HSBC 2014 Annual Report Download - page 99

HSBC BANK PLC
Report of the Directors: Corporate Governance (continued)
97
held to establish, maintain and periodically review the
policy and guidelines for the management of risk within
the bank.
Internal control
The Directors are responsible for maintaining and
reviewing the effectiveness of risk management and
internal control systems and for determining the nature
and extent of the significant risks the group is willing to
take in achieving its strategic objectives. To meet this
requirement and to discharge its obligations under the
FCA Handbook and PRA Handbook, procedures have
been designed for safeguarding assets against
unauthorised use or disposal; for maintaining proper
accounting records; and for ensuring the reliability and
usefulness of financial information used within the
business or for publication. These procedures can only
provide reasonable and not absolute assurance against
material misstatement, errors, losses or fraud.
These procedures are designed to provide effective
internal control within the group and accord with the
Financial Reporting Council’s guidance for directors
issued in its revised form in 2005. They have been in
place throughout the year and up to 23 February 2015,
the date of approval of the Annual Report and Account
2014. This guidance was amended following
consultations undertaken by the Financial Reporting
Council in November 2013 and April 2014, resulting in
revised guidance on risk management, internal control
and related financial and business reporting. The revised
guidance applies to companies with financial years
beginning on or after 1 October 2014.
Key risk management and internal control procedures
include the following:
• Group standards: Functional, operating, financial
reporting and certain management reporting
standards are established by HSBC global function
management committees, for application throughout
the Group. 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 manage the day to day running of
the bank is delegated within limits set by the Board to
the Chief Executive who has responsibility for
overseeing the establishment and maintenance of
systems of control appropriate to the business and
who has the authority to delegate such duties and
responsibilities as he sees fit. The appointments to
the most senior positions within the group require
the approval of the Board of Directors of HSBC
Holdings.
• Risk identification and monitoring: Systems and
procedures are in place in the group to identify,
control and report on the major risks facing the group
including credit, market, liquidity and funding, capital,
financial management, model, reputational, pension,
strategic, sustainability, operational (including
accounting, tax, legal, regulatory compliance, financial
crime compliance, fiduciary, security and fraud,
systems operations, project and people risk) and
insurance risk. Exposure to these risks is monitored by
risk management committees; asset, liability and
capital management committees; and executive
committees in subsidiaries, and for the bank, in Risk
Management Meetings (the ‘RMM’) of the Executive
Committee which are chaired by the Chief Risk
Officer, EMEA. The RMM also monitors the group’s
operational risk profile and the effective
implementation of the group’s operational risk
management framework.
• 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 the group to
heightened risk of loss or reputational damage.
During 2014, attention was focused on:
- emerging markets’ slowdown;
- increased geopolitical risk;
- regulatory developments affecting our business
model and Group profitability;
- regulatory investigations, fines, sanctions
commitments and consent orders and
requirements relating to conduct of business and
financial crime negatively affecting our results and
brand;
- dispute risk;
- heightened execution risk;
- internet crime and fraud;
- information security risk; and
- model risk.
• Strategic plans: Periodic strategic plans are prepared
for global businesses, global functions and certain
geographical regions, including the home and priority
growth markets in Europe, within the framework of
the Group’s strategy.
The bank also prepares and adopts an Annual
Operating Plan which is informed by detailed analysis
of risk appetite, describing the types and quantum of
risks that we are prepared to take in executing our
strategy, and sets out the key business initiatives and
the likely financial effects of these initiatives.
• Disclosure Committee: The Disclosure Committee
reviews material public disclosures made by the bank
for any material errors, misstatements or omissions.
The integrity of disclosures is underpinned by
structures and processes within the Global Finance
and Risk functions that support expert and rigorous
analytical review of financial reporting complemented
by certified reviews by heads of global businesses,
global functions and certain legal entities.
• Financial reporting: The group’s financial reporting
process for preparing the consolidated Annual Report
and Accounts 2014 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 Global
Finance to the bank and all reporting entities within
the group in advance of each reporting period end.
The submission of financial information from each
reporting entity is subject to certification by the