HSBC 2010 Annual Report Download - page 157

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Overview Operating & Financial Review Governance Financial Statements Shareholder Information
appropriate regional legal department and the
regional legal department must immediately advise
the GMO Legal department if any such claim
exceeds US$5m. The appropriate regional legal
department must also 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 our reputation. Insofar
as matters relate to GB&M or GPB, notification
should also be made to GB&M Legal in London.
All such matters are then reported to the Risk
Management Meeting in a monthly paper.
In addition, our operating companies are
required to submit semi-annual returns detailing
outstanding claims where the claim (or group of
similar claims) exceeds US$10m, where the action is
by a regulatory authority, where the proceedings are
criminal, where the claim might materially affect our
reputation, or, where the GMO Legal department has
requested returns be completed for a particular
claim. These returns are used for reporting to
the Risk Management Meeting, the Group Audit
Committee and the Board, and disclosure in the
Annual Report and Accounts and Interim Report,
if appropriate.
Compliance risk
(Unaudited)
Compliance risk falls within the definition of
operational risk. All Group companies are required
to observe the letter and spirit of all relevant laws,
codes, rules, regulations and standards of good
market practice. These rules, regulations, other
standards and Group policies include those relating
to anti-money laundering, counter terrorist financing
and sanctions compliance.
The Group Compliance function supports line
management in ensuring that there are adequate
policies and procedures, and is responsible for
maintaining adequate resources to mitigate
compliance risk. The GMO Compliance department
oversees the global compliance function and is
headed by the Head of Group Compliance who in
turn reports to the Group Chief Risk Officer. There
are compliance teams in all of the countries where
we operate. These compliance teams are principally
overseen by Regional Compliance Officers located
in Europe, North America, Latin America, the
Middle East and Asia-Pacific.
Group Compliance policies and procedures
require the prompt identification and escalation
to GMO Compliance of all actual or suspected
breaches of any law, rule, regulation, Group policy
or other relevant requirement. These escalation
procedures are supplemented by a requirement for
the submission of compliance certificates at the half-
year and year-end by all Group companies detailing
any known breaches as above. The contents of these
escalation and certification processes are used for
reporting to the Risk Management Meeting, the
Group Risk Committee and the Board and disclosure
in the Annual Report and Accounts and Interim
Report, if appropriate.
Group security and fraud risk
(Unaudited)
Security and fraud risk issues are managed at Group
level by Group Security and Fraud Risk. This unit,
which has responsibility for physical risk, fraud,
information and contingency risk, and security and
business intelligence, is fully integrated within
the central GMO Risk function. This enables
management to identify and mitigate the effect of
the permutations of these and other non-financial
risks on our business lines across the jurisdictions
in which we operate.
Risk management of insurance
operations
(Audited)
We operate a bancassurance model which provides
insurance products for customers with whom we
have a banking relationship. Insurance products are
sold to all customer groups, mainly utilising retail
branches, the internet and phone centres. PFS
customers attract the majority of sales and comprise
the majority of policyholders.
Many of these insurance products are
manufactured by our subsidiaries. This allows us to
retain the risks and rewards associated with writing
insurance contracts as both the underwriting profit
and the commission paid by the manufacturer to the
bank distribution channel are kept within the Group.
Where we consider it operationally more
effective, third parties are engaged to manufacture
insurance products for sale through our banking
network. We work with a limited number of market-
leading partners to provide the products. These
arrangements earn us a commission.
Our bancassurance business operates in all six
of our geographical regions with over 30 legal
entities, the majority of which are subsidiaries of
banking legal entities, manufacturing insurance
products.
The insurance contracts we sell primarily relate
to core underlying banking activities, such as savings
and investment products, and credit life products.