HSBC 2007 Annual Report Download - page 199

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permissible investments; reserve requirements; and
insurance advertising and marketing practices. Each
HSBC US insurance subsidiary undergoes periodic
market conduct and financial examinations by the
relevant state insurance departments, and HSBC’s
insurance agencies and agents are subject to state
licensing and registration requirements.
Additionally, with respect to credit insurance,
because it is sold in connection with a loan, state
loan laws often contain requirements related to
offering, cancelling and refunding credit insurance.
Although insurance is not generally regulated by the
federal government, certain federal regulations
related to lending disclosures apply to the sale and
cancellation of credit insurance.
HSBC’s US consumer finance operations are
subject to extensive state-by-state regulation in the
US, and to laws relating to consumer protection
(both in general, and in respect of sub-prime lending
operations, which have been subject to enhanced
regulatory scrutiny); discrimination in extending
credit; use of credit reports; privacy matters;
disclosure of credit terms; and correction of billing
errors. They also are subject to regulations and
legislation that limit operations in certain
jurisdictions. For example, limitations may be placed
on the amount of interest or fees that a loan may
bear, the amount that may be borrowed, the types of
actions that may be taken to collect or foreclose
upon delinquent loans or the information about a
customer that may be shared. HSBC’s US consumer
finance branch lending offices are generally licensed
in those jurisdictions in which they operate. Such
licences have limited terms but are renewable, and
are revocable for cause. Failure to comply with
applicable laws and regulations may limit the ability
of these licensed lenders to collect or enforce loan
agreements made with consumers and may cause the
consumer finance lending subsidiary and/or its
control person to be liable for damages and
penalties.
HSBC’s US credit insurance operations are
subject to regulatory supervision under the laws of
the states in which they operate. Regulations vary
from state to state but generally cover licensing of
insurance companies; premiums and loss rates;
dividend restrictions; types of insurance that may be
sold; permissible investments; policy reserve
requirements; and insurance marketing practices.
Certain US source payments to foreign persons
may be subject to US withholding tax unless the
foreign person is a ‘qualified intermediary’. A
qualified intermediary is a financial intermediary
which is qualified under the US Internal Revenue
Code of 1986 and has completed the Qualified
Intermediary Withholding Agreement with the
Internal Revenue Service. Various HSBC operations
outside the US are qualified intermediaries.
Risk management
(Unaudited)
Introduction
All HSBC’s activities involve the measurement,
evaluation, acceptance and management of some
degree of risk, or combination of risks. The most
important risk categories that the Group is exposed
to are credit risk (including cross-border country
risk), insurance risk, liquidity risk, market risk
(including foreign exchange, interest rate and equity
price risks), operational risks in various forms,
pension risk, residual value risk, reputational risk
and sustainability (environmental and social) risks.
The management of these various risk
categories is discussed below. Given the distinct
characteristics of the insurance business, the
management of its credit, liquidity and market risks
is described alongside insurance risk in the section
‘Risk management of insurance operations’.
The risk management framework established by
the Group seeks to foster the continuous monitoring
of the risk environment and an integrated evaluation
of risks and their interdependencies.
Risk governance and ownership
A well-established risk governance and ownership
structure ensures oversight of, and accountability for,
the effective management of risk at Group, regional,
customer group and operating entity levels.
The Board of Directors of HSBC Holdings
approves plans and performance targets for the Group
and its principal subsidiaries, the appointment of
senior officers, the delegation of authorities for credit
and other risks and the establishment of effective
control procedures. Under authority delegated by the
Board of Directors, Group Management Board
(‘GMB’) formulates high-level Group risk
management policy.
A separately convened Risk Management
Meeting (‘RMM’) of GMB has the responsibility for
exercising and delegating risk approval authorities,
setting risk appetite and approving definitive risk
policies and controls. It monitors all categories of
risk, receives reports, determines action to be taken
and reviews the efficacy of HSBC’s risk management
framework.
GMB and RMM are supported by a dedicated
Group Risk function headed by the Group Chief Risk