Regulatory Risk
The three key regulatory risks to a business and the measures Compliance
Department should have in place to mitigate them
HSBC Technology and Services
HSBC TECHNOLOGY AND SERVICES
CONTENTS
Introduction
Regulatory Risk
Consequences of Non-adherence
Key Risks : Reputational Risk, Financial Risk &
Litigation Risk
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Other Risks : Money Laundering Risk
Measures to Manage Regulatory Risks
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HSBC TECHNOLOGY AND SERVICES
Introduction
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HSBC TECHNOLOGY AND SERVICES
Regulatory Risk
A Regulatory risk is the risk to the legal position, earnings, capital and reputation
associated with failure to comply with regulatory requirements and expectations set by the
operating BA Regulatory Authority.
Examples of Regulatory Authorities in GSCC ;
The three key regulatory risks for a business or an outsourcing company would be
Reputational Risk, Financial Risk & Litigation Risk.
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HSBC TECHNOLOGY AND SERVICES
Key Regulatory Risks
Reputational Risk
Reputation risk and can be defined as an Organizations potential loss of
revenue or market value due to the negative opinion or stakeholders and
the public.
Non adherence to Regulations would increase the reputational risks in the
business as mentioned below;
Regulatory authorities penalizing the organization could create a negative
impression on the organization among the public, regulators and the
stakeholders.
Repeat findings by the regulatory authorities could create a negative
image of the management, therefore it would dissuade corporate clients
and potential stakeholders to have or bring business to the organization.
Damaged reputation among regulators would put the company in a
position of undue scrutiny.
Since HSBC is a financial organization the reputational risk, would also
lead way to financial loss as well as possible litigation by the regulatory
authorities
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HSBC TECHNOLOGY AND SERVICES
Financial Risk
Financial risk is risk associated with the possibility of incurring a Financial loss due to the
non-adherence of regulations.
Non adherence to Regulations would increase the Financial risks in the business as
mentioned below;
Regulatory authorities penalizing the organization could demand increased capital due to
the increase in the overall business regulatory risks.
Financial losses incurred during a penalty or fine by the regulators.
Reputational loss due to non adherence could lead to financial losses.
During the correctional period of a regulatory breach, the Management time and
resources spent implementing regulator's requirements could lead to Financial losses.
If an organization regulatory breach is public and or if the breach leads to a litigation,
significant losses via shares could be experienced
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HSBC TECHNOLOGY AND SERVICES
Litigation Risk
A litigation is a contest authorized by law, in a court of justice, for
the purpose of enforcing a right. A litigation risk is associated with
regulatory breaches pertaining the right (s) of a party dealing with
the organization.
Non adherence to Regulations would increase potential Litigation
risks in the business as mentioned below;
A breach ( or non-adherence) of a right specified to a customer,
client or corporate entity, could lead to litigation where the
organization ( or staff involved) would be penalized in a court of
justice.
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HSBC TECHNOLOGY AND SERVICES
Other Regulatory Risks
Money Laundering Risk
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HSBC TECHNOLOGY AND SERVICES
Consequences of Non-adherence to regulations
Business Level
Increased capital requirements
Warning Letters
Civil Penalties
Criminal Penalties
License suspension
Operating License revocation.
Operation Level
Possible fines or even prosecution
Damaged reputation, lower new business
Damaged relationship with the regulator
Management time and resources spent implementing regulator's
requirements
Intervention by regulator in the business
Many possible (negative) impacts, on operations, depending on
regulators instructions
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HSBC TECHNOLOGY AND SERVICES
Measures to Manage Regulatory Risks
• All processing staff who have direct contact with customers (either telephone or written) must be
aware of DSARs / Requests for Personal Information .
• Staff must, on first instance, be able to understand the nature of request and escalate immediately
as appropriate.
• If a verbal request is received, the customer needs to be asked to put this in writing or guided to
complete the DSAR / Requests for Personal Information request form available via the intranet.
[Link]
7C79/$file/[Link]
• It is mandatory that all AMOs and above, be aware of this right and notice of a DSAR be escalated
to the LCO immediately.
• Where information is held on a system at a GSC site that is not accessible by the BP, staff must be
aware that they must search these systems when a request for information is made by the customer to
ensure all details are provided.
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