HSBC 2010 Annual Report Download - page 204

HSBC HOLDINGS PLC
Report of the Directors: Governance (continued)
Board committees > Corporate Sustainability Committee // Internal control
202
of the skills, knowledge and experience required
of the Board and the skills, knowledge and
experience of the current Directors. The
Committee reviewed the time commitment
required from non-executive Directors taking
into account the recommendations of Sir David
Walker’s review of corporate governance
relating to board and board committee matters
and made appropriate recommendations to the
Board. The Committee considered the
re-election of Directors at the annual general
meeting and on the recommendation of the
Committee, the Board has decided that all
Directors should be subject to re-election by
shareholders in 2011;
• the Committee provided oversight of other
matters relating to directors including
considering a proposed appointment of a
Director to an external body and discussing and
providing guidance on FSA interactions; and
• the Committee undertook a review of its terms
of reference. The effectiveness of the
Committee was reviewed as part of the Board’s
performance evaluation.
Corporate Sustainability Committee
The role of the Corporate Sustainability Committee
and its membership are set out on page 213.
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 and usefulness 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
FSA, 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 on Corporate Governance 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
28 February 2011, the date of approval of the Annual
Report and Accounts 2010. 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.
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.
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;
• functional, operating, financial reporting and
certain management reporting standards are
established by GMO 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, market, liquidity and
operational risk (including accounting, tax,
legal, compliance, fiduciary, information,
physical security, business continuity, fraud,
systems and people risk). 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 GMB. A Risk
Management Meeting of the GMB, chaired by
the Group Chief Risk Officer, is held in each
month (except August) to address asset, liability
and risk management issues. The minutes of this
meeting are submitted to the GAC, the GRC and
the Board;
• the Global Operational Risk and Control
Committee (‘GORCC’), which reports to
the Risk Management Meeting of the GMB,
meets at least quarterly to monitor HSBC’s
operational risk profile and review the effective
implementation of the Group’s operational risk
management framework. The GORCC receives
quarterly reports on the Group’s operational risk