HSBC 2015 Annual Report Download - page 197

HSBC HOLDINGS PLC
195
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
• Sustainable and diversified earnings mix: global businesses and regions must support sustainable, well diversified and non-
volatile earning streams, delivering consistent returns for shareholders;
• Reputation risk: we tolerate a limited degree of reputational risk arising from business activities or associations where the
risk has been escalated to the appropriate level of management. We have zero tolerance for knowingly engaging in any
business, activity or association where foreseeable reputational risk/damage has not been considered and/or mitigated;
• Financial crime compliance: we will operate with integrity to the most effective financial crime risk management standards,
address financial system vulnerability through a robust financial crime risk management framework, and ensure
appropriate mitigating systems and controls are in place to prevent and detect financial crime. We have no appetite for
deliberately or knowingly facilitating business that gives rise to illicit activity; and
• Regulatory compliance: we have no appetite for deliberately or knowingly causing detriment to consumers arising from our
products and services, or incurring a breach of the letter or spirit of regulatory requirements. We have no appetite for
inappropriate market conduct by a member of staff or by any Group business.
Credit risk
Credit risk management
(Audited)
The role of independent credit control unit is fulfilled by the Global Risk function. Credit approval authorities are delegated by
the Board to the Chief Executive Officer of HSBC Holdings together with the authority to sub-delegate them. Similar credit
approval authorities are delegated by the boards of subsidiary companies to their respective executive officers. In each
major subsidiary, a Chief Risk Officer reports to the local Chief Executive Officer on credit-related issues, while maintaining a
direct functional reporting line to the Group Chief Risk Officer in Global Risk. Details of the roles and responsibilities of the credit
risk management function and the policies and procedures for managing credit risk are set out below. There were no
significant changes in 2015.
The high-level oversight and management of credit risk provided globally by the Credit Risk sub-function in Global Risk
• to formulate Group credit policy. Compliance, subject to approved dispensations, is mandatory for all operating companies which must
develop local credit policies consistent with Group policies;
• to guide operating companies on the Group’s appetite for credit risk exposure to specified market sectors, activities and banking products
and controlling exposures to certain higher-risk sectors;
• to undertake an independent review and objective assessment of risk. Global Risk assesses all commercial non-bank credit facilities and
exposures over designated limits, prior to the facilities being committed to customers or transactions being undertaken;
• to monitor the performance and management of portfolios across the Group;
• to control exposure to sovereign entities, banks and other financial institutions, and debt securities which are not held solely for the
purpose of trading;
• to set Group policy on large credit exposures, ensuring that concentrations of exposure by counterparty, sector or geography do not
become excessive in relation to our capital base, and remain within internal and regulatory limits;
• to control our cross-border exposures;
• to maintain and develop our risk rating framework and systems, the governance of which is under the general oversight of the Group
Model Oversight Committee (‘MOC’). The Group MOC meets bi-monthly and reports to the RMM. It is chaired by the Global Risk function
and its membership is drawn from Global Risk and relevant global functions or businesses;
• to report to the RMM, the GRC and the Board on high risk portfolios, risk concentrations, country limits and cross-border exposures, large
impaired accounts, impairment allowances, stress testing results and recommendations and retail portfolio performance; and
• to act on behalf of HSBC Holdings as the primary interface, for credit-related issues, with the Bank of England, the PRA, local regulators,
rating agencies, analysts and counterparts in major banks and non-bank financial institutions.
Principal objectives of our credit risk management
• to maintain across HSBC a strong culture of responsible lending and a robust risk policy and control framework;
• to both partner and challenge our businesses in defining, implementing and continually re-evaluating our risk appetite under
actual and scenario conditions; and
• to ensure there is independent, expert scrutiny of credit risks, their costs and their mitigation.