HSBC 2012 Annual Report Download - page 334

HSBC HOLDINGS PLC
Report of the Directors: Corporate Governance (continued)
Internal control
332
Employee issues
‘Employee engagement’ describes employees’
emotional and intellectual commitment to their
organisation and its success and is critical to the
long-term ability of the Group to deliver the highest
quality of financial services. Our Global People
Survey is carried out every other year and shows
that employees value our commitment to sustainable
business practices and view us as being a leader in
this regard. In the latest survey, taken in 2011,
81% of colleagues said they were satisfied with the
actions HSBC is taking to embed sustainability (e.g.
environmental and social issues) into the way we
run our business.
Sustainability risk
Our approach to managing sustainability risk is
detailed in the Appendix to Risk on page 280.
Internal control
The Directors are responsible for internal control
in HSBC and for reviewing its effectiveness.
Procedures have been designed for safeguarding
assets against unauthorised use or disposal; for
maintaining proper accounting records; and for the
reliability and usefulness of financial information
used within the business or for publication. Such
procedures are designed to manage and mitigate the
risk of failure to achieve business objectives and can
only provide reasonable and not absolute assurance
against material misstatement, errors, losses or fraud.
The procedures also enable HSBC Holdings to
discharge its obligations under the ‘Handbook of
Rules and Guidance’ issued by the FSA, HSBC’s
lead regulator.
The key procedures that the Directors have
established are designed to provide effective internal
control within HSBC and accord with the ‘Internal
Control: Revised Guidance for Directors on the
Combined Code’ issued by the Financial Reporting
Council. Such procedures for the ongoing
identification, evaluation and management of the
significant risks faced by HSBC have been in place
throughout the year and up to 4 March 2013, the date
of approval of the Annual Report and Accounts
2012. In the case of companies acquired during the
year, the internal controls in place are being
reviewed against HSBC’s benchmarks and integrated
into HSBC’s processes.
HSBC’s key internal control procedures include
the following:
• Global standards. Functional, operating,
financial reporting and certain management
reporting standards are established by global
function management committees, for
application throughout 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.
• Delegation of authority within limits set by
the Board. Authority to operate the various
subsidiaries and responsibilities for financial
performance against plans and for capital
expenditure are delegated to their respective
chief executive officers within limits set by the
Board. Delegation of authority from the Board
to individuals requires those individuals to
maintain a clear and appropriate apportionment
of significant responsibilities and to oversee the
establishment and maintenance of systems of
control appropriate to the business. The
appointment of executives to the most senior
positions within HSBC requires the approval of
the Board.
• Risk identification and monitoring. Systems
and procedures are in place in HSBC to identify,
control and report on the major risks including
credit, market, liquidity, capital, financial
management, model, reputational, pension,
strategic, sustainability, operational (including
accounting, tax, legal, compliance, fiduciary,
information, external fraud, internal fraud,
political, physical, business continuity, systems
operations, project and people risk) and Islamic
finance risk. Exposure to these risks is
monitored by risk management committees,
asset and liability committees and executive
committees in subsidiaries and, for the Group, in
Risk Management Meetings (‘RMM’) of the
GMB which are chaired by the Group Chief
Risk Officer. RMM meets each month (except
August) to address asset, liability and risk
management issues. HSBC’s operational risk
profile and the effective implementation of the
Group’s operational risk management
framework is monitored by the Global
Operational Risk and Control Committee
(‘GORCC’), which reports to the RMM. Model
risks are monitored by the Model Oversight
Committee which also reports to the RMM. The
minutes of the GMB meetings and the RMM are
provided to members of the GAC, the GRC and
the Board.
• Changes in market conditions/practices.
Processes are in place to identify new risks
arising from changes in market
conditions/practices or customer behaviours,
which could expose HSBC to heightened risk