HSBC 2011 Annual Report Download - page 190

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Appendix – Risk policies and practices > Managing risk / Governance / Credit risk
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Appendix to Risk
Risk policies and practices
This appendix describes the significant policies and practices employed by HSBC in managing our credit risk, liquidity
and funding, market risk, insurance risk, operational risk, reputational risk, pension risk and sustainability risk.
Managing risk
(Unaudited)
HSBC’s approach to risk is encapsulated within our risk appetite framework. The risk appetite statement is approved
by the Board, which is advised by the Group Risk Committee. For further details of the activities of the Group Risk
Committee see page 233.
The framework is maintained at Group, regional and global business levels, operating through governance bodies,
processes and metrics designed to assist in risk management. Risk appetite statements define, at various levels of the
business, the qualitative and quantitative expressions of the risks which we are prepared to embrace in alignment
with our strategy and business plans. Quantitative metrics are assigned to five key categories: earnings, capital and
liquidity, impairments and expected losses, risk category and diversification and scenario stress testing. Measurement
against the metrics serves to:
• guide underlying business activity, ensuring it is aligned to risk appetite statements;
• determine risk-adjusted remuneration;
• enable the key underlying assumptions to be monitored and, where necessary, adjusted through subsequent
business planning cycles; and
• promptly identify business decisions needed to mitigate risk.
Risk governance
(Unaudited)
Our strong risk governance reflects the importance placed by the Board on shaping the Group’s risk strategy and
managing risks effectively. It is supported by a clear policy framework of risk ownership, by the cascading from
the GMB of balanced scorecards that align business and risk objectives, and by the accountability of all staff for
identifying, assessing and managing risks within the scope of their assigned responsibilities. This personal
accountability, reinforced by the governance structure, experience and mandatory learning, helps to foster a
disciplined and constructive culture of risk management and control throughout HSBC.
During the year we implemented a new operating model for the Global Risk function. The new model has further
embedded Compliance within Global Risk, established specific Chief Risk Officer risk roles for RBWM and CMB in
alignment with other global businesses and broadens the responsibility of Global Security and Fraud Risk. The new
model is designed to enable the end-to-end management of risk in a consistent manner.
Scenario stress testing
(Unaudited)
We conduct a range of Group stress testing scenarios including, but not limited to, severe global economic downturn,
country, sector and counterparty failures and a variety of projected major operational risk events. The outcomes of
the stress scenarios are used to assess the potential impact on demand for regulatory capital against its supply. We
also participate, where appropriate, in scenario analyses requested by regulatory bodies.
In addition to the suite of risk scenarios considered for the Group, each major HSBC subsidiary conducts regular
macro-economic and event-driven scenario analyses specific to its region.
Stress testing is also used by the market risk discipline to evaluate the potential impact on portfolio values of events
or movements in a set of financial variables.