HSBC 2001 Annual Report Download - page 142

HSBC HOLDINGS PLC
Report of the Directors (continued)
140
the Group Executive Committee to individuals
requires these individuals, within their
respective delegation, to maintain a clear and
appropriate apportionment of significant
responsibilities and to oversee the establishment
and maintenance of systems of controls
appropriate to the business. The appointment of
executives to the most senior positions within
HSBC requires the approval of the Board of
Directors of HSBC Holdings.
• Functional, operating, financial reporting and
certain management reporting standards are
established by Group Head Office management
for application across the whole of HSBC. These
are supplemented by operating standards set by
the local management, as required for the type of
business and geographical location of each
subsidiary.
• Systems and procedures are in place in HSBC to
identify, control and report on the major risks
including credit, changes in the market prices of
financial instruments, liquidity, operational
error, unauthorised activities and fraud.
Exposure to these risks is monitored by asset
and liability committees and executive
committees in subsidiaries and by the Group
Executive Committee for HSBC as a whole.
• Comprehensive annual financial plans are
prepared by subsidiaries and are reviewed and
approved at Group Head Office. Results are
monitored regularly and reports on progress as
compared with the related plan are prepared
throughout HSBC each quarter. A strategic plan
is prepared by major operating subsidiaries
every three years.
• Centralised functional control is exercised over
all computer system developments and
operations. Common systems are employed
where possible for similar business processes.
Credit and market risks are measured and
reported on in subsidiaries and aggregated for
review of risk concentrations on a group-wide
basis.
• Responsibilities for financial performance
against plans and for capital expenditure, credit
exposures and market risk exposures are
delegated with limits to line management in the
subsidiaries. In addition, functional management
in Group Head Office has been given
responsibility to set policies, procedures and
standards in the areas of finance; legal and
regulatory compliance; internal audit; human
resources; credit; market risk; operational risk;
computer systems and operations; property
management; and for certain global product
lines.
• Policies and procedures to guide subsidiary
companies and management at all levels in the
conduct of business to avoid reputational risk
are established by the Board of HSBC Holdings,
the Group Executive Committee, subsidiary
company boards, board committees or senior
management. Reputational risks can arise from
ethical, social or environmental issues, or as a
consequence of operational risk events. As a
banking group, HSBC's good reputation depends
upon the way in which it conducts its business
but it can also be affected by the way in which
clients, to which it provides financial services,
conduct their business.
• The internal audit function, which is centrally
controlled, monitors compliance with policies
and standards and the effectiveness of internal
control structures across the whole of HSBC.
The work of the internal audit function is
focused on areas of greatest risk to HSBC as
determined by a risk management approach. The
head of this function reports to the Group
Chairman and the Group Audit Committee.
The Group Audit Committee has kept under
review the effectiveness of this system of internal
control and has reported regularly to the Board of
Directors. The key processes used by the Committee
in carrying out its reviews include regular reports
from the heads of key risk functions; the production
and regular updating of summaries of key controls
applied by subsidiary companies measured against
HSBC benchmarks which cover all internal controls,
both financial and non-financial; annual
confirmations from chief executives of principal
subsidiary companies that there have been no
material losses, contingencies or uncertainties caused
by weaknesses in internal controls; internal audit
reports; external audit reports; prudential reviews;
and regulatory reports.