HSBC 2010 Annual Report Download - page 205

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Overview Operating & Financial Review Governance Financial Statements Shareholder Information
profile, including top risks, control issues,
internal and external operational loss events and
key risk indicators. The GORCC communicates
the lessons learned from operational events both
within HSBC and in the wider industry;
• a Disclosure Committee has been established to
review material public disclosures made by
HSBC Holdings for any material 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. The integrity of disclosures is
underpinned by structures and processes within
the Finance and Risk functions that support
expert and rigorous analytical review of
financial reporting;
• the group financial reporting process for
preparing the consolidated Annual Report and
Accounts 2010 is controlled using documented
accounting policies and reporting formats,
supported by a chart of accounts with detailed
instructions and guidance on reporting
requirements, issued by Group Finance to all
reporting entities within the Group in advance of
each reporting period end. The submission of
financial information from each reporting entity
to Group Finance is subject to certification by
the responsible financial officer, and analytical
review procedures at reporting entity and Group
levels;
• processes are in place to identify new risks from
changes in market conditions/practices or
customer behaviours, which could expose
HSBC to heightened risk of loss or reputational
damage. During 2010, attention was focused on
refinement and operation of the stress testing
framework; the roll-out of enhanced
counterparty risk aggregation, risk management
information, portfolio and crisis management
processes; the mitigation of information risks;
enhancement of policies and practices relevant
to the prevention of financial crimes; and
changes in the regulation of and public policy
towards the financial services industry. From
January 2011, risk review and audit functions
have increased their focus on global thematic
risks;
• periodic strategic plans are prepared for key
customer groups, global product groups, support
functions and certain geographies within the
framework of the Group Strategic Plan. Rolling
operating plans, informed by detailed analysis of
risk appetite describing the types and quantum
of risk that HSBC is prepared to take in
executing its strategy, are prepared and adopted
by all major HSBC operating companies and set
out the key business initiatives and the likely
financial effects of those initiatives;
• governance arrangements are in place to provide
oversight of, and advice to the Board on,
material risk-related matters including assurance
that risk analytical models are fit for purpose,
used accordingly and complemented by both
model-specific and enterprise-wide stress tests
that evaluate the impact of severe yet plausible
events and other unusual circumstances not fully
captured by quantitative models;
• centralised functional control is exercised over
all IT developments and operations. Common
systems are employed for similar business
processes wherever practicable. Credit and
market risks are measured and reported on in
subsidiaries and aggregated for review of risk
concentrations on a Group-wide basis;
• functional management in GMO is responsible
for setting policies, procedures and standards for
the following risks: credit; market; liquidity;
operations; IT; fraud; business continuity;
security; information; insurance; accounting;
tax; legal; regulatory compliance; fiduciary;
human resources; reputational; sustainability;
residual value; shariah and strategic risks.
Authorities to enter into credit and market risk
exposures are delegated with limits to line
management of Group companies. The
concurrence of GMO is required, however, to
credit proposals with specified higher risk
characteristics;
• policies to guide subsidiary companies and
management at all levels in the conduct of
business to safeguard the Group’s reputation are
established by the Board and the GMB,
subsidiary company boards, Board committees
and senior management. Reputational risks can
arise from environmental, social or governance
issues, or as a consequence of operational risk
events. As a banking group, HSBC’s good
reputation depends upon the way in which it
conducts its business but it can also be affected
by the way in which clients, to which it provides
financial services, conduct their business or use
financial products and services;
• the establishment and maintenance of
appropriate systems of internal control is