HSBC 2009 Annual Report Download - page 316

HSBC HOLDINGS PLC
Report of the Directors: Governance (continued)
Board of Directors > Internal control
314
HSBC requires the approval of the Board of
Directors of HSBC Holdings.
• Functional, operating, financial reporting and
certain management reporting standards are
established by Group Management Office
management committees for application across
the whole of HSBC. These are supplemented by
operating standards set by functional and local
management as required for the type of business
and geographical location of each subsidiary.
• Systems and procedures are in place in HSBC to
identify, control and report on the major risks
including credit, market, liquidity and
operational risk, (including accounting, tax,
legal, compliance, information, physical security
and fraud risk). Exposure to these risks is
monitored by risk management committees,
asset and liability committees and executive
committees in subsidiaries and, for HSBC as a
whole, by the Group Management Board. A
Risk Management Meeting of the Group
Management Board, chaired by the Chief
Financial Officer, Executive Director, Risk and
Regulation, is held monthly to address asset,
liability and risk management issues. The
minutes of this meeting are submitted to the
Group Audit Committee and to the Board of
Directors. The Global Operational Risk and
Control Committee (‘GORCC’), which reports
to the Risk Management Meeting of the Group
Management Board, meets at least quarterly to
monitor HSBC’s operational risk profile and
review the effective implementation of the
Group’s operational risk management
framework. The GORCC receives quarterly
reports on the Group’s operational risk profile,
including top risks, control issues, internal and
external operational loss events and key risk
indicators. The GORCC communicates the
lessons learned from operational events both
within HSBC and in the wider industry.
• A Disclosure Committee has been established to
review public disclosures made by HSBC
Holdings for any material errors, misstatements
or omissions. The membership of the Disclosure
Committee, which is chaired by the Group
Company Secretary, includes the heads of the
Finance, Legal, Risk, Compliance, Group
Communications, Investor Relations and
Internal Audit functions and representatives
from the principal regions, customer groups and
global businesses. The integrity of disclosures is
underpinned by structures and processes within
the Finance and Risk function that support
expert and rigorous analytical review of
financial reporting.
• The group financial reporting process for
preparing the consolidated Annual Report and
Accounts 2009 is controlled using documented
accounting policies and reporting formats,
supported by a chart of accounts with detailed
instructions and guidance on reporting
requirements, issued by Group Finance to all
reporting entities within the Group in advance of
each reporting period end. The submission of
financial information from each reporting entity
to Group Finance is subject to certification by
the responsible financial officer, and analytical
review procedures at reporting entity and Group
levels.
• Processes are in place to identify new risks from
changes in market conditions and practices or
customer behaviours which could expose HSBC
to heightened risk of loss or reputational
damage. During 2009, attention was focused on
evolving best practice in liquidity management
and stress testing; aggregating more efficiently
counterparty risk data and improving the
counterparty crisis management framework;
rolling out successfully piloted anti-fraud
systems; revised guidance on the
approval/review of new products and business
initiatives, with greater oversight by the Risk
function; the identification of market pricing
anomalies; changes in consumer protection
standards within personal financial services
markets and, more generally, changes in
regulation and public policy towards the
financial services industry, including the impact
of government interventions to address the
under-capitalisation and funding difficulties
of certain systemically important financial
institutions.
• Periodic strategic plans are prepared for key
customer groups, global product groups, support
functions and certain geographies within the
framework of the Group Strategic Roadmap.
Rolling operating plans, informed by detailed
analysis of risk appetite, are prepared and
adopted by all major HSBC operating
companies and set out the key business
initiatives and the likely financial effects of
those initiatives.
• Governance and oversight arrangements are in
place to ensure that risk analytical models are fit
for purpose, used accordingly and
complemented by a variety of model-specific
and enterprise-wide stress tests that evaluate the
impact of severe yet plausible events and other