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Banks have lost right to self-rule, says HSBC chief

Demands for more capital may mean ring-fencing is not needed, MPs told

HSBC's chairman Douglas Flint told MPs that banks had "lost the right to self-determination" on the day his bank more than doubled to $1.5bn (£935m) the amount set aside to cover penalties from US regulators for breaking anti-money-laundering laws.

The bank also warned that the final amount could be "significantly higher", and said it is likely to face "corporate criminal charges".

Appearing before the Parliamentary Commission on Banking Standards, Mr Flint said demands for banks to hold more capital and tougher regulation could make forcing them to ring-fence retail operations from risky investment banking "not necessary".

But he added: "Without it [ring-fencing], you would leave it to the banks to determine what is the best structure for their operations, and we have lost the right to self-determination. We have lost the right to determine what the optimal choice is."

Mr Flint also said a decision on whether to move out of London would not now likely be taken until 2015, when the regulatory picture will be clearer. "London is the best place for an international bank to be headquartered today," he said, but he would not be drawn on the future.

He was appearing alongside Barclays chief executive Antony Jenkins and Ana Botin, the boss of Banco Santander's UK arm. Weak controls in HSBC's far flung operations led to the money-laundering scandal, which has shattered its reputation for probity. Mr Flint said some people had "left the bank" because they had not embraced "cultural values", and the events of the last five years would change the industry for the next 40 years.

But those events continue to weigh upon the bank today. On the prospect of settling the money-laundering case, HSBC chief executive Stuart Gulliver said: "This is a live process and we are in the hands of the US authorities.

"The timetable is set by the US regulators, and any further comments we make could well prejudice our position. Today's increased provision is based upon the discussions we have had with them since the half-year end."

The bank also raised the amount is has set aside for mis-selling payment protection insurance (PPI) by £220m, taking its total to £1.2bn and the total by all British banks to more than £13bn.

In July, HSBC was heavily criticised by the US Senate committee on homeland security, which found the bank had been "pervasively polluted for a long time".

Mr Gulliver admitted that report had caused reputational damage, and harmed HSBC's brand. But he said it was impossible to quantify the cost in terms of lost business. He also said the bank was still being investigated in several jurisdictions over Libor rigging, and could face further costs over interest rate swaps it mis-sold to small businesses in Britain.

The costs of strengthening regulation in the US has come to an extra $200m a year.

Aside from this, HSBC had a strong third quarter. Reported pre-tax profits halved to $3.5bn after one-off accounting changes, but underlying earnings, which strip out one-offs, more than doubled to $5bn. This was a shade below City forecasts, however.

Mr Gulliver's scheme to simplify the bank's structure has seen it sell off 42 non-core business since he became chief executive at the start of 2011, and cost cuts now amount to $3.1bn a year.