SFC's Statement on HSBC's Cancellation & Suspension of Dividends

As we know, HSBC Holdings plc made an announcement made on 31 March 2020 relating to the cancellation of its fourth interim dividend for 2019 (Cancellation) and the suspension of payment of any further dividend until the end of 2020 (Suspension).

SFC said it has received a large number of enquiries and complaints from the investing public and professional bodies in Hong Kong in relation to the Cancellation and the Suspension.

SFC does not usually comment on individual cases. However, in light of the significant public interest in this matter, SFC issued a statement on 15 May 2020 to inform the public about the actions that SFC has taken, including its communications with the Bank of England’s Prudential Regulation Authority (PRA) and HSBC.

Matters relating to the banking and prudential supervision of HSBC lie outside the SFC's regulatory ambit. SFC communicated with HSBC and PRA to establish the circumstances leading up to the Cancellation and the Suspension. SFC also conveyed to them the views of Hong Kong investing public, including:

• the overall impact on Hong Kong retail shareholders;
• reliance of many Hong Kong retail shareholders on dividend distributions by HSBC as a form of regular income; and
• that the Cancellation was made after the ex-dividend date in relation to the fourth interim dividend.

SFC understands that PRA's request for the Cancellation and the Suspension, and HSBC's agreement to such request, was made after carefully considering and balancing various factors, including the following:

• In line with regulators internationally, PRA has been monitoring the impact of COVID-19 on PRA-regulated firms and their groups and has put in place various measures to advance its general objective during this difficult time.
• As at 31 March 2020, there was a high level of uncertainty as to the duration and impact of the economic implications of COVID-19 on a global basis. PRA noted that there was a real risk of a very rapid reduction in economic activity globally in response to restrictions imposed by a number of governments and a particular need for additional lending to help real economies bridge the gap to the eventual removal of those restrictions.
• PRA considered the need for early action to preserve the capital position of firms in the face of continuing economic uncertainty. Further, PRA has the necessary statutory power to require HSBC to take capital preservation actions and it was clear that PRA stood ready to exercise such powers should HSBC not agree to take the requested action.
• The interests of HSBC's shareholders around the world balanced against the urgent need for capital preservation to finance the global economy during, and following, the COVID-19 pandemic. In particular, the PRA noted that a cessation of dividends to ensure adequate capital to support lending, in the case of HSBC, was likely to benefit the Hong Kong economy as well as the UK and the global economy.
• The announcement made by the European Central Bank on 27 March 2020 recommending banks not to pay dividends or engage in share buy-backs.

Further, according to the board of HSBC, HSBC's long-term interests were best served by acceding to PRA's requests, instead of requiring PRA to exercise its statutory power.

SFC also notes that HSBC received the PRA's direct request for the Cancellation at around 5:03p.m. (London time) on 31 March 2020 and HSBC published its announcement on the Cancellation prior to trading in Hong Kong on 1 April 2020.

SFC has conducted a careful examination of all information available to it to date (including, but not limited to, the matters mentioned above), and assessed it against the threshold criteria for investigating matters under the SFO such as insider dealing, failure to disclose inside information, disclosure of false or misleading information and unfair prejudice to shareholders, and has concluded that there is at present no ground on which regulatory action should be pursued under the SFO in respect of the Cancellation and the Suspension.

SFC's lengthy statement may reveal that it has been under a high political pressure to pursue this matter. Hong Kong, as of today, is still an international financial centre. SFC respects PRA's request and defends HSBC's action.