HSBC 2012 Annual Report Download - page 329

327
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
section headed ‘Stress Testing’ on pages 127
and 128.
• Review of effectiveness of internal controls.
The Committee undertook an annual review of
HSBC’s systems of internal controls, other than
over financial reporting. During 2012, the
Committee monitored the effectiveness of such
internal controls and reported regularly to the
Board as described on page 334. A series of
presentations were made, and reports submitted,
by the Group Chief Risk Officer and other
business and function heads to the Committee
on the risk control framework in their respective
business or function. Reports from the Group
Head of Internal Audit on the internal audit
process and weaknesses identified in internal
controls (other than over financial reporting)
were presented to the Committee, as well as
reports from regulators relating to the internal
control systems.
• Risk appetite. The Committee reviewed the
alignment of risk appetite and Group strategy.
Regular reviews were undertaken of the Group’s
risk profile against the key performance
indicators set out in the risk appetite statement
which considered the need for any adjustment to
the risk appetite. Refinements to the 2012 Risk
Appetite Statement were approved with the
refined 2012 Risk Appetite Statement being
used in the preparation of the Annual Operating
Plan for 2013. Reports and presentations were
received from the Group Chief Risk Officer,
including on the results of HSBC’s stress testing
and scenario analysis programme.
• Alignment of remuneration with risk
appetite. Presentations and reports were
received on remuneration-related proposals to
assist the Committee in giving advice to the
Group Remuneration Committee on the
alignment of remuneration with risk appetite.
The GRC considered risk-related issues to have
been appropriately taken into account by the
Group Remuneration Committee, including
when determining the total variable pay funding
pool for the 2012 performance year and the
proposed design of the performance scorecard
for the 2013 performance year. The Committee
received presentations on the procedure for
determining individual variable pay awards,
including the risk assessment process for
identifying matters for which risk-related
adjustments may be made to individual and
team awards. The process by which an
individual’s adherence to HSBC Values and the
Group’s risk-related policies and procedures is
taken into account in performance assessment
and determination of variable pay was also
reported to the Committee. The Committee
provided advice and feedback on risk-related
matters to the Group Remuneration Committee
where appropriate.
• Top and emerging risks. In monitoring top and
emerging risks the Committee received reports
from the Group Chief Risk Officer and the
Group Head of Compliance as well as other
members of senior management on risks
identified and developments in the Group’s
business, including the changing regulatory
environment; the implications of regulatory
investigations and global market risk such as the
implications of an emerging market slowdown
and the impact on trade and capital flows.
• Acquisitions and disposals. The Committee
received reports and presentations on risk issues
relating to proposed strategic acquisitions and
the risk management of disposals and advised
the Board appropriately. The Group Head of
Mergers and Acquisitions and other members
of senior management involved in proposed
acquisitions and disposals attended meetings
of the Committee as appropriate.
• Oversight of risk governance framework.
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 were provided to Committee
members. From January 2013 the minutes of the
Global Standards Steering Meeting and from
February 2013 the minutes of the Financial
System Vulnerabilities Committee will be made
available to the Committee.
• Terms of reference and Committee
effectiveness. The Committee undertook a
review of its terms of reference and of its own
effectiveness. The Committee recommended to
the Board a change to its terms of reference to
maintain consistency with the terms of reference
of the GAC which were amended to comply
with changes to the requirements of the Hong
Kong Corporate Governance Code.
• In addition to the scheduled Committee
meetings, the Chairman met regularly with the
Group Chief Risk Officer, the Group Head of
Internal Audit, the Group Finance Director, the
Chief Legal Officer and other senior executives
as required.