HSBC 2011 Annual Report Download - page 211

209
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
series of stress scenarios designed to determine the effect of reducing expected available liquidity and accelerating
cash outflows. This is achieved, for example, by assuming new business or renewals are lower, and surrenders or
lapses are greater, than expected.
Reputational risk
(Unaudited)
We regularly review our policies and procedures for safeguarding against reputational and operational risks. This is
an evolutionary process which takes account of relevant developments, industry guidance and best practice.
We have always aspired to the highest standards of conduct and, as a matter of routine, take account of reputational
risks to our business. Reputational risks can arise from a wide variety of causes. As a banking group, our good
reputation depends not only upon the way in which we conduct our business, but also by the way in which clients, to
whom we provide financial services, conduct themselves. The training of Directors on appointment includes
reputational matters.
Group functions with responsibility for activities that attract reputational risk are represented at the Group
Reputational Risk Policy Committee (‘GRRPC’), which is chaired by the Group Chairman. The primary role of the
GRRPC is to consider areas and activities presenting significant reputational risk and, where appropriate, to make
recommendations to the Risk Management Meeting and the GMB for policy or procedural changes to mitigate such
risk. Reputational Risk Committees have been established in each of the Group’s geographical regions. These
committees are required to ensure that reputational risks are considered at a regional as well as Group level. Minutes
from the regional committees are tabled at GRRPC.
Standards on all major aspects of business are set for HSBC and for individual subsidiaries, businesses and functions.
Reputational risks, including environmental, social and governance (‘ESG’) matters, are considered and assessed by
the Board, the GMB, the Risk Management Meeting, subsidiary company boards, Board committees and senior
management during the formulation of policy and the establishment of our standards. These policies, which form an
integral part of the internal control system (see page 240), are communicated through manuals and statements of
policy and are promulgated through internal communications and training. The policies cover ESG issues and set out
operational procedures in all areas of reputational risk, including money laundering deterrence, counter-terrorist
financing, environmental impact, anti-corruption measures and employee relations. The policy manuals address risk
issues in detail and co-operation between Group departments and businesses is required to ensure a strong adherence
to our risk management system and our sustainability practices.
Pension risk
(Unaudited)
We operate a number of pension plans throughout the world, as described in Note 7 on the Financial Statements.
Some of them are defined benefit plans, of which the largest is the HSBC Bank (UK) Pension Scheme (‘the principal
plan’).
In order to fund the benefits associated with these plans, sponsoring Group companies (and, in some instances,
employees) make regular contributions in accordance with advice from actuaries and in consultation with the
scheme’s trustees (where relevant). The defined benefit plans invest these contributions in a range of investments
designed to meet their long-term liabilities.
The level of these contributions has a direct impact on HSBC’s cash flow and would normally be set to ensure that
there are sufficient funds to meet the cost of the accruing benefits for the future service of active members. However,
higher contributions will be required when plan assets are considered insufficient to cover the existing pension
liabilities. Contribution rates are typically revised annually or triennially, depending on the plan. The agreed
contributions to the principal plan are revised triennially.
A deficit in a defined benefit plan may arise from a number of factors, including
• investments delivering a return below that required to provide the projected plan benefits. This could arise, for example, when there is a
fall in the market value of equities, or when increases in long-term interest rates cause a fall in the value of fixed income securities held;
• the prevailing economic environment leading to corporate failures, thus triggering write-downs in asset values (both equity and debt);
• a change in either interest rates or inflation which causes an increase in the value of the scheme liabilities; and
• scheme members living longer than expected (known as longevity risk).