HSBC 2005 Annual Report Download - page 210

HSBC HOLDINGS PLC
Report of the Directors (continued)
208
assess director independence by affirmatively
concluding that the director is independent of
management and free from any business or other
relationship that could materially interfere with the
exercise of independent judgement.
Lastly, a chief executive officer of a US
company listed on the NYSE must annually certify
that he or she is not aware of any violation by the
company of NYSE corporate governance standards.
In accordance with NYSE listing rules applicable to
foreign private issuers, HSBC Holdings’ Group
Chairman is not required to provide the NYSE with
this annual compliance certification. However, in
accordance with rules applicable to both US
companies and foreign private issuers, the Group
Chairman is required promptly to notify the NYSE
in writing after any executive officer becomes aware
of any material non-compliance with the NYSE
corporate governance standards applicable to HSBC
Holdings.
Since July 2005 HSBC Holdings has been
required to submit annual and interim written
affirmations of compliance with applicable NYSE
corporate governance standards, similar to the
affirmations required of NYSE listed US companies.
The first annual affirmation was submitted to the
NYSE in August 2005.
Internal control
The Directors are responsible for internal control in
HSBC and for reviewing its effectiveness.
Procedures have been designed for safeguarding
assets against unauthorised use or disposition; for
maintaining proper accounting records; and for the
reliability of financial information used within the
business or for publication. Such procedures are
designed to manage rather than eliminate the risk of
failure to achieve business objectives and can only
provide reasonable and not absolute assurance
against material misstatement, errors, losses or fraud.
The procedures also enable HSBC Holdings to
discharge its obligations under the Handbook of
Rules and Guidance issued by the Financial Services
Authority, HSBC’s lead regulator.
The key procedures that the Directors have
established are designed to provide effective internal
control within HSBC and accord with the Internal
Control: Revised Guidance for Directors on the
Combined Code issued by the Financial Reporting
Council. Such procedures for the ongoing
identification, evaluation and management of the
significant risks faced by HSBC have been in place
throughout the year and up to 6 March 2006, the date
of approval of the Annual Report and Accounts
2005. In the case of companies acquired during the
year, including Metris Companies Inc., the internal
controls in place are being reviewed against HSBC’s
benchmarks and integrated into HSBC’s systems.
HSBC’s key internal control procedures include
the following:
• Authority to operate the various subsidiaries is
delegated to their respective chief executive
officers within limits set by the Board of
Directors of HSBC Holdings or by the Group
Management Board under powers delegated by
the Board. Sub-delegation of authority from the
Group Management Board 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 functional and 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, breaches of law or regulations,
unauthorised activities and fraud. Exposure to
these risks is monitored by asset and liability
committees and executive committees in
subsidiaries and by the Group Management
Board for HSBC as a whole. A Risk
Management meeting, chaired by the Group
Finance Director, is held each month. The Risk
Management meeting addresses asset and
liability management issues. Minutes of the Risk
Management meeting are submitted to the
Group Management Board and the Group Audit
Committee.
• Processes are in place to identify new risks from
changes in market practices or customer
behaviours which could expose HSBC to
heightened risk of loss or reputational damage.
During 2005 additional attention was directed
towards evolving best practice in the areas of
internet fraud, counterparty risk management