HSBC 2006 Annual Report Download - page 265

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certain management reporting standards are
established by Group Head Office management
committees, 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 risk management
committees, asset and liability committees and
executive committees in subsidiaries and by the
Group Management Board for HSBC as a
whole. A risk management meeting of the Group
Management Board, chaired by the Group
Finance Director, is held each month. These risk
management meetings address asset and liability
management issues. Minutes of the risk
management meetings of the Group
Management Board are submitted to the
Group Audit Committee and to the Board of
Directors.
• A Disclosure Committee has been established to
review material disclosures made by HSBC
Holdings for any errors, misstatements or
omissions. The membership of the Disclosure
Committee, which is chaired by the Group
Company Secretary, includes the heads of the
finance, legal, credit and risk, compliance,
corporate communications, investor relations
and internal audit functions.
• 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 2006 additional attention was directed
towards evolving best practice in the areas of
internet banking, counterparty risk management
policy following the publication of the Corrigan
report in July 2005; best practice guidance
emerging on liquidity management from the
Institute of International Finance; the
implications of a slowing housing market in the
US coupled with rising payment obligations
under adjustable rate mortgages; and the
implications of changed customer behaviour in
the UK regarding seeking protection from credit
obligations.
• Periodic strategic plans are prepared for
customer groups, global product groups, key
support functions and certain geographies within
the framework of the Group Strategic Plan.
Operating plans are prepared and adopted by all
HSBC companies annually, setting out the key
business initiatives and the likely financial
effects of those initiatives.
• Centralised functional control is exercised over
all computer system developments and
operations. Common systems are employed for
similar business processes wherever practicable.
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 is responsible for setting
policies, procedures and standards in the
following areas of risk: credit risk; market risk;
liquidity risk; operational risk; IT risk; insurance
risk; accounting risk; tax risk; legal and
regulatory compliance risk; human resources
risk; reputational risk and purchasing risk; and
for certain global product lines.
• Policies to guide subsidiary companies and
management at all levels in the conduct of
business to safeguard the Group’s reputation are
established by the Board of HSBC Holdings and
the Group Management Board, subsidiary
company boards, board committees or senior
management. Reputational risks can arise from
environmental, social or governance 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 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-based approach. The head
of this function reports to the Group Chairman
and the Group Audit Committee.
• Management is responsible for ensuring that
recommendations made by the internal audit
function are implemented within an appropriate
and agreed timetable. Confirmation to this effect
must be provided to internal audit. Management