HSBC 2011 Annual Report Download - page 105

103
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Potential impact on HSBC
• Internet crime and fraud may give rise to losses
in service to customers and/or economic loss to
HSBC. These risks equally apply when we rely
on external suppliers or vendors to provide
services to us and our customers.
• We have increased our monitoring and have
implemented additional controls such as two-
factor authentication to mitigate the possibility
of losses from these risks.
Social media risk
The scale and profile of social media networks
(‘SMN’s) have grown both in terms of customer
demographic and geographical reach to represent
a significant potential reputational risk to our
organisation, given that these networks can be used
as powerful broadcasting tools with the capability to
reach large numbers of people in a very short time
frame.
Potential impact on HSBC
• SMNs can be used to exacerbate the effect of
customer complaints and service failures, and
provide a means for employees to publicise
confidential information. SMNs present
significant risks to our reputation and brand.
• In order to reduce our exposure to these risks,
an HSBC presence has been created in several
of the larger SMNs in order to provide an
official point of contact for our customers
and stakeholders. Monitoring has also been
implemented in some entities to protect our
brand and identity and to understand general
sentiment towards us and, in some cases, our
specific products and initiatives.
Level of change creating operational
complexity and heightened operational risk
There are many drivers of change across HSBC and
the banking industry including change driven by new
banking regulation, the increased globalisation of the
economy and business needs, new products and
delivery channels, and organisational change.
Operational complexity has the potential to
heighten all types of operational risk across our
activities. This includes the risk of process errors,
systems failures and fraud. It can also increase
operational costs.
The implementation of our strategy, based
on the application of our five filters methodology
(see page 11), may involve the withdrawal from
certain markets, which presents disposal risks which
must be carefully managed.
Potential impact on HSBC
• Critical systems failure and a prolonged loss of
service availability could cause serious damage
to our ability to serve our clients, breach
regulations under which we operate and cause
long-term damage to our business, reputation
and brand. We seek to ensure that our critical
systems infrastructure is constantly monitored
and properly resourced to mitigate against
systems failures.
• The potential effects of disposal risks include
regulatory breaches, industrial action, loss of
key personnel and interruption to systems and
processes during business transformation, and
they can have both financial and reputational
implications. Management actions to manage
these risks proactively include a close dialogue
with regulators and customers and the
involvement of HR, legal, compliance and other
functional experts.
Information security risk
The reliability and security of our information and
technology infrastructure and customer databases
and their ability to combat internet fraud are crucial
to maintaining our banking applications and
processes and to protecting the HSBC brand.
Potential impact on HSBC
• These risks give rise to potential financial loss
and reputational damage which could adversely
affect customer and investor confidence. Loss of
customer data would also result in regulatory
breaches which would result in fines and
penalties being incurred.
• We have invested significantly in addressing
this risk through increased training to raise staff
awareness of the requirements, enhanced
controls around data access and heightened
monitoring of information flows.