HSBC 2012 Annual Report Download - page 24

HSBC HOLDINGS PLC
Report of the Directors: Overview (continued)
Risk / KPIs
22
Top and emerging risks
We classify certain risks as ‘top’ or ‘emerging’. We
define a ‘top risk’ as being a current, emerged risk
which has arisen across any of our risk categories,
regions or global businesses and has the potential to
have a material impact on our financial results or our
reputation and the sustainability of our long-term
business model, and which may form and crystallise
within a one-year horizon. We consider an ‘emerging
risk’ to be one which has large uncertain outcomes
which may form and crystallise beyond a one-year
horizon and, if it were to crystallise, could have a
material effect on our long-term strategy.
Our approach to identifying and monitoring top
and emerging risks is informed by the risk factors.
All of our activities involve, to varying degrees,
the measurement, evaluation, acceptance and
management of risk or combinations of risks which
we assess on a Group-wide basis. Top and emerging
risks fall under the following three broad categories:
• macroeconomic and geopolitical risk;
• macro-prudential, regulatory and legal risks to
our business model; and
• risks related to our business operations,
governance and internal control systems.
During 2012, our senior management paid
particular attention to a number of top and emerging
risks. The current list is summarised below:
Macroeconomic and geopolitical risk
• Emerging markets slow down.
• Macroeconomic risks within developed economies.
• 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, fines, sanctions 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
• Regulatory commitments and consent orders including
under the Deferred Prosecution Agreements.
• Challenges to achieving our strategy in a downturn.
• Internet crime and fraud.
• Level of change creating operational complexity and
heightened operational risk.
• Information security risk.
• Model risk.
A detailed account of these risks is provided on
page 131. All of them are regarded as top risks.
Further comments on expected risks and
uncertainties are made throughout the Annual Report
and Accounts 2012, particularly in the section on
Risk, pages 123 to 249.
Risk appetite
Risk appetite is a key component of our management
of risk and describes the types and level of risk we
are prepared to accept in delivering our strategy. Our
risk appetite is set out in the Group’s Risk Appetite
Statement and is central to the annual planning
process. Global businesses, geographical regions and
global functions are required to articulate their risk
appetite statements. They are discussed further on
page 126.
Our risk appetite may be revised in response to
the top and emerging risks we have identified.
Key performance indicators
The Board of Directors and the GMB monitor
HSBC’s progress against its strategic
objectives. Progress is assessed by
comparison with our strategy, our operating
plan and our historical performance using
both financial and non-financial measures.
From time to time the Group reviews its key
performance indicators (‘KPIs’) in light of its
strategic objectives and may in the future adopt new
or refined measures, or modify or adjust existing
targets, to better align the KPIs to our strategic
objectives.
The GMB remains focused on improving our
capital deployment to support the achievement of
our medium-term target for return on equity of
between 12% and 15%, utilising the six filter
analysis across our portfolio of businesses. We will
continue to evaluate our businesses in 2013 using
this methodology.
Employee engagement has been monitored
through annual Global People Surveys. In 2012,
quarterly Pulse Surveys were introduced, and the
Global People Surveys scheduled biennially. The
next Global People Survey will be in 2013. As the
Pulse Surveys were not designed to report employee
engagement information comparable with that
derived from the Global People Surveys, we have
not disclosed this KPI in 2012.