and-desist order. Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on behalf of plaintiffs who are, or are related to, victims of terrorist attacks in the Middle East. In each case, it is alleged that the defendants aided and abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. Nine actions against HSBC Bank plc remain pending in federal courts and HSBC Bank plc's motions to dismiss have been granted in five of these cases. In September 2022 and January 2023, respectively, the appellate courts affirmed the dismissals of two of the cases, and the plaintiffs' requests for review of these decisions by the full appellate courts have been denied. The dismissals in the other cases are subject to appeal. The four remaining actions are at an early stage. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the timing or any possible impact on HSBC, which could be significant. London interbank offered rates, European interbank offered rates and other benchmark interest rate investigations and litigation Euro interest rate derivatives: In December 2016, the European Commission ('EC') issued a decision finding that HSBC, among other banks, engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives, and the EC imposed a fine on HSBC based on a one-month infringement in 2007. The fine was annulled in 2019 and a lower fine was imposed in 2021. In January 2023, the European Court of Justice dismissed an appeal by HSBC and upheld the EC's findings on HSBC's liability. A separate appeal by HSBC concerning the amount of the fine remains pending before the General Court of the European Union. US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US with respect to the setting of US dollar Libor. The complaints assert claims under various US federal and state laws, including antitrust and racketeering laws and the Commodity Exchange Act ('US CEA'). The lawsuits include individual and putative class actions, most of which have been transferred and/or consolidated for pre-trial purposes before the New York District Court. HSBC has reached class settlements with five groups of plaintiffs, and the court has approved these settlements. HSBC has also resolved several of the individual actions, although a number of other US dollar Libor-related actions remain pending. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the timing or any possible impact on HSBC, which could be significant. Foreign exchange-related investigations and litigation In June 2020, the Competition Commission of South Africa, having initially referred a complaint for proceedings before the South African Competition Tribunal in February 2017, filed a revised complaint against 28 financial institutions, including HSBC Bank plc, for alleged anti-competitive behaviour in the South African foreign exchange market. In December 2021, a hearing on HSBC Bank plc's application to dismiss the revised complaint took place before the South African Competition Tribunal, where a decision remains pending. Beginning in 2013, various HSBC companies and other banks have been named as defendants in a number of putative class actions filed in, or transferred to, the New York District Court arising from allegations that the defendants conspired to manipulate foreign exchange rates. HSBC has reached class settlements with two groups of plaintiffs, including direct and indirect purchasers of foreign exchange products, and the court has granted final approval of these settlements. In 2018, complaints alleging foreign exchange-related misconduct were filed in the New York District Court and the High Court of England and Wales against HSBC and other defendants by certain plaintiffs that opted out of the direct purchaser class action settlement in the US. In December 2022, HSBC reached a settlement-in-principle with the plaintiffs to resolve these matters. The settlement remains subject to the negotiation of definitive documentation. Additionally, in January 2023, HSBC reached a settlement-in-principle with plaintiffs in Israel to resolve a class action lawsuit filed in the local courts alleging foreign exchange-related misconduct. The settlement remains subject to the negotiation of definitive documentation and court approval. Lawsuits alleging foreign exchange-related misconduct remain pending against HSBC and other banks in courts in Brazil. It is possible that additional civil actions will be initiated against HSBC in relation to its historical foreign exchange activities. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant. Precious metals fix-related litigation Gold: Beginning in December 2015, numerous putative class actions were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs allege that, among other things, from January 2004 to March 2014, the defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. These actions are ongoing. Silver: Beginning in July 2014, numerous putative class actions were filed in federal district courts in New York, naming HSBC and other members of The London Silver Market Fixing Limited as defendants. The complaints, which were consolidated in the New York District Court, allege that, from January 2007 to December 2013, the defendants conspired to manipulate the price of silver and silver derivatives for their collective benefit in violation of US antitrust laws, the US CEA and New York state law. In February 2022, following the conclusion of pre-class certification discovery, the defendants filed a motion seeking to dismiss the plaintiffs' antitrust claims, which remains pending. In April 2016, two putative class actions were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and other financial institutions. The plaintiffs in both actions allege that, from January 1999 to August 2014, the defendants conspired to manipulate the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. These actions are ongoing. Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from January 2008 to November 2014, the defendants conspired to manipulate the price of platinum group metals and related financial products for their collective benefit in violation of US antitrust laws and the US CEA. In March 2020, the court granted the defendants' motion to dismiss the plaintiffs' third amended complaint but granted the plaintiffs leave to re-plead certain claims. The plaintiffs have filed an appeal. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or any possible impact on HSBC, which could be significant. Other regulatory investigations, reviews and litigation HSBC Bank plc and/or certain of its affiliates are subject to a number of other investigations and reviews by various regulators and competition and law enforcement authorities, as well as litigation, in connection with various matters relating to the firm's businesses and operations, including: �� an investigation by the US Commodity Futures Trading Commission ('CFTC') concerning compliance with records preservation requirements relating to the use of unapproved electronic messaging platforms for business communications. HSBC Bank plc has reached a settlement-in-principle with the CFTC's Division of Enforcement to resolve this investigation. The settlement is subject to the negotiation of definitive documentation and final approval by the CFTC; �� an investigation by the PRA in connection with depositor protection arrangements in the UK; �� an investigation by the FCA in connection with collections and recoveries operations in the UK; �� an investigation by the UK Competition and Markets Authority into potentially anti-competitive arrangements involving historical trading activities relating to certain UK-based fixed income products and related financial instruments; and �� two group actions pending in the US courts and a claim issued in the High Court of England and Wales in connection with HSBC Bank plc's role as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009. There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant. 33 Related party transactions The immediate and ultimate parent company of the group is HSBC Holdings plc, which is incorporated in England and Wales. Copies of the Group financial statements may be obtained from the below address. HSBC Holdings plc 8 Canada Square London E14 5HQ IAS 24 'Related party disclosures' defines related parties as including the parent, fellow subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC employees, Key Management Personnel ('KMP') of the group and its ultimate parent company, close family members of the KMP and entities which are controlled, jointly controlled or significantly influenced by the KMP or their close family members. Particulars of transactions between the group and the related parties are tabulated below. The disclosure of the year-end balance and the highest amounts outstanding during the year are considered to be the most meaningful information to represent the amount of the transactions and outstanding balances during the year. Key Management Personnel The KMP of the bank are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the bank. They include the Directors and certain senior executives of the bank, directors and certain members of the Group Executive Committee of HSBC Holdings plc, to the extent they have a role in directing the affairs of the bank. The emoluments of those KMP who are not Directors or senior executives of the bank are paid by other Group companies who make no recharge to the bank. Accordingly, no emoluments in respect of these KMP are included in the following disclosure. The tables below represent the compensation for KMP (directors and certain senior executives) of the bank in exchange for services rendered to the bank for the period they served during the year. Compensation of Key Management Personnel 2022 2021 2020 ��000 ��000 ��000 Short-term employee benefits1,2 13,487 13,678 3,865 Post-employment benefits 69 46 19 Other long-term employee benefits 1,152 1,378 429 Share-based payments 4,234 4,331 586 Year ended 31 Dec 18,942 19,433 4,899 1 Includes fees paid to non-executive Directors. 2 2022 includes payment of ��600,000 (2021: ��2,091,617) relating to compensation for loss of employment. Advances and credits, guarantees and deposit balances during the year with Key Management Personnel 2022 2021 Balance at 31 Dec Highest amounts outstanding during year2 Balance at 31 Dec Highest amounts outstanding during year ��m ��m ��m ��m Key Management Personnel1 Advances and credits - - 0.03 0.08 Deposits 21 32 11 18 1 Includes close family members and entities which are controlled or jointly controlled by KMP of the bank or their close family members. 2 Exchange rate applied for non-GBP amounts is the average for the year. The above transactions were made in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other unfavourable features. In addition to the requirements of IAS 24, particulars of advances (loans and quasi-loans), credits and guarantees entered into by the group with Directors of HSBC Bank plc are required to be disclosed pursuant to section 413 of the Companies Act 2006. Under the Companies Act, there is no requirement to disclose transactions with other KMP. During the course of 2022, there were no advances, credits and guarantees entered into by the group with Directors of HSBC Bank plc. Other related parties Transactions and balances during the year with KMP of the bank's ultimate parent company During the course of 2022, there were no transactions and balances between KMP of the bank's ultimate parent company, who were not considered KMP of the bank, in respect of advances and credits, guarantees and deposits. Transactions and balances during the year with associates and joint ventures During the course of 2022, there were no transactions and balances with associates and joint ventures, in respect of loans, deposits, guarantees and commitments. The group's transactions and balances during the year with HSBC Holdings plc and subsidiaries of HSBC Holdings plc 2022 2021 Due to/from HSBC Holdings plc Due to/from subsidiaries of HSBC Holdings plc Due to/from HSBC Holdings plc Due to/from subsidiaries of HSBC Holdings plc Highest balance during the year Balance at 31 Dec Highest balance during the year Balance at 31 Dec Highest balance during the year Balance at 31 Dec Highest balance during the year Balance at 31 Dec ��m ��m ��m ��m ��m ��m ��m ��m Assets Trading assets 62 17 7,074 848 108 19 4,702 1,360 Derivatives 7,196 5,714 39,341 27,473 2,002 787 25,566 21,862 Financial assets designated and otherwise mandatorily measured at fair value through profit or loss 6 5 28 25 7 6 29 27 Loans and advances to banks - - 6,237 5,585 - - 4,890 3,173 Loans and advances to customers 183 - 496 424 - - 490 329 Financial investments 154 136 - - 172 154 - - Reverse repurchase agreements - non-trading - - 6,150 4,341 - - 2,332 1,690 Prepayments,accrued income and other assets 1,263 21 11,591 8,389 1,540 1,262 9,853 4,784 Total related party assets at 31 Dec 8,864 5,893 70,917 47,085 3,829 2,228 47,862 33,225 Liabilities Trading liabilities 45 21 522 91 158 23 116 82 Financial liabilities designated at fair value 1,162 593 - - 1,181 1,162 1,201 - Deposits by banks - - 6,034 3,310 - - 6,659 2,261 Customer accounts 6,202 4,315 3,149 1,551 2,364 1,875 3,428 3,149 Derivatives 4,345 2,680 43,384 30,997 3,443 2,074 26,152 22,133 Subordinated liabilities 12,115 12,115 - - 9,485 9,251 10,421 - Repurchase agreements - non-trading - - 5,811 5,738 - - 6,162 1,841 Provisions, accruals, deferred income and other liabilities 3,357 3,161 10,816 4,864 189 179 8,057 3,826 Total related party liabilities at 31 Dec 27,226 22,885 69,716 46,551 16,820 14,564 62,196 33,292 Guarantees and commitments - - 4,762 3,383 - - 2,622 2,061 The group's transactions and balances during the year with HSBC Holdings plc and subsidiaries of HSBC Holdings plc (continued) Due to/from HSBC Holdings plc Due to/from subsidiaries of HSBC Holdings plc 2022 2021 2020 2022 2021 2020 ��m ��m ��m ��m ��m ��m Income statement Interest income 3 4 5 178 32 55 Interest expense1 307 50 (55) 162 58 256 Fee income 9 8 13 74 61 55 Fee expense - - - 382 357 389 Trading income - - - 53 2 2 Trading expense - - - 2 - 2 Other operating income 1 7 30 149 236 365 General and administrative expenses 65 143 126 2,387 2,110 2,077 1 2020 negative balance relates to net impact of fixed-for-floating-interest-rate swaps which the group has entered into to manage the movements in market interest rates on certain fixed rate financial liabilities. The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties. The bank's transactions and balances during the year with HSBC Bank plc subsidiaries, HSBC Holdings plc and subsidiaries of HSBC Holdings plc 2022 2021 Due to/from subsidiaries of HSBC Bank plc subsidiaries Due to/from HSBC Holdings plc Due to/from subsidiaries of HSBC Holdings plc Due to/from subsidiaries of HSBC Bank plc subsidiaries Due to/from HSBC Holdings plc Due to/from subsidiaries of HSBC Holdings plc Highest balance during the year Balance at 31 Dec Highest balance during the year Balance at 31 Dec Highest balance during the year Balance at 31 Dec Highest balance during the year Balance at 31 Dec Highest balance during the year Balance at 31 Dec Highest balance during the year Balance at 31 Dec ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m ��m Assets Trading assets 264 172 62 17 7,074 845 603 264 108 19 4,695 1,360 Derivatives 17,187 11,332 7,196 5,714 37,475 26,170 15,309 9,025 2,002 787 22,953 19,755 Loans and advances to banks 3,484 2,940 - - 5,197 3,892 3,172 2,259 - - 3,561 2,100 Loans and advances to customers 4,517 4,515 183 - 285 247 6,446 3,850 - - 416 242 Financial investments 4,521 4,183 - - - - 3,337 3,337 - - - - Reverse repurchase agreements - non-trading 4,683 2,332 - - 5,920 3,947 2,313 2,313 - - 2,058 1,428 Prepayments, accrued income and other assets 4,868 2,905 1,262 21 10,096 6,818 5,921 1,685 1,537 1,261 9,327 4,557 Investments in subsidiary undertakings 10,646 10,646 - - - - 6,479 6,479 - - - - Total related party assets at 31 Dec 50,170 39,025 8,703 5,752 66,047 41,919 43,580 29,212 3,647 2,067 43,010 29,442 Liabilities Trading liabilities 113 32 44 21 508 91 112 49 158 21 116 82 Financial liabilities designated at fair value - - 1,162 593 - - - - 1,181 1,162 1,201 - Deposits by banks 3,385 960 - - 3,601 1,979 1,808 1,229 - - 3,245 965 Customer accounts 1,095 514 6,202 4,315 3,048 1,426 1,287 696 2,364 1,875 3,321 3,013 Derivatives 13,479 13,361 4,345 2,680 40,460 29,001 17,378 10,190 3,443 2,074 23,787 20,182 Subordinated liabilities 700 700 11,884 11,884 - - 700 700 9,262 9,033 10,187 - Repurchase agreements - non-trading 1,279 429 - - 5,328 5,030 988 431 - - 5,670 1,645 Provisions, accruals, deferred income and other liabilities 7,596 1,015 3,349 3,167 9,511 4,437 6,166 1,127 174 166 6,423 3,302 Total related party liabilities at 31 Dec 27,647 17,011 26,986 22,660 62,456 41,964 28,439 14,422 16,582 14,331 53,950 29,189 Guarantees and commitments 4,469 2,655 - - 2,690 1,380 5,338 2,676 - - 1,686 1,130 The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with third-party counterparties. Post-employment benefit plans The HSBC Bank (UK) Pension Scheme (the 'Scheme') entered into swap transactions with the bank to manage the inflation and interest rate sensitivity of the liabilities. At 31 December 2022, the gross notional value of the swaps was ��5,449m (2021: ��5,490m), the swaps had a positive fair value of ��424m to the bank (2021: positive fair value of ��766m) and the bank had delivered collateral of ��425m (2021: ��775m) to the Scheme in respect of these swaps. All swaps were executed at prevailing market rates and within standard market bid/offer spreads. 34 Assets held for sale and liabilities of disposal groups held for sale Held for sale at 31 December 2022 2021 ��m ��m Disposal groups 23,179 3 Unallocated impairment losses1 (1,978) - Non-current assets held for sale 13 6 Total assets 21,214 9 Liabilities of disposal groups 24,711 0 1 This represents impairment losses in excess of the carrying value on the non-current assets, excluded from the measurement scope of IFRS 5. Disposal groups Planned sale of our retail banking operations in France On 25 November 2021, HSBC Continental Europe signed a framework agreement with Promontoria MMB SAS ('My Money Group') and its subsidiary Banque des Cara��bes SA, regarding the planned sale of HSBC Continental Europe's retail banking operations in France. The sale, which is subject to regulatory approvals and the satisfaction of other relevant conditions, includes: HSBC Continental Europe's French retail banking operations; the Cr��dit Commercial de France ('CCF') brand; and HSBC Continental Europe's 100% ownership interest in HSBC SFH (France) and its 3% ownership interest in Cr��dit Logement. The framework agreement has a long-stop date of 31 May 2024, if the sale has not closed by that point the agreement will terminate, although that date can be extended by either party to 30 November 2024 in certain circumstances or with the agreement of both parties. We have agreed a detailed plan with My Money Group with the aim of completing the sale in the second half of 2023, subject to regulatory approvals, agreement and implementation of necessary financing structures and the completion of the operational transfer, including customer and data migrations. In this regard the framework agreement imposes certain obligations on the parties in planning for completion. Given the scale and complexity of the business being sold, there is risk of delay in the implementation of this plan. The disposal group was classified as held for sale for the purposes of IFRS 5 as at 30 September 2022, reflecting the prevailing judgements concerning likelihood of the framework agreement's timetable being achieved. The assets and liabilities classified as held for sale were determined in accordance with the framework agreement, and are subject to change as the detailed transition plan is executed. This classification and consequential remeasurement resulted in an impairment loss of ��1.7bn, which included related transaction costs. At 31 December 2022, we reassessed the likelihood of completion taking account of the most recent correspondence with My Money Group concerning the implementation of the plan and related developments. As a result of this reassessment, the likelihood of completion in 2023 is judged to be highly probable. As such, and in accordance with IFRS 5, the disposal group continues to be classified as held for sale. The disposal group will be remeasured at the lower of the carrying amount and fair value less costs to sell at each reporting period. Any remaining gains or losses not previously recognised, including from the recycling of foreign currency translation reserves and the reversal of any remaining deferred tax assets and liabilities, will be recognised on completion. Planned sale of our branch operations in Greece On 24 May 2022, HSBC Continental Europe signed a sale and purchase agreement for the sale of its branch operations in Greece to Pancreta Bank SA. Completion of the transaction is subject to regulatory approval, and is currently expected to occur in the first half of 2023. At 31 December 2022, the disposal group included ��0.3bn of loans and advances to customers and ��1.9bn of customer accounts, which met the criteria to be classified as held for sale. In the second quarter of 2022, we recognised a loss of ��0.1bn upon reclassification as held for sale in accordance with IFRS 5. On completion accumulated foreign currency translation reserves will be recycled to the income statement. Planned sale of our business in Russia On 30 June 2022, following a strategic review of our business in Russia, HSBC Europe BV (a wholly-owned subsidiary of HSBC Bank plc) entered into an agreement for the planned sell of its wholly-owned subsidiary HSBC Bank (RR) (Limited Liability Company). Completion of the transaction is subject to regulatory and governmental approval, and is currently expected to occur in the first half of 2023. In 2022, a ��0.2bn loss on the planned sale was recognised, upon reclassification as held for sale in accordance with IFRS5. On completion accumulated foreign currency translation reserves will be recycled to the income statement. At 31 December 2022, the major classes of assets and associated liabilities of disposal groups held for sale, including allocated impairment losses, were as follows: France retail business Branch operations in Greece Business in Russia Total ��m ��m ��m ��m Assets of disposal groups held for sale Cash and balances at central banks 60 1,502 - 1,562 Financial assets designated and otherwise mandatorily measured at fair value through profit and loss 39 - - 39 Loans and advances to banks - 25 102 127 Loans and advances to customers 20,776 291 - 21,067 Reverse repurchase agreements - - 208 208 Financial investments - 66 22 88 Prepayments, accrued income and other assets 63 4 21 88 Total Assets at 31 Dec 2022 20,938 1,888 353 23,179 Liabilities of disposal groups held for sale Customer accounts 18,551 1,900 27 20,478 Financial liabilities designated at fair value 2,925 - - 2,925 Debt securities in issue 1,100 - - 1,100 Accruals, deferred income and other liabilities 138 52 18 208 Total Liabilities at 31 Dec 2022 22,714 1,952 45 24,711 Expected date of completion Second Half of 2023 First Half of 2023 First Half of 2023 Operating segment WPB All global businesses CMB, GBM France retail banking operations ��m Net assets/(liabilities) classified as held for sale1 (1,712) Expected cash contribution 2 3,398 Disposal group post-cash contribution 3 1,686 1 Excludes impairment loss allocated against the non-current assets that are in scope of IFRS 5 measurement of ��64m. 2 The contributions are reported within 'Cash and balances at central banks' on the group's consolidated balance sheet. 3 'Disposal group post-cash contribution' includes the net asset value of the transferring business of ��1.6bn (��1.5bn) and ��0.2bn of additional items to which a nil value is ascribed per the framework agreement. Under the financial terms of the planned transaction, HSBC Continental Europe will transfer the business with a net asset value of ��1.6bn (��1.5bn), subject to adjustment (upwards or downwards) in certain circumstances, for a consideration of ��1. Any required increase to the net asset value of the business to achieve the net asset value of ��1.6bn (��1.5bn) will be satisfied by the inclusion of additional cash. The value of cash contribution will be determined by the net asset or liability position of the disposal group at the point of completion. Based upon the net liabilities of the disposal group at 31 December 2022, HSBC would be expected to include a cash contribution of ��3.4bn as part of the planned transaction. 35 Events after the balance sheet date In its assessment of events after the balance sheet date, the group has considered and concluded that there are no events requiring adjustment or disclosures in the financial statements. 36 HSBC Bank plc's subsidiaries, joint ventures and associates In accordance with section 409 of the Companies Act 2006 a list of HSBC Bank plc subsidiaries, joint ventures and associates, their registered office address and the effective percentage of equity owned at 31 December 2022 is disclosed below. Unless otherwise stated, the share capital comprises ordinary or common shares which are held by HSBC Bank plc or its subsidiaries. The ownership percentage is provided for each undertaking. The undertakings below are consolidated by HSBC Bank plc unless otherwise indicated. HSBC Bank plc's registered office address is: HSBC Bank plc 8 Canada Square London E14 5HQ Subsidiaries The undertakings below are consolidated by the group. Subsidiaries % of share class held by immediate parent company (or by HSBC Bank plc where this varies) Footnotes Assetfinance December (H) Limited 100.00 9 Assetfinance December (P) Limited 100.00 2,9 Assetfinance December (R) Limited 100.00 9 Assetfinance June (A) Limited 100.00 9 Assetfinance Limited 100.00 9 Assetfinance March (B) Limited 100.00 10 Assetfinance March (F) Limited 100.00 9 Assetfinance September (F) Limited 100.00 9 Banco Nominees (Guernsey) Limited 100.00 11 Banco Nominees 2 (Guernsey) Limited 100.00 11 Beau Soleil Limited Partnership n/a 0,12 BentallGreenOak China Real Estate Investments, L.P. n/a 0,1,13 Canada Crescent Nominees (UK) Limited 100.00 2,9 CCF & Partners Asset Management Limited 100.00 (99.99) 9 CCF Holding (LIBAN) S.A.L. (In Liquidation) 74.99 16 Charterhouse Administrators (D.T.) Limited 100.00 (99.99) 9 Charterhouse Management Services Limited 100.00 (99.99) 9 Charterhouse Pensions Limited 100.00 2,9 COIF Nominees Limited n/a 0,2,9 Corsair IV Financial Services Capital Partners - B L.P n/a 0,1,18 Dem 9 100.00 (99.99) 3,19 Dempar 1 100.00 (99.99) 3,19 Eton Corporate Services Limited 100.00 11 Flandres Contentieux S.A. 100.00 (99.99) 19 Fonci��re Elys��es 100.00 (99.99) 19 Griffin International Limited 100.00 9 HLF 100.00 (99.99) 19 HSBC (BGF) Investments Limited 100.00 2,9 HSBC Asset Finance (UK) Limited 100.00 2,9 HSBC Asset Finance M.O.G. Holdings (UK) Limited 100.00 2,9 HSBC Assurances Vie (France) 100.00 (99.99) 24 HSBC Bank (General Partner) Limited 100.00 2,25 HSBC Bank (RR) (Limited Liability Company) n/a 0,6,26 HSBC Bank Armenia cjsc 100.00 27 HSBC Bank Capital Funding (Sterling 1) LP n/a 0,25 HSBC Bank Capital Funding (Sterling 2) LP n/a 0,25 HSBC Bank Malta p.l.c. 70.03 28 HSBC City Funding Holdings 100.00 9 HSBC Client Holdings Nominee (UK) Limited 100.00 2,9 HSBC Client Nominee (Jersey) Limited 100.00 2,29 HSBC Continental Europe 99.99 19 HSBC Corporate Trustee Company (UK) Limited 100.00 2,9 HSBC Custody Services (Guernsey) Limited 100.00 11 HSBC Epargne Entreprise (France) 100.00 (99.99) 24 HSBC Equity (UK) Limited 100.00 2,9 HSBC Europe B.V. 100.00 9 HSBC Factoring (France) 100.00 (99.99) 19 HSBC Global Asset Management (Deutschland) GmbH 100.00 30 HSBC Global Asset Management (France) 100.00 (99.99) 24 HSBC Global Asset Management (Malta) Limited 100.00 (70.03) 31 HSBC Global Asset Management (Switzerland) AG 100.00 (99.99) 3,32 HSBC Global Custody Nominee (UK) Limited 100.00 2,9 HSBC Global Custody Proprietary Nominee (UK) Limited 100.00 1,2,9 HSBC Global Shared Services (India) Private Limited (In Liquidation) 99.99 1,33 HSBC Infrastructure Limited 100.00 9 HSBC Insurance Services Holdings Limited 100.00 2,9 Subsidiaries % of share class held by immediate parent company (or by HSBC Bank plc where this varies) Footnotes HSBC Investment Bank Holdings Limited 100.00 2,9 HSBC Issuer Services Common Depositary Nominee (UK) Limited 100.00 2,9 HSBC Issuer Services Depositary Nominee (UK) Limited 100.00 2,9 HSBC Life (UK) Limited 100.00 2,9 HSBC Life Assurance (Malta) Limited 100.00 (70.03) 31 HSBC LU Nominees Limited 100.00 2,9 HSBC Marking Name Nominee (UK) Limited 100.00 2,9 HSBC Middle East Leasing Partnership n/a 0,34 HSBC Operational Services GmbH 100.00 (99.99) 30 HSBC Overseas Nominee (UK) Limited 100.00 2,9 HSBC PB Corporate Services 1 Limited 100.00 35 HSBC Pension Trust (Ireland) DAC 100.00 2,36 HSBC PI Holdings (Mauritius) Limited 100.00 37 HSBC Preferential LP (UK) 100.00 2,9 HSBC Private Banking Nominee 3 (Jersey) Limited 100.00 35 HSBC Private Equity Investments (UK) Limited 100.00 9 HSBC Private Markets Management SARL n/a 0,38 HSBC Property Funds (Holding) Limited 100.00 9 HSBC Real Estate Leasing (France) 100.00 (99.99) 19 HSBC REIM (France) 100.00 (99.99) 24 HSBC Securities (South Africa) (Pty) Limited 100.00 2,39 HSBC Securities Services (Guernsey) Limited 100.00 11 HSBC Securities Services (Ireland) DAC 100.00 36 HSBC Securities Services (Luxembourg) S.A. 100.00 2,40 HSBC Securities Services Holdings (Ireland) 100.00 36 HSBC Service Company Germany GmbH 100.00 (99.99) 1,30 HSBC Services (France) 100.00 (99.99) 19 HSBC SFH (France) 100.00 (99.99) 3,24 HSBC SFT (C.I.) Limited 100.00 2,11 HSBC Specialist Investments Limited 100.00 9 HSBC Titan GmbH & Co. KG 100.00 (99.99) 1,41 HSBC Transaction Services GmbH 100.00 (99.99) 5,30 HSBC Trinkaus & Burkhardt (International) S.A. 100.00 (99.99) 42 HSBC Trinkaus & Burkhardt Gesellschaft fur Bankbeteiligungen mbH 100.00 (99.99) 30 HSBC Trinkaus & Burkhardt GmbH 100.00 (99.99) 5,30 HSBC Trinkaus Europa Immobilien-Fonds Nr. 5 GmbH 100.00 (99.99) 30 HSBC Trinkaus Family Office GmbH 100.00 (99.99) 5,30 HSBC Trinkaus Real Estate GmbH 100.00 (99.99) 5,30 HSBC Trustee (C.I.) Limited 100.00 2,35 HSBC Trustee (Guernsey) Limited 100.00 2,11 HSIL Investments Limited 100.00 9 INKA Internationale Kapitalanlagegesellschaft mbH 100.00 (99.99) 30 James Capel (Nominees) Limited 100.00 2,9 James Capel (Taiwan) Nominees Limited 100.00 2,9 Keyser Ullmann Limited 100.00 (99.99) 9 Midcorp Limited 100.00 2,9 Prudential Client HSBC GIS Nominee (UK) Limited 100.00 2,9 Republic Nominees Limited 100.00 2,11 RLUKREF Nominees (UK) One Limited 100.00 1,2,9 RLUKREF Nominees (UK) Two Limited 100.00 1,2,9 S.A.P.C. - Ufipro Recouvrement 99.99 19 Saf Baiyun 100.00 (99.99) 3,19 Saf Guangzhou 100.00 (99.99) 3,19 SCI HSBC Assurances Immo 100.00 (99.99) 24 SFM 100.00 (99.99) 19 SFSS Nominees (Pty) Limited 100.00 39 SNC Les Oliviers D'Antibes 60.00 (59.99) 4,24 SNCB/M6 - 2008 A 100.00 (99.99) 19 SNCB/M6-2007 A 100.00 (99.99) 3,19 SNCB/M6-2007 B 100.00 (99.99) 3,19 Soci��t�� Fran��aise et Suisse 100.00 (99.99) 19 Somers Dublin DAC 100.00 (99.99) 36 Sopingest 100.00 (99.99) 19 South Yorkshire Light Rail Limited 100.00 9 Swan National Limited 100.00 9 The Venture Catalysts Limited 100.00 2,9 Trinkaus Australien Immobilien Fonds Nr. 1 Brisbane GmbH & Co. KG 100.00 (99.99) 30 Trinkaus Australien Immobilien-Fonds Nr. 1 Treuhand-GmbH 100.00 (99.99) 5,30 Trinkaus Europa Immobilien-Fonds Nr.3 Objekt Utrecht Verwaltungs-GmbH 100.00 (99.99) 30 Trinkaus Immobilien-Fonds Geschaeftsfuehrungs-GmbH 100.00 (99.99) 5,30 Trinkaus Immobilien-Fonds Verwaltungs-GmbH 100.00 (99.99) 5,30 Trinkaus Private Equity Management GmbH 100.00 (99.99) 30 Trinkaus Private Equity Verwaltungs GmbH 100.00 (99.99) 5,30 Valeurs Mobili��res Elys��es 100.00 (99.99) 19 Joint ventures The undertakings below are joint ventures and equity accounted. Joint Ventures % of share class held by immediate parent company (or by HSBC Bank plc where this varies) Footnotes HCM Holdings Limited (In Liquidation) 50.99 23 The London Silver Market Fixing Limited n/a 0,1,2,48 Associates The undertakings below are associates and equity accounted. Associates % of share class held by immediate parent company (or by HSBC Bank plc where this varies) Footnotes BGF Group plc 24.62 14 Bud Financial Limited 5.36 1,15 Contour Pte Ltd 12.65 1,17 Divido Financial Services Limited 5.56 1,20 Episode Six Limited 7.02 1,21 Euro Secured Notes Issuer 16.67 22 LiquidityMatch LLC n/a 0,1,43 London Precious Metals Clearing Limited 30.00 1,2,44 Monese Ltd 5.39 1,45 Quantexa Ltd 10.10 46 Services Epargne Enterprise 14.18 47 Threadneedle Software Holdings Limited 6.56 1,49 Trade Information Network Limited 16.67 1,50 Trinkaus Europa Immobilien-Fonds Nr. 7 Frankfurt Mertonviertel KG n/a 0,30 Vizolution Limited 17.95 1,7 We Trade Innovation Designated Activity Company (In Liquidation) 9.88 1,8 Footnotes 0 Where an entity is governed by voting rights, HSBC consolidates when it holds - directly or indirectly - the necessary voting rights to pass resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other factors, including having exposure to variability of returns, power to direct relevant activities, and whether power is held as an agent or principal. HSBC's consolidation policy is described in Note 1.2(a). 1 Management has determined that these undertakings are excluded from consolidation in the Group accounts as these entities do not meet the definition of subsidiaries in accordance with IFRSs. HSBC's consolidation policy is described in Note 1.2(a). 2 Directly held by HSBC Bank plc Description of shares 3 Actions 4 Parts 5 GmbH Anteil 6 Russian Limited Liability Company Shares Registered offices 7 Office Block A, Bay Studios Business Park, Fabian Way, Swansea, Wales, United Kingdom, SA1 8QB 8 10 Earlsfort Terrace, Dublin, Ireland, D02 T380 9 8 Canada Square, London, United Kingdom, E14 5HQ 10 5 Donegal Square South, Northern Ireland, Belfast, United Kingdom, BT1 5JP 11 Arnold House, St Julians Avenue, St Peter Port, Guernsey, GY1 3NF 12 HSBC Main Building, 1 Queen's Road Central, Hong Kong 13 Oak House Hirzel Street, St Peter Port, Guernsey, GY1 2NP 14 13-15 York Buildings, London, United Kingdom, WC2N 6JU 15 Linen Court Floor 3, 10 East Road, London, United Kingdom, N1 6AD 16 Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, P.O. Box 17 5476 Mar Michael, Beyrouth, Lebanon, 11042040 17 50 Raffles Place, #32-01 Singapore Land Tower, Singapore, 048623 18 c/o Walkers Corporate Services Limited Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands, KY1-9005 19 38 avenue Kl��ber, Paris, France, 75116 20 Office 7, 35-37 Ludgate Hill, London, United Kingdom, EC4M 7JN 21 9/F Amtel Bldg, 148 des Voeux Rd Central, Central, Hong Kong 22 3 avenue de l'Opera, Paris, France, 75001 23 c/o Teneo Financial Advisory Limited, 156 Great Charles Street, Queensway, Birmingham, West Midlands, United Kingdom, B3 3HN 24 Immeuble C��ur D��fense, 110 esplanade du G��n��ral de Gaulle, Courbevoie, France, 92400 25 HSBC House Esplanade, St. Helier, Jersey, JE4 8UB 26 2 Paveletskaya Square Building 2, Moscow, Russian Federation, 115054 27 66 Teryan Street, Yerevan, Armenia, 0009 28 116 Archbishop Street, Valletta, Malta 29 HSBC House Esplanade, St. Helier, Jersey, JE1 1HS 30 Hansaallee 3, D��sseldorf, Germany, 40549 31 80 Mill Street, Qormi, Malta, QRM 3101 32 26 Gartenstrasse, Zurich, Switzerland, 8002 33 52/60, M G Road Fort, Mumbai, India, 400 001 34 Unit 401 Level 4, Gate District Precinct Building 2, Dubai International Financial Centre, Dubai, United Arab Emirates, 506553 35 HSBC House Esplanade, St. Helier, Jersey, JE1 1GT Registered offices (continued) 36 1 Grand Canal Square, Grand Canal Harbour, Dublin 2, Ireland, D02 P820 37 6th Floor HSBC Centre 18, Cybercity, Ebene, Mauritius, 72201 38 5 rue Heienhaff, Senningerberg, Luxembourg, 1736 39 1 Mutual Place, 107 Rivonia Road, Sandton, Gauteng, South Africa, 2196 40 18 Boulevard de Kockelscheuer, Luxembourg, Luxembourg, L-1821 41 3 Hansaallee, D��sseldorf, Nordrhein-Westfalen, Germany, 40549 42 16 Boulevard d'Avranches, Luxembourg, Luxembourg, L-1160 43 100 Town Square Place, Suite 201 | Jersey City, NJ, United States Of America, 07310 44 7th Floor 62 Threadneedle Street, London, United Kingdom, EC2R 8HP 45 Eagle House, 163 City Road, London, United Kingdom, EC1V 1NR 46 Hill House, 1 Little New Street, London, United Kingdom, EC4A 3TR 47 32 rue du Champ de Tir, Nantes, France, 44300 48 c/o Hackwood Secretaries Limited, One Silk Street, London, United Kingdom, EC2Y 8HQ 49 2nd Floor Regis House, 45 King William Street, London, United Kingdom, EC4R 9AN 50 3 More London Riverside, London, United Kingdom, SE1 2AQ This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com. RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy. END ACSFFLFLXLLLBBF

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