HSBC 2011 Annual Report Download - page 239

237
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
of the Committee and other senior financial,
risk, internal audit, legal and compliance
executives attended as appropriate.
• Stress testing. The Committee reviewed the
outcome of stress tests as referred to in the
section headed ‘Stress Testing’ on page 236.
• Review of effectiveness of internal controls.
A series of presentations were made, and reports
submitted by, the Group Chief Risk Officer and
other business and function heads to the
Committee on the risk control framework in
their respective business or function. Reports
from the Group Head of Internal Audit on the
internal audit process and weaknesses identified
in internal controls (other than over financial
reporting) were presented to the Committee, as
well as reports from the external auditor and
regulators relating to the internal control system.
The Committee undertook an annual review
process of HSBC’s system of internal controls,
other than over financial reporting. HSBC’s
internal control system is described on
page 240. The Committee had regular
discussions at meetings with the external auditor
and the Group Head of Internal Audit, with
opportunities at each meeting for discussions to
take place without management present.
• Risk appetite. The Group Risk Appetite
Statement for 2011 was recommended to the
Board for approval following consideration of
the alignment of risk appetite and Group
strategy. The Committee undertook regular
reviews of the Group’s risk profile against the
key performance indicators set out in the Risk
Appetite Statement and considered the need for
any adjustment to the risk appetite. Reports and
presentations were received from the Group
Chief Risk Officer, including on liquidity and
capital management and the results of HSBC’s
stress testing and scenario analysis programme.
• Alignment of remuneration with risk
appetite. Presentations and reports were
received on remuneration-related proposals to
assist the Committee in giving advice to the
Group Remuneration Committee on the
alignment of remuneration with risk appetite.
The GRC considered risk-related issues to be
taken into account by the Group Remuneration
Committee, including when determining the
total variable pay funding pool for the 2011
performance year. The funding methodology,
including the proposed ratio between variable
pay funding, dividends and capital retained, was
also considered. The Committee received
presentations on the procedure for determining
individual variable pay awards including the
risk assessment process for identifying matters
for which risk-related adjustments may be made
to individual and team awards. The process by
which an individual’s adherence to HSBC
Values and the Group’s risk-related policies and
procedures is taken into account in performance
assessment and determination of variable pay
was also presented to the Committee. The
Committee considered the framework to be
used by the Group Remuneration Committee
in exercising its discretion in delivering
performance awards for the 2011 performance
year and the proposed design of the performance
scorecard for the 2012 performance year. The
Committee provided advice and feedback on
risk-related matters to the Group Remuneration
Committee where appropriate.
• Top and emerging risks. In monitoring top and
emerging risks the Committee received regular
reports from the Group Chief Risk Officer
and the Group Head of Compliance as well
as other members of senior management on
risks identified and developments in the Group’s
business, including the changing regulatory
environment and global market risk such as the
implications of the eurozone crisis and the
impact of the tightening of liquidity in the
money markets. The Committee reviewed
minutes of executive committee meetings
including meetings of the GMB, the Risk
Management Meeting and Group Reputational
Risk Policy Committee.
• Acquisitions. The Committee received reports
and presentations on risk issues relating to
proposed strategic acquisitions and advised
the Board appropriately. The Group Head of
Mergers and Acquisitions and other members
of senior management involved in the proposed
acquisitions attended meetings of the Committee
as appropriate.
• Terms of reference and Committee
effectiveness. The Committee undertook a
review of its terms of reference and of its own
effectiveness. Changes were made to the
Committee’s terms of reference to minimise the
overlap of responsibilities between the GRC
and the GAC.
In addition to the scheduled Committee
meetings, the Chairman met regularly with the
Group Chief Risk Officer, the Group Head of
Internal Audit, the Group Finance Director, other
senior executives and the external auditor.