Meetings
attended
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Meetings
eligible
to attend
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Members1
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Joachim Faber2 (Chairman)
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9
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9
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John Coombe .....................
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9
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9
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Rona Fairhead3 ...................
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5
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5
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John Lipsky .......................
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9
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9
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Rachel Lomax ....................
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9
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9
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Meetings held in 2013 ....
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9
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1 All members are independent non-executive Directors. . With effect from the conclusion of the 2014 Annual General Meeting, John Coombe will retire as a Director and member of the GRC.
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2 Appointed chairman of the Committee on 24 May 2013.
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3 Retired as a member and chairman of the Committee on 24 May 2013.
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Authority
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Membership
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Responsibilities include:
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Board
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Executive and non-executive Directors
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· Approving risk appetite, strategy and performance targets for the Group
· Approving appointment of chief risk officers of subsidiary companies
· Encouraging a strong risk governance culture which shapes the Group's attitude to risk
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GRC
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Independent non-executive Directors
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· Advising the Board on:
- risk appetite and alignment with strategy
- alignment of remuneration with risk appetite (through advice to the Group Remuneration Committee)
- risks associated with proposed strategic acquisitions and disposals
· Overseeing high-level risk related matters
· Reviewing the effectiveness of the Group's systems of risk management and internal controls (other than over financial reporting)
· Overseeing the maintenance and development of a supportive culture in relation to the management of risk
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Authority
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Membership
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Responsibilities include:
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Financial System Vulnerabilities Committee
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Executive Directors and co-opted non-director members
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· Overseeing controls and procedures designed to identify areas of exposure to financial crime or system abuse
· Overseeing matters relating to anti-money laundering, sanctions, terrorist financing and proliferation financing
· Reviewing policies and procedures to ensure continuing obligations to regulatory and law enforcement agencies are met
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GAC
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Independent non-executive Directors
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· Overseeing risks relating to financial reporting and internal control over financial reporting.
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Risk Management Meeting of the GMB
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Group Chief Risk Officer
Chief Legal Officer
Group Chief Executive
Group Finance Director
All other Group Managing Directors
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· Formulating high-level global risk policy
· Exercising delegated risk management authority
· Overseeing implementation of risk appetite and controls
· Monitoring all categories of risk and determining appropriate mitigating action
· Promoting a supportive Group culture in relation to risk management
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Global Standards Steering Meeting of the GMB
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Group Chief Risk Officer
Chief Legal Officer
Group Chief Executive
Group Finance Director
Global Head of Financial Crime Compliance and Group Money Laundering Reporting Officer
All other Group Managing Directors
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· Developing and implementing Global Standards reflecting best practices which must be adopted and adhered to throughout the Group
· Overseeing initiatives to ensure our conduct matches our values
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Global Risk Management Board
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Group Chief Risk Officer
Chief Risk Officers of HSBC's global businesses and regions
Heads of risk areas within the Global Risk Function
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· Supporting the Risk Management Meeting and the Group Chief Risk Officer in providing strategic direction for the Global Risk function, setting priorities and overseeing their execution
· Overseeing consistent approach to accountability for, and mitigation of, risk across the Global Risk function
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Subsidiary board committees responsible for risk-related matters and global business risk committees
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Independent non-executive directors and/or HSBC Group employees with no line or functional responsibility for the activities of the relevant subsidiary or global business, as appropriate
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· Providing reports to the GRC or intermediate risk committee on risk-related matters and internal controls (other than over financial reporting) of relevant subsidiaries or businesses, as requested
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· the Group's risk appetite and risk profile against key performance/risk indicators, as set out in the Group's Risk Appetite Statement, on Group-wide, global business and regional bases;
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· the top and emerging risks facing the Group; and
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· the risk profiles for separate categories of risk within the Group's business identified in the Group's Risk Appetite Statement, on Group-wide, global business and regional bases;
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· further enhance the Global risk appetite framework for consistent adoption by all regions and global businesses within the Group; and
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· complete a formal triennial review and assessment that HSBC's risk appetite framework remains fit for purpose, is in line with best practice and adheres to the highest standards.
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· Risk must be commensurate with sustainable returns
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· Strong balance sheet
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· Healthy capital position
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· Conservative liquidity management
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· Strong brand
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· Robust Group structure of separate legal entities
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· The global businesses should produce sustainable long-term earnings growth
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· Risk diversification
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Strategic and operational objectives
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Earnings
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1. Generate sustainable economic profit commensurate with the risks taken
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Capital and liquidity
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2. Maintain capital in excess of regulatory and internal economic capital requirements
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3. Maintain a strong capital ratio comprising a high proportion of core tier 1 (common equity tier 1 from 2014)
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4. Maintain a well-diversified funding structure with a particular focus on advances to core funding ratios
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5. Off-balance sheet vehicles should not be material in size relative to the total balance sheet
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Impairments
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6. Manage impairments within the Group's tolerance
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Risk category and diversification
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7. Manage all risk categories within the risk appetite
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8. Harness benefits from business diversification to generate non-volatile and sustainable earnings
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Intra-Group lending
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9. Group entities should operate at all times within intra-group exposure limits
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Scenario and stress testing
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10. Use robust and appropriate scenario stress testing to assess the potential impact on the Group's capital adequacy and strategic plans
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Categories
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Top and emerging risks
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Macroeconomic and geopolitical risk
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· Emerging markets slowdown
· Increased geopolitical risk
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Macro-prudential, regulatory and legal risks to our business model
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· Regulatory developments affecting our business model and Group profitability
· Regulatory investigations, fines, sanctions, commitments and consent orders and requirements relating to conduct of business and financial crime negatively affecting our results and brand
· Dispute risk
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Risks related to our business operations, governance and internal control systems
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· Heightened execution risk
· Internet crime and fraud
· Information security risk
· Data management
· Model risk
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· Oversight of executive risk management. Regular reports and presentations were received from the Group Chief Risk Officer including at each meeting a presentation of a 'risk map', which provides analysis, on Group-wide, global business and regional bases, of risk profiles for categories of risk identified in the Group Risk Appetite Statement, and a top and emerging risks report which summarises proposed mitigating actions for identified risks. The Committee received regular reports on matters discussed at Risk Management Meetings.
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· Legal and regulatory environment. Reports were received from the Chief Legal Officer on forward-looking legal risks, the Global Head of Financial Crime Compliance and Group Money Laundering Reporting Officer, the Global Head of Regulatory Compliance on forward-looking compliance risks and the Head of Group Performance and Reward. Regular updates were received on the US regulatory and law enforcement authorities and US dispute risk and compliance matters in the US and the steps taken to remediate these compliance issues.
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· Obligations under US and UK agreements. Regular updates have been received and reviewed on the Group's progress in meeting obligations under the agreements and orders entered into or made in connection with the resolution of the investigations by US and UK regulatory and law enforcement authorities in December 2012 and actions completed to date.
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· HSBC Global Standards. The Committee received regular updates on the Global Standards initiative being undertaken by the Group and the activities of the Global Standards Steering Meeting.
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· Financial Crime. The Committee received regular reports on the activities of the Financial System Vulnerabilities Committee.
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· Compliance-related initiatives. The Committee received regular reports on the restructuring of the Compliance function, including the development of the blueprint and target operating model for each of the Financial Crime Compliance team and the Regulatory Compliance team and the establishment of a project management office for implementation of compliance-related initiatives.
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· US matters. The Committee received regular reports from the Chief Executive Officer of HSBC USA on compliance and regulatory matters in the US.
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· Country risk tolerances. The Committee considered enhancements to the Group's country risk tolerance framework. The risk tolerance in respect of the Group's two home markets and 20 priority markets were considered by the Committee.
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· Risk data aggregation and risk reporting. The Committee received reports on actions to comply with the Basel Committee on Banking Supervision's principles on data aggregation and risk reporting.
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·
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· Review of risk management and internal controls. The Committee undertook an annual review of HSBC's systems of internal controls, other than over financial reporting. During 2013, the Committee monitored the effectiveness of such risk management and internal controls and reported regularly to the Board as described on page 364. A series of presentations were made, and reports submitted, by the heads of the global businesses and global functions to the Committee on the risk control framework in their respective business or function. Reports from the Group Head of Internal Audit on the internal audit process and weaknesses identified in internal controls (other than over financial reporting) were presented to the Committee, as well as reports from regulators relating to the internal control systems.
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· Risk appetite. The Committee reviewed the alignment of risk appetite and Group strategy. Regular reviews were undertaken of the Group's risk profile against the key performance indicators set out in the Risk Appetite Statement which considered the need for any adjustment to the risk appetite. The Risk Appetite Statement for 2014 was recommended to the Board for approval, to be used in the preparation of the Annual Operating Plan for 2014. Reports and presentations were received from the Group Chief Risk Officer, including on the results of HSBC's stress testing and scenario analysis programme.
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· Alignment of remuneration with risk appetite. Presentations and reports were received on remuneration-related proposals to assist the Committee in giving advice to the Group Remuneration Committee on the alignment of remuneration with risk appetite. The GRC considered risk-related issues to have been appropriately taken into account by the Group Remuneration Committee, including when determining the total variable pay funding pool for the 2013 performance year and the proposed design of the performance scorecard for the 2014 performance year. The Committee received presentations on the procedure for determining individual variable pay awards, including the risk assessment process for identifying matters for which risk-related adjustments may be made to individual and team awards. The process by which an individual's adherence to HSBC Values and the Group's risk-related policies and procedures is taken into account in performance assessment and determination of variable pay was also reported to the Committee. The Committee provided advice and feedback on risk-related matters to the Group Remuneration Committee where appropriate.
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· Reputational risk. The Committee received reports from executive management on reputational risk.
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· Benchmarking. The Committee received reports on internal benchmarking exercises undertaken against third party assessment of industry best practices for risk and compliance functions.
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· Top and emerging risks. In monitoring top and emerging risks the Committee received reports from the Group Chief Risk Officer and the Global Head of Financial Crime Compliance and Group Money Laundering Reporting Officer, the Global Head of Regulatory Compliance as well as other members of senior management on risks identified and developments in the Group's business, including model risk, people risk, the changing regulatory environment; the implications of regulatory investigations and global market risk such as the implications of an emerging market slowdown and the impact on trade and capital flows.
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· Acquisitions and disposals. The Committee received reports and presentations on risk issues relating to proposed strategic acquisitions and the risk management of disposals and advised the Board appropriately.
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· Operational risk. The Committee received regular reports on the Group's operational risk management framework.
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· Oversight of risk governance framework. Minutes of the GAC, the Financial System Vulnerabilities Committee, Group Remuneration Committee, GMB including the Risk Management Meeting and the Global Standards Steering Meeting, and the Group Reputational Risk Policy Committee were made available to Committee members.
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· Terms of reference and Committee effectiveness. The Committee undertook a review of its terms of reference and of its own effectiveness.
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