HSBC 2003 Annual Report Download - page 209

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prepared by subsidiaries and by each customer
group and are reviewed and approved at Group
Head Office. Results are monitored regularly
and reports on progress as compared with the
related plan are prepared throughout HSBC each
quarter. Plans are prepared by major operating
subsidiaries and for each customer group at least
every five years.
• Centralised functional control is exercised over
all computer system developments and
operations. Common systems are employed
where possible for similar business processes.
Credit and market risks are measured and
reported on in subsidiaries and aggregated for
review of risk concentrations on a group-wide
basis.
• Responsibilities for financial performance
against plans and for capital expenditure, credit
exposures and market risk exposures are
delegated with limits to line management in the
subsidiaries. In addition, functional management
in Group Head Office has been given
responsibility to set policies, procedures and
standards in the areas of: finance; legal and
regulatory compliance; internal audit; human
resources; credit; market risk; operational risk;
computer systems and operations; property
management; and for certain global product
lines.
• Policies and procedures to guide subsidiary
companies and management at all levels in the
conduct of business to safeguard the Group’s
reputation are established by the Board of HSBC
Holdings, the Group Management Board,
subsidiary company boards, board committees
or senior management. Reputational risks can
arise from social, ethical or environmental
issues, or as a consequence of operational risk
events. As a banking group, HSBC’s good
reputation depends upon the way in which it
conducts its business but it can also be affected
by the way in which clients, to which it provides
financial services, conduct their business. The
internal audit function, which is centrally
controlled, monitors compliance with policies
and standards and the effectiveness of internal
control structures across the whole of HSBC.
The work of the internal audit function is
focused on areas of greatest risk to HSBC as
determined by a risk management approach. The
head of this function reports to the Group
Chairman and the Group Audit Committee.
The Group Audit Committee has kept under
review the effectiveness of this system of internal
control and has reported regularly to the Board of
Directors. The key processes used by the Committee
in carrying out its reviews include: regular reports
from the heads of key risk functions; the production
and regular updating of summaries of key controls
applied by subsidiary companies measured against
HSBC benchmarks which cover all internal controls,
both financial and non-financial; annual
confirmations from chief executives of principal
subsidiary companies that there have been no
material losses, contingencies or uncertainties caused
by weaknesses in internal controls; internal audit
reports; external audit reports; prudential reviews;
and regulatory reports.
The Directors, through the Group Audit
Committee, have conducted an annual review of the
effectiveness of HSBC’s system of internal control
covering all controls, including financial, operational
and compliance controls and risk management.
Reputational, strategic and
operational risk
HSBC regularly updates its policies and procedures
for safeguarding against reputational, strategic and
operational risks. This is an evolutionary process
which now takes account of The Association of
British Insurers’ guidance on best practice when
responding to social, ethical and environmental
(SEE) risks.
The safeguarding of HSBC’s reputation is of
paramount importance to its continued prosperity and
is the responsibility of every member of staff. HSBC
has always aspired to the highest standards of
conduct and, as a matter of routine, takes account of
reputational risks to its business. The training of
Directors on appointment includes reputational
matters.
Reputational risks, including SEE matters, are
considered and assessed by the Board, the Group
Management Board, subsidiary company boards,
board committees and/or senior management during
the formulation of policy and the establishment of
HSBC standards. Standards on all major aspects of
business are set for HSBC Group and for individual
subsidiary companies, businesses and functions.
These policies, which form an integral part of the