HSBC 2011 Annual Report Download - page 238

HSBC HOLDINGS PLC
Report of the Directors: Corporate Governance (continued)
Board committees > Group Risk Committee
236
Categories Top and emerging risks
Macro-economic and geopolitical risk
• Eurozone – risk of sovereign default
• Eurozone member departing from the currency union
• Increased geopolitical risk in certain regions
Macro-prudential, regulatory and legal risks to our
business model
• Regulatory developments affecting our business model and Group
profitability
• Regulatory investigations and requirements relating to conduct of business
and financial crime negatively affecting our results and brand
• Dispute risk
Risks related to our business operations, governance and
internal control systems
• Challenges to achieving our strategy in a downturn
• Internet crime and fraud
• Social media risk
• Level of change creating operational complexity and heightened operational
risk
• Information security risk
Stress testing
Our stress testing and scenario analysis programme
is central to the monitoring of top and emerging
risks. It highlights the vulnerabilities of our business
and capital plans to the adverse effects of extreme
but plausible events.
The outcome of the testing and analysis is also
used to assess the potential impact of the relevant
scenarios on the demand for regulatory capital
compared with its supply.
Management develops action plans to mitigate
risks identified. The extent to which those action
plans are implemented depends on management’s
evaluation of the risks and their potential
consequences, taking into account HSBC’s risk
appetite.
Further information on scenario stress testing is
set out on page 188.
Stress tests and scenario tests fall into three
main classifications: regulatory scenarios; Group-
wide business scenarios; and specific business or
exposure scenarios.
During the year, the GRC reviewed the outcome
of Group-wide stress tests and scenario analysis
undertaken in accordance with the requirements of
the FSA, the EBA and the IMF involving analysis of
capital levels and requirements in various stress
scenarios. We satisfied the required thresholds in
each of these tests. The GRC also considered the
outcome of stress tests undertaken on specific
business risks and exposures, including exposure to
eurozone counterparties and sovereigns and to the
residential mortgage business in Hong Kong, and the
implementation of action plans to mitigate risks
where appropriate.
Internal Audit has conducted a review of
stress testing within the Group including model
development, validation and use, and the
methodology, governance and management of
enterprise-wide stress testing. The development of
HSBC’s stress testing and scenario testing analysis
programme will continue to be an area of focus for
the Committee.
Committee activities
The GRC undertook the following key activities in
the discharge of its responsibilities:
• Oversight of executive risk management.
Regular reports and presentations were received
from the Group Chief Risk Officer including at
each meeting a presentation of a ‘risk map’,
which provided detailed analysis, on a Group-
wide, global business and regional basis, of risk
profiles for categories of risk identified in the
Group Risk Appetite Statement, and of a top and
emerging risks report which summarised
proposed mitigating actions for identified risks.
The Committee reviewed minutes of the GAC,
Group Remuneration Committee and executive
committee meetings including the GMB, the
Risk Management Meeting and the Group
Reputational Risk Policy Committee. Reports
were received from the Group General Counsel
on forward-looking legal risks, the Group Head
of Compliance on forward-looking compliance
risks and from the Group Remuneration
Committee and Head of Group Performance and
Reward. Updates were received on the on-going
investigations by US regulatory and law
enforcement authorities and US dispute risk, and
compliance matters in the US. The Group
Finance Director and the Group Chief
Accounting Officer regularly attended meetings