HSBC 2012 Annual Report Download - page 248

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Other material risks / Reputational risk / Pension risk
246
Other material risks
Page App1Tables Page
Reputational risk ................................................. 246 278
Pension risk .......................................................... 246 278
Pension plans in the UK ........................................ 279
The principal plan .................................................. 246 The principal plan – target asset allocation ......................... 247
Benefit payments (US$m) ...................................................... 247
Future developments .............................................. 248
Pension plans in Hong Kong ................................. 279
The HSBC Group Hong Kong Local Staff
Retirement Benefit Scheme ............................... 248
Pension plans in North America ............................ 280
The HSBC North America (US) Retirement
Income Plan ....................................................... 249
Sustainability risk ................................................ 249 280
1 Appendix to Risk – risk policies and practices.
Reputational risk
(Unaudited)
The safeguarding of our reputation is
paramount. It is the responsibility of all
members of staff, supported by a global risk
management structure underpinned by
relevant policies and practices, readily
available guidance, and regular training.
We have acknowledged, in the context of last
year’s US Senate Permanent Subcommittee on
Investigations, the Deferred Prosecution Agreements
with US authorities and the undertakings with the
UK FSA, that it was not enough to fix the
specific issues that they focused on. Additionally,
therefore, we have outlined our implementation of
a global strategy to tackle the root causes of these
identified deficiencies.
With a new senior leadership team and a new
strategy in place since 2011, HSBC has already
taken steps to augment the framework to address
these issues including making significant changes
to strengthen compliance, risk management and
culture. These steps, which should also serve, over
time, to enhance our reputational risk management,
are discussed further on page 278.
Success in detecting and preventing illicit
actors’ access to the global financial system calls for
constant vigilance and HSBC will continue to work
in close cooperation with all governments to achieve
this. This is integral to the execution of HSBC’s
strategy, to our core values and to preserving and
enhancing our reputation.
Pension risk
(Audited)
We operate a number of pension plans
throughout the world. Some are defined
benefit plans, of which the largest is the
HSBC Bank (UK) Pension Scheme (‘the
principal plan’).
There were no material changes to our policies and
procedures for the management of pension risk in
2012.
During 2012, the Group’s defined benefit
pension plans reduced from a net liability of
US$0.2bn to a net asset of US$0.03bn. This was
mainly due to growth in the value of the principal
plan’s assets outstripping the comparable growth in
liabilities.
The principal plan
(Audited)
In 2006 the principal plan assets consisted of a
strategic portfolio. At the time, HSBC and the trustee
of the principal plan agreed to change the investment
strategy in order to reduce the investment risk. The
target asset allocations for this strategy at that time,
as revised in 2011 and at this year end are shown
below, demonstrating the ongoing evolution of the
strategy. The strategy is to hold the majority of
assets in bonds, with the remainder in a more diverse
range of investments, and includes a commitment
to undertake a programme of swap arrangements
(see Note 44 on the Financial Statements) by which
the principal plan makes Libor-related interest
payments in exchange for the receipt of cash
flows which are based on projected future benefit
payments to be made from the principal plan.