Litigation and Regulatory Matters

The following supplements, and should be read together with, the disclosure in Note 27, "Litigation and Regulatory Matters," in our 2016 Form 10-K. Only those matters with significant updates and new matters since our disclosure in our 2016 Form 10-K are reported herein.

In addition to the matters described below and in our 2016 Form 10-K, in the ordinary course of business, we are routinely named as defendants in, or as parties to, various legal actions and proceedings relating to activities of our current and/or former operations. These legal actions and proceedings may include claims for substantial or indeterminate compensatory or punitive damages, or for injunctive relief. In the ordinary course of business, we also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In connection with formal and informal inquiries by these regulators, we receive numerous requests, subpoenas and orders seeking documents, testimony and other information in connection with various aspects of our regulated activities.

In view of the inherent unpredictability of legal matters, including litigation, governmental and regulatory matters, particularly where the damages sought are substantial or indeterminate or when the proceedings or investigations are in the early stages, we cannot determine with any degree of certainty the timing or ultimate resolution of such matters or the eventual loss, fines, penalties or business impact, if any, that may result. We establish reserves for litigation, governmental and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. Once established, reserves are adjusted from time to time, as appropriate, in light of additional information. The actual costs of resolving litigation and regulatory matters, however, may be substantially higher than the amounts reserved for those matters.

For the legal matters disclosed below, including litigation and governmental and regulatory matters, as well as for the legal matters disclosed in Note 27, "Litigation and Regulatory Matters," in our 2016 Form 10-K as to which a loss in excess of accrued liability is reasonably possible in future periods and for which there is sufficient currently available information on the basis of which management believes it can make a reliable estimate, we believe a reasonable estimate could be as much as $340 million for HUSI. The legal matters underlying this estimate of possible loss will change from time to time and actual results may differ significantly from this current estimate.

Based on the facts currently known, in respect of each of the below investigations as well as for the investigations disclosed in Note 27, "Litigation and Regulatory Matters," in our 2016 Form 10-K, it is not practicable at this time for us to determine the terms on which these ongoing investigations will be resolved or the timing of such resolution. As matters progress, it is possible that any fines and/or penalties could be significant.

Given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could have a material adverse effect on our consolidated financial statements in any particular quarterly or annual period.

Credit Card Litigation The U.S. Supreme Court denied the petition for writ of certiorari in March 2017.

Salveson v. JPMorgan Chase et al. (N.D.Cal. No. 13-CV-5816) Plaintiff filed a petition for writ of certiorari with the U.S. Supreme Court in March 2017.

Foreign Exchange ("FX") Matters

U.S. Litigation In March 2017, the court dismissed the retail customers' complaint in response to defendants' joint motion to dismiss and the "indirect" FX purchasers filed an amended complaint in response.

Precious Metals Fix Matters

Platinum and Palladium Fix Litigation Defendants' motion to dismiss the second amended consolidated complaint was granted in part and denied in part in March 2017.

Madoff Litigation

In December 2008, Bernard L. Madoff ("Madoff") was arrested and ultimately pleaded guilty to running a Ponzi scheme and a trustee was appointed for the liquidation of his firm, Bernard L. Madoff Investment Securities LLC ("Madoff Securities"), an SEC-registered broker-dealer and investment adviser. Various non-U.S. HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the United States whose assets were invested with Madoff Securities. Plaintiffs (including funds, funds investors and the Madoff Securities trustee, as described below) have commenced Madoff-related proceedings against numerous defendants arising out of Madoff Securities' fraud.

In April 2017, the parties submitted a certification to the U.S. Court of Appeals for the Second Circuit to review the U.S. Bankruptcy Court's decision in Picard v. HSBC et al (Bankr S.D.N.Y. No. 09-01364), granting the motion to dismiss the trustee's claims against a number of defendants, including a number of foreign affiliates of HSBC Bank USA.

In March 2017, the court granted the HSBC defendants' motion to dismiss in Hau Yin To v. HSBC Bank plc, et al. (15-cv-3590). Plaintiffs appealed the decision.

There are many factors that may affect the range of possible outcomes, and the resulting financial impact, of the various Madoff-related proceedings including, but not limited to, the circumstances of the fraud, the multiple jurisdictions in which proceedings have been brought and the number of different plaintiffs and defendants in such proceedings. The timing and resolution of these matters remains uncertain. It is possible that any liabilities that may arise as a result could be significant. In any event, we consider that we have good defenses to these claims and will continue to defend them vigorously.

Supranational, Sovereign and Agency ("SSA") Bonds

In April 2017, HSBC Holdings, HSBC Bank plc, HSI and HSBC Bank USA, among other banks, were named as defendants in a putative class action complaint alleging a conspiracy to manipulate the market for U.S. dollar-denominated SSA bonds between 2005 to the present in violation of the federal antitrust laws. This action is at an early stage.

Benchmark Rate Litigation

Defendants filed a motion to dismiss in Frontpoint Asian Event Driven Fund, L.P., et al. v Citibank, N.A., et al. (Case No. 15-cv-05263), relating to alleged collusion by defendant banks to rig the Singapore Interbank Offering Rate and the Singapore Swap Offer Rate.

Mortgage Securitization Matters

In addition to the repurchase risk described in Note 16, "Guarantee Arrangements, Pledged Assets and Repurchase Agreements," HSBC Bank USA has also been involved as a sponsor/seller of loans used to facilitate whole loan securitizations underwritten by HSI. During 2005-2007, HSBC Bank USA purchased and sold $24 billion of whole loans to HSI which were subsequently securitized and sold by HSI to third parties. The outstanding principal balance on these loans was approximately $4.5 billion and $4.6 billion at March 31, 2017 and December 31, 2016, respectively.

Participants in the U.S. mortgage securitization market that purchased and repackaged whole loans have been the subject of lawsuits and governmental and regulatory investigations and inquiries, which have been directed at groups within the U.S. mortgage market, such as servicers, originators, underwriters, trustees or sponsors of securitizations, and at particular participants within these groups. We expect activity in this area to continue. As a result, we may be subject to additional claims, litigation and governmental and regulatory scrutiny related to our participation in the U.S. mortgage securitization market, either individually or as a member of a group. As the industry's residential mortgage foreclosure issues continue, HSBC Bank USA has taken title to a number of foreclosed homes as trustee on behalf of various securitization trusts. As nominal record owner of these properties, HSBC Bank USA has been sued by municipalities and tenants alleging various violations of law, including laws regarding property upkeep and tenants' rights. While we believe and continue to maintain that the obligations at issue and any related liability are properly those of the servicer of each trust, we continue to receive significant and adverse publicity in connection with these and similar matters, including foreclosures that are serviced by others in the name of "HSBC, as trustee."

HSBC Bank USA and certain of our affiliates have been named as defendants in a number of actions in connection with residential mortgage-backed securities ("RMBS") offerings, which generally allege that the offering documents for securities issued by securitization trusts contained material misstatements and omissions, including statements regarding the underwriting standards governing the underlying mortgage loans.

As noted previously, in December 2016, we had an initial discussion with the U.S. Department of Justice ("DOJ"), wherein the DOJ stated its preliminary view that we are subject to liability under the Financial Industry Reform, Recovery and Enforcement Act in connection with certain RMBS securitizations from 2005 to 2007. In March 2017, we provided our response to the DOJ, which, amongst other things, outlined why we disagree with the DOJ's preliminary view. Discussions are ongoing.

Foreclosure Practices

In March 2017, the monitor of the national mortgage settlement filed with the U.S. District Court for the District of Columbia his Final Consumer Relief Report validating that our and our affiliates' obligation under the settlement to provide $370 million in consumer relief has been satisfied.

Anti-Money Laundering, Bank Secrecy Act and Office of Foreign Assets Control Matters

Jeffrey Siegel, et al. v. HSBC Holdings plc, et al. In April 2017, plaintiffs filed an amended complaint and voluntarily dismissed HUSI, HSI, and HSBC Finance as defendants.

Ramiro Giron, et al. v. Hong Kong and Shanghai Bank Company, Ltd., et al. In January 2017, the court issued an order denying plaintiffs' motion for leave to file a fourth amended complaint.

Saul Martinez, et al. v. Deutsche Bank AG, et al. In April 2017, the court granted defendants' motion to transfer the action to the U.S District Court for the Eastern District of New York.

Telephone Consumer Protection Act Litigation

In March 2017, the putative class action Monteleone v. HSBC Finance Corporation, et al. was dismissed and consolidated with another putative class action pending in the U.S. District Court for the Central District of California and an amended complaint has been filed. Ahmed and Monteleone v. HSBC Bank USA, National Association (Case 5:16-cv-02057). The consolidated action alleges that the defendants contacted plaintiffs, or the members of the class that they seek to represent, on their cellular telephones using an automatic telephone dialing system or an artificial or prerecorded voice, without prior express consent or despite revocation of prior consent, in violation of the Telephone Consumer Protection Act, 47 U.S.C. §227 et seq. Plaintiffs seeks statutory damages of up to $1,500 for each violation.