2021

HSBC Bank Canada

Regulatory Capital & Risk Management

Pillar 3 Supplementary Disclosures

As at September 30, 2021

HSBC Bank Canada Pillar 3 Supplementary Disclosure Third Quarter 2021 1

 Contents
Page
Notes to users 3
Road map to Pillar 3 disclosures 4
Capital and RWA 5
Regulatory Capital Disclosure - CC1 5
Overview of Risk Weighted Assets (RWA) - OV1 6
Credit Risk 6
RWA flow statements of credit risk exposures under IRB - CR8 6
Market Risk 6
RWA flow statements of market risk exposures under an Internal Model Approach (IMA) - MR2 7
Leverage Ratio 7
Summary comparison of accounting assets vs. leverage ratio exposure measure (LR1) 7
Leverage Ratio Common Disclosure (LR2) 8
Glossary 9

2 HSBC Bank Canada Pillar 3 Supplementary Disclosure Third Quarter 2021

Notes to users
Regulatory Capital and Risk Management Pillar 3 Disclosures
The Office of the Superintendent of Financial Institutions (“OSFI”) supervises HSBC Bank Canada (the “Bank”) on a consolidated basis. OSFI
has approved the Bank’s application to apply the Advanced Internal Ratings Based (“AIRB”) approach to credit risk on our portfolio and the
Standardized Approach for measuring Operational Risk. Please refer to the Annual Report and Accounts 2020 for further information on the
Bank’s risk and capital management framework. Further information regarding HSBC Group Risk Management Processes can be found in
HSBC Holdings plc Capital and Risk Management Pillar 3 Disclosures available on HSBC Group’s investor relations web site.
The Pillar 3 Supplemental Disclosures are additional summary descriptions and quantitative financial information which supplement those
already made in the Annual Report and Accounts 2020 for the disclosure requirements under OSFI’s Pillar 3 Disclosure Requirements
Advisory issued September 29, 2006 consistent with the “International Convergence of Capital Measurement and Capital Standards” (‘Basel
II’) issued by the Basel Committee on Banking Supervision (BCBS) in June 2006 and the “Composition of capital disclosure
requirements” (‘Basel III’) issued by the BCBS in June 2012 under OSFI’s advisory letter requirements issued in July 2013 and revised in May
2018
The Basel rules are structured around three “pillars”:
• Pillar 1 - defines the Minimum capital requirements,
• Pillar 2 - requires banks to have robust Internal Capital Adequacy Assessment Processes (ICAAP) which will be part of regulators’
Supervisory review
• Pillar 3 - defines the Market discipline/ disclosures required by Banks which should be consistent and comparable across Banks.
Pillar 3 complements the other two pillars of Basel framework i.e. minimum capital requirements and the supervisory review process. Its aim
is to encourage market discipline by developing a set of disclosure requirements which will allow market participants to assess certain
specified information on the scope of application of Basel 2/2.5 (‘the Basel rules’), capital, particular risk exposures, risk assessment
processes, and hence the capital adequacy of the institution.
The supervisory objectives of BCBS are to promote safety and soundness in the financial system and maintain an appropriate level of capital
in the system, enhance competitive equality, constitute a more comprehensive approach to addressing risks, and focus on internationally
active banks.
On June 26, 2012, the BCBS issued the Basel III rules on the information banks must publicly disclose when detailing the composition of
their capital, which set out a framework to ensure that the components of banks capital bases are publicly disclosed in standardised formats
across and within jurisdictions for banks subject to Basel III.
Basel III builds on Basel II. It also increases the level of risk-weighted assets for significant investments and deferred tax amounts due to
temporary timing differences under defined thresholds, exposures to large or unregulated financial institutions meeting specific criteria,
exposures to centralized counterparties and exposures that give rise to wrong way risk. In addition Basel III places a greater emphasis on
common equity by introducing a new category of capital, Common Equity Tier 1 (CET1), which consists primarily of common shareholders
equity net of regulatory adjustments. These regulatory adjustments include goodwill, intangible assets, deferred tax assets, pension assets
and investments in financial institutions over certain thresholds. Overall, the Basel III rules increase the level of regulatory deductions relative
to Basel II.
On 12 January 2018, OSFI announced its decision to update the existing capital floor for institutions using advanced approaches for credit
risk and operational risk. The capital floor of 90%, based on the Basel I capital accord was replaced by a more risk-sensitive capital floor
based on the standardized approach under Basel II framework, with floor factor set at 75%.
From Q1 2019, disclosure is based on OSFI’s Pillar 3 disclosure requirements (April 2017), including Capital disclosure requirement and
Leverage ratio disclosure requirement.
This report is unaudited and all amounts are in rounded millions of Canadian dollars, unless otherwise indicated. Balances reported in this
Pillar 3 document reflect the OSFI Capital Adequacy Requirements (CAR) guidelines.
Starting 1 January 2019, counterparty credit risk exposures arising from derivatives are calculated under Standardized Approach for
Counterparty Credit Risk (SA-CCR), a new BCBS approach adopted by OSFI. Capital requirements for exposures to Central Counterparties
(CCPs) have also been revised. The impact of these changes on credit risk RWA, Credit Valuation Adjustment (CVA) RWA and Leverage Ratio
is immaterial.
In response to challenges posed by COVID-19 and current market conditions, OSFI announced a number of measures to support the
Canadian banks in supplying credit to the economy, maintain stability and public confidence during an expected period of disruption. OSFI
lowered the capital floor factor from 75% to 70% effective Q1 2020, which is expected to stay in place until the domestic implementation of
the capital floor as part of Basel III reforms in Q1 2023. In addition, transitional arrangement for expected credit loss provisioning have been
introduced for a portion of allowances that would otherwise be included in Tier 2 capital to instead be included in Common Equity Tier 1
(CET1) capital. The adjustment is dynamically measured as the increase in Stage 1 and Stage 2 allowances relative to the baseline level as at
31 December 2019, after tax effects and subject to a scaling factor of 70% in 2020, 50% in 2021 and 25% in 2022.

For leverage ratio, central bank reserves and sovereign-issued securities that qualify as High Quality Liquid assets (HQLA) under the Liquidity
Adequacy Requirements Guideline can be temporarily excluded from the leverage ratio exposure measure. Starting 1 January 2022, banks
will be required to include the aforementioned HQLA securities in their leverage ratio exposure measures, as OSFI concluded in August 2021
that the level of uncertainty in the outlook for economic and financial conditions has now reduced. Meanwhile, banks can continue to
exclude central bank reserves from their leverage ratio exposure measures until otherwise notified. In Pillar 3 disclosures, banks are expected
to separately make available each of the CET1, Tier 1, Total Capital, and Leverage ratios had the transitional arrangement not been applied.

HSBC Bank Canada Pillar 3 Supplementary Disclosure Third Quarter 2021 3

Road map to Pillar 3 disclosure requirement
2020 Annual
Section Identifier Table and templates Frequency Report
Capital disclosure
CC1 Composition of Regulatory Capital Quarterly
Overview of risk
OVA Bank risk management approach Annually 34-38
management
OV1 Overview of RWA Quarterly
Linkages between Differences between accounting and regulatory scopes of consolidation and mapping of financial
financial LI1 statements with regulatory risk categories
statements and
Main sources of differences between regulatory exposure amounts and carrying values in financial
regulatory
LI2 statements
exposures
LIA Explanations of differences between accounting and regulatory exposure amounts na1
Credit risk CRA General information about credit risk Annually 38-39
CR1 Credit quality of assets Semi-annually 41
CR2 Changes in stock of defaulted loans and debt securities na1
CRB Additional disclosure related to the credit quality of assets Annually
CRC CRC – Qualitative disclosure requirements related to credit risk mitigation techniques Annually 54
CR3 Credit risk mitigation techniques – overview Semi-annually
Qualitative disclosures on banks’ use of external credit ratings under the standardized approach for
CRD credit risk na1
CR4 Standardized approach – credit risk exposure and Credit Risk Mitigation (CRM) effects Semi-annually
CR5 Standardized approach – exposures by asset classes and risk weights Semi-annually
CRE Qualitative disclosures related to IRB models na1
CR6 IRB Credit risk exposures by portfolio and PD range Semi-annually
CR7 IRB – Effect on RWA of credit derivatives used as CRM techniques na2
CR8 RWA flow statements of credit risk exposures under IRB Quarterly
CR9 IRB – Backtesting of probability of default (PD) per portfolio na1
CR10 IRB (specialized lending and equities under the simple risk weight method) Semi-annually
Counterparty CCRA Qualitative disclosure related to counterparty credit risk Annually 79-80
credit risk CCR1 Analysis of counterparty credit risk (CCR) exposure by approach Semi-annually
CCR2 Credit valuation adjustment (CVA) capital charge Semi-annually
CCR3 Standardized approach of CCR exposures by regulatory portfolio and risk weights na2
CCR4 IRB – CCR exposures by portfolio and PD scale Semi-annually
CCR5 Composition of collateral for CCR exposure Semi-annually
CCR6 Credit derivatives exposures na1
CCR7 RWA flow statements of CCR exposures under the Internal Model Method (IMM) na2
CCR8 Exposures to central counterparties Semi-annually
Securitization SECA Qualitative disclosure requirements related to securitization exposures
SEC1 Securitization exposures in the banking book
SEC2 Securitization exposures in the trading book
Securitization exposures in the banking book and associated regulatory capital requirements – bank
SEC3 acting as originator or as sponsor
Securitization exposures in the banking book and associated capital requirements – bank acting as
SEC4 investor na2
Market risk MRA Qualitative disclosure requirements related to market risk Annually
MRB Qualitative disclosures for banks using the Internal Models Approach (IMA) Annually
MR1 Market risk under standardised approach Semi-annually
MR2 RWA flow statements of market risk exposures under an IMA Quarterly
MR3 IMA values for trading portfolios Semi-annually
MR4 Comparison of VaR estimates with gains/losses Semi-annually
Leverage Ratio LR1 Summary comparison of accounting assets vs. leverage ratio exposure measure Quarterly
LR2 Leverage Ratio Common Disclosure Template Quarterly

1. Non D-SIBs are permitted to adopt and disclose any of the above listed tables that are relevant in reflecting the risks and activities of the institution. We assessed accordingly and decided
not to adopt this particular table
2. Table does not have any reportable values as at 30th September 2021

4 HSBC Bank Canada Pillar 3 Supplementary Disclosure Third Quarter 2021

Table 1 : Composition of Regulatory Capital (CC1)
All-in Basis 1
At

30 Sep 2021 30 Jun 2021

Common Equity Tier 1 capital: instruments and reserves ($m)
1 Directly issued qualifying common share capital (and equivalent for non-joint stock companies) plus related stock surplus 1,725 1,725
2 Retained earnings 3,988 3,901
3 Accumulated other comprehensive income (and other reserves) 74 126
4 Directly issued capital subject to phase out from CET1 (only applicable to non-joint stock companies) — —
5 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) — —
6 Common Equity Tier 1 capital before regulatory adjustments 5,787 5,752
Common Equity Tier 1 capital: regulatory adjustments ($m)
28 Total regulatory adjustments to Common Equity Tier 1 (229) (237)
29 Common Equity Tier 1 capital (CET1) 5,558 5,515
29a Common Equity Tier 1 capital (CET1) with transitional arrangements for ECL provisioning not applied 5,551 5,495
Additional Tier 1 capital: instruments
30 Directly issued qualifying Additional Tier 1 instruments plus related stock surplus 1,100 1,100
31 – of which: classified as equity under applicable accounting standards 1,100 1,100
32 – of which: classified as liabilities under applicable accounting standards — —
33 Directly issued capital instruments subject to phase out from Additional Tier 1 — —
34 Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount
allowed in group AT1) — —
35 of which: instruments issued by subsidiaries subject to phase out — —
36 Additional Tier 1 capital before regulatory adjustments 1,100 1,100
Additional Tier 1 capital: regulatory adjustments ($m)
43 Total regulatory adjustments to Additional Tier 1 capital — —
44 Additional Tier 1 capital (AT1) 1,100 1,100
45 Tier 1 capital (T1 = CET1 + AT1) 6,658 6,615
45a Tier 1 capital with transitional arrangements for ECL provisioning not applied 6,651 6,595
Tier 2 capital: instruments and allowances ($m)
46 Directly issued qualifying Tier 2 instruments plus related stock surplus 1,000 1,000
47 Directly
Tier issued capital
2 instruments (andinstruments
CET1 and AT1subject to phasenot
instruments outincluded
from Tierin2rows 5 or 34) issued by subsidiaries and held by third parties 11 11
48 (amount allowed in group Tier 2) — —
49 – of which: instruments issued by subsidiaries subject to phase out — —
50 Impairment allowances 3 3
51 Tier 2 capital before regulatory adjustments 1,014 1,014
Tier 2 capital: regulatory adjustments ($m)
57 Total regulatory adjustments to Tier 2 capital — —
58 Tier 2 capital (T2) 1,014 1,014
59 Total capital (TC = T1 + T2) 7,672 7,629
59a Total capital with transitional arrangements for ECL provisioning not applied 7,672 7,629
60 Total risk-weighted assets (RWA) Capital ratios (%)1 39,575 39,265

61 Common Equity Tier 1 (as percentage of risk-weighted assets) 14.0 14.0

61a Common Equity Tier 1 with transitional arrangements for ECL provisioning not applied 14.0 14.0
62 Tier 1 (as percentage of risk-weighted assets) 16.8 16.8
62a Tier 1 with transitional arrangements for ECL provisioning not applied 16.8 16.8
63 Total capital (as percentage of risk-weighted assets) 19.4 19.4
63a Total capital with transitional arrangements for ECL provisioning not applied 19.4 19.4
OSFI all-in target (%)
69 Common Equity Tier 1 capital all-in target ratio 7.0 7.0
70 Tier 1 capital all-in target ratio 8.5 8.5
71 Total capital all-in target ratio
Current cap on CET1 instruments subject to phase out arrangements (%) 10.5 10.5
(only applicable between 1 Jan 2013 and 1 Jan 2022)
80 Current cap on CET1 instruments subject to phase out arrangements 10 10
81 Amounts excluded from CET1 due to cap (excess over cap after redemptions and maturities) na na
82 Current cap on AT1 instruments subject to phase out arrangements 10 10
83 Amounts excluded from AT1 due to cap (excess over cap after redemptions and maturities) — —
84 Current cap on T2 instruments subject to phase out arrangements 10 10
85 Amounts excluded from T2 due to cap (excess over cap after redemptions and maturities) — —

1. “All-in” regulatory capital assumes that all Basel III regulatory adjustments are applied effective January 1, 2013 and that the capital value of instruments which no longer qualify as
regulatory capital under Basel III rules will be phased out at a rate of 10% per year from January 1, 2013 and continuing to January 1, 2022

HSBC Bank Canada Pillar 3 Supplementary Disclosure Third Quarter 2021 5

 Table 2 : Overview of Risk Weighted Assets (OV1)
At
30 Sep 2021 30 Jun 2021 30 Sep 2021
Capital
RWA1 RWA requirements 2
$m $m $m
1 Credit risk (excluding counterparty credit risk) 33,847 33,592 2,707
2 – of which Standardized approach (SA) 3 1,854 1,984 148
3 – of which internal rating based (IRB) approach 31,993 31,608 2,559
4 Counterparty credit risk 1,369 1,400 109
4a – of which credit valuation adjustment (CVA)4 392 422 31
5 – of which Standardized approach for counterparty credit risk (SA-CCR) 977 978 78
6 – of which internal model method (IMM) — — —
7 Equity positions in banking book5 2 1 —
8 Equity investments in funds – look-through approach 22 21 2
9 Equity investments in funds – mandate-based approach — — —
10 Equity investments in funds – fall-back approach — — —
11 Settlement risk — — —
12 Securitisation exposures in banking book — — —
13 – of which IRB ratings based approach (RBA) — — —
14 – of which IRB supervisory formula approach (SFA) — — —
15 – of which SA/ simplified supervisory formula approach (SSFA) — — —
16 Market risk 499 480 40
17 – of which Standardized approach (SA) 51 59 4
18 – of which internal model method (IMM) 448 421 36
19 Operational risk 3,752 3,771 300
20 – of which Basic indicator approach — — —
21 – of which Standardized approach 3,752 3,771 300
22 – of which Advanced measurement approach — — —
23 Amounts below the thresholds for deduction (subject to 250% risk weight) —
24 Floor adjustment6 84 — 7
25 Total RWA (1+4+7+8+9+10+11+12+16+19+23+24) 39,575 39,265 3,165

1. RWA includes 6% adjustment to IRB risk-weighted assets for scaling factor

2. ‘Capital requirement’ represents the minimum total capital charge set at 8% of RWAs by the OSFI Capital Adequacy Requirements (CAR) guidelines
3. Amount includes Other assets not included in standardized or IRB approaches
4. Starting Q1 2019, OSFI has allowed a 0.7 scalar to be applied to the exposure amount determined under SA-CCR for the purpose of calculating CVA
5. Amount includes banking book equity exposure which are not material and risk weighted @100% in accordance with OSFI CAR guidelines
6. The Bank is subject to a regulatory capital floor prescribed by OSFI

Credit Risk
Credit risk is the risk of financial loss if a customer or counterparty fails to meet an obligation under contract. Credit risk arises principally
from direct lending, trade finance and the leasing business, but also from other products such as guarantees and credit derivatives.

Table 3 : RWA flow statements of credit risk exposures under the IRB approach (CR8)
Capital
RWA2 requirements3
$m $m
1 RWA at the beginning of the period - 1 Jul 2021 31,608 2,528
2 Asset size1 850 68
3 Asset quality (465) (37)
4 Model updates — —
5 Methodology and policy — —
6 Acquisitions and disposals — —
7 Foreign exchange movements — —
8 Other — —
9 RWA at the end of the period - 30 Sep 2021 31,993 2,559

1. Foreign exchange movements are embedded in the asset size

2. RWA includes 6% adjustment to IRB risk-weighted assets for scaling factor
3. ‘Capital requirement’ represents the minimum total capital charge set at 8% of RWAs under the OSFI CAR guidelines

Market Risk
Market Risk is the risk that movements in market factors, such as foreign exchange rates, interest rates, credit spread, equity prices and
commodity prices will reduce the value of our portfolios.

6 HSBC Bank Canada Pillar 3 Supplementary Disclosure Third Quarter 2021

 Table 4 : RWA flow statement of market risk exposures under Internal Model Approach (MR2)
VaR Stressed VaR Other Total RWA
$m $m $m $m
1 RWA at the beginning of the period - 1 Jul 2021 145 253 23 421
2 Movement in risk levels1 22 5 27
3 Model updates/changes — — — —
4 Methodology and policy2 — — — —
8 RWA at the end of the period - 30 Sep 2021 167 253 28 448

1. Movement due to position changes; foreign exchange movements are embedded in the movement in risk levels
2. OSFI approved the reduction of the VaR multiplier based on a risk framework enhancement and resulted in a reduction in RWA, effective in Q1 2021

Leverage
Table 5 : Summary comparison of accounting assets vs. leverage ratio exposure measure (LR1)

At
30 Sep 2021 30 Jun 2021
$m $m
1 Total consolidated assets as per published financial statements 121,097 114,062
2 Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting
purposes but outside the scope of regulatory consolidation — —
3 Adjustment for securitised exposures that meet the operational requirements for the recognition of risk transference — —
4 Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative accounting framework but
excluded from the leverage ratio exposure measure — —
5 Adjustments for derivative financial instruments (1,166) (1,329)
6 Adjustment for securities financing transactions (i.e. repurchase agreements and similar secured lending) 51 27
7 Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) 14,982 14,884
8 Other adjustments1 (19,775) (19,118)
9 Leverage ratio exposure measure 115,189 108,526

1. Effective Q12020, OSFI temporarily allows the exclusion of central bank reserves and sovereign-issued securities that qualify as High Quality Liquid assets (HQLA) from the leverage ratio
exposure measure. Starting Q12022, banks will be required to include the aforementioned HQLA securities in their leverage ratio exposure measures, whilst central bank reserves are
continued to be excluded until otherwise notified. Asset amounts deducted in determining Basel III Tier 1 capital are also included as a deduction.

HSBC Bank Canada Pillar 3 Supplementary Disclosure Third Quarter 2021 7

 Table 6 : Leverage Ratio Common Disclosure Template (LR2)

At
30 Sep 2021 30 Jun 2021
$m $m
On-balance sheet exposures
1 On-balance sheet items (excluding derivatives, SFTs and grandfathered securitization exposures but including collateral)1 89,064 85,798
2 Gross up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative
accounting framework (IFRS) — —
3 (Deductions of receivables assets for cash variation margin provided in derivative transactions) (481) (477)
4 (Asset amounts deducted in determining Basel III Tier 1 capital) (235) (256)
5 Total on-balance sheet exposures (excluding derivatives and SFTs) (Sum of lines 1 to 4) 88,348 85,065
Derivative exposures
6 Replacement cost associated with all derivative transactions (i.e. net of eligible cash variation margin) 869 898
7 Add-on amounts for PFE associated with all derivative transactions 1,654 1,694
8 (Exempted CCP-leg of client cleared trade exposures) — —
9 Adjusted effective notional amount of written credit derivatives — —
10 (Adjusted effective notional offsets and add-on deductions for written credit derivatives) — —
11 Total derivative exposures (sum of lines 6 to 10) 2,523 2,592

Securities financing transaction exposures

12 Gross SFT assets recognized for accounting purposes (with no recognition of netting), after adjusting for sale accounting
transactions 12,159 8,403
13 (Netted amounts of cash payables and cash receivables of gross SFT assets) (2,874) (2,445)
14 Counterparty credit risk (CCR) exposure for SFTs 51 27
15 Agent transaction exposures — —
16 Total securities financing transaction exposures (sum of lines 12 to 15) 9,336 5,985

Other off-balance sheet exposures

17 Off-balance sheet exposure at gross notional amount 51,593 50,500
18 (Adjustments for conversion to credit equivalent amounts) (36,611) (35,616)
19 Off-balance sheet items (sum of lines 17 and 18) 14,982 14,884

Capital and Total Exposures

20 Tier 1 capital 6,658 6,615
21 Total Exposures (sum of lines 5, 11, 16 and 19) 115,189 108,526

Leverage Ratios (%)

22 Leverage ratio 5.8 6.1
22a Leverage ratio with transitional arrangements for ECL provisioning not applied 5.8 6.1

1. Effective Q12020, OSFI temporarily allows the exclusion of central bank reserves and sovereign-issued securities that qualify as High Quality Liquid assets (HQLA) from the leverage ratio
exposure measure. Starting Q12022, banks will be required to include the aforementioned HQLA securities in their leverage ratio exposure measures, whilst central bank reserves are
continued to be excluded until otherwise notified.

8 HSBC Bank Canada Pillar 3 Supplementary Disclosure Third Quarter 2021

Glossary
• OSFI - Office of the Superintendent of Financial Institutions
• $ - Canadian dollar
• Gross carrying values: The gross value is the accounting value before any any credit conversion factor (CCF), credit risk
mitigation (CRM) techniques or allowance/impairments.
• Probability of Default (PD) - An estimate of the likelihood of a customer defaulting on any credit related obligation within a 1
year time horizon, expressed as a percentage.
• Loss Given Default (LGD) - An estimate of the economic loss, expressed as a percentage (0%-100%) of the exposure at default,
that the Bank will incur in the event a borrower defaults
• Exposure At Default (EAD) - An estimate of the amount of exposure to a customer at the time of default.
• Standardized Approach for credit risk - Under this approach, banks use a standardized set of risk-weights as prescribed by
OSFI to calculate credit risk capital requirements. The standardized risk-weights are based on external credit assessments, where
available, and other risk-related factors, including exposure asset class, collateral, etc.
• Advanced Internal Ratings Based (AIRB) approach for credit risk - Under this approach, banks use their own internal
historical experience of PD, LGD, EAD and other key risk assumptions to calculate credit risk capital requirements.
• Home Equity Lines of Credit (HELOC) - Revolving personal lines of credit secured by home equity.
• SA-CCR - The standardised approach (SA-CCR) for measuring exposure at default for counterparty credit risk.
• Credit Value adjustment (CVA) - Credit valuation adjustment (‘CVA’) risk is the risk of adverse moves in the CVAs taken for
expected credit losses on derivative transactions.
• VaR - Value at Risk - Value at risk (‘VaR’) is a technique that estimates the potential losses on risk positions in the trading
portfolio as a result of movements in market rates and prices over a specified time horizon and to a given level of confidence.
• All-in regulatory capital assumes that all Basel III regulatory adjustments are applied effective January 1, 2013 and that the
capital value of instruments which no longer qualify as regulatory capital under Basel III rules will be phased out at a rate of 10%
per year from January 1, 2013 and continuing to January 1, 2022.
• Transitional regulatory capital assumes that all Basel III regulatory capital adjustments are phased in from January 1, 2014 to
January 1, 2018 and that the capital value of instruments which no longer qualify as regulatory capital under Basel III rules will be
phased out at a rate of 10% per year from January 1, 2013 and continuing to January 1, 2022.
• Asset size: organic changes in book size and composition (including origination of new businesses and maturing loans) but
excluding changes in book size due to acquisitions and disposal of entities.
• Asset quality: changes in the assessed quality of the bank’s assets due to changes in borrower risk, such as rating grade
migration or similar effects.
• Model updates: changes due to model implementation, changes in model scope, or any changes intended to address model
weaknesses.
• Methodology and policy: changes due to methodological changes in calculations driven by regulatory policy changes, including
both revisions to existing regulations and new regulations.
• Acquisitions and disposals: changes in book sizes due to acquisitions and disposal of entities.
• ECL: expected credit loss

HSBC Bank Canada Pillar 3 Supplementary Disclosure Third Quarter 2021 9