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 and in Note 18, "Litigation and Regulatory Matters," in our Form 10-Q for the three month period ended March 31, 2017 (the "2017 First Quarter Form 10-Q") and the six month period ended June 30, 2017 (the "2017 Second Quarter Form 10-Q"). Only those matters with significant updates and new matters since our disclosure in our 2016 Form 10-K, our 2017 First Quarter Form 10-Q and our 2017 Second Quarter Form 10-Q are reported herein.

In addition to the matters described below, and in our 2016 Form 10-K, our 2017 First Quarter Form 10-Q and our 2017 Second Quarter Form 10-Q, 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.

Due to 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 and in Note 18, "Litigation and Regulatory Matters," in our 2017 First Quarter Form 10-Q and our 2017 Second Quarter Form 10-Q 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 $350 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 and in Note 18, "Litigation and Regulatory Matters," in our 2017 First Quarter Form 10-Q and our 2017 Second Quarter Form 10-Q, 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.

County of Cook v. HSBC North America Holdings Inc., et al. Defendants filed a motion to dismiss the amended complaint in August 2017. The motion is fully briefed and the HSBC defendants await a decision.

Interest Rate Swaps Litigation In June 2017, the court granted HSBC’s separate motion to dismiss, as well as dismissed co-defendants Tradeweb and ICAP. The court denied the dealer defendants’ joint motion to dismiss. The court has not permitted plaintiffs to amend their complaint, but set a deadline in February 2018 for the parties to amend their pleadings or join additional parties.

Foreign Exchange ("FX") Matters

U.S. Litigation In connection with the retail plaintiffs' action, the defendants have moved to dismiss the third amended complaint.

Canada Litigation The settlements of the Canada FX matters have been approved by the presiding courts.

U.S. Investigations In September 2017, HSBC and HSBC North America agreed to a settlement with the Federal Reserve Board ("FRB") for historic deficiencies in their controls and oversight over HSBC Group's FX trading business. HSBC paid a civil money penalty to the FRB, and HSBC and HSBC North America agreed to further improve HSBC Group's controls and compliance risk management program for certain markets activities. HSBC Group continues to be in active discussions with the U.S. Department of Justice ("DOJ") and other regulatory authorities about potential resolutions of their FX investigations.

Precious Metals Fix Matters

Platinum and Palladium Fix Litigation The defendants have filed a joint motion to dismiss the third amended complaint and await a ruling.

Supranational, Sovereign and Agency ("SSA") Bonds In October 2017, plaintiffs filed a motion for leave to file an amended complaint. The proposed amended complaint drops HSBC and HSBC Bank USA as defendants. The remaining HSBC defendants, HSBC Bank plc and HSI, await the court’s ruling on the motion.

Benchmark Rate Litigation

Frontpoint Asian Event Driven Fund, L.P., et al. v. Citibank, N.A., et al. In August 2017, the defendants' joint motion to dismiss was granted, but the court granted leave to replead. Plaintiffs have filed a second amended complaint, which defendants have moved to dismiss.

Mortgage Securitization Matters

As noted previously, discussions are ongoing with the DOJ regarding liability under the Financial Industry Reform, Recovery, and Enforcement Act in connection with certain residential mortgage-backed securities securitizations from 2005 to 2007.

Mortgage Securitization Trust Litigation In September 2017, Western & Southern Life Insurance Company voluntarily dismissed its claim against HSBC Bank USA, as trustee, without prejudice to refile at a later date. In October 2017, Royal Park Investments SA/NV filed a complaint against HSBC Bank USA, as trustee, in the U.S. District Court for the Southern District of New York (“SDNY”) alleging various common law claims arising out of HSBC Bank USA's use of trust funds to defend itself against several lawsuits brought against the trustee. This matter is at an early stage.

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

Jeffrey Siegel, et al. v. HSBC Holdings plc, et al. In August 2017, the court granted HSBC's and HSBC Bank Middle East's motion to dismiss for lack of personal jurisdiction and transferred the action as to HSBC Bank USA and HSBC North America to the SDNY. Plaintiffs have moved to amend the complaint to add allegations against HSBC, and that motion remains pending.

Ramiro Giron, et al. v. Hong Kong and Shanghai Bank Company, Ltd., et al. HSBC Bank USA filed a motion for summary judgment in September 2017. Plaintiffs' motion for class certification remains pending.

Mary Zapata, et al. v HSBC In October 2017, the court granted HSBC Mexico's motion to dismiss the complaint for lack of personal jurisdiction and denied HSBC Bank USA's motion to transfer the case. Plaintiffs thereafter filed a notice of dismissal in which they indicated they plan to refile the action in federal district court in New York.

Saul Martinez, et al. v. Deutsche Bank AG, et al. Plaintiffs voluntarily dismissed the case in October 2017.

Telephone Consumer Protection Act (“TCPA”) Litigation HSBC Mortgage Corporation responded to the complaint, and discovery is underway.