RNS Number : 6358S
HSBC Holdings PLC
18 March 2016
Geopolitical risk |
The GRC received regular reports on geopolitical risks including the crises in the Middle East, slowdown in mainland China and redenomination risk of Greece exiting the eurozone. Management provided regular updates on the implementation of mitigating actions in response to these matters which included the augmentation of anti-money laundering, sanctions and financial crime compliance controls. The GRC also held a joint meeting with the GAC which focused on areas of mutual interests including entity level controls, operational risk and subsidiary governance. |
Further information on the identification, management and mitigation of our material risks types, and on our top and emerging risk is provided on pages 105 and 110, respectively.
Financial System Vulnerabilities Committee
I am pleased to present the 2015 report of the Financial System Vulnerabilities Committee ('FSVC'). The FSVC oversees the implementation by management of policies aimed at mitigating financial crime and system abuse risks which HSBC faces in the execution of its strategy. In doing so, it provides thought leadership, governance, oversight and policy guidance over the framework of controls and procedures which has been designed to address these risks to which HSBC and the financial system more broadly, may be exposed. In 2015, the FSVC continued to focus on the controls and procedures which underpin Global Standards and mitigate our financial crime risks. The interactions with the Monitor1 have been a key part of the FSVC's agenda as the Committee continues to oversee the compliance-related initiatives being implemented by the Group to address its obligations under its Deferred Prosecution Agreement ('US DPA'), and the Monitor and his team have attended a number of FSVC meetings during the course of the year. These meetings have also included private meetings with the non-executive members of the FSVC. Other areas of focus have included oversight of HSBC's cyber security framework and monitoring significant developments in the information security environment and the sanctions control framework in the light of heightened geopolitical risk. During 2015, the FSVC has taken a more holistic approach to identifying potential financial crime compliance ('FCC') issues. The heads of business units and country heads have routinely been invited to meetings to provide insights on the implementation of Global Standards and key FCC issues for their areas. In 2016, the FSVC will continue to focus on Global Standards and Financial Crime Compliance (FCC) through the monitoring and tracking of the FCC plan and engaging with the Monitor to ensure his recommendations are acted on. The Committee will continue its programme of reporting by country heads on FCC. The FSVC will also retain its focus on FCC controls in the Private Bank. Cyber security will remain a key area of focus for the Committee. During the course of the year we welcomed Nehchal Sandhu as an additional adviser member to the Committee. Nehchal brings extensive experience in leading the national cyber security strategy and architecture in India and advising senior government officials on national security matters. I should like to thank Sir Simon Robertson, who resigned from the Committee at the conclusion of the 2015 Annual General Meeting, and Rona Fairhead, who steps down as a member of the Committee at the conclusion of the 2016 Annual General Meeting, for their contributions to the work of the Committee. Lord Evans of Weardale Chairman Financial System Vulnerabilities Committee 22 February 2016 1 See page 116 for further details on the Monitor. |
Members
Lord Evans of Weardale (Chairman)
Kathleen Casey
Rona Fairhead
Nick Fishwick, CMG1
Dave Hartnett, CB1
William Hughes, CBE QPM1
Nehchal Sandhu1
Leonard Schrank1
The Honourable Juan Zarate1
1 Adviser members
Six adviser members have been appointed to the Committee to support its work and between them have extensive experience in geopolitical risk, financial crime risk, international security, cyber security and law enforcement matters.
Role and responsibilities
The role and responsibilities of the FSVC are set out in its terms of reference. The terms of reference can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.
The key areas of responsibility for the FSVC include:
· 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;
· oversight of matters relating to HSBC's information security environment and cyber security framework; and
· providing a forward-looking perspective to the Board on financial crime risk.
In 2016, the FSVC will assume responsibility for oversight of controls relating to anti-bribery and corruption.
During 2015, the FSVC held seven meetings. Attendance is set out in the table on page 258.
How the FSVC discharged its responsibilities
The FSVC has focused its activity on areas where HSBC and the financial system more broadly may become exposed to financial crime or system abuse, working closely with the GRC which has broader responsibility for risk governance.
The principal activities and significant issues considered by the FSVC are provided in the table below.
Committee effectiveness
The effectiveness of the FSVC was evaluated as part of the overall performance evaluation of the Board.
Principal activities and significant issues considered include:
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Oversight of obligations under the US and UK agreements and updates on HSBC's interactions with the Monitor |
The FSVC has monitored developments between HSBC and the US regulators. Interactions with the Monitor have been a key part of the Committee's agenda, including oversight of HSBC's response to the Monitor's work programme and management's action to embed Global Standards. The FSVC received regular reports from the Monitor and his team on reviews undertaken and the results of the Monitor's First Annual Follow-up Review Report, agreeing recommendations and actions in response to this report. |
Financial crime compliance and related issues |
The FSVC oversaw the anti-money laundering and compliance-related initiatives being implemented by the Group to address obligations under the US DPA and related agreements, including forward-looking risks to HSBC and the financial system more widely, de-risking activities in relation to correspondent banking, and anti-money laundering risks associated with affiliates. |
Compliance resourcing |
The FSVC reviewed and discussed reports from Compliance in relation to resourcing. A particular area of focus was on recruitment activities, resourcing levels and people development. The ability of the Compliance function to attract and retain talent has and will continue to be a key area of focus for the Committee. |
Sanctions |
The Group has in place a Global Sanctions Policy. The FSVC receives updates on both sanctions-related matters and compliance with the Group's sanctions programme. |
Technology and data systems |
The FSVC received reports on implementation of the FCC IT strategy. A progress tracker providing an update on the information security risk framework was routinely monitored by the FSVC throughout the year, with particular focus on cyber security and the Group's information security risk framework. |
Reporting |
The FSVC provides a quarterly report to the Board on its activities and updates the Group Risk Committee and the Remuneration Committee on specified matters for its consideration as appropriate and reports to the Core and Global College of Regulators on key activities undertaken. |
Global Standards |
The FSVC received reports from management including heads of business units and from Internal Audit concerning implementation of the Global Standards programme. |
Cyber/Information
security |
The FSVC continued its focus on cyber and information security matters. It received reports from representatives in the first and second lines of defence on developments in HSBC's information security environment and monitored the proactive steps to address emerging risks. The Committee also oversaw the progress of the projects to improve HSBC's cyber security framework and cyber incident response preparedness. |
Reports from adviser members |
The Committee received updates from the Committee's adviser members on the activities they have each undertaken in their role as advisers to HSBC Holdings plc with specific focus on geopolitical risk, emerging financial crime and information security issues. |
Group Remuneration Committee
Members1
Sam Laidlaw (Chairman)
John Lipsky
Pauline van der Meer Mohr (from 1 January 2016)
Sir Simon Robertson1
Paul Walsh (from 1 January 2016)
1 Sir Simon Robertson will be retiring from the Board at the April 2016 Annual General Meeting.
Role and responsibilities
The role and responsibilities of the Group Remuneration Committee are set out in its terms of reference. The terms of reference can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.
The Committee is responsible for setting the over-arching principles, parameters and governance framework of the Group's remuneration policy and the remuneration of executive Directors and other senior Group employees. The Committee regularly reviews the effectiveness of the remuneration policy of the Company and its subsidiaries in the context of consistent and effective risk management. No Directors are involved in deciding their own remuneration.
Further details on the remuneration arrangements for Directors may be found in the Directors' Remuneration Report on pages 285 to 321.
During 2015, the Group Remuneration Committee held 10 meetings. Attendance is set out in the table on page 258.
Committee effectiveness
The effectiveness of the Group Remuneration Committee was evaluated as part of the overall performance evaluation of the Board. More information can be found under the Performance Evaluation section on page 260.
Nomination Committee
I am pleased to present the 2015 report of the Nomination Committee. During 2015, HSBC appointed two new independent non-executive Directors, Irene Lee and Pauline van der Meer Mohr. The appointments of Paul Walsh and Henri de Castries as two further independent non-executive Directors were announced in 2015. Paul Walsh joined the Board on 1 January 2016 and we look forward to welcoming Henri de Castries on 1 March 2016. As I outline overleaf, these appointments bring substantial additional strength to the Board and have further broadened its existing expertise and experience. The Committee continually seeks to ensure that the Board's composition is aligned to the Group's strategic priorities. A matrix of Directors' skills and experience, also reflecting the diversity of the Board's composition, including gender, is regularly reviewed by the Committee and is central to the succession planning process for non-executive Director appointments. HSBC has been active in promoting gender diversity, such that women currently make up 33% of the Board although the Committee will continue to focus on initiatives towards achieving a greater gender balance, both at Board level and below. The Committee has also conducted an annual review of the Group's executive succession plan. This aspect of the Committee's succession planning responsibilities has become an increasingly important area for both management and the Committee, reflecting the people risk to which a group of HSBC's size and scale is exposed. During the year, membership of the Board's committees has been refreshed to ensure that there are clear linkages between them. The work of each committee is reported to the Board by the respective committee chair and cross-committee membership of non-executive directors helps to ensure a more cohesive governance structure. During the course of the year we welcomed Rachel Lomax onto the Committee. I should like to thank Sir Simon Robertson, who stepped down as its Chairman at the conclusion of the 2015 AGM for his contribution to the Committee and who, together with Rona Fairhead, leaves the Board at the conclusion of the 2016 AGM. Their wisdom and counsel will be much missed. Sam Laidlaw Chairman Nomination Committee 22 February 2016 |
Members
Sam Laidlaw (Chairman)
Laura Cha
Rona Fairhead
John Lipsky
Rachel Lomax
Role and responsibilities
The role and responsibilities of the Nomination Committee are set out in its terms of reference, which can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.
The Nomination Committee 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. The Committee is responsible for succession planning for both executive and non-executive directors and membership of Board
committees. The Committee regularly reviews the structure, size and composition of the Board including the balance of skills, knowledge, experience and diversity.
Governance
During 2015, the Nomination Committee held five meetings. Attendance is set out in the table on page 258. The Chairman reports matters of significance to the Board after each meeting.
Committee effectiveness
The effectiveness of the Nomination Committee was evaluated as part of the overall performance evaluation of the Board.
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Appointments of new
Directors |
Following an external and rigorous selection process, the Committee recommended to the Board the appointment of four non-executive Directors during 2015: Irene Lee and Pauline van der Meer Mohr, who joined the Board on 1 July and 1 September, respectively, Paul Walsh, who joined the Board on 1 January 2016, and Henri de Castries, who joins the Board on 1 March 2016. An external search consultancy, MWM Consulting, is used in relation to the appointment of non-executive Directors. MWM Consulting has no additional connection with HSBC other than as search consultant for certain senior executive hires. The Committee recommended Irene Lee for appointment to the Board because of her extensive experience in financial services, and her leadership roles in a number of Asian businesses. Pauline van der Meer Mohr was recommended by the Committee due to her leadership experience in human resources and legal affairs, together with her regulatory experience. Paul Walsh brings to the Board strategic and commercial insight and experience from running multiple global consumer businesses. Henri de Castries brings broad international experience, running one of the world's largest insurance companies and a deep understanding of the financial services industry and regulation. |
Forward planning |
The Nomination Committee takes into account the needs and development of the Group's businesses and the expected retirement dates of current Directors when considering candidates to join the Board, ensuring that skills, experience and diversity requirements are satisfied as far as possible. |
Board and Committee composition |
The Nomination Committee routinely monitors the size, structure and composition of the Board including the skills, knowledge, experience, diversity and independence of its non-executive Directors. The Committee recommended to the Board that all Directors should stand for election or re-election at the 2016 AGM, with the exception of Rona Fairhead and Simon Robertson whose retirement was announced during the year. Safra Catz, after eight years of dedicated service as a non-executive Director, elected to retire at the end of 2015. A number of changes were made to the composition of Committees during the year to reflect tenure of service and the appointment of new non-executive Directors to the Board. |
Regulatory and policy developments |
The Nomination Committee monitors HSBC's policies and regulatory developments in relation to Board composition. Additionally, during 2015 the Committee considered the corporate governance arrangements for the UK Ring-Fenced Bank, reviewed the Board's diversity policy and the outcomes of the Board effectiveness review of its principal subsidiaries. |
Diversity |
The Nomination Committee 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. The Nomination Committee regularly monitors the implementation of the Board's diversity policy using the following measurable objectives: only external search consultants who are signatories to the Executive Search Firms Voluntary Code of Conduct should be engaged by the Nomination Committee; 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 conclusion of the 2016 AGM, 33% of the Board will be female. |
Director training and development |
The Nomination Committee reviews and monitors the training and continuous professional development of Directors and senior management. |
Time commitment and independence of non-executive Directors |
The Nomination Committee assessed the independence of, and time required from, non-executive Directors, and 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 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
I am pleased to present the 2015 report of the Conduct & Values Committee ('CVC'). The CVC has non-executive responsibility for overseeing the Group's continuing efforts to raise standards in the way it conducts business, consistent with HSBC's values. In this, the second year of its operation, the Committee has focused particularly on the implementation of the Group's global programme for ensuring that it delivers fair outcomes for customers and upholds market integrity, as the basis for the long-term success of its business. This has involved a thorough review of Group policies, processes and procedures to assess how far they meet the required standards and, where necessary, to implement remedial action. A key challenge has been to develop measures that will enable management to identify and resolve emerging conduct issues in a timely way. The CVC is monitoring progress in developing useful management information in each of the global businesses and across the different geographies. The Committee recognises that the success of any programme of cultural change depends critically on how people are recruited, trained, incentivised and led. It is taking a close interest in the many initiatives that are being developed to ensure that the Group sends consistent messages to employees about what is expected of them, equips them to do their jobs in the right way, and rewards and penalises them appropriately. It is particularly important to foster a culture in which people are empowered to speak up if they become aware of problems. During 2015 the CVC has overseen a significant improvement in the Group's whistleblowing arrangements. HSBC Confidential, launched in August, provides simplified access to whistleblowing channels which will enable more timely and consistent reporting of cases. Looking ahead, the CVC will remain focused on how the Group's conduct approach is being implemented. It will pay particular attention to how effectively global programmes are being cascaded through the organisation, especially in the Group's key locations, using staff surveys, site visits and internal audits as appropriate. As part of its remit to ensure that the Group acts responsibly towards the communities within which it operates, the Committee intends to review how effectively the Group seeks to satisfy itself that it is meeting its sustainability commitments. I should like to take this opportunity to thank all Committee members and management for their contributions during the year. Heidi Miller stepped down from the Committee on 31 December and Pauline van der Meer Mohr joined with effect from 1 January: my warm thanks to Heidi for her lively participation in the Committee's work, and a hearty welcome to Pauline. Rachel Lomax Chairman, Conduct & Values Committee 22 February 2016 |
Members
Rachel Lomax (Chairman)
Laura Cha
Lord Evans of Weardale
Heidi Miller (until 31 December 2015)
Jonathan Symonds
Pauline van der Meer Mohr (from 1 January 2016)
Role and responsibilities
The role and responsibilities of the CVC are set out in its terms of reference which can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.
The CVC is responsible for:
· 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, the Group 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 it operates and treats other stakeholders fairly.
The CVC oversees the promotion and embedding by management of HSBC Values and its required global conduct outcomes. The CVC also provides inputs, as appropriate, to the Group Remuneration Committee on the alignment of remuneration with conduct.
In 2016, the CVC will relinquish, and the Financial System Vulnerabilities Committee will assume, responsibility for oversight of controls relating to anti-bribery and corruption.
Governance
During 2015, the CVC held five meetings. Attendance is set out in the table on page 258.
The Chairman reports matters of significance to the Board after each meeting and the minutes of the meetings are made available to all Board members.
How the CVC discharged its responsibilities
During the course of 2015 the CVC received regular reports and presentations from global business and functional heads.
The chief executives of the global businesses provide regular reports to the CVC, including an analysis of customer complaint trends, at each meeting. The CVC also receives reports on whistleblowing cases, the outcomes of internal audits and initiatives to embed values-based leadership as part of the Group's ongoing cultural transformation.
Committee effectiveness
The effectiveness of the CVC was evaluated as part of the overall performance evaluation of the Board.
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Global approach to conduct |
The CVC received reports from the Global Head of Regulatory Compliance on how the Group approach to conduct is being managed to deliver the required conduct outcomes. Each global business is requested to present plans to close out any gaps identified against the required outcomes and progress on implementation of key conduct-related programmes. These plans provide improved training and development of staff. Each Global Business produced conduct-related management information during 2015. It is now used at management level by each business to track any conduct-related issues. |
Values |
The CVC oversees the promotion and embedding of HSBC Values. The CVC reviewed with management various values and culture initiatives and contributed to action plans. It focused on the embedding of conduct-related training and the development of a new Group-wide code of conduct, and reviewed options to create an HSBC University. It is also working closely with management to define a comprehensive but pragmatic framework that lays out in practical, concrete language the do's and don'ts of desirable behaviour at HSBC. |
Sustainability |
The CVC led a project to put in place a simple, considered statement on the Group's policy with respect to human rights. This was approved in July 2015. It can be found at www.hsbc.com/citizenship/our-values. The CVC has also held discussions with management regarding the developments, potential changes and future agenda of sustainability as an area of focus for HSBC. This will continue into 2016. |
Whistleblowing |
The CVC has responsibility for the governance of the Group's whistleblowing policies and procedures, including the protection of whistleblowers. The CVC oversaw the successful launch of a new global channel to enable employees to raise concerns when they are not comfortable with their normal routes of escalation. This workstream also produced centralised reporting of whistleblowing cases and standardisation of reporting and tracking of investigation and consequences. |
Employee engagement |
The CVC monitored employee engagement across the Group and received the results of the Group People Survey conducted during 2015. Areas requiring attention were highlighted and the Committee requested that management provide regular updates on plans to address these. |
Philanthropic & Community Investment Oversight Committee
I am pleased to present the first report of the Philanthropic & Community Investment Oversight Committee ('PCIOC') which was established in December 2014. The PCIOC is expected to oversee the Group's philanthropic and community investment activities on behalf of the Board and to provide greater visibility and oversight of the Group's corporate sustainability objectives. As highlighted in the table of principal activities below, the PCIOC has mainly focused on ensuring that the procedures
and processes around the approval of charitable donations are appropriate and has endorsed the community investment budget for 2016. I have chaired the PCIOC since its establishment, with Lord Evans of Weardale as the other non-executive Director member. In addition, the committee has non-Director members, each of whom brings valuable and relevant philanthropic and community-focused experience to the committee: Sir Malcolm Grant, who is the Chairman of NHS England and former President and Provost of University College London, and Stephen Moss, who is Group Head of Strategy & Planning. In 2016, the Committee will additionally benefit from the membership of Lord Robin Janvrin, former Private Secretary to Queen Elizabeth II and chairman of trustees of The Royal Foundation of The Duke and Duchess of Cambridge and Prince Harry. Laura Cha Chairman Philanthropic & Community Investment Oversight Committee 22 February 2016 |
Members
Laura Cha (Chairman)
Lord Evans of Weardale
Sir Malcolm Grant (non-Director member)
Stephen Moss (non-Director member)
Lord Janvrin (non-Director member)
Role and responsibilities
The role and responsibilities of the PCIOC are set out in its terms of reference. The terms of reference can be found
on our website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.
The PCIOC oversees philanthropic and community investment initiatives, including both monetary donations and employee volunteering activities and reports thereon to the Board semi-annually.
How the PCIOC discharged its responsibilities
During the course of 2015, the PCIOC received regular reports and presentations from the Global Head of Marketing and the Head of Group Corporate Sustainability.
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Governance of community investment |
Given that the PCIOC was newly established in 2015, it has been keen to fully understand the Group's community investment policy and how decisions are made, how charities are vetted, the avoidance of conflicts of interest, the recording and reporting of donations made by the Group and the assurance process following up on these decisions. |
Community
investment budget and themes |
The PCIOC received reports from the Global Sustainability function regarding the annual community investment budget and how it is decided, and endorsed the 2016 budget put forward by management. As a result of the 150th Anniversary Fund, the Group's community Investment budget has been increased by $50m a year from 2015-2017. |
Governance
The PCIOC was established at the end of 2014 and held three meetings during the year. Attendance is set out in the table on page 258.
The Chairman reports on matters of significance to the Board after each meeting and the minutes of the meetings are made available to all Board members.
Chairman's Committee
The Chairman's Committee has the power to act on behalf of the Board between scheduled Board meetings to facilitate ad hoc business requiring 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.
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