HSBC 2002 Annual Report Download - page 165

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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 disposition; for
maintaining proper accounting records; and for the
reliability of financial information used within the
business or for publication. Such procedures are
designed to manage rather than eliminate the risk
of failure to achieve business objectives and can
only provide reasonable and not absolute assurance
against material errors, losses or fraud. The
procedures also enable HSBC Holdings to
discharge its obligations under the Handbook of
Rules and Guidance issued by the Financial
Services Authority, 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 Guidance for Directors on the
Combined Code issued by the Institute of
Chartered Accountants in England and Wales.
Such procedures have been in place throughout the
year and up to 3 March 2003, the date of approval
of the Annual Report and Accounts. In the case of
companies acquired during the year, including GF
Bital, the internal controls in place are being
reviewed against HSBC’ s benchmarks and they are
being integrated into HSBC’ s systems. HSBC’ s
key internal control procedures include the
following:
• Authority to operate the various subsidiaries is
delegated to their respective chief executive
officers within limits set by the Board of
Directors of HSBC Holdings or by the Group
Executive Committee under powers delegated
by the Board. Sub-delegation of authority from
the Group Executive Committee to individuals
requires these individuals, within their
respective delegation, to maintain a clear and
appropriate apportionment of significant
responsibilities and to oversee the
establishment and maintenance of systems of
controls appropriate to the business. The
appointment of executives to the most senior
positions within HSBC requires the approval
of the Board of Directors of HSBC Holdings.
• Functional, operating, financial reporting and
certain management reporting standards are
established by Group Head Office
management for application across the whole
of HSBC. These are supplemented by
operating standards set by the local
management as required for the type of
business and geographical location of each
subsidiary.
• Systems and procedures are in place in HSBC
to identify, control and report on the major
risks including credit, changes in the market
prices of financial instruments, liquidity,
operational error, unauthorised activities and
fraud. Exposure to these risks is monitored by
asset and liability committees and executive
committees in subsidiaries and by the Group
Executive Committee for HSBC as a whole.
• Comprehensive annual financial plans are
prepared by subsidiaries and are reviewed and
approved at Group Head Office. Results are
monitored regularly and reports on progress as
compared with the related plan are prepared
throughout HSBC each quarter. A strategic
plan is prepared by major operating
subsidiaries every three years.
• Centralised functional control is exercised
over all computer system developments and
operations. Common systems are employed
where possible for similar business processes.
Credit and market risks are measured and
reported on in subsidiaries and aggregated for
review of risk concentrations on a group-wide
basis.
• Responsibilities for financial performance
against plans and for capital expenditure,
credit exposures and market risk exposures are
delegated with limits to line management in
the subsidiaries. In addition, functional
management in Group Head Office has been
given responsibility to set policies, procedures
and standards in the areas of finance; legal and
regulatory compliance; internal audit; human
resources; credit; market risk; operational risk;
computer systems and operations; property
management; and for certain global product
lines.
• Policies and procedures to guide subsidiary
companies and management at all levels in the