HSBC 2015 Annual Report Download - page 178

Report of the Directors: Risk (continued)
Operational risk
HSBC HOLDINGS PLC
176
Operational risk
Page App1Tables Page
Operational risk 176 217
Operational risk management framework 176 Key components of HSBC’s ORMF 176
Three lines of defence 177
Operational risk in 2015 177
Frequency and amount of operational risk losses 177 Frequency of operational risk incidents by risk category 178
Distribution of operational risk losses in US dollars by
risk category 178
Compliance risk 178 217
Legal risk 218
Global security and fraud risk 218
Systems risk 219
Vendor risk management 219
1 Appendix to Risk – risk policies and practices.
Operational risk is the risk to achieving our strategy or
objectives as a result of inadequate or failed internal
processes, people and systems or from external
events.
Responsibility for minimising operational risk lies with
HSBC’s management and staff. All regional, global business,
country, and functional staff are required to manage the
operational risks of the business and operational activities
for which they are responsible.
A summary of our current policies and practices regarding
operational risk is provided in the Appendix to Risk on page 217.
Operational risk management framework
HSBC’s Operational Risk Management Framework (‘ORMF’)
is our overarching approach for managing operational risk.
The purpose of the ORMF is to make sure we fully identify
and manage our operational risks in an effective manner
and remain within our targeted levels of operational risk
within the Group’s risk appetite, as defined by the Board.
Articulating our risk appetite for material operational risks
helps the organisation understand the level of risk HSBC is
willing to accept. Monitoring operational risk exposure
against risk appetite on a regular basis and implementing
our risk acceptance process drives risk awareness in a
forward-looking manner and assists management in
determining whether further action is required.
Activities to strengthen our risk culture and better embed
the use of the ORMF continued in 2015. In particular, we
continued to streamline our operational risk management
processes, procedures and tool sets to provide more
forward-looking risk insights and more effective operation
of the ORMF. The ORMF comprises the 14 key components
set below.
Key components of HSBC’s ORMF
Operational
Risk
Management
Cycle
Culture, Values and Operational Risk Strategy
Governance 3LODFIMTaxonomy
2.1 Risk Committee Structure and
Terms of Reference
2.2 Global Operational Risk Committee
5.1 Operational Risk taxonomy
1
Risk appetite Reporting
6 7
Capital
Calculation
8
8.1 Operational risk capital calculation (economic and ICAAP capital)
8.2 Stress testing for operational risk
9
10
11
12
Core Operational Risk Management
Systems and tools
Use, embedding and oversight
13
14
Identification and assessment
9.1 Risk and control assessments
9.2 Scenario analysis
9.3 Top and emerging
operational risks
Internal control monitoring and
key indicator management
Management actions
Internal and external event
management and escalation
3.1 Operational Risk roles and responsibilities
3.2 Second line of defence skills and resources
4.1 Operational Risk policy framework
2
3
4
5