HSBC 2011 Annual Report Download - page 15

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Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Top and emerging risks
We classify certain risks as ‘top’ or ‘emerging’. We
define a ‘top risk’ as being a current, emerged risk
which has arisen across any of our risk categories,
regions or global businesses and has the potential to
have a material impact on our financial results or our
reputation and the sustainability of our long-term
business model, and which may form and crystallise
within a one year horizon. We consider an ‘emerging
risk’ to be one which has large uncertain outcomes
which may form and crystallise beyond a one year
horizon and, if it were to crystallise, could have a
material effect on our long term strategy.
Our approach to identifying and monitoring top
and emerging risks is informed by the risk factors.
All of our activities involve, to varying degrees,
the measurement, evaluation, acceptance and
management of risk or combinations of risks which
we assess on a Group-wide basis. Top and emerging
risks fall under the following three broad categories:
• macro-economic and geopolitical risk;
• macro-prudential, regulatory and legal risks to
our business model;
• risks related to our business operations,
governance and internal control systems.
During 2011 our senior management paid
particular attention to a number of top and emerging
risks which are summarised below:
Macro-economic and geopolitical risk
• Eurozone – risk of sovereign defaults
• Eurozone member departing from the currency union
• Increased geopolitical risk in certain regions
Macro-prudential, regulatory and legal risks to our
business model
• Regulatory developments affecting our business model and
Group profitability
• Regulatory investigations and requirements relating to
conduct of business and financial crime negatively affecting
our results and brand
• Dispute risk
Risks related to our business operations, governance and
internal control systems
• Challenges to achieving our strategy in a downturn
• Internet crime and fraud
• Social media risk
• Level of change creating operational complexity and
heightened operational risk
• Information security risk
All of the above risks are regarded as top risks
with the exception of social media risk which is an
emerging risk.
A detailed account of these risks is provided on
page 99. Further comments on expected risks and
uncertainties are made throughout the Annual Report
and Accounts 2011, particularly in the section on
Risk, pages 98 to 210.
Risk appetite
Risk appetite is a key component of our management
of risk and describes the types and level of risk we
are prepared to accept in delivering our strategy. It is
discussed further on page 234.
Our risk appetite may be revised in response to
the top and emerging risks we have identified.
HSBC Values
The role of HSBC Values in daily operating practice
is significant in the context of the financial services
sector and the wider economy, particularly in the
light of developments and changes in regulatory
policy, investor confidence and society’s view of the
role of banks. We expect our executives and
employees to act with courageous integrity in the
execution of their duties by being:
• dependable and doing the right thing;
• open to different ideas and cultures; and
• connected with our customers, communities,
regulators and each other.
We continue to enhance our values-led culture
by embedding HSBC Values into how we conduct
our business and through the personal sponsorship
of the Group Chief Executive and senior executives.
These initiatives will continue in 2012 and beyond.
Key performance indicators
The Board of Directors and the GMB monitor HSBC’s
progress against its strategic objectives. Progress is
assessed by comparison with our strategy, our operating
plan and our historical performance using both financial
and non-financial measures.
Following a review of our high-level key
performance indicators (‘KPI’s) and reflecting the
increased focus on the quality of the capital base, the
GMB decided to adopt a core tier 1 capital ratio instead
of a tier 1 capital ratio as the primary indicator of the
strength of our capital base and its ability to support the
growth of the business and meet regulatory requirements.
The GMB remains focused on improving our capital
deployment to support the achievement of our medium
term target for return on equity of between 12% and
15%, utilising the five filter analysis across the portfolio
of businesses. We will continue to evaluate our
businesses in 2012 using this methodology.