Annual Financial Report - 39 of 54

RNS Number : 0532I
HSBC Holdings PLC
20 March 2015
 



Financial System Vulnerabilities Committee

Chairman's Statement

Role and membership

The FSVC has non-executive responsibility for:

·   governance, oversight and policy guidance over the framework of controls and procedures designed to identify areas where HSBC and the financial system more broadly may become exposed to financial crime or system abuse;

·   oversight of matters relating to anti-money laundering, sanctions, terrorist financing and proliferation financing, including the establishment, implementation, maintenance and review of adequate policies and procedures sufficient to ensure the continuing obligations to regulatory and law enforcement agencies are met and oversight of implementation of the actions necessary to build assurance in these areas;

·   provision of advice as applicable on the implementation of the Global Standards programme; and

·   provision of a forward-looking perspective on financial crime risk to the Board.


Meetings

attended

Meetings

eligible

to attend

Members




Lord Evans of Weardale (Chairman)1


6

7

Kathleen Casey2


 5

5

Rona Fairhead3


 7

7

Nick Fishwick4


7

7

Dave Hartnett4


7

7

Bill Hughes4


7

7

Sir Simon Robertson


7

7

Leonard Schrank4


7

7

Juan Zarate4,5


7

7





Meetings held in 2014



7

1   Appointed Chairman on 23 May 2014.

2   Appointed a non-executive Director and member on 1 March 2014.

3   Retired as Chairman on 23 May 2014.

4   Co-opted non-director member.

5   Also provides advisory services to the board of HSBC North America Holdings Inc.

Five co-opted non-director members have been appointed advisers to the Committee to support its work. Brief biographies are set out below:

Nick Fishwick, CMG: Former senior official in the Foreign and Commonwealth Office, specialising in security, intelligence and counter-terrorism; seconded from 2001 to 2004 to HM Customs and Excise as Head of Intelligence (Law Enforcement), focusing on international counter-narcotics, tax and excise fraud; awarded the CMG in 2009.

 

Dave Hartnett, CB: Former Permanent Secretary for Tax at HM Revenue and Customs; focused on tax policy development, compliance and enforcement and international tax issues during his 36-year career in tax administration; former deputy chairman of the Organisation for Economic Co-operation and Development's Forum on Tax Administration.

Bill Hughes, CBE QPM: Former head of the UK's Serious Organised Crime Agency; international experience in the disruption, dismantling and criminal investigation of organised crime.

Leonard Schrank: Former chief executive officer of SWIFT, the industry-owned, global financial messaging system; oversaw SWIFT's relationship with the US Treasury Department and other countries on counter-terrorism issues. Member of MIT Corporation.

The Honourable Juan Zarate: Senior Advisor at the Center for Strategic and International Studies; the Senior National Security Analyst for CBS News; a Visiting Lecturer of Law at the Harvard Law School; national security consultant; former Deputy Assistant to the President and Deputy National Security Advisor for Combating Terrorism responsible for developing and implementing the US Government's counter-terrorism strategy and policies related to transnational security threats; former Assistant Secretary of the Treasury for Terrorist Financing and Financial Crime; and former federal prosecutor who served on terrorism prosecution teams.

How the FSVC discharged its responsibilities

The FSVC has agreed areas of focus where HSBC and the financial system more broadly may become exposed to financial crime or system abuse, with the GRC retaining responsibility for high-level risk related matters and risk governance. Particular areas of focus for FSVC included: cyber security; technology and data systems; transaction monitoring systems for anti-money laundering; sanctions and other financial crime related risks; and customer due diligence and know your customer procedures. Regular reports and updates on these focus areas were provided to the FSVC by the adviser members and relevant executives.

The FSVC also maintained oversight of obligations under the US and UK agreements and updates on HSBC's interactions with the Monitor.

The Chief Legal Officer, Group Chief Risk Officer, Global Head of Financial Crime Compliance, the Group Money Laundering Reporting Officer, Global Head of Regulatory Compliance and the Group Head of Internal Audit provided reports to the FSVC including on meetings held with, and reports submitted to, regulators on the Group's compliance-related initiatives made both in connection with the resolution of the investigations by US and UK regulatory and law enforcement authorities in December 2012 and also more generally. In addition to the scheduled Committee meetings, the Chairman met regularly with the Group Chairman, the adviser members of the Committee and senior executives as required.

During the year, the FSVC received regular updates on the Compliance Plan, which documents the Group's strategy to augment HSBC's anti-money laundering and sanctions compliance programme, which covers the related policies, procedures and enhanced training. Regular reports are also submitted to the FSVC on Group-wide whistleblowing disclosures and anti-bribery and corruption matters.

In addition to its reports to the Board, the FSVC also regularly updates the Group Risk Committee on specified matters to raise areas for its consideration as appropriate.

During the year, the FSVC focused on a number of key areas, as set out in the table below.


 

Principal activities and significant issues considered include:

Key area

Action taken

Financial crime-related issues

The FSVC reviewed and adopted a Group policy on anti-money laundering which is now being implemented across all of HSBC's businesses. It received regular updates on the implementation of the IT strategy agreed as part of the work to manage and mitigate financial crime risks. A particular area of focus was on enhancements proposed by management in respect of the Group's transaction monitoring systems.

Sanctions

The FSVC reviewed and adopted a Group policy on sanctions compliance which is now being implemented, whilst the Group's ongoing sanctions compliance programmes and management's strategy to respond to the expansion of global sanctions were also routinely monitored by the Committee during the year.

Cyber security

During 2014, the FSVC reviewed cyber-security risks and strategy in this area and proposed enhancements to the Group's cyber security capabilities. The reviews included briefings on the Group's ability to predict, respond and recover from cyber-attacks. Metrics and timelines were agreed with management to monitor progress in this area.

FATCA and tax transparency

The FSVC received updates to tax transparency initiatives undertaken by HSBC and the Group-wide implementation of the requirements under the Foreign Account Tax Compliance Act.

 

 

Group Remuneration Committee

The Group Remuneration Committee is responsible for approving remuneration policy. As part of its role, it considers the terms of fixed pay, annual incentive plans, share plans, other long-term incentive plans, benefits and the individual remuneration packages of executive Directors and other senior Group employees and in doing so takes into account the pay and conditions across the Group. No Directors are involved in deciding their own remuneration.

 


           Meetings

            attended

           Meetings

                eligible

            to attend

Members1




Sir Simon Robertson (Chairman)


11

11

John Coombe 2


6

6

Renato Fassbind3


7

7

John Lipsky4


5

5

Sam Laidlaw


10

11

Jonathan Symonds5


2

3





Meetings held in 2014



11

1   All members are independent non-executive Directors.

2   Retired as a Director and member on 23 May 2014.

3   Resigned as a Director and member on 1 September 2014.

4   Appointed a member on 23 May 2014.

5   A member from 14 April 2014 until 1 September 2014.

The Directors' Remuneration Report is set out on pages 300 to 327.

Nomination Committee

Chairman's Statement

A key responsibility of the Nomination Committee ('Nomco') is to ensure there is an appropriate balance of skills, knowledge, experience, diversity and independence on the Board. Following Nomco's recommendation, the Board appointed in 2014 four independent non-executive Directors, namely, Phillip Ameen, Kathleen Casey, Heidi Miller and Jonathan Symonds. They have brought different expertise and experience to the Board. HSBC now surpasses the target set under the Board's own diversity policy, which states that 30% of the Board members should be female by 2020.

Another important responsibility of Nomco is to ensure that plans are in place for the selection, appointment and orderly succession of executive Directors and senior executives. Nomco met once last year to undertake with the Group Chief Executive an in-depth review of succession plans and concluded that they are sufficient and appropriate but need to be kept under annual review.

Nomco continues to monitor regulatory developments as they may require changes to the composition of the Board. Nomco has considered in detail the new requirements under the EU's Capital Requirements Directive IV which came into effect on 1 July 2014 and which restrict the number of directorships that may be held by member of the Board. The ramifications of these new requirements for the current Board have been reviewed and the requirements are routinely kept under review.

Sir Simon Robertson

Chairman, Nomination Committee

23 February 2015

Role and membership

Nomco has non-executive responsibility for leading the process for Board appointments and for identifying and nominating, for approval by the Board, candidates for appointment to the Board. Nomco is responsible for succession planning of Directors to the Board. In the course of this, it also oversees senior management succession planning.


Meetings

attended

Meetings

eligible

to attend

Members1




Sir Simon Robertson (Chairman)


4

4

Laura Cha2


2

2

Rona Fairhead


4

4

James Hughes-Hallett3


2

2

Sam Laidlaw2


2

2

John Lipsky


4

4





Meetings held in 2014



4

1   All members are independent non-executive Directors.

2   Appointed a member on 23 May 2014.

3   Retired as a Director and member on 23 May 2014.

 




 

How Nomco discharged its responsibilities

Nomco undertook the following key activities in the discharge of its responsibilities:

 


 

Principal activities and significant issues considered include:

Key area

Action taken

Appointments of new Directors

Following a rigorous selection process, Nomco recommended to the Board the appointment of four non-executive Directors during 2014: Phillip Ameen (with effect from 1 January 2015), Kathleen Casey, Heidi Miller and Jonathan Symonds; and an executive Director: Marc Moses, Group Chief Risk Officer.

An external search consultancy, MWM Consulting, was used in relation to the appointment of three of the four non-executive Directors (Kathleen Casey, Heidi Miller and Jonathan Symonds). MWM Consulting has no additional connection with HSBC other than as search consultant for certain senior executive hires. Phillip Ameen was identified by the Committee through his existing role as an independent Director of HSBC North America Holdings Inc. since 2012 (where he chairs the Audit Committee and serves on the Risk Committee). He also brings extensive financial and accounting experience gained from a long career at General Electric (ultimately as Vice President, Comptroller and Principal Accounting Officer of General Electric Corp.), as well as a depth of technical knowledge from his participation in the accounting standard setting world.

Forward planning

Nomco adopts a forward-looking approach to potential candidates for appointment to the Board that takes into account the needs and development of the Group's businesses and the expected retirement dates of current Directors.

Size, structure and composition
of the Board and it committees

Nomco monitors the size, structure and composition of the Board (including skills, knowledge, experience, diversity and independence).

Nomco considered the election or re-election of Directors at the 2014 Annual General Meeting. It has also recommended to the Board that all Directors should stand for election or re-election at the 2015 Annual General Meeting.

Regulatory developments

Nomco monitors regulatory developments as they may affect Board composition. During 2014, Nomco considered the implications of the corporate governance requirements of the EU's Capital Requirements Directive IV and the Equality and Human Rights Commission's guidance on the equality law framework.

Diversity

Nomco believes that one of its important duties is to ensure that there is a proper balance on the Board to reflect diversity and the geographical nature of its business. Appointments to the Board are made on merit and candidates are considered against objective criteria, having due regard to the benefits of diversity on the Board. The Board diversity policy is available at www.hsbc.com/investor-relations/governance/corporate-governance-codes.

Nomco regularly monitors the implementation of the Board's diversity policy using the following measurable objectives: at least 25% of the Board should be female, with a target of 30% to be achieved by 2020; only external search consultants who are signatories to the Executive Search Firms Voluntary Code of Conduct should be engaged by Nomco; and at least 30% of candidates, proposed by search firms for consideration as non-executive Directors, should be women. We comply with these requirements and, as at the date of this report, 35.3% of the Board is female.

Director training and
development

Nomco reviews and monitors the training and continuous professional development of Directors and senior management.

Time commitment and independence of
non-executive Directors

Nomco assessed the independence of, and time required from, non-executive Directors. Nomco is satisfied that all non-executive Directors have the time to fulfil their fiduciary responsibilities to provide oversight of the business of the Group; and to serve on the relevant Committees of the Board. All Directors are asked to identify any other significant commitments they may have and confirm they have sufficient time to discharge what is expected of them as members of the Board.

 


Conduct & Values Committee

Chairman's Statement

The Conduct & Values Committee ('CVC') was established in January 2014 to provide Board oversight of the Group's multiple efforts to raise standards of conduct and to embed the behavioural values the Group stands for. The delivery of fair outcomes for customers and upholding market integrity is a prime driver of a sustainable and profitable business. Whilst conduct risk is not a new concept, the Board recognises it is one receiving increasing global regulatory and industry focus and that it is therefore right to establish a committee whose objective is to oversee how conduct risk is being managed.

The need for greater emphasis on this area has become apparent in the last few years with the establishment of the Consumer Financial Protection Bureau in the US in 2011; the Financial Conduct Authority in the UK listing among its objectives ensuring appropriate protection of consumers and enhancing the integrity of the financial system; and the Hong Kong Monetary Authority introducing a charter on treating customers fairly. Additionally, fine levels have escalated, most significantly in the US, with a developing trend of out of court settlements. These facts reaffirm our belief that delivering higher standards of conduct is essential to restoring consumer confidence and rebuilding society's trust in banking.

Since its establishment, the CVC has taken a systematic approach focussing on the global businesses and global functions, with a number of deep dives into its home and priority markets, with a particular focus to date on the UK. The business on the agenda for each meeting is closely mapped to the terms of reference and ensures that key responsibilities are adequately addressed at least once a year.

I have chaired the CVC since its establishment, with Laura Cha, chair of the former Corporate Sustainability Committee, Lord Evans of Weardale, Heidi Miller and Jonathan Symonds as members.

In 2015, the CVC will continue to focus on implementation of the Group's conduct and market risk programme, with a particular interest in employee training and customer communication. It aims to take a forward looking approach to assessing conduct risk and anticipated further changes in public policy relating to conduct will be received with interest.

The Committee will additionally address its sustainability responsibilities, as inherited from the now-demised Corporate Sustainability Committee, so as to ensure that HSBC acts responsibly towards the communities within which it operates.

Rachel Lomax

Chairman, Conduct & Values Committee

23 February 2015

Role and membership

The CVC is responsible for:

·   HSBC policies, procedures and standards to ensure that the Group conducts business responsibly and consistently adheres to HSBC Values. It aims to align its work to HSBC's purpose of connecting customers to opportunities, enabling businesses to thrive and economies to prosper, and ultimately helping people to fulfil their hopes and realise their ambitions; and

·  
ensuring that in the conduct of its business, HSBC treats customers fairly and openly, does business with the right clients and in the right way, is a responsible employer, acts responsibly towards the communities in which HSBC operates and treats other stakeholders fairly.

The CVC is comprised of independent non-executive Directors as listed below.


Meetings

attended

Meetings

eligible

to attend

Members




Rachel Lomax (Chairman)1


4

4

Laura Cha2


4

4

Lord Evans of Weardale2


4

4

Heidi Miller3


2

2

Jonathan Symonds4


4

4





Meetings held in 2014



4

1   Appointed Chairman on 17 January 2014.

2   Appointed a member on 17 January 2014.

3   Appointed a member on 1 September 2014.

4   Appointed a member on 14 April 2014. 

Governance

The CVC exercises non-executive responsibility for the oversight of the promotion and embedding of HSBC Values and our required global conduct outcomes. Additionally, the CVC will input as appropriate into the Group Remuneration Committee on the alignment of remuneration with conduct. It reports regularly to the Board on its activities.

How the CVC discharged its responsibilities

During the course of 2014 the CVC received regular reports and presentations from the Chief Executive, RBWM, the Chief Executive, CMB, the Global Head of Regulatory Compliance, the Group Head of Development, the Head of Group Corporate Sustainability and the Group Head of Internal Audit. During the year, other members of senior management attended CVC meetings including the Chief Executive, GB&M, the Global Head of Financial Crime Compliance, the Global Head of Communications, the Global Head of Anti-Bribery and Corruption and the Global Head of Marketing.

The Chief Executive, RBWM and the Chief Executive, Global Commercial Banking provide regular reports and presentations to the CVC, including an analysis of customer complaint trends at each meeting. The CVC also receives regular reports on whistleblowing cases, the outcomes of internal audits and the Group's initiatives being undertaken to deliver against key values and culture initiatives.

In addition to the scheduled Committee meetings, the Chairman met regularly with the Group Chairman and senior executives as required.

 

The Committee is additionally responsible for advising the Board, its committees and executive management on corporate sustainability policies across the Group including environmental, social and ethical issues. From this year, our progress on sustainability policies and performance is reported in the Strategic Report and on our website at hsbc.com/sustainability.

We will no longer publish a separate Sustainability Report as part of a progression towards an integrated approach to sustainability reporting. This change reflects best practice in reporting as well as the ongoing integration of sustainability matters into the strategy and management of HSBC.

During the year the CVC focused on a number of key areas, as set out in the table below.


 

Principal activities and significant issues considered include:

Key area

Action taken

Global approach to conduct 

The CVC endorsed a global approach to the management of conduct which defines and sets out required outcomes. It received regular reports from the Global Head of Regulatory Compliance on how conduct is being managed consistently across the Group to deliver the required outcomes. It also sets out the programmes and governance to deliver conduct improvements. In developing this approach, Management has given consideration to strategy, business models and decision making, culture and behaviours, interactions with customers, the impact of activities in financial markets and governance structures, oversight frameworks and management information. There is close alignment between this and  the work being done to promote and embed HSBC Values.

Values

The CVC oversees the promotion and embedding of HSBC Values. In 2013, the Group launched a  project to better understand how HSBC Values drive everyday behaviours. This included interviews with leadership teams and functional specialists, focus groups with line managers and staff, and reviews of management information and local documentation.

The CVC received regular reports from management on this project and contributed to the subsequent action plan. It will continue to monitor the implementation of cultural change into 2015.

Customer experience

Customer complaints. The CVC reviewed reports regarding customer experience, complaint trends and complaint handling. It considered improvements to the quality of complaint handling processes and root cause analysis.

Sales processes and incentive schemes. The CVC considered the review mechanism established by RBWM management, the aim of which is to ensure that the RBWM product range is appropriately positioned to fulfil customers' needs. The CVC also reviewed the changes implemented to sales processes and sales incentive schemes in the RBWM and CMB businesses and the effectiveness of new quality assurance programmes. This will continue into 2015.

Whistleblowing

 

The CVC has assumed responsibility for the governance of the Group's whistleblowing policies and procedures, including the protection of whistleblowers. This responsibility does not extend to matters relating to financial reporting and associated auditing matters, which remain the responsibility of the Group Audit Committee. The CVC reviewed current whistleblowing processes and disclosures and received reports on an ongoing enhancement programme which takes account of recommendations made by the UK Parliamentary Commission on Banking Standards, regulatory guidance and emerging industry best practices.

Employee engagement

 

The CVC monitored employee engagement across the Group and received the results of quarterly Snapshot engagement surveys which were conducted during 2014. It will continue to monitor these survey results in 2015, as well as the results of a Group People Survey planned to take place later in the year.

 



Chairman's Committee

Role and membership

The Chairman's Committee has the power to act on behalf of the Board between scheduled Board meetings to facilitate ad hoc unforeseen business requiring urgent Board approval. The Committee meets with such frequency and at such times as it may determine, the quorum for meetings is dependent upon the nature of the business to be transacted, as set out in its terms of reference.

Philanthropic and Community Investment Oversight Committee

Role and membership

The Philanthropic and Community Investment Oversight Committee, established by resolution of the Board in December 2014, will focus on the Group's philanthropic activity, being monetary donations made to charitable organisations and the contribution of staff time toward voluntary activities.

The Committee has non-executive responsibility for the oversight of HSBC's philanthropic and community investment activities in support of the Group's corporate sustainability objectives.

The Committee will meet for the first time in 2015 and will meet at least twice each year.

Members

Laura Cha1 (Chairman)

Lord Evans of Weardale1

Sir Malcolm Grant2,4

Ruth Kelly3,4

Stephen Moss3,4

1   Appointed on 5 December 2014.

2   Independent member.

3   Employee member.

4   Appointed on 19 February 2015.

Internal control

Procedures

The Directors are responsible for maintaining and reviewing the effectiveness of risk management and internal control systems and for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. To meet this requirement and to discharge its obligations under the FCA Handbook and PRA Handbook, procedures have been designed for safeguarding assets against unauthorised use or disposal; for maintaining proper accounting records; and for ensuring the reliability and usefulness of financial information used within the business or for publication. These procedures can only provide reasonable but not absolute assurance against material mis-statement, errors, losses or fraud.

These procedures are designed to provide effective internal control within HSBC and accord with the Financial Reporting Council's guidance for directors issued in its revised form in 2005. HSBC's procedures have been in place throughout the year and up to 23 February 2015, the date of approval of the Annual Report and Accounts 2014. This guidance was amended following consultations undertaken by the Financial Reporting Council in November 2013 and April 2014, resulting in revised guidance on risk management, internal control and related financial and business reporting. The revised guidance applies to companies with financial years beginning on or after 1 October 2014.

In the case of companies acquired during the year, the risk management and internal controls in place are being reviewed against HSBC's benchmarks and integrated into HSBC's processes.

In 2014 the GAC and GRC endorsed the adoption of the COSO 2013 framework for the monitoring of risk management and internal control systems to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, the UK Corporate Governance Code and the Hong Kong Corporate Governance Code. Full implementation of the COSO 2013 framework will be completed in 2015. HSBC continued to evaluate its internal control over financial reporting under the Financial Reporting Council's Internal Control Revised Guidance for Directors and the original 1992 Framework for the year ended 31 December 2014.

HSBC's key risk management and internal control procedures include the following:

·   Group Standards. Functional, operating, financial reporting and certain management reporting standards are established by global function management committees, for application throughout 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.

·   Delegation of authority within limits set by the Board. Authority is delegated within limits set by


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The company news service from the London Stock Exchange
 
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