HSBC 2009 Annual Report Download - page 198

HSBC HOLDINGS PLC
Report of the Directors: Risk
Regulation and supervision > UK / Hong Kong
196
Page
Regulation and supervision1 ....................... 196
Risk management1 ...................................... 199
Credit risk ................................................... 201
Credit risk management2 ........................ 201
Credit exposure3 ..................................... 206
Areas of special interest1 ........................ 214
Credit quality of financial instruments3 .. 225
Impaired loans and advances2 ................ 230
Impairment allowances and charges3...... 230
HSBC Holdings2 ..................................... 241
Risk elements in the loan portfolio1 ........ 241
Liquidity and funding2................................ 244
Policies and procedures2 ........................ 244
Primary sources of funding2 ................... 244
The management of risk2 ......................... 245
Contingent liquidity risk2 ........................ 247
The impact of market turmoil2 ................ 248
HSBC Holdings2 ..................................... 249
Market risk ................................................. 250
Sensitivity analysis2 ................................ 251
Impact of market turmoil3 ....................... 252
Trading portfolios2 .................................. 253
Non-trading portfolios2 ........................... 255
Sensitivity of net interest income1 ........... 256
Structural foreign exchange exposures1 ... 257
Defined benefit pension schemes2............ 258
HSBC Holdings3 ..................................... 258
Residual value risk1 .................................... 261
Operational risk1 ......................................... 262
Legal risk1 ............................................... 262
Group security and fraud risk1 ............... 263
Pension risk1 ............................................... 263
Reputational risk1 ....................................... 263
Sustainability risk1 ...................................... 264
Risk management of insurance operations2 265
Life insurance business2 .......................... 265
Non-life insurance business2 ................... 266
Insurance risk2 ........................................ 266
Financial risks2 ....................................... 272
Present value of in-force long-term
insurance business2 ............................. 283
Capital management and allocation ............ 285
Capital management2 .............................. 285
Capital measurement and allocation3 ..... 286
Risk-weighted assets by principal
subsidiary1 ........................................... 291
1 Unaudited.
2 Audited.
3 Audited where indicated.
Regulation and supervision
(Unaudited)
With listings of its ordinary shares in London,
Hong Kong, New York, Paris and Bermuda, HSBC
Holdings complies with the relevant requirements
for listing and trading on each of these exchanges. In
the UK, these are the Listing Rules of the Financial
Services Authority (‘FSA’); in Hong Kong, The
Rules Governing the Listing of Securities on The
Stock Exchange of Hong Kong Limited (‘HKSE’);
in the US, where the shares are traded in the form of
ADSs, HSBC Holdings’ shares are registered with
the US Securities and Exchange Commission. As a
consequence of its US listing, HSBC Holdings is
also subject to the reporting and other requirements
of the US Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and
the New York Stock Exchange’s (‘NYSE’) Listed
Company Manual, in each case as applied to foreign
private issuers. In France and Bermuda, HSBC
Holdings is subject to the listing rules of Euronext,
Paris and the Bermuda Stock Exchange respectively,
applicable to companies with secondary listings.
A statement of HSBC’s compliance with the
provisions of the Combined Code on Corporate
Governance issued by the Financial Reporting
Council and with the Code on Corporate Governance
Practices in Appendix 14 to the Rules Governing the
Listing of Securities on The Stock Exchange of
Hong Kong Limited is set out in the ‘Report of the
Directors: Governance’ on page 294.
HSBC’s operations throughout the world are
regulated and supervised by approximately
540 different central banks and regulatory authorities
in those jurisdictions in which HSBC has offices,
branches or subsidiaries. These authorities impose a
variety of requirements and controls designed to
improve financial stability and the transparency of
financial markets and their contribution to economic
growth. These regulations and controls cover, inter
alia, capital adequacy, depositor protection, market
liquidity, governance standards, customer protection
(for example, fair lending practices, product design,
and marketing and documentation standards), and
social responsibility obligations (for example,
anti-money laundering and anti-terrorist financing
measures). In addition, a number of countries in
which HSBC operates impose rules that affect, or
place limitations on, foreign or foreign-owned or
controlled banks and financial institutions. The rules
include restrictions on the opening of local offices,
branches or subsidiaries and the types of banking
and non-banking activities that may be conducted by
those local offices, branches or subsidiaries;
restrictions on the acquisition of local banks or