HSBC 2008 Annual Report Download - page 301

299
Corporate Sustainability Committee
The role of the Corporate Sustainability Committee
and its membership are set out on page 312.
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 misstatement, 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: Revised Guidance for Directors on the
Combined Code issued by the Financial Reporting
Council. Such procedures for the ongoing
identification, evaluation and management of the
significant risks faced by HSBC have been in place
throughout the year and up to 2 March 2009, the date
of approval of the Annual Report and Accounts
2008. In the case of companies acquired during the
year, the internal controls in place are being
reviewed against HSBC’s benchmarks and
integrated into HSBC’s processes.
HSBC’s key internal control procedures include
the following:
• Authority to operate the various subsidiaries and
responsibilities for financial performance
against plans and for capital expenditure are
delegated to their respective chief executive
officers within limits set by the Board of
Directors of HSBC Holdings. Delegation of
authority from the Board to individuals requires
those individuals to maintain a clear and
appropriate apportionment of significant
responsibilities and to oversee the establishment
and maintenance of systems of control
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 Management Office
management committees, for application across
the whole of HSBC. 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.
• 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, breaches of law or regulations,
unauthorised activities, information risk,
security and fraud. Exposure to these risks is
monitored by risk management committees,
asset and liability committees and executive
committees in subsidiaries and, for HSBC as a
whole, by the Group Management Board. A risk
management meeting of the Group Management
Board, chaired by the Group Finance Director, is
held monthly to address asset, liability and risk
management issues, its minutes are submitted to
the Group Audit Committee and to the Board of
Directors. The Group Operational Risk and
Control Committee reviews the implementation
of HSBC’s management framework for
operational risk and internal control.
• A Disclosure Committee has been established to
review material disclosures made by HSBC
Holdings for any errors, misstatements or
omissions. The membership of the Disclosure
Committee, which is chaired by the Group
Company Secretary, includes the heads of the
Finance, Legal, Risk, Compliance, Corporate
Communications, Investor Relations and
Internal Audit functions and representatives
from the principal regions, customer groups and
global businesses.
• Processes are in place to identify new risks from
changes in market conditions and practices or
customer behaviours which could expose HSBC
to heightened risk of loss or reputational
damage. During 2008, attention was directed
towards managing the impact on the Group of
market volatilities and illiquidity; continued
deterioration in the US personal financial
services markets; Group exposure to various
parts of the financial sector e.g. asset backed
securities including mortgage-backed securities
and collateralised debt obligations, monoline
insurers, leveraged finance and money market
funds; and the impact of government
interventions to address the under-capitalisation
and funding difficulties of certain financial
institutions.