Annual Financial Report - 22

RNS Number : 4103J

HSBC Holdings PLC

30 March 2010

 



A P Long

Age 54. Group General Manager, Head of Global Transaction Banking. Joined HSBC in 1977. Appointed a Group General Manager in May 2008.

A M Losada

Age 55. President and Chief Executive Officer, HSBC Argentina Holdings S.A. Joined HSBC in 1973. Appointed a Group General Manager in May 2008.

A M Mahoney

Age 47. Deputy Chief Executive Officer, Continental Europe. Joined HSBC in 1983. Appointed a Group General Manager in 2006.

M S McCombe

Age 43. Chief Executive Officer, Hong Kong. Joined HSBC in 1987. Appointed a Group General Manager in May 2008.

C M Meares

Age 52. Chief Executive Officer, Global Private Banking. Joined HSBC in 1980. Appointed a Group General Manager in 2006.

K Newman

Age 52. Group General Manager and Director of One HSBC. Joined HSBC in 1989. Appointed a Group General Manager in 2006.

K Patel

Age 61. Group General Manager, Chief Executive Officer, Africa. Joined HSBC in 1984. Appointed a Group General Manager in 2000.

L J Peña-Kegel

Age 50. Chief Executive, HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC. Joined HSBC in May 2008. Appointed a Group General Manager in May 2008.

R C Picot

Age 52. Group Chief Accounting Officer. Joined HSBC in 1993. Appointed a Group General Manager in 2003.

C D Spooner

Age 59. Head of Group Financial Planning & Tax. Joined HSBC in 1994. Appointed a Group General Manager in 2007.

        R J L Yorke

Age 42. President and Chief Executive Officer, HSBC Bank (China) Company Limited. Joined HSBC in 1989. Appointed a Group General Manager in May 2008.

Board of Directors

The Board

The objective of the management structures within HSBC, headed by the Board of Directors of HSBC Holdings and led by the Group Chairman, is to deliver sustainable value to shareholders. Implementation of the strategy set by the Board is delegated to the Group Management Board under the leadership of the Group Chief Executive.

The developing framework for corporate governance best practice and regulation in the financial services industry is actively considered by the Board. The draft recommendations and HSBC's response to the consultation on a Review of Corporate Governance in UK Banks and other Financial Industry Entities led by Sir David Walker ('the Walker Review') were discussed by the Board in September 2009. Following publication of the final recommendations in November 2009, the Board agreed actions to bring HSBC's practices into line with the review's recommendations. The principal changes were the establishment of a separate Board Risk Committee with effect from 26 February 2010 and broadening of the terms of reference of the Remuneration Committee.

HSBC Holdings has a unitary Board of Directors. The authority of each Director is exercised in Board meetings where the Board acts collectively as a unit. At 1 March 2010, the Board comprises the Group Chairman, Group Chief Executive, four other executive Directors and 15 non-executive Directors. The names and brief biographical particulars of the Directors are listed on pages 294 to 299. The Group Chairman, Group Chief Executive and four other executive Directors are employees who carry out executive functions in HSBC in addition to their duties as Directors. Non-executive Directors are not HSBC employees and do not participate in the daily business management of HSBC. Non-executive Directors bring an external perspective, constructively challenge and help develop proposals

on strategy, scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. The non-executive Directors have a wealth of experience across a number of industries and business sectors, including the leadership of large, complex multinational enterprises. The roles of non-executive Directors as members of Board committees are described on pages 310 to 313.

Following the recommendations in the Walker Review, the Nomination Committee undertook a review of the time commitment of non-executive Directors. On the recommendation of the Nomination Committee the Board has agreed that the time commitment expected of non-executive Directors should remain at not less than 24 days per annum and that the total time commitment of non-executive Directors appointed to the Group Audit Committee, Group Risk Committee and Remuneration Committee and the senior independent non-executive director would be not less than 30 days per annum. The time commitment of each non-executive Director is set out in the Director's letter of appointment, tailored to reflect the individual's Committee appointments from time to time.

The Board is responsible for managing the business of HSBC Holdings and, in doing so, may exercise all of the powers of HSBC Holdings, subject to any relevant laws and regulations and to the Articles of Association. In particular, the Board may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property or assets (present or future) of HSBC Holdings and may also exercise any of the powers conferred on it by the Companies Act 2006 and/or by shareholders. The Board is able to delegate and confer on certain Directors holding executive office any of its powers, authorities and discretions (including the power to sub-delegate) for such time and on such terms as it thinks fit. In addition, the Board may establish any local or divisional boards or agencies for managing the business of HSBC Holdings in any specified locality and delegate and confer on any local or divisional board, manager or agent so appointed any of its powers, authorities and discretions (including the power to sub-delegate) for such time and on such terms as it thinks fit. The Board may also, by power of attorney or otherwise, appoint any person or persons to be the agent of HSBC Holdings and may delegate to any such person or persons any of its powers, authorities and discretions (including the power to sub-delegate) for such time and on such terms as it thinks fit. HSBC Holdings was registered in Hong Kong under part IX of the Companies Ordinance on 17 January 1991.

The Board sets the strategy for the Group and approves the risk appetite, capital and operating plans presented by management for the achievement of the strategic objectives it has set. The risk appetite, capital and operating plans ensure the efficient disposition of HSBC's resources for the achievement of these objectives. Following consideration of all relevant factors, the Board determined on 2 March 2009 that a 5 for 12 rights issue to raise approximately £12.5 billion (US$17.8 billion) was in the best interests of HSBC Holdings and its shareholders. Shareholders approved the rights issue at a General Meeting held on 19 March 2009. The 5,060,239,065 new ordinary shares were issued in April 2009.

The Board delegates the management and day-to-day running of HSBC to the Group Management Board but retains to itself approval of certain matters including operating plans, risk appetite and performance targets, procedures for monitoring and control of operations, the authority or the delegation of authority to approve credit, market risk limits, acquisitions, disposals, investments, capital expenditure or realisation or creation of a new venture, specified senior appointments, and any substantial change in balance sheet management policy.

The Directors who served during the year were S A Catz, V H C Cheng, M K T Cheung (appointed 1 February 2009), J D Coombe, J L Durán, R A Fairhead, D J Flint, A A Flockhart, W K L Fung, M F Geoghegan, S K Green, S T Gulliver, J W J Hughes-Hallett, W S H Laidlaw, J R Lomax, Sir Mark Moody-Stuart, G Morgan, N R N Murthy, S M Robertson, J L Thornton and Sir Brian Williamson.

The Board of Directors meets regularly and Directors receive information between meetings about the activities of committees and developments in HSBC's business.

Eight Board meetings were held during 2009. The annual schedule of Board meetings includes an offsite meeting over three days to consider strategic matters and business and geographical reviews/ proposals. At least one Board meeting each year is held in a key strategic location outside the UK, with an associated business awareness programme. During 2009, Board meetings and business awareness programmes were held in the US and Hong Kong.

The table that follows gives details of each Director's attendance at meetings of the Board, Group Audit Committee, Nomination Committee, Remuneration Committee and Corporate Sustainability Committee held whilst he or she was a Director or member during 2009. During 2009, the non-executive Directors and the Group Chairman met four times without the other executive Directors. In addition, the non-executive Directors met once without the Group Chairman to appraise the Group Chairman's performance.

In addition to the meetings of the principal Committees referred to in the following pages, 19 other meetings of Committees of the Board (not shown in the table below) were held during the year to discharge business delegated by the Board.

All those who were Directors at the time attended the 2009 Annual General Meeting.

Attendance record

	Meetings attended in 2009 of:
Number of meetings held .....................	Board 8		Group Audit Committee 8		Nomination Committee 3		Remuneration Committee 7		Corporate Sustainability Committee 5
S A Catz ..............................................	7		-		-		-		-
V H C Cheng ........................................	8		-		-		-		-
M K T Cheung1 ...................................	7		-		-		-		-
J D Coombe .........................................	8		8		-		7		-
J L Durán .............................................	7		-		-		-		-
R A Fairhead ........................................	7		8		3		-		-
D J Flint ..............................................	8		-		-		-		-
A A Flockhart .....................................	8		-		-		-		-
W K L Fung .........................................	8		-		-		-		5
M F Geoghegan ....................................	8		-		-		-		-
S K Green ............................................	8		-		-		-		-
S T Gulliver .........................................	8		-		-		-		-
J W J Hughes-Hallett ...........................	8		6		3		-		-
W S H Laidlaw .....................................	8		-		-		7		-
J R Lomax ...........................................	8		62		-		-		-
Sir Mark Moody-Stuart ........................	8		-		-		7		5
G Morgan ............................................	7		-		-		6		-
N R N Murthy .....................................	6		-		-		-		4
S M Robertson .....................................	8		-		2		-		-
J L Thornton .......................................	8		-		-		33		-
Sir Brian Williamson ............................	8		-		3		-		-

1  Appointed 1 February 2009 - eligible to attend 7 Board Meetings.

2  Appointed as a member on 1 March 2009 - eligible to attend 6 Committee Meetings. Attended a further 2 meetings by invitation.

3  Appointed as a member on 24 April 2009 - eligible to attend 3 Committee Meetings.

Group Chairman and Group Chief Executive

The roles of Group Chairman and Group Chief Executive are separated and held by experienced full-time Directors.

S K Green became Group Chairman at the conclusion of the Annual General Meeting in 2006 and M F Geoghegan succeeded S K Green as Group Chief Executive. The appointments were made after consulting with representatives of major institutional investors and explaining the succession planning and independent external search process undertaken. S K Green and M F Geoghegan stood for re-election at the 2006 Annual General Meeting and were both re-elected ahead of taking up their new roles from the conclusion of that Meeting.

There is a clear division of responsibilities at the head of the Company between the running of the Board and the executive responsibility for running HSBC's business. The Group Chairman's responsibilities include, in addition to the leadership of the Board, the development of relationships with governments and other significant external parties, corporate reputation and culture and performance management of the Group Chief Executive. Subject to the Group Chief Executive's recommendation, the Group Chairman approves risk, capital allocation and capital investment decisions within authorities delegated by the Board. The Group Chief Executive has responsibility for developing business plans and delivering performance against these.

In September 2009, the Board announced changes to the respective roles of the Group Chairman and Group Chief Executive, the relocation of the principal office of the Group Chief Executive to Hong Kong and other senior executive management changes. Under these arrangements M F Geoghegan is located in the Group's strategically most important region, with a focus on ensuring its growth potential is fully realised. M F Geoghegan has assumed responsibility for developing Group strategy in agreement with the Group Chairman and for recommendation to the Board. As chairman of the Group Management Board, M F Geoghegan continues to drive performance within strategic goals and commercial objectives agreed by the Board. M F Geoghegan has also become chairman of The Hongkong and Shanghai Banking Corporation Limited.

V H C Cheng continues to report to the Group Chairman as an executive Director and will work to develop the Group's business in China while continuing as chairman of HSBC Bank (China) Company Limited and HSBC Bank (Taiwan) Limited. A A Flockhart has been appointed Chairman, Personal and Commercial Banking and Insurance reporting to the Group Chief Executive and is based in Hong Kong. In addition to responsibility for Personal Financial Services and Commercial Banking business globally, A A Flockhart is responsible for Insurance and HSBC's businesses in Latin America and Africa, the Group's technology, services and operations and most Group functions including Human Resources, Marketing and Legal. A A Flockhart will deputise within Asia-Pacific for the Group Chief Executive when M F Geoghegan is absent from the region. S T Gulliver has been appointed Chairman, Europe, Middle East and Global Businesses reporting to the Group Chief Executive and is based in London. S T Gulliver will continue to manage Global Banking and Markets and Asset Management and has assumed overall responsibility for all HSBC's businesses across Europe, Middle East and Global Businesses and for Global Private Banking. S T Gulliver has become chairman of HSBC Private Banking (Suisse) SA and HSBC Bank Middle East Limited. D J Flint has assumed responsibility for Compliance in addition to his existing remit for Finance and Risk. D J Flint's title has changed to Chief Financial Officer, Executive Director, Risk and Regulation. He reports to the Group Chief Executive and is based in London.

During 2009 the Board endorsed S K Green's appointment as a non-executive director of BASF SE. As a full-time HSBC executive with no other external non-executive appointments, the Board is satisfied that S K Green will continue to commit appropriate time to his role as Group Chairman of HSBC Holdings.

Board balance and independence of Directors

The Board includes a strong presence of both executive and non-executive Directors such that no individual or small group can dominate the Board's decision making. The size of the Board is appropriate given the complexity and geographical spread of HSBC's business and the significant time demands placed on the non-executive Directors, particularly those who serve as members of Board committees.

The Board appointed S M Robertson as the senior independent non-executive Director in 2007. The principal role of the senior independent non-executive Director is to support the Group Chairman in his role, to lead the non-executive Directors in the oversight of the Group Chairman and to ensure there is a clear division of responsibility between the Group Chairman and Group Chief Executive.

The Board considers all of the non-executive Directors to be independent in character and judgement. W K L Fung has served on the Board for more than nine years, however, and in that respect only, does not meet the usual criteria for independence set out in the UK Combined Code on corporate governance. The Board has therefore determined S A Catz, M K T Cheung, J D Coombe, J L Durán, R A Fairhead, J W J Hughes-Hallett, W S H Laidlaw, J R Lomax, Sir Mark Moody-Stuart, G Morgan, N R N Murthy, S M Robertson, J L Thornton and Sir Brian Williamson to be independent. When determining independence the Board considers that calculation of the length of service of a non-executive Director begins on the date of his or her first election by shareholders as a Director of HSBC Holdings. Given the complexity and geographical spread of HSBC's business, the experience of previous service on a subsidiary company Board can be a considerable benefit to HSBC and does not detract from a Director's independence. In reaching its determination of each non-executive Director's independence the Board has concluded that there are no relationships or circumstances which are likely to affect a Director's judgement and any relationships or circumstances which could appear to do so were considered not to be material.

In accordance with the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, each non-executive Director determined by the Board to be independent has provided an annual confirmation of his or her independence to HSBC Holdings.

Information, induction and ongoing development

The Board regularly reviews reports on progress against financial objectives, on business developments and on investor and external relations and receives reports from the chairmen of Board committees and from the Group Chief Executive. The Board receives regular reports and presentations on strategy and developments in the customer groups and principal geographical areas. Regular reports are also provided to the Board, the Group Audit Committee and the Group Management Board on credit exposures and the loan portfolio, asset, liability and risk management, liquidity, litigation and compliance and reputational issues. During 2009, the Board also reviewed the results of the 2009 Global People Survey and approved proposals to further articulate HSBC's values. The agenda and supporting papers are distributed in advance of all Board and Committee meetings to allow time for appropriate review and to facilitate full discussion at the meetings. All Directors have full and timely access to all relevant information and may take independent professional advice if necessary.

The Directors have free and open contact with management at all levels. Group Managing Directors and Group General Managers meet informally with Directors after Board meetings. Board offsite visits are made each year to enable Directors to see at first hand the operations of subsidiary companies in local environments and to meet management, employees and customers. In 2009 the Board visited the US and Hong Kong.

During 2009, the Board reviewed and approved changes to the arrangements for Director induction and development. Full, formal and tailored induction programmes, with particular emphasis on internal controls, are arranged for newly appointed Directors by the Group Company Secretary. The programmes consist of a series of meetings with other Directors and senior executives to enable new Directors to receive information and familiarise themselves with HSBC's strategy, operations and internal controls. As part of the induction process the Group Company Secretary will coordinate the production of a development programme based on the individual Director's needs. Prior to their appointment, each Director receives comprehensive guidance on the duties and liabilities of a Director of HSBC Holdings. Opportunities to update and develop skills and knowledge, through externally run seminars and through briefings by senior executives, are provided to all Directors.

A personalised approach to training and development is applied for Directors. Records of development activities and plans are maintained by the Group Company Secretary for annual review with the Director concerned by the Group Chairman. The Group Company Secretary coordinates the delivery of any training required. Focused in-house development programmes to enhance business awareness, such as on the management of risk, are arranged in conjunction with scheduled Board Meetings. Since December 2009, Directors have online access to HSBC's internal training and development resources.

Non-executive Directors have an open invitation to attend meetings of the Group Management Board to further enhance understanding and awareness of HSBC's businesses and the senior leadership team. During 2009, W S H Laidlaw, J R Lomax and Sir Brian Williamson each attended a meeting of the Group Management Board.

Performance evaluation

In October 2009, Boardroom Review was commissioned to prepare a report on the effectiveness of the Board and its Committees. The objective of the review was to assess the quality of the Board's decision making and debate, its overall contribution to, and impact on, the long-term health and success of HSBC Holdings, and its preparation for future challenges. The Boardroom Review assessment was used to facilitate the Board's evaluation of its performance and that of its Committees and individual Directors' performance. There are no conflicts of interest between HSBC and Boardroom Review, which does not offer other services such as executive search, corporate finance or strategic advice.

The Boardroom Review report was prepared following structured interviews with each of the Directors and the Group Company Secretary and has been discussed by the Board. The factors assessed in the report that are associated with board effectiveness include Board roles and responsibilities, individual and collective contribution, Board processes, Committee processes and roles, and the effectiveness of the Group Chairman. The report has been used by the Group Chairman in his evaluation of the performance of each Director and by the non-executive Directors, led by the senior independent non-executive Director in their evaluation of the performance of the Group Chairman. The review concluded that the Board and its Committees were functioning effectively. It is the intention of the Board of HSBC Holdings to continue to review its performance and that of its Directors annually with external facilitation of the process at least every third year. The Group Chairman has confirmed that all of the non-executive Directors continue to perform effectively and to demonstrate commitment to their roles.

The Board has approved actions arising from the performance evaluation for implementation. A quarterly status report will be used to monitor progress. During 2009 the Board received quarterly updates on the actions arising from the 2008 Board performance evaluation, all of which have been implemented.

The Nomination Committee leads the process of identifying the skills and experience required by Directors to address and challenge adequately key risks and decisions that confront, or may confront, the Board. The Nomination Committee regularly reviews the structure, size and composition (including the skills, knowledge and experience) required of the Board and makes recommendations to the Board with regard to any changes. The Nomination Committee maintains a forward-looking schedule of potential candidates as Directors that takes into account the needs and developments of the Group's businesses and the anticipated retirement dates of existing Directors. The Board is kept informed of shareholder views by regular updates about investor meetings with the executive Directors, senior independent non-executive Director and Chairman of the Remuneration Committee.

Appointment, retirement and re-election of Directors

The Board may at any time appoint any person who is willing to act as a Director, either to fill a vacancy or as an addition to the existing Board, but the total number of Directors shall not exceed twenty-five. Any Director so appointed by the Board shall retire at the Annual General Meeting following his or her appointment and shall be eligible for re-election but is not taken into account in determining the number of Directors who are to retire by rotation at such meeting. The Board may appoint any Director to hold any employment or executive office and may revoke or terminate any such appointment. Shareholders may, by ordinary resolution, appoint a person as a Director or remove any Director before the expiration of his period of office. At each Annual General Meeting, one third of the Directors who are subject to retirement by rotation are required to retire and may offer themselves for re-election by shareholders. In addition to those required to retire by rotation, any Director who was not elected or re-elected at either of the preceding two Annual General Meetings and any non-executive Director who has served in office for a continuous period of nine years or more at the date of the Annual General Meeting is required to retire and may offer him or herself for re-election by shareholders.

M K T Cheung was appointed a non-executive Director on 1 February 2009.

J L Durán, R A Fairhead, W K L Fung, M F Geoghegan, S K Green, Sir Mark Moody-Stuart, G Morgan, N R N Murthy, S M Robertson, J L Thornton and Sir Brian Williamson will retire at the forthcoming Annual General Meeting. With the exception of J L Durán, W K L Fung and Sir Mark Moody-Stuart, who are to retire, they offer themselves for re-election. At the conclusion of the 2010 Annual General Meeting, the Board will then comprise 18 Directors, 12 of whom are independent non-executive Directors. None of the non-executive Directors has a service contract. M F Geoghegan and S K Green, who are seeking re‑election at the Annual General Meeting, are employed on rolling contracts which require 12 months' notice to be given by either party.

Brief biographical particulars of all Directors are given on pages 294 to 299.

Relations with shareholders

The Board ensures all Directors, including non-executive Directors, develop an understanding of the views of major shareholders. Non-executive Directors are invited to attend analyst presentations and other meetings with institutional investors and their representative bodies. Directors also meet representatives of institutional shareholders each year to discuss corporate governance matters.

All executive Directors and other senior executives hold regular meetings with institutional investors and report to the Board on those meetings. HSBC Holdings' brokers, Goldman Sachs, give bi-annual presentations to the Board on market views and investor relations. The Board receives a regular Investor Relations activity report which provides feedback from institutional shareholders and brokers, analysts' forecasts, information from research reports and share price performance data.

During 2009, S M Robertson, senior independent non-executive Director, Sir Mark Moody-Stuart and other non-executive Directors met and corresponded with institutional investors and their representatives to discuss strategy, remuneration policy and governance. S M Robertson is also available to shareholders should they have concerns which contact through the normal channels of Group Chairman, Group Chief Executive, Chief

Financial Officer, Executive Director, Risk and Regulation or other executives has failed to resolve or for which such contact would be inappropriate. Invitations to meet S M Robertson prior to his appointment as senior independent non-executive Director were extended to the Group's largest shareholders. The senior independent non-executive Director may be contacted through the Group Company Secretary at 8 Canada Square, London E14 5HQ.

Conflicts of interest, indemnification of Directors, relevant audit information and contracts of significance

The Board has authority to approve Directors' conflicts and potential conflicts of interest and has adopted a policy and procedures for the determination of terms of authorisation for such situations. The Board's powers to authorise conflicts are operating effectively and the procedures are being followed. A review of situational conflicts which have been authorised and the terms of authorisation is undertaken by the Board annually.

The Articles of Association of HSBC Holdings provide that Directors are entitled to be indemnified out of the assets of the Company against claims from third parties in respect of certain liabilities arising in connection with the performance of their functions pursuant to the provisions of the UK Companies Act 2006. Such indemnity provisions have been in place during the financial year but have not been utilised by the Directors.

Each person who is a Director at the date of approval of this report confirms that so far as the Director is aware, there is no relevant audit information of which the Company's auditor is unaware and the Director has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information. This confirmation is given pursuant to section 418 of the UK Companies Act 2006 and should be interpreted in accordance therewith and subject to the provisions thereof.

None of the Directors had, during the year or at the end of the year, a material interest, directly or indirectly, in any contract of significance with HSBC Holdings or any of its subsidiary undertakings.

Corporate governance codes

HSBC is committed to high standards of corporate governance. HSBC Holdings has complied throughout the year with the applicable code provisions of the Combined Code on Corporate Governance issued by the Financial Reporting Council and 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. The Combined Code on Corporate Governance is available at www.frc.org.uk and the Code on Corporate Governance Practices is available at www.hkex.com.hk.

The Board of HSBC Holdings has adopted a code of conduct for transactions in HSBC Group securities by Directors. The code of conduct complies with The Model Code in the Listing Rules of the FSA and with The Model Code for Securities Transactions by Directors of Listed Issuers ('Hong Kong Model Code') set out in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, save that The Stock Exchange of Hong Kong Limited has granted certain waivers from strict compliance with the Hong Kong Model Code. The waivers granted by The Stock Exchange of Hong Kong Limited primarily take into account accepted practices in the UK, particularly in respect of employee share plans. Following a specific enquiry, each Director has confirmed he or she has complied with the code of conduct for transactions in HSBC Group securities throughout the year.

Differences in HSBC Holdings/New York Stock Exchange corporate governance practices

Under the NYSE's corporate governance rules for listed companies and the applicable rules of the SEC, as a NYSE-listed foreign private issuer, HSBC Holdings must disclose any significant ways in which its corporate governance practices differ from those followed by US companies subject to NYSE listing standards. HSBC Holdings believes the following to be the significant differences between its corporate governance practices and NYSE corporate governance rules applicable to US companies.

US companies listed on the NYSE are required to adopt and disclose corporate governance guidelines. The Listing Rules of the FSA require each listed company incorporated in the UK to include in its Annual Report and Accounts a statement of how it has applied the principles of the Combined Code and a statement as to whether or not it has complied with the code provisions of the Combined Code throughout the accounting period covered by the Annual Report and Accounts. A company that has not complied with the Code provisions, or complied with only some of the Code provisions or (in the case of provisions whose requirements are of a continuing nature) complied for only part of an accounting period covered by the report, must specify the Code provisions with which it has not complied, and (where relevant) for what part of the reporting period such non-compliance continued, and give reasons for any non-compliance. As stated above, HSBC Holdings complied throughout 2009 with the applicable code provisions of the Combined Code. The Combined Code does not require HSBC Holdings to disclose the full range of corporate governance guidelines with which it complies.

Under NYSE standards, companies are required to have a nominating/corporate governance committee, composed entirely of independent directors. In addition to identifying individuals qualified to become Board members, this committee must develop and recommend to the Board a set of corporate governance principles. HSBC's Nomination Committee complies with the Combined Code, which requires a majority of members to be independent. All four members of the Committee during 2009 were independent non-executive Directors. On 26 February 2010, S K Green, Group Chairman, became chairman of the Nomination Committee in succession to Sir Brian Williamson, who continues to serve as a member of the Committee. The Committee's terms of reference do not require the Committee to develop and recommend corporate governance principles for HSBC Holdings. As stated above, HSBC Holdings is subject to the corporate governance principles of the Combined Code.

Pursuant to NYSE listing standards, non-management directors must meet on a regular basis without management present and independent directors must meet separately at least once per year. During 2009, HSBC Holdings' non-executive Directors met four times as a group with the Group Chairman, but without other executive Directors present, and met once as a group without the Group Chairman or other executive Directors present. HSBC Holdings' practice, in this regard, complies with the Combined Code.

In accordance with the requirements of the Combined Code, HSBC Holdings discloses in its annual report how the Board, its committees and the Directors are evaluated (on page 306) and provides extensive information regarding Directors' compensation in the Directors' Remuneration Report (on pages 334 to 348). The terms of reference of HSBC Holdings' Audit, Nomination, Remuneration and Risk Committees are available at www.hsbc.com/boardcommittees.

NYSE listing standards require US companies to adopt a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. In December 2009, the Board endorsed three Group Values statements underpinned by the continued use of HSBC's Business Principles, in replacement of the Group Business Principles and Values. In addition to the Group Values statements and Business Principles (and previously the Group Business Principles and Values), which apply to the employees of all HSBC companies, pursuant to the requirements of the Sarbanes-Oxley Act the Board of HSBC Holdings has adopted a Code of Ethics applicable to the Group Chairman and the Group Chief Executive, as the principal executive officers, and to the Chief Financial Officer, Executive Director, Risk and Regulation and Group Chief Accounting Officer. HSBC Holdings' Code of Ethics is available on www.hsbc.com/codeofethics or from the Group Company Secretary at 8 Canada Square, London E14 5HQ. If the Board amends or waives the provisions of the Code of Ethics, details of the amendment or waiver will appear at the same website address. During 2009, HSBC Holdings made no amendments to its Code of Ethics and granted no waivers from its provisions. The references to the standards to be followed by all employees have been updated to reflect the Board's endorsement of Group Values statements underpinned by the continued use of HSBC's Business Principles. The Group Values statements and Business Principles are available on www.hsbc.com/groupvalues.

Under NYSE listing rules applicable to US companies, independent directors must comprise a majority of the Board of directors. Currently, two thirds of HSBC Holdings' Directors are independent.

Under the Combined Code the HSBC Holdings Board determines whether a Director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the Director's judgement. Under the NYSE rules a director cannot qualify as independent unless the board affirmatively determines that the director has no material relationship with the listed company; in addition the NYSE rules prescribe a list of circumstances in which a director cannot be independent. The Combined Code requires a company's board to 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 Chief Executive 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 Chief Executive 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.

HSBC Holdings is 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.

Board committees

The Board has appointed a number of committees consisting of certain Directors, Group Managing Directors and, in the case of the Corporate Sustainability Committee, certain co-opted non‑director members. The following are the principal committees:

Group Management Board

The Group Management Board meets frequently and operates as a general management committee under the direct authority of the Board. The objective of the Group Management Board is to maintain a reporting and control structure whereby all of the line operations of HSBC are accountable to individual members of the Group Management Board who report to the Group Chief Executive who in turn reports to the Group Chairman. The Board has set objectives and measures for the Group Management Board. These align senior executives' objectives and measures with the strategy and operating plans throughout HSBC. The members of the Group Management Board are M F Geoghegan (Chairman), D J Flint, A A Flockhart and S T Gulliver, who are executive Directors, and A Almeida, E Alonso, K M Harvey, A C Hungate, B P McDonagh, B Robertson, P A Thurston and P T S Wong, all of whom are Group Managing Directors.

The Group Management Board exercises the powers, authorities and discretions of the Board in so far as they concern the management and day-to-day running of HSBC Holdings in accordance with such policies and directions as the Board may from time to time determine. Matters reserved for approval by the Board are described on page 303.

The Group Chief Executive reports to each meeting of the Board on the activities of the Group Management Board.

Group Audit Committee

The Group Audit Committee meets regularly with HSBC's senior financial, credit and risk, internal audit, legal and compliance management and the external auditor to consider HSBC Holdings' financial reporting, the nature and scope of audit reviews and the effectiveness of the systems of internal control, compliance and risk management. The members of the Group Audit Committee throughout 2009 were R A Fairhead (Chairman), J D Coombe and J W J Hughes-Hallett. J R Lomax was appointed a member of the Committee on 1 March 2009. On 1 March 2010, M K T Cheung was appointed a member of the Committee in succession to J W J Hughes-Hallett. All members of the Committee are independent non-executive Directors.

The Committee has discussed the risk management recommendations of the Walker Review. Following the Committee's recommendation of appropriate terms of reference, a separate Group Risk Committee was established by the Board on 26 February 2010. The terms of reference of the Group Risk Committee are available at www.hsbc.com/boardcommittees. The members of the Group Risk Committee are R A Fairhead (Chairman), J D Coombe, J W J Hughes-Hallett and J R Lomax, all of whom are independent non-executive Directors. The following section on the work of the Group Audit Committee describes its activities and responsibilities up to the establishment of the Group Risk Committee. Going forward the Group Audit Committee will focus primarily on financial reporting matters and the Group Risk Committee on internal control and risk management matters.

The Board has determined that M K T Cheung, J D Coombe, R A Fairhead, J W J Hughes-Hallett and J R Lomax are independent according to SEC criteria. In addition, M K T Cheung, J D Coombe, R A Fairhead, and J W J Hughes-Hallett may be regarded as audit committee financial experts for the purposes of section 407 of the Sarbanes-Oxley Act and have recent and relevant financial experience.

Appointments to the Committee are made for periods of up to three years, extendable by no more than two additional three-year periods, so long as members continue to be independent.

Formal and tailored induction programmes are held for newly-appointed Committee members and appropriate training is provided on an ongoing and timely basis.

There were eight meetings of the Group Audit Committee during 2009. The table on page 304 gives details of Directors' attendance at these meetings. Following each meeting the Committee reports to the Board on its activities.

At each meeting, the Committee has the opportunity to meet with the external auditor, without management present, to facilitate the discussion of any matter relating to its remit and any issue arising from the audit. Similar arrangements have been adopted for the Committee to meet with the internal auditor. The Committee also has the opportunity to meet with the Group Chief Executive at each of its meetings.

The terms of reference of the Committee, which are reviewed annually, are available at www.hsbc.com/boardcommittees. To ensure consistency of scope and approach by subsidiary company audit committees, the Group Audit Committee has established core terms of reference to guide subsidiary audit committees when adopting terms of reference. The Committee's endorsement is required for any proposed changes to subsidiary audit committee terms of reference and for appointments to such committees. Subsidiary audit committees are required to provide bi-annual certificates to the Committee or to an intermediate subsidiary audit committee, relating to the financial statements and internal control procedures of the relevant subsidiary audit committee.

The Group Audit Committee is accountable to the Board and assists it in meeting its responsibilities for maintaining an effective system of internal control and compliance and for meeting its external financial reporting obligations. The Committee undertakes an annual review of the effectiveness of HSBC's system of internal control, which is described on page 313. The Committee reviews the Company's financial statements before they are considered by the Board and the Interim Management Statements before they are approved by management.

Regular reports are received on the risks involved in HSBC's business and how they are controlled and monitored by management which enable the Committee to review the effectiveness of HSBC's risk management framework. Each year the Committee agrees a schedule of presentations to be made to it by management during the ensuing year on the operation of the risk control framework within the Group. The presentations specifically address risk indicators and performance measures such as indicators of credit, liquidity and interest rate risk. During 2009 the Committee received frequent presentations on global market risk and liquidity and reports on the US Mortgage Services business, credit performance in the US and the impact of the tightening of liquidity in the money markets. Comprehensive reports are received at each regular meeting from the Group Chief Risk Officer, the Head of Group Compliance, the Group General Counsel and the Group General Manager, Group Head of Audit. Periodic presentations are made by other function heads and line management.

In February 2009, the Committee considered a working capital Board memorandum in connection with the Company's rights issue. The memorandum summarised the liquidity, funding and capital position of HSBC to support a statement by the Directors on the sufficiency of working capital. The memorandum defined possible stress events which could materially impact HSBC's liquidity, funding and capital position, described the mitigants available and the strategic actions that management could take in response to such material stresses.

The reports from the Group General Manager, Group Head of Audit include information on frauds and weakness in internal controls identified through internal audit reports, special investigations or reviews of regulatory reports and external auditors' reports. The Committee monitors and reviews the effectiveness of the internal audit function and receives summaries of periodic peer reviews of HSBC's principal internal audit functions. HSBC has adopted the Principles of the International Institute of Internal Auditors, which include a periodic external quality assurance review of the internal audit function. The first such review, undertaken by Independent Audit Limited, was presented to the Committee in 2008.

The Committee receives regular updates on changes in law, regulations and accounting standards and practices and the preparations being made to respond to those requirements. During 2009, the Committee received regular updates on the review of internal financial reporting controls required by section 404 of the Sarbanes-Oxley Act and the implementation of the Basel II capital adequacy requirements. The Committee also received updates on a gap analysis against various risk management and governance recommendations from reports issued in 2008 in response to the current financial crisis,

including the Credit Risk Management Policy Group III report and the report of the Institute of International Finance committee on Market Best Practices.

The Committee has approved procedures for the receipt, retention and handling of complaints regarding accounting, internal accounting controls and auditing matters. The Committee receives regular reports regarding the nature, investigation and resolution of material complaints and concerns from the Head of Group Compliance.

The Committee is directly responsible on behalf of the Board for the selection, oversight and remuneration of the external auditor. The Committee reviews and monitors the external auditor's independence and objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements.

The Committee reviews the strategy and approves the terms for the engagement of the external auditor for the audit of the Annual Report and Accounts. Regular reports on the progress of the audit facilitate the Committee's assessment of the effectiveness of the audit.

The Committee receives reports from the external auditor on its own policies and procedures regarding independence and quality control and oversees the appropriate rotation of audit partners within the external auditor. The external auditor provides the Committee with an annual confirmation of its independence in accordance with industry standards.

On the recommendation of the Committee the Board has approved a policy for the employment by HSBC of former employees of the external auditor or its affiliates. The Committee monitors this policy through the receipt of an annual report of those former employees of the external auditor employed by HSBC and the number of former employees of the external auditor currently employed in senior positions in HSBC. The reports enable the Committee to consider whether there has been any impairment, or appearance of impairment, of the auditor's judgement or independence in respect of the audit.

The Group Audit Committee has established policies for the pre-approval of specific services that may be provided by the principal auditor, KPMG Audit Plc and its affiliates ('KPMG'). These policies are kept under review and amended as necessary to meet the dual objectives of ensuring that HSBC benefits in a cost effective manner from the cumulative knowledge and experience of its auditor, while also ensuring that the auditor maintains the necessary degree of independence and objectivity. These pre-approval policies apply to all services where HSBC Holdings or any of its subsidiaries pays for the service, or is a beneficiary or addressee of the service and has selected or influenced the choice of KPMG. All services entered into with KPMG during 2009 were pre-approved by the Committee or were entered into under pre-approval policies established by the Committee. A quarterly update on non-audit services provided by KPMG is presented to the Committee by management.

The pre-approved services relate to regulatory reviews, agreed-upon procedures reports, other types of attestation reports, the provision of advice and other non-audit services allowed under SEC independence rules. They fall into the categories of audit services, audit-related services, tax services and other services.

An analysis of the remuneration paid in respect of audit and non-audit services provided by KPMG for each of the last three years is disclosed in Note 9 on the Financial Statements.

The Committee has recommended to the Board that KPMG Audit Plc be reappointed auditor at the forthcoming Annual General Meeting.

Remuneration Committee

The role of the Remuneration Committee and its membership are set out in the Directors' Remuneration Report on page 334.

Nomination Committee

The Nomination Committee is responsible for leading the process for Board appointments and for identifying and nominating, for approval by the Board, candidates for appointment to the Board. Before recommending an appointment to the Board, the Committee evaluates the balance of skills, knowledge and experience on the Board and, in the light of this, identifies the role and capabilities required for a particular appointment. Candidates are considered on merit against these criteria. Care is taken to ensure that appointees have enough time to devote to HSBC. Prospective Directors are asked to identify any significant other commitments and confirm they have sufficient time to discharge what is expected of them. In accordance with the Articles of Association all Directors are subject to election by shareholders at the Annual General Meeting following their appointment by the Board and to re‑election at least every three years. The members of the Nomination Committee throughout 2009 were Sir Brian Williamson (Chairman), R A Fairhead, S M Robertson and J W J Hughes-Hallett, all independent non-executive Directors. The Board appointed S K Green, Group Chairman to succeed Sir Brian Williamson as chairman of the Nomination Committee on 26 February 2010. Sir Brian remains a member of the Committee.

There were three meetings of the Nomination Committee during 2009. The table on page 304 gives details of Directors' attendance at these meetings.

Following each meeting the Committee reports to the Board on its activities.

The terms of reference of the Committee are available at www.hsbc.com/boardcommittees.

The appointment of M K T Cheung as a non-executive Director was made on the advice and recommendation of the Nomination Committee. An external consultancy was used in connection with the appointment.

During 2009 the Committee considered the recommendations of the Walker Review that fall within its remit. The Committee made recommendations to the Board regarding time commitment and the re-election of Directors.

The terms and conditions of appointment of non-executive Directors are available for inspection at 8 Canada Square, London E14 5HQ and will be made available for 15 minutes before the Annual General Meeting and during the Meeting itself.

The Committee makes recommendations to the Board concerning: plans for succession for both executive and non-executive Directors; the appointment of any Director to executive or other office; suitable candidates for the role of senior independent non-executive Director; the re-election by shareholders of Directors retiring by rotation; the renewal of the terms of office of non-executive Directors; membership of Board Committees, in consultation with the Group Chairman and the chairman of such committees as appropriate; any matters relating to the continuation in office of any Director at any time; and appointments and re-appointments to the boards of directors of major subsidiary companies as appropriate.

The Committee regularly reviews the structure, size and composition (including the skills, knowledge and experience required) of the Board and makes recommendations to the Board as appropriate. It keeps under review the leadership needs of HSBC, with a view to ensuring the continued ability of HSBC to compete effectively in the marketplace. The Board has satisfied itself that appropriate plans are in place for orderly succession to the Board and senior management positions as well as procedures to ensure an appropriate balance of skills and experience within HSBC and on the Board.

Corporate Sustainability Committee

The role of the Corporate Sustainability Committee and its membership are set out on page 328.

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 and usefulness 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 FSA, 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 1 March 2010, the date of approval of the Annual Report and Accounts 2009. In the case of companies acquired during the year, the internal controls in place are being reviewed against HSBC's benchmarks and integrated into HSBC's processes.

HSBC's key internal control procedures include the following:

·     Authority to operate the various subsidiaries and responsibilities for financial performance against plans and for capital expenditure are delegated to their respective chief executive officers within limits set by the Board of Directors of HSBC Holdings. Delegation of authority from the Board to individuals requires those individuals to maintain a clear and appropriate apportionment of significant responsibilities and to oversee the establishment and maintenance of systems of control 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 Management 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, market, liquidity and operational risk, (including accounting, tax, legal, compliance, information, physical security and fraud risk). Exposure to these risks is monitored by risk management committees, asset and liability committees and executive committees in subsidiaries and, for HSBC as a whole, by the Group Management Board. A Risk Management Meeting of the Group Management Board, chaired by the Chief Financial Officer, Executive Director, Risk and Regulation, is held monthly to address asset, liability and risk management issues. The minutes of this meeting are submitted to the Group Audit Committee and to the Board of Directors. The Global Operational Risk and Control Committee ('GORCC'), which reports to the Risk Management Meeting of the Group Management Board, meets at least quarterly to monitor HSBC's operational risk profile and review the effective implementation of the Group's operational risk management framework. The GORCC receives quarterly reports on the Group's operational risk profile, including top risks, control issues, internal and external operational loss events and key risk indicators. The GORCC communicates the lessons learned from operational events both within HSBC and in the wider industry.

·     A Disclosure Committee has been established to review public disclosures made by HSBC Holdings for any material 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, Risk, Compliance, Group Communications, Investor Relations and Internal Audit functions and representatives from the principal regions, customer groups and global businesses. The integrity of disclosures is underpinned by structures and processes within the Finance and Risk function that support expert and rigorous analytical review of financial reporting.

·     The group financial reporting process for preparing the consolidated Annual Report and Accounts 2009 is controlled using documented accounting policies and reporting formats, supported by a chart of accounts with detailed instructions and guidance on reporting requirements, issued by Group Finance to all reporting entities within the Group in advance of each reporting period end. The submission of financial information from each reporting entity to Group Finance is subject to certification by the responsible financial officer, and analytical review procedures at reporting entity and Group levels.

·     Processes are in place to identify new risks from changes in market conditions and practices or customer behaviours which could expose HSBC to heightened risk of loss or reputational damage. During 2009, attention was focused on evolving best practice in liquidity management and stress testing; aggregating more efficiently counterparty risk data and improving the counterparty crisis management framework; rolling out successfully piloted anti-fraud systems; revised guidance on the approval/review of new products and business initiatives, with greater oversight by the Risk function; the identification of market pricing anomalies; changes in consumer protection standards within personal financial services markets and, more generally, changes in regulation and public policy towards the financial services industry, including the impact of government interventions to address the under-capitalisation and funding difficulties of certain systemically important financial institutions.

·     Periodic strategic plans are prepared for key customer groups, global product groups, support functions and certain geographies within the framework of the Group Strategic Roadmap. Rolling operating plans, informed by detailed analysis of risk appetite, are prepared and adopted by all major HSBC operating companies and set out the key business initiatives and the likely financial effects of those initiatives.

·     Governance and oversight arrangements are in place to ensure that risk analytical models are fit for purpose, used accordingly and complemented by a variety of model-specific and enterprise-wide stress tests that evaluate the impact of severe yet plausible events and other unusual circumstances not fully captured by quantitative models.

·     Centralised functional control is exercised over all IT developments and operations. Common systems are employed for similar business processes wherever practicable. Credit, market and operational risks are measured and reported on in subsidiaries and aggregated for review of risk concentrations on a Group-wide basis.

·     Functional management in Group Management Office is responsible for setting policies, procedures and standards in the following areas of risk: credit; market; liquidity; operational; IT; fraud; business continuity; security; information; insurance; accounting; tax; legal and regulatory compliance; fiduciary; human resources; reputational; sustainability and purchasing. Authorities to enter into credit and market risk exposures are delegated with limits to line management of Group companies. The concurrence of Group Management Office is required, however, to credit proposals with specified higher risk characteristics.

·     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 and 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 or use financial products and services.

·     The establishment and maintenance of appropriate systems of internal control is primarily the responsibility of business management. The internal audit function, which is centrally controlled, monitors the effectiveness of internal control structures across the whole of HSBC focusing on the areas of greatest risk to HSBC as determined using a risk-based grading approach. The head of this function reports to the Group Chairman and the Group Audit Committee.

·     Executive 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. Executive management must also confirm annually as part of the internal audit process that offices under their control have taken or are in the process of taking the appropriate actions to deal with all significant recommendations made by external auditors in management letters or by regulators following regulatory inspections.

The Group Audit Committee has kept under review the effectiveness of this system of internal control and has reported regularly to the Board of Directors. The key processes used by the Committee in carrying out its reviews include: regular business and operational risk assessments; regular reports from the heads of key risk functions including Internal Audit and Compliance; the production annually of reviews of the internal control framework applied at Group Management Office and major operating subsidiary level measured against HSBC benchmarks, which cover all internal controls, both financial and non-financial; semi-annual confirmations from chief executives of principal subsidiary companies as to whether there have been any material losses, contingencies or uncertainties caused by weaknesses in internal controls; internal audit reports; external audit reports; prudential reviews; and regulatory reports. The Group Audit Committee keeps under review a 'Risk Map' of the status of key risk areas which impact the Group and considers whether the mitigating actions put in place are appropriate. In addition, where unexpected losses have arisen or where incidents have occurred which indicate gaps in the control framework or in adherence to Group policies, the Group Audit Committee has reviewed special reports, prepared at the instigation of management, which analyse the cause of the issue, the lessons learned and the actions proposed by management to address the issue.

The Directors, through the Group Audit Committee, have conducted an annual review of the effectiveness of HSBC's system of internal control covering all material controls, including financial, operational and compliance controls and risk management systems and the adequacy of resources, qualifications and experience of staff of the issuer's accounting and financial reporting function, and their training programmes and budget. The Group Audit Committee has received confirmation that executive management has taken or is taking the necessary action to remedy any failings or weaknesses identified through the operation of HSBC's framework of controls.

Going concern basis

The financial statements are prepared on a going concern basis as the Directors are satisfied that the Group and parent company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions including future projections of profitability, cash flows and capital resources. Further information relevant to the assessment is provided elsewhere in this Report. In particular, HSBC's principal activities, strategic direction and challenges and uncertainties are described in the 'Operating and Financial Review'; a financial summary, including a review of the consolidated income statement and consolidated balance sheet, is provided in the 'Operating and Financial Review'; HSBC's objectives, policies and processes for managing credit, liquidity and market risk, and its approach to capital management and allocation, are described in the 'Risk' section; and the impact of the recent market turmoil in markets for securitised and structured assets is disclosed in the 'Impact of Market Turmoil' section.

Directors' interests

Pursuant to the requirements of the UK Listing Rules and according to the register of Directors' interests maintained by HSBC Holdings pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong, the Directors of HSBC Holdings at 31 December 2009 had the following interests, all beneficial unless otherwise stated, in the shares and loan capital of HSBC and its associated corporations:

Directors' interests HSBC Holdings ordinary shares of US$0.50
		At 31 December 2009
	At     1 January           2009			Beneficial         owner		Child    under 18   or spouse			Controlled corporation		Jointly            with      another        person		Trustee		Total    interests1
V H C Cheng ..........................	300,790			283,273		182,892			-		-		-		466,165
J D Coombe ...........................	13,250			19,676		-			-		-		-		19,676
R A Fairhead ..........................	-			-		-			-		21,300		-		21,300
D J Flint .................................	119,456			144,439		-			-		-		32,6622		177,101
A A Flockhart ........................	172,583			269,008		-			-		-		-		269,008
W K L Fung ...........................	328,000			294,666		-			170,000		-		-		464,666
M F Geoghegan ......................	477,434			724,757		-			-		-		-		724,757
S K Green ...............................	667,421			836,959		-			-		64,252		100,0003		1,001,211
S T Gulliver ............................	2,279,861			2,553,592		177,465			-		-		-		2,731,057
J W J Hughes-Hallett ..............	381,049			-		-			-		-		67,7553		67,755
W S H Laidlaw .......................	21,693			29,532		-			-		-		1,4163		30,948
Sir Mark Moody-Stuart ..........	10,840			7,083		1,190			-		-		7,0833		15,356
G Morgan ...............................	52,873			78,515		-			-		-		-		78,515
S M Robertson .......................	98,620			8,343		-			-		-		131,7503		140,093
Sir Brian Williamson ..............	24,496			36,378		-			-		-		-		36,378

1  Includes HSBC Holdings ordinary shares of US$0.50 taken up under the rights issue (as described on page 466). The Directors entitled to acquire new ordinary shares under the rights issue took up their rights in full, other than the rights arising in connection with any ordinary shares held by the executive Directors through the HSBC Holdings UK Share Ownership Plan. Details of executive Directors' other interests in HSBC Holdings ordinary shares of US$0.50 arising from the HSBC Holdings savings‑related share option plans and the HSBC Share Plan are set out in the Directors' Remuneration Report on pages 334 to 348. At 31 December 2009, the aggregate interests under the Securities and Futures Ordinance of Hong Kong of V H C Cheng, D J Flint, A A Flockhart, M F Geoghegan, S K Green and S T Gulliver in HSBC Holdings ordinary shares of US$0.50, including interests arising through employee share plans were: V H C Cheng - 1,439,533; D J Flint - 961,587; A A Flockhart - 1,151,811; M F Geoghegan - 2,536,837; S K Green - 2,809,790 and S T Gulliver - 3,540,006. Each Director's total interests represents less than 0.02 per cent of the shares in issue.

2  Non-beneficial interest in 21,775 shares.

3  Non-beneficial.

M F Geoghegan has an interest as beneficial owner in 280,000 ordinary shares of HK$5 each in Hang Seng Bank (representing less than 0.02 per cent of the shares in issue), which he held throughout the year.

S K Green had an interest as beneficial owner in €75,000 of HSBC Holdings plc 5½ per cent Subordinated Notes 2009 until they were redeemed by HSBC Holdings on 15 July 2009.

As directors of HSBC France during 2009, S K Green and S T Gulliver each held an interest as beneficial owner in one share of €5 in that company (representing less than 0.01 per cent of the shares in issue). The Directors have waived their rights to receive dividends on these shares and have undertaken to transfer these shares to HSBC on ceasing to be directors of HSBC France. Following his resignation as a director of HSBC France on 16 February 2010, S K Green ceased to have an interest as beneficial owner in one share of €5 in that company.

Following a change in Swiss law so that directors are no longer required to hold a qualification share, S K Green and S T Gulliver each ceased to have an interest as beneficial owner in one share of CHF1,000 in HSBC Private Banking Holdings (Suisse) (representing less than 0.01 per cent of the shares in issue) on 4 August 2009.

V H C Cheng has an interest as beneficial owner in RMB1,000,000 of retail bonds issued by HSBC Bank (China), which he acquired during the year.

No Directors held any short position as defined in the Securities and Futures Ordinance of Hong Kong in the shares and loan capital of HSBC and its associated corporations. Save as stated above, none of the Directors had an interest in any shares or debentures of HSBC or any associated corporation at the beginning or at the end of the year, and none of the Directors or members of their immediate families were awarded or exercised any right to subscribe for any shares or debentures in any HSBC corporation during the year. Since the end of the year, the interests of each of the following Directors have increased by the number of HSBC Holdings ordinary shares shown against their name:

Increase in Directors' interests since 31 December 2009

HSBC Holdings ordinary shares of US$0.50

	Beneficial           owner		Child under 18 or spouse		Controlled                      corporation		Trustee		Beneficiary      of a trust1
V H C Cheng .....................................................	5,0882		1,1982		-		-		3,143
J D Coombe .......................................................	1292		-		-		-		-
D J Flint ............................................................	693		-		-		2144		5,122
A A Flockhart ...................................................	3,4772		-		-		-		2,491
M F Geoghegan .................................................	2,3272		-		-		-		11,871
S K Green ..........................................................	335		-		-		-		11,849
S T Gulliver .......................................................	-		42		-		-		5,300
G Morgan ..........................................................	5142		-		-		-		-
S M Robertson ...................................................	542		-		-		-		-
Sir Brian Williamson .........................................	2382		-		-		-		-

1  Scrip dividend on Performance Share and Restricted Share awards granted in 2007 and 2008 under the HSBC Share Plan.

2  Scrip dividend.

3  Comprises the automatic reinvestment of dividend income by an Individual Savings Account manager (36 shares), the acquisition of shares in the HSBC Holdings UK Share Ownership Plan through regular monthly contributions (19 shares) and the automatic reinvestment of dividend income on shares held in the plan (14 shares).

4  Scrip dividend. Non-beneficial interest in 142 HSBC Holdings ordinary shares of US$0.50.

5  Comprises the acquisition of shares in the HSBC Holdings UK Share Ownership Plan through regular monthly contributions
(19 shares) and the automatic reinvestment of dividend income on shares held in the plan (14 shares).

There have been no other changes in the share and loan capital interests of the Directors from 31 December to the date of this Report. Any subsequent changes up to the last practicable date before the publication of the Notice of Annual General Meeting will be set out in the notes to that Notice.

At 31 December 2009, Directors and Senior Management (being members of the Group Management Board) held, in aggregate, beneficial interests in 19,566,685 HSBC Holdings ordinary shares (0.11 per cent of the issued ordinary shares).

At 31 December 2009, executive Directors and Senior Management held, in aggregate, options to subscribe for 1,032,688 HSBC Holdings ordinary shares under the HSBC Holdings savings-related share option plans, HSBC Holdings Group Share Option Plan and HSBC Finance: 1996 Long-Term Executive Incentive Compensation Plan. These options are exercisable between 2010 and 2015 at prices ranging from £3.3116 to £6.1760 and US$9.2895 to US$18.6226 per share.

 

END

 

 

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