HSBC 2012 Annual Report Download - page 280

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Appendix – Risk policies and practices > Reputational risk / Pension risk
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• the sale of investments.
They manage liquidity risk by utilising some or all of the following techniques:
• matching cash inflows with expected cash outflows using specific cash flow projections or more general asset
and liability matching techniques such as duration matching;
• maintaining sufficient cash resources;
• investing in good credit-quality investments with deep and liquid markets to the degree to which they exist;
• monitoring investment concentrations and restricting them where appropriate, for example, by debt issues or
issuers; and
• establishing committed contingency borrowing facilities.
Each of these techniques contributes to mitigating the three types of liquidity risk described above.
Every quarter, our insurance manufacturing subsidiaries are required to complete and submit liquidity risk reports
to Group Insurance Head Office for collation and review by the Group Insurance Market and Liquidity Risk
Committee. Liquidity risk is assessed in these reports by measuring changes in expected cumulative net cash flows
under a 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 risk. This is an evolutionary
process which takes account of relevant developments, industry guidance, best practice and societal expectations.
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.
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 Global Standards Steering Committee for policy or procedural changes to mitigate such risk.
Reputational Risk Policy Committees, which have been established in each of the Group’s geographical regions, are
required to ensure that reputational risks are also considered at a regional 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 matters, are considered and assessed by the
Board, the GMB, the Risk Management Meeting, the Global Standards Steering Committee, 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 332), are
communicated through manuals and statements of policy and are promulgated through internal communications and
training. The policies set out our risk appetite and operational procedures in all areas of reputational risk, including
money laundering deterrence, counter-terrorist financing, environmental impact, anti-bribery and 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
(Audited)
We operate a number of pension plans throughout the world, as described in Note 7 on the Financial Statements, the
Pension risk section on page 224 and below. 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