HSBC 2008 Annual Report Download - page 255

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litigation against third parties.
The GMO legal department oversees the global
legal function and is headed by a Group General
Manager who reports to the Group Chairman. There
are legal departments in 54 of the countries in which
HSBC operates. There are also regional legal
functions in each of Europe, North America, Latin
America, the Middle East, and Asia-Pacific.
Operating companies must notify the
appropriate legal department immediately any
litigation is either threatened or commenced against
HSBC or an employee. The appropriate regional
legal department must be immediately advised (and
must in turn immediately advise the GMO legal
department) of any action by a regulatory authority,
where the proceedings are criminal, or where the
claim might materially affect the Group’s reputation.
Further, any claims which exceed US$1.5 million or
equivalent must also be advised to the appropriate
regional legal department and the regional legal
department must immediately advise the GMO legal
department if any such claim exceeds US$5 million.
All such matters are then reported to the Risk
Management Meeting of the Group Management
Board in a monthly paper.
An exception report must be made to the local
compliance function and escalated to the Head of
Group Compliance in respect of any breach which
has given rise to a fine and/or costs levied by a court
of law or regulatory body where the amount is
US$1,500 or more, and material or significant issues
are reported to the Risk Management Meeting of
GMB and/or the Group Audit Committee.
In addition, operating companies are required to
submit quarterly returns detailing outstanding claims
where the claim (or group of similar claims) exceeds
US$10 million, where the action is by a regulatory
authority, where the proceedings are criminal, where
the claim might materially affect the Group’s
reputation, or, where the GMO legal department has
requested returns be completed for a particular
claim. These returns are used for reporting to the
Group Audit Committee and the Board of HSBC
Holdings, and disclosure in the Interim Report and
Annual Report and Accounts, if appropriate.
Global security and fraud risk
(Unaudited)
Security and fraud risk issues are managed at Group
level by Global Security and Fraud Risk. This unit,
which has responsibility for physical, fraud,
information and contingency risk, and security and
business intelligence, is fully integrated within the
central GMO Risk function. This facilitates
synergies between it and other risk functions, such
as with Global Retail Risk Management in the
selection, design and implementation of systems
and processes to protect the Group against fraud by
deterring fraudulent activity, detecting it where it
does occur and mitigating its effects.
Pension risk
(Unaudited)
HSBC operates a number of pension plans
throughout the world, as described in Note 8 on the
Financial Statements. Some of these pension plans
are defined benefit plans, of which the largest is the
HSBC Bank (UK) Pension Scheme.
In order to fund these benefits, sponsoring group
companies (and in some instances, employees) make
regular contributions in accordance with advice from
actuaries and in consultation with the scheme’s
Trustees (where relevant). The defined benefit plans
invest these contributions in a range of investments
designed to meet their long-term liabilities.
The level of these contributions has a direct
impact on the cash flow of the Group and would
normally be set to ensure that there are sufficient
funds to meet the cost of the accruing benefits for the
future service of active members. However, higher
contributions will be required when plan assets are
considered insufficient to cover the existing pension
liabilities as a deficit exists. Contribution rates are
typically revised annually or triennially, depending
on the plan. The agreed contributions to the HSBC
Bank (UK) Pension Scheme are revised triennially.
A deficit in a defined benefit plan may arise
from a number of factors, including:
• investments delivering a return below that
required to provide the projected plan benefits.
This could arise, for example, when there is a
fall in the market value of equities, or when
increases in long-term interest rates cause a fall
in the value of fixed income securities held;
• the prevailing economic environment leading to
corporate failures, thus triggering write-downs
in asset (both equity and debt) values;
• a change in either interest rates or inflation
which causes an increase in the value of the
scheme liabilities; and
• scheme members living longer than expected
(known as longevity risk).
The plan’s investment strategy is determined
in the light of the market risk inherent in the
investments and the consequential impact on
potential future contributions.