TIDMHSBA
RNS Number : 0672Q
HSBC Holdings PLC
23 February 2021
Corporate governance report
Page
Group Chairman's governance statement 196
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The Board 198
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Senior management 202
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How we are governed 204
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Board activities during 2020 210
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Board committees 214
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Directors' remuneration report 233
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Share capital and other related
disclosures 269
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Internal control 274
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Employees 275
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Statement of compliance 279
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Directors' responsibility statement 280
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HSBC is committed to high standards of corporate governance. We
have a comprehensive range of policies and systems in place
designed to ensure that the Group is well managed, with effective
oversight and control.
Group Chairman's governance statement
Despite the challenging environment,
the Board remained informed on relevant
issues, engaged with stakeholders,
and oversaw the development of our
new Group purpose and values.
"Governance improvements will remain an area of focus for the
Board and its subsidiaries in the years ahead as the Group aims to
achieve its ambition of operating with world-class governance."
Dear Shareholder
With the global pandemic and challenging macroeconomic and
geopolitical environment, 2020 was an extraordinary year for the
Board. These challenges have highlighted the importance of our
governance framework and operating practices. Against this
backdrop, the Board oversaw the development of the Group's future
purpose and strategy led by the Group Chief Executive. We adapted
our Board and senior management engagement schedule to ensure that
as a Board, we continued to deliver on our responsibilities to our
key stakeholders.
As Group Chairman, I am ultimately responsible for the Group's
governance arrangements and the effective operation of the Board. I
am also responsible for ensuring that the Board sets the right tone
from the top of the organisation and monitors the Group's culture.
Given the unique challenges faced during 2020 as a result of the
Covid-19 outbreak, it was important that the Board was properly
informed on a regular basis on all key issues and priorities
affecting the Group. To achieve this, we increased our Board
communication and met more frequently during 2020, albeit remotely
and with scheduling flexed to meet the challenges of Directors
based in different time zones. This allowed us to share insights
and receive updates on key developments, supported by the
attendance of external subject matter experts.
Given the restrictions on travel and large gatherings, and the
guidance available to us at the time, we took the decision to hold
the 2020 AGM behind closed doors. As we approach our 2021 AGM, we
will continue to monitor the situation, and will prioritise the
health and safety of the Board, our colleagues and of course our
shareholders. Further details will be provided when our Notice of
AGM is published on 24 March 2021.
Board changes
Following a thorough and robust search process, as more fully
set out in the Nomination & Corporate Governance Committee
report on page 213, the Board unanimously supported the appointment
of Noel Quinn as Group Chief Executive on 17 March 2020. Noel has
provided strong direction and excellent leadership to HSBC through
these unprecedented times.
I would like to thank Sir Jonathan Symonds and Kathleen Casey
who stepped down from the Board earlier this year. We subsequently
appointed three new Directors, James Forese, Steven Guggenheimer
and Eileen Murray, who collectively bring strong universal banking,
operational and technology expertise.
While the Board and its committees have operated well in a
virtual environment, I do not underestimate the value of in-person
meetings. Our three new Directors underwent a successful virtual
non-executive Director induction programme during the year and we
look forward to welcoming them in person at an appropriate point in
the future.
Today we also announce that Laura Cha will step down from the
Board at the conclusion of our 2021 AGM in May. On behalf of the
Board, I wish to thank Laura for her outstanding dedication and the
enormous contribution she has made to the success of HSBC over many
years. I greatly appreciate the support and counsel that she has
provided to me personally on many occasions since I became the
Group Chairman.
The Board initiated a search for suitable candidates to join and
strengthen the expertise on the Board, and further enhance our
Board diversity and knowledge of Asia. I was delighted that last
week we were able to announce the appointment of Dame Carolyn
Fairbairn as an independent non-executive Director. Carolyn will
bring a wealth of relevant experience to our Board and her
appointment will be effective from 1 September 2021. I am pleased
to report we are in advanced stages on other searches that will
result in further strengthening the Board's skill set.
Board evaluation
In line with best practice, the Board and its committees again
conducted a review of the effectiveness of our operation and
practices.
Our 2019 review identified a number of areas for improvement in
the way that the Board operated. We took a number of actions during
the second half of 2019 and throughout 2020 to address the areas
identified, which contributed to improved effectiveness despite the
challenges posed by Covid-19 and the uncertain geopolitical
environment.
We took the decision to once again invite Dr Tracy Long, the
independent board evaluator, to facilitate our 2020 review, provide
assurance on the progress made, and identify any areas where
further action was required. Further details of the process,
findings and recommendations from the 2020 review can be found on
page 211.
Subsidiary governance
During the year, the Board requested the Group Company Secretary
and Chief Governance Officer to undertake a review of subsidiary
governance, including a review of the composition of the principal
subsidiary boards. Following this exercise, principal subsidiaries
will report to the Nomination & Corporate Governance Committee
during 2021 on their future board compositions and succession plans
to help ensure that they have effective and diverse skill sets that
are aligned with our future strategy. Further details are set out
in the Nomination & Corporate Governance Committee report on
page 213.
We enhanced our subsidiary accountability framework, which
applies to all subsidiaries within the Group, by supplementing this
with clear principles and provisions. The refreshed framework
builds on the progress made to enhance Group standards with the aim
of achieving world-class governance across all our
subsidiaries.
We strengthened connectivity between the HSBC Holdings Board and
principal subsidiaries by increasing the frequency of the
Chairman's Forum meetings. These monthly meetings - which I chair -
are attended by the chairs of the Holdings Board committees and the
chairs of the principal subsidiaries' boards. Given the significant
uncertainty and challenges that the Group, the industry and wider
society encountered in 2020, these more frequent meetings proved
hugely beneficial in identifying and navigating the challenges
facing the Group globally.
Purpose and values
As we developed our purpose and values, the Board undertook
significant engagement with key stakeholders. Their input was
important and influenced the outcome. It is critical that the
values and associated behaviours are embedded across the Group.
Senior management's success in embedding the purpose and values
will be overseen by the Board. The Board and the Group Executive
Committee set the tone from the top by adopting these refreshed
values, which will inform the Board's engagement practices and help
facilitate an open and collaborative relationship with its
stakeholders. The boardroom guidelines, which set out the ways of
working between the Board and management and which were implemented
in 2020, also support the engagement between the Board and
management.
Further details of the Board's consideration when developing the
purpose and values can be found in our section 172 statement on
page 24 .
Climate commitments
Environmental, social and governance ('ESG') issues have been an
area of significant Board focus during 2020. This has been in the
form of formal consideration of our strategy and ambitions in
relation to ESG and climate issues, as well as training to provide
the Board with insight and an understanding of the developing
landscape and stakeholder expectations.
Recognising the importance of these matters to our stakeholders,
investors and customers, the Board was pleased to announce our
updated climate ambition in October 2020. Further information is
provided on pages 24 and 44.
Workforce engagement
Members of the Board and subsidiary boards engaged actively with
our employees during 2020 in line with the requirements of the 2018
UK Corporate Governance Code in relation to workforce
engagement.
Despite travel restrictions, all of the non-executive Directors
engaged directly with members of the workforce across our global
business lines, and through our employee resource groups. This has
provided great insight into the views of the wider workforce and
gave valuable context for the Directors in informing their
discussions at the Board. Further details of our workforce
engagement practices during 2020 can be found on page 210.
Looking ahead
I am pleased with the progress that the Board and broader Group
have made in enhancing our governance practices during 2020.
Governance improvements will remain an area of focus for the Board
and its subsidiaries in the years ahead as the Group aims to
achieve its ambition of operating with world-class governance.
As a result of the Covid-19 outbreak, we have had to adjust how
we engage with our shareholders and other stakeholders, with
in-person meetings substituted for virtual meetings where
necessary. Despite this, we continued to engage fully with
institutional investors. With encouraging news regarding successful
vaccines, I look forward to resuming in-person engagement practices
with our stakeholders when safe to do so.
Mark E Tucker
Group Chairman
23 February 2021
The Board
The Board aims to promote the Group's long-term success, deliver
sustainable value to shareholders and promote a culture of openness
and debate.
Chairman and executive Directors
Mark E Tucker (63)(4C)
Group Chairman
Appointed to the Board: September 2017
Group Chairman since: October 2017
Skills and experience: With over 30 years' experience in
financial services in Asia and the UK, Mark has a deep
understanding of the industry and the markets in which we
operate.
Career: Mark was previously Group Chief Executive and President
of AIA Group Limited ('AIA'). Prior to joining AIA, he held various
senior management roles with Prudential plc, including as Group
Chief Executive for four years. He served on Prudential's Board for
10 years.
Mark previously served as non-executive Director of the Court of
The Bank of England, as an independent non-executive Director of
Goldman Sachs Group and as Group Finance Director of HBOS plc.
External appointments:
-- Chair of TheCityUK
-- Non-executive Chairman of Discovery Limited
-- Member of Build Back Better Council
-- Supporting Chair of Chapter Zero
Noel Quinn (59)
Group Chief Executive
Appointed to the Board: August 2019
Group Chief Executive since: March 2020
Skills and experience : Noel has more than 30 years' banking and
financial services experience, both in the UK and Asia, with over
28 years at HSBC.
Career: Noel was formally named Group Chief Executive in March
2020, having held the role on an interim basis since August 2019.
He has held various management roles across HSBC since joining in
1992. He was most recently Chief Executive Officer of Global
Commercial Banking, having been appointed to the role in December
2015 and as a Group Managing Director in September 2016. Noel
joined Forward Trust Group, a subsidiary of Midland Bank, in 1987
and joined HSBC in 1992 when the Group acquired Midland Bank.
External appointments:
-- Chair of the Financial Services Task Force of the Sustainable Market Initiative
Ewen Stevenson (54)
Group Chief Financial Officer
Appointed to the Board: January 2019
Skills and experience: Ewen has over 25 years' experience in the
banking industry, both as an adviser to major banks and as an
executive of large financial institutions. In addition to his
existing leadership responsibilities for Group Finance, Ewen
assumed responsibility for the oversight of the Group's
transformation programme in February 2021 and will assume
responsibility for the Group's mergers and acquisitions activities
in April 2021.
Career: Ewen was Chief Financial Officer of Royal Bank of
Scotland Group plc from 2014 to 2018. Prior to this, Ewen spent 25
years with Credit Suisse, where his last role was co-Head of the
EMEA Investment Banking Division and co-Head of the Global
Financial Institutions Group.
External appointments: None
Board committee membership key
C. Committee Chair
1. Group Audit Committee
2. Group Risk Committee
3. Group Remuneration Committee
4. Nomination & Corporate Governance Committee
For full biographical details of our Board members, see
www.hsbc.com/who-we-are/leadership.
Independent non-executive Directors
Laura Cha, GBM (71) (4)
Independent non-executive Director
Appointed to the Board: March 2011
Skills and experience: Laura has extensive regulatory and
policymaking experience in the finance and securities sector in
Hong Kong and mainland China.
Career: Laura was formerly Vice Chairman of the China Securities
Regulatory Commission, becoming the first person outside mainland
China to join the Central Government of the People's Republic of
China at Vice-Ministerial level. The Hong Kong Government awarded
her the Grand Bauhinia Medal for public service.
She has previously served as non-executive Director of China
Telecom Corporation Limited, Bank of Communications Co., Ltd, and
Tata Consultancy Services Limited.
External appointments:
-- Chair of Hong Kong Exchanges and Clearing Limited
-- Non-executive Chair of The Hongkong and Shanghai Banking Corporation Limited
-- Non-executive Director of The London Metal Exchange
-- Non-executive Director of Unilever PLC
Henri de Castries (66) (3,4)
Independent non-executive Director
Appointed to the Board: March 2016
Skills and experience: Henri has more than 25 years'
international experience in the financial services industry,
working in global insurance and asset management.
Career: Henri joined AXA S.A. in 1989 and held a number of
senior roles, including Chief Executive Officer from 2000. In 2010,
he was appointed Chairman and Chief Executive, before stepping down
in 2016.
He has previously worked for the French Finance Ministry
Inspection Office and the French Treasury Department.
External appointments:
-- Special Adviser to General Atlantic
-- Chairman of Institut Montaigne
-- Vice Chairman of Nestlé S.A.
-- Non-executive Director of the French National Foundation for Political Science
-- Member of the Global Advisory Council at LeapFrog Investments
-- Senior Independent non-executive Director of Stellantis NV
James Forese (58) (1,3,4)
Independent non-executive Director
Appointed to the Board: May 2020
Skills and experience: James has over 30 years' international
business and management experience in the finance industry.
Career: James formerly served as President of Citigroup. He
began his career in securities trading with Salomon Brothers, one
of Citigroup's predecessor companies, in 1985. In addition to his
most recent role as President and Chief Executive Officer of
Citigroup's Institutional Clients Group, he has been Chief
Executive of its Securities and Banking division and head of its
Global Markets business. On 1 January 2021, he became a
non-executive Director of HSBC North America Holdings Inc.
External appointments:
-- Non-executive Chairman of Global Bamboo Technologies
-- Trustee of Colby College
Steven Guggenheimer (55) (2,4)
Independent non-executive Director
Appointed to the Board: May 2020
Skills and experience: Steven is an experienced technology
executive with a strong track record of advising businesses on
digital transformation. He brings extensive insight into
technologies ranging from artificial intelligence to Cloud
computing.
Career: Steven has more than 25 years' experience at Microsoft,
where he has held a variety of senior leadership roles. These
include: Corporate Vice President for AI Business; Corporate Vice
President of AI and ISV Engagement; Chief Evangelist; and Corporate
Vice President, Original Equipment Manufacturer.
External appointments:
-- Non-executive Director of Forrit Technologies Limited
-- Advisor to Tensility Venture Fund
-- Advisory Board Member of 5G Open Innovation Lab
Irene Lee (67) (3,4)
Independent non-executive Director
Appointed to the Board: July 2015
Skills and experience: Irene has more than 40 years' experience
in the finance industry, having held senior investment banking and
fund management roles in the UK, the US and Australia.
Career: Irene held senior positions at Citibank, the
Commonwealth Bank of Australia and SealCorp Holdings Limited.
Other past appointments include being a member of the Advisory
Council for J.P. Morgan Australia, a member of the Australian
Government Takeovers Panel and a non-executive Director of Cathay
Pacific Airways Limited.
External appointments:
-- Executive Chair of Hysan Development Company Limited
-- Non-executive Director of The Hongkong and Shanghai Banking Corporation Limited
-- Non-executive Director of Hang Seng Bank Limited
-- Member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority
-- Chair of Hang Seng Bank Limited (from the conclusion of its 2021 AGM)
Dr José Antonio Meade Kuribreña (51)(2,4)
Independent non-executive Director
Appointed to the Board: March 2019
Skills and experience: José has extensive experience across a
number of industries, including in public administration, banking,
financial policy and foreign affairs.
Career: Between 2011 and 2017, José held Cabinet-level positions
in the federal government of Mexico, including as Secretary of
Finance and Public Credit, Secretary of Social Development,
Secretary of Foreign Affairs and Secretary of Energy. Prior to his
appointment to the Cabinet, he served as Undersecretary and as
Chief of Staff in the Ministry of Finance and Public Credit.
José is also a former Director General of Banking and Savings at
the Ministry of Finance and Public Credit and served as Chief
Executive Officer of the National Bank for Rural Credit.
External appointments:
-- Commissioner and Board Member of the Global Commission on Adaptation
-- Non-executive Director of Alfa S.A.B. de C.V.
Heidi Miller (67) (2,4)
Independent non-executive Director
Appointed to the Board: September 2014
Skills and experience: Heidi has more than 30 years' senior
management experience in international banking and finance.
Career: Heidi was President of International at J.P. Morgan
Chase & Co. between 2010 and 2012 where she led the bank's
global expansion and international business strategy across the
investment bank, asset management, and treasury and securities
services divisions. Previously, she ran the treasury and securities
services division for six years.
Other past roles included Chief Financial Officer of Bank One
Corporation and Senior Executive Vice President of Priceline.com
Inc.
She has previously served in non-executive Director roles for
General Mills Inc., Merck & Co Inc. and Progressive Corp. She
was also a trustee of the International Financial Reporting
Standards Foundation. She is currently Chair of HSBC North America
Holdings Inc.
External appointments:
-- Non-executive Director of Fiserv Inc.
-- Chair of the Audit Committee of Fiserv, Inc.
Eileen Murray (62) (1,2,4)
Independent non-executive Director
Appointed to the Board: July 2020
Skills and experience: Eileen is an accomplished executive with
extensive knowledge in financial technology and corporate strategy
from a career spanning more than 40 years.
Career: Eileen most recently served as co-Chief Executive
Officer of Bridgewater Associates, LP. Prior to joining
Bridgewater, she was Chief Executive Officer for Investment Risk
Management LLC and President and co-Chief Executive Officer of Duff
Capital Advisors.
She started her professional career in 1984 at Morgan Stanley,
where she held several senior positions including Controller,
Treasurer, and Global Head of Technology and Operations, as well as
Chief Operating Officer for its Institutional Securities Group.
From 2002 to 2005, she was Head of Global Technology, Operations
and Product Control at Credit Suisse and served on its management
and executive board.
External appointments:
-- Chair of the Financial Industry Regulatory Authority
-- Non-executive Director of Compass
-- Non-executive Director of Guardian Life Insurance Company of America
-- Director of HumanityCorp
-- Non-executive Director of Atlas Crest Investment Corp.
David Nish (60)(1C,2,3,4)
Independent non-executive Director
Appointed to the Board: May 2016
Senior Independent non-executive Director since February
2020
Skills and experience: David has substantial international
experience of financial services, corporate governance, financial
accounting and operational transformation.
Career: David served as Group Chief Executive Officer of
Standard Life plc between 2010 and 2015, having joined the company
in 2006 as Group Finance Director. He is also a former Group
Finance Director of Scottish Power plc and was a partner at Price
Waterhouse.
David has also previously served as a non-executive Director of
HDFC Life (India), Northern Foods plc, London Stock Exchange Group
plc, the UK Green Investment Bank plc and Zurich Insurance
Group.
External appointments:
-- Non-executive Director of Vodafone Group plc
Jackson Tai (70) (1,2C,4)
Independent non-executive Director
Appointed to the Board: September 2016
Skills and experience: Jackson has significant experience as a
non-executive Director, having held senior operating and governance
roles across Asia, North America and Europe.
Career: Jackson was Vice Chairman and Chief Executive Officer of
DBS Group and DBS Bank Ltd. between 2002 and 2007, having served as
Chief Financial Officer and then as President and Chief Operating
Officer. He was previously a managing director and senior officer
for Asia-Pacific, and executive director and Head of Japan Capital
Markets in the investment banking division of J.P. Morgan & Co.
Incorporated, where he worked for 25 years.
Other former appointments include non-executive Director of
Canada Pension Plan Investment Board, Royal Philips N.V., Bank of
China Limited, Singapore Airlines, NYSE Euronext, ING Groep N.V.,
CapitaLand Ltd, SingTel Ltd. and Jones Lang LaSalle Inc. He also
served as Vice Chairman of Islamic Bank of Asia.
External appointments:
-- Non-executive Director of Eli Lilly and Company
-- Non-executive Director of MasterCard Incorporated
Pauline van der Meer Mohr (61) (1,2,3C,4)
Independent non-executive Director
Appointed to the Board: September 2015
Skills and experience: Pauline has extensive legal, corporate
governance and human resources experience across a number of
different sectors.
Career: Pauline served on the Supervisory Board of ASML Holding
N.V. between 2009 and 2018. She was formerly President of Erasmus
University Rotterdam, a member of the Dutch Banking Code Monitoring
Committee and a Senior Vice President and Head of Group Human
Resources Director at ABN AMRO Bank N.V. and TNT N.V. She also held
various executive roles at the Royal Dutch Shell Group.
External appointments:
-- Chair of the Dutch Corporate Governance Code Monitoring Committee
-- Chair of the Supervisory Board of EY Netherlands
-- Deputy Chair of the Supervisory Board of Royal DSM N.V.
-- Member of the Selection and Nomination Committee of the Supreme Court of the Netherlands
-- Member of the Capital Markets Committee of the Dutch Authority for Financial Markets
-- Non-executive Director of Viatris, Inc.
Aileen Taylor (48)
Group Company Secretary and Chief Governance Officer
Appointed: November 2019
Skills and experience: Aileen has significant governance and
regulatory experience across various roles in the banking industry.
She is a solicitor and a member of the European Corporate
Governance Council, the GC100 and the Financial Conduct Authority's
Listing Authority Advisory Panel.
Career: Aileen spent 19 years at the Royal Bank of Scotland
Group, having held various legal, risk and compliance roles. She
was appointed Group Secretary in 2010 and was most recently Chief
Governance Officer and Board Counsel.
Former Directors who served for part of the year
Sir Jonathan Symonds
Sir Jonathan Symonds retired from the Board on 18 February
2020.
Kathleen Casey
Kathleen Casey retired from the Board on 24 April 2020.
For full biographical details of our Board members, see
www.hsbc.com/who-we-are/leadership.
Senior management
Senior management, which includes the Group Executive Committee,
supports the Group Chief Executive in the day-to-day management of
the business and the implementation of strategy.
Elaine Arden, 52
Group Chief Human Resources Officer
====================================
Elaine joined HSBC as Group Chief Human Resources Officer in
June 2017. She was previously at the Royal Bank of Scotland Group,
where she was Group Human Resources Director. She has held senior
human resources and employee relations roles in a number of other
financial institutions, including Clydesdale Bank and Direct Line
Group. Elaine is a member of the Chartered Institute of Personnel
and Development and a fellow of the Chartered Banker Institute.
Colin Bell, 53
Chief Executive Officer, HSBC Bank
plc and HSBC Europe
===================================
Colin joined HSBC in July 2016 and was appointed Chief Executive
Officer, HSBC Bank plc and HSBC Europe on 22 February 2021. He
previously held the role of Group Chief Compliance Officer, and
also led the Group transformation oversight programme.
Colin previously worked at UBS, which he joined in 2007, where
he was the Global Head of Compliance and Operational Risk Control.
Colin joined the British Army in 1990 and he served for 16 years in
a variety of command and staff roles and completed the Joint
Services Command and Staff College in 2001.
Jonathan Calvert-Davies, 52
Group Head of Audit
===========================
Jonathan joined HSBC as Group Head of Audit in October 2019 and
is a standing attendee of the Group Executive Committee. He has 30
years of experience providing assurance, audit and advisory
services to the banking and securities industries in the UK, the US
and Europe. Prior to joining HSBC, he led KPMG's financial services
internal audit services practice. His previous roles include
leading PwC's UK internal audit services practice. He also served
as interim Group Head of Internal Audit at the Royal Bank of
Scotland Group.
Georges Elhedery, 46
Co-Chief Executive Officer, Global
Banking and Markets
===================================
Georges joined HSBC in 2005 and was appointed as co-Chief
Executive Officer of Global Banking and Markets in March 2020. He
is also head of the Markets and Securities Services division of the
business. Georges previously served as Chief Executive Officer for
HSBC, Middle East, North Africa and Turkey and Head of Global
Markets; Head of Global Banking and Markets, MENA; and Regional
Head of Global Markets, MENA.
Kirsty Everett, 44
Interim Group Chief Compliance Officer
=======================================
Kirsty was appointed as Interim Group Chief Compliance Officer
on 22 February 2021. She took on this role in addition to her
existing responsibilities as the Global Chief Operating Officer for
the Compliance function. She joined HSBC in March 2019 as the Chief
of Staff and Head of Digital Transformation for Compliance.
Prior to joining HSBC, Kirsty was the designated Chief
Compliance Officer, Head of Conduct Risk and Operational Risk, Head
of Monitoring and Oversight at UBS, having originally joined from
Deloitte in 2012.
Greg Guyett, 57
Co-Chief Executive Officer, Global
Banking and Markets
===================================
Greg joined HSBC in October 2018 as Head of Global Banking and
became co-Chief Executive Officer of Global Banking and Markets in
March 2020. Prior to joining HSBC, he was President and Chief
Operating Officer of East West Bank. Greg began his career as an
investment banker at J.P. Morgan, where positions included: Chief
Executive Officer for Greater China; Chief Executive Officer,
Global Corporate Bank; Head of Investment Banking for Asia-Pacific;
and Co-Head of Banking Asia-Pacific.
John Hinshaw, (50)
Group Chief Operating Officer
==============================
John became Group Chief Operating Officer in February 2020,
having joined HSBC in December 2019. John has an extensive
background in transforming organisations across a range of
industries. Most recently, he served as Executive Vice President of
Hewlett Packard and Hewlett Packard Enterprise, where he managed
technology and operations and was Chief Customer Officer. He also
held senior roles at Boeing and Verizon and served on the Board of
Directors of BNY Mellon.
Bob Hoyt, 56
Group Chief Legal Officer
==========================
Bob joined HSBC as Group Chief Legal Officer in January 2021. He
was most recently Group General Counsel at Barclays from 2013 to
2020. Prior to that he was General Counsel and Chief Regulatory
Affairs Officer for The PNC Financial Services Group. Bob has
served as General Counsel to the US Department of the Treasury
under Secretary Paulson, and as Special Assistant and Associate
Counsel to the White House under President George W. Bush.
Pam Kaur, 57
Group Chief Risk Officer
=========================
Pam was appointed Group Chief Risk Officer in January 2020,
having joined HSBC in 2013. She was previously Head of Wholesale
Market and Credit Risk and Chair of the enterprise-wide
non-financial risk forum. Pam has also served as Group Head of
Internal Audit and held a variety of audit and compliance roles at
banks, including Deutsche Bank, RBS, Lloyds TSB and Citigroup. She
serves as a non-executive Director of Centrica plc.
Nuno Matos, 53
Chief Executive Officer, Wealth
and Personal Banking
================================
Nuno joined HSBC in 2015 and was appointed Chief Executive
Officer of Wealth and Personal Banking on 22 February 2021. He was
previously the Chief Executive Officer of HSBC Bank plc and HSBC
Europe, a role he held from March 2020. He has also served as Chief
Executive Officer of HSBC Mexico, and as regional head of Retail
Banking and Wealth Management in Latin America. Prior to joining
HSBC, he held senior positions at Santander Group.
Stephen Moss, 54
Regional Chief Executive
=========================
Stephen joined HSBC in 1992. He was named Regional Chief
Executive in March 2020, with responsibility for overseeing the
Group's businesses in Europe (apart from HSBC UK); the Middle East,
North Africa and Turkey ('MENAT'); Latin America; and Canada. He
previously held the role of Chief of Staff to the Group Chief
Executive and oversaw the Group's mergers and acquisitions and
strategy and planning activities.
Stephen will be appointed as CEO, MENAT, in April 2021 subject
to regulatory approval.
Stephen is a non-executive Director of The Saudi British Bank,
HSBC Bank Middle East Limited, HSBC Middle East Holdings B.V, HSBC
Latin America Holdings (UK) Limited and HSBC Bank Canada.
Barry O'Byrne, 45
Chief Executive Officer, Global
Commercial Banking
================================
Barry joined HSBC in April 2017 and was appointed Chief
Executive of Global Commercial Banking in February 2020, having
served in the role on an interim basis since August 2019. He was
previously Chief Operating Officer for Global Commercial Banking.
Prior to joining HSBC, Barry worked at GE Capital for 19 years in a
number of senior leadership roles, including as CEO, GE Capital
International and in CEO positions in Italy, France and the UK.
Michael Roberts, 60
President and Chief Executive Officer,
HSBC USA
=======================================
Michael joined HSBC in October 2019. He is an executive
Director, President and CEO of HSBC North America Holdings Inc. He
also serves as Chairman of HSBC Bank USA, N.A. and HSBC USA
Inc.
Michael will assume executive responsibility for the Group's
Canadian and Latin American businesses, in addition to his existing
responsibilities in relation to the US. His expanded role as CEO,
US and Americas will take effect from April 2021.
Previously, he spent 33 years at Citigroup in a number of senior
leadership roles, most recently as Global Head of Corporate Banking
and Capital Management and Chief Lending Officer of Citibank
N.A.
John David Stuart (known as Ian
Stuart), 57
Chief Executive Officer, HSBC UK
Bank plc
=================================
Ian has been Chief Executive Officer of HSBC UK Bank plc since
April 2017 and has worked in financial services for over four
decades. He joined HSBC as Head of Commercial Banking Europe in
2014, having previously led the corporate and business banking
businesses at Barclays and NatWest. He started his career at Bank
of Scotland. Ian is a business ambassador for Meningitis Now and a
member of the Economic Crime Strategic Board.
Peter Wong, 69
Deputy Chairman and Chief Executive
Officer, The Hongkong and Shanghai
Banking Corporation Limited
====================================
Peter joined HSBC in 2005 and is Chairman and non-executive
Director of HSBC Bank (China) Company Limited, and a non-executive
Director of Hang Seng Bank Limited. Other appointments include
Council Member of Hong Kong Trade Development Council, a member of
its Belt and Road Committee; and Chairman of the Hong Kong General
Chamber of Commerce.
Additional members of the Group Executive Committee
Noel Quinn
Ewen Stevenson
Aileen Taylor
Biographies are provided on pages 198 and 201.
How we are governed
We are committed to high standards of corporate governance. The
Group has a comprehensive range of policies and procedures in place
designed to ensure that it is well managed, with effective
oversight and controls. We comply with the provisions of the UK
Corporate Governance Code and the applicable requirements of the
Hong Kong Corporate Governance Code.
Board's role, Directors' responsibilities and attendance
The Board, led by the Group Chairman, is responsible among other
matters for:
-- promoting the Group's long-term success and delivering sustainable value to shareholders;
-- establishing and approving the Group's strategy and
objectives and monitoring the alignment of the Group's purpose,
strategy and values with the desired culture;
-- setting the Group's risk appetite and monitoring the Group's risk profile;
-- approving and monitoring capital and operating plans for achieving strategic objectives; and
-- approving material transactions.
The Board's terms of reference are available on our website at
www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.
The Board's powers are subject to relevant laws, regulations and
HSBC's articles of association.
The role of the independent non-executive Directors is to
support the development of proposals on strategy, hold management
to account and ensure the executive Directors are discharging their
responsibilities properly, while creating the right culture to
encourage constructive challenge. Non-executive Directors also
review the performance of management in meeting agreed goals and
objectives. The Group Chairman meets with the non-executive
Directors without the executive Directors in attendance after Board
meetings and otherwise, as necessary.
The roles of Group Chairman and Group Chief Executive are
separate. There is a clear division of responsibilities between the
leadership of the Board by the Group Chairman, and the executive
responsibility for day-to-day management of HSBC's business, which
is undertaken by the Group Chief Executive.
The majority of Board members are independent non-executive
Directors. At 31 December 2020, the Board comprised the Group
Chairman, 11 non-executive Directors, and two executive Directors
who are the Group Chief Executive and the Group Chief Financial
Officer. With effect from 1 January 2020, the role of the Group
Chief Risk Officer ceased to be a member of the Board.
For further details of the Board's career background, skills,
experience and external appointments, see pages 198 to 201.
Operation of the Board
The Board is ordinarily scheduled to meet at least seven times a
year. In 2020, due to the Covid-19 outbreak, the Board held 17
meetings. The Board agenda is agreed by the Group Chairman, working
with the Group Company Secretary and Chief Governance Officer and
the Group Chief Executive. For more information, see the section on
'Board activities during 2020' on page 209.
The Group Chief Risk Officer and Group Chief Legal Officer are
regular attendees at Board meetings, and other senior executives
attend as required.
Outside of Board meetings, the Board Oversight Sub-Group,
established by the Group Chairman, meets in advance of each Board
meeting as an informal mechanism for a smaller group of Board
members and management to discuss emerging issues. This group
provides regular opportunities for members of the Board to
communicate with senior management to deepen understanding of, and
provide input into, key issues facing the Group. For further
details of how the Board engages with the workforce, see page
210.
The Board oversaw the implementation
of various governance changes introduced
in response to the Covid-19 outbreak.
Board and committee agendas were
tailored to focus on key priorities
taking into account the need to
hold most meetings via videoconference.
The challenges that arose from communicating
across three time zones were navigated
by remaining agile in meeting arrangements
and through increased frequency
of communications during the year.
In addition to substantially increasing
the frequency of Board and executive
committee meetings, the following
changes were implemented to improve
connectivity, and provide an understanding
of the challenges and priorities
of the management team as it led
the organisation through the crisis:
* The Group Chairman introduced a weekly Board update
note.
* Management produced a weekly Board report on its
response to the Covid-19 outbreak.
* A Board Oversight Sub-Group was set up to provide
guidance to the executive team on emerging issues.
* The chairs of our principal subsidiaries and the
chairs of the Group's Board committees attended the
Group Chairman's Forum each month.
----------------------------------------------------------
In light of the increasingly significant
role of technology in the Group's
strategy, operations and growth
prospects, in January 2021 the Board
approved the establishment of a
Technology Governance Working Group
for a period of 12 months.
The working group has been tasked
with developing recommendations
to strengthen the Board's oversight
of technology strategy, governance
and emerging risks and enhance connectivity
with the principal subsidiaries.
The working group will be jointly
chaired by Eileen Murray and Steven
Guggenheimer, given their expertise
and experience in this area. Jackson
Tai, the Group Risk Committee Chair,
will be a member, along with other
non-executive Directors to be nominated
by each of our US, UK, European
and Asian principal subsidiaries.
The co-Chairs will each receive
fees in respect of their leadership
of the working group over the next
12 months. Details of these fees
can be found on page 238.
Key IT and business staff will attend
the Technology Governance Working
Group to provide insights on key
technology issues across the Group
allowing the working group to make
recommendations for enhanced Board
oversight of technology.
The total time commitment expected
of the co-chairs will be up to 30
days, reflective of the complexity
and profile of the subject matter.
--------------------------------------------
In 2020, the Group Chairman, Senior
Independent Director and the Group
Company Secretary and Chief Governance
Officer engaged with a number of
our large institutional investors
in over 20 meetings, primarily ahead
of the 2020 AGM. Topics that were
raised included geopolitical tensions,
primarily relating to Hong Kong,
mainland China, the US and the UK,
as well as Board composition, changes
to the Group Executive Committee,
our climate policy and the impact
of the Covid-19 outbreak on the
Group, its employees, customers
and communities.
The Group Remuneration Committee
Chair also engaged with key investors
and proxy advisory firms on our
remuneration approach in respect
of the 2020 performance year. During
such engagements, the Group Remuneration
Committee Chair kept investors informed
on other matters including the Group's
response to the C ovid-19 outbreak
and the Group Chief Executive's
and Group Chief Financial Officer's
salary sacrifice and charitable
donations.
-----------------------------------------
Board roles, responsibilities and attendance
At 31 December 2020, the Board comprised the Group Chairman, 11 non-executive
Directors and two executive Directors. The table below sets out their
roles, responsibilities and attendance at Board meetings. For a full
description of responsibilities see www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.
Group Chairman 17/17
Mark E Tucker(1,2) * Provides effective leadership of the Board and
promotes the highest standards of corporate
governance practices.
* Leads the Board in providing strong strategic
oversight and setting the Board's agenda, culture and
values.
* Leads the Board in challenging management's thinking
and proposals, and foster open and constructive
debate among Directors.
* Maintains external relationships with key
stakeholders and communicates investors' views to the
Board.
* Evaluates the performance of the Board, Committees,
non-executive Directors and Group Chief Executive.
----------------------------- ------- ---------------------------------------------------------------------------
Executive Director 17/17
Group Chief * Leads and directs the implementation of the Group's
Executive business strategy, embedding the organisation's
Noel Quinn(2) culture and values.
* Leads the Group Executive Committee with
responsibility for the day-to-day operations of the
Group, under authority delegated to him from the
Board.
* Maintains relationships with key stakeholders
including the Group Chairman and the Board.
----------------------------- ------- ---------------------------------------------------------------------------
Executive Director 17/17
Chief Financial * Supports the Group Chief Executive in developing and
Officer implementing the Group strategy and recommends the
Ewen Stevenson(2) annual budget and long-term strategic and financial
plan.
* Leads the Finance function and is responsible for
effective financial reporting, including the
effectiveness of the processes and controls, to
ensure the financial control framework is robust and
fit for purpose.
* Maintains relationships with key stakeholders
including shareholders.
----------------------------- ------- ---------------------------------------------------------------------------
Non-executive 17/17
Directors * Supports the Group Chairman, acting as intermediary
Senior Independent for non-executive Directors when necessary.
Director
David Nish(2,3)
* Leads the non-executive Directors in the oversight of
the Group Chairman, supporting the clear division of
responsibility between the Group Chairman and the
Group Chief Executive.
* Listens to shareholders' views if they have concerns
that cannot be resolved through the normal channels.
----------------------------- ------- ---------------------------------------------------------------------------
Laura Cha(3) 17/17
----------------------------- ------- ---------------------------------------------------------------------------
Henri de Castries(3) 17/17
----------------------------- -------
James Forese(3) 12/12
----------------------------- -------
Steven Guggenheimer(3) 12/12
----------------------------- -------
Irene Lee(3) 17/17
----------------------------- -------
Dr José
Antonio Meade
Kuribreña(3) 17/17
----------------------------- -------
Heidi Miller(3,4) 16/17
----------------------------- -------
Eileen Murray(3,4) 5/7
----------------------------- -------
Jackson Tai(3) 17/17
----------------------------- -------
Pauline van
der Meer Mohr(3) 17/17
----------------------------- -------
Kathleen Casey(3) 5/5
----------------------------- -------
Sir Jonathan 2/2 * Develop and approve the Group strategy.
Symonds(3)
* Challenge and oversee the performance of management.
* Approve the Group's risk appetite and review risk
profile and performance.
----------------------------- ------- ---------------------------------------------------------------------------
Group Company
Secretary and * Maintains strong and consistent governance practices
Chief Governance at Board level and throughout the Group.
Officer
Aileen Taylor
* Supports the Group Chairman in ensuring effective
functioning of the Board and its committees, and
transparent engagement between senior management and
non-executive Directors.
* Facilitates induction and professional development of
non-executive Directors.
* Advises and supports the Board and management in
ensuring effective end-to-end governance and decision
making across the Group.
----------------------------- ------- ---------------------------------------------------------------------------
1 The non-executive Group Chairman was considered to be independent on appointment.
2 Mark Tucker, David Nish, Noel Quinn and Ewen Stevenson
attended the AGM on 24 April 2020. As a consequence of the UK
Government's Covid-19 guidance and prohibitions at the time of the
AGM, only a limited number of Directors and essential personnel
attended the AGM to ensure a quorum was present and to conduct the
business of the meeting.
3 Independent non-executive Director. All of the non-executive
Directors are considered to be independent of HSBC. There are no
relationships or circumstances that are likely to affect any
individual non-executive Director's judgement. All non-executive
Directors have confirmed their independence during the year.
Kathleen Casey and Sir Jonathan Symonds retired from the Board on
24 April 2020 and 18 February 2020 respectively.
4 Eileen Murray was unable to attend two Board meetings owing to
prior commitments made before her appointment to the Board. Heidi
Miller was unable to attend one Board meeting that was arranged at
short notice owing to a pre-scheduled external commitment.
Board induction and training
The Group Company Secretary and Chief Governance Officer works
with the Group Chairman to oversee appropriate induction and
ongoing training programmes for the Board. On appointment, new
Board members are provided with tailored, comprehensive induction
programmes to fit with their individual experiences and needs,
including the process for dealing with conflicts.
The structure of the induction allows a Board member to
contribute meaningfully from appointment. An early focus on
induction supports good information flows within the Board and its
committees and between senior management and non-executive
Directors, providing a better understanding of our culture and way
of operating. During 2020 we welcomed three new non-executive
Directors to our Board and also facilitated the Group Chief
Executive's induction. For illustrations of the typical induction
modules, see the 'Directors' induction and ongoing development in
2020' table on the following page.
Although there were constraints due to the Covid-19 outbreak,
virtual meetings enabled our new non-executive Directors to engage
with colleagues and key external personnel in a shorter time period
than would have been the case if meeting in person.
When it is safe to recommence Board travel to our global
locations, we will take opportunities to facilitate comprehensive
face-to-face engagement. These opportunities provide invaluable
insight and understanding of our business, customers, culture and
people.
Directors undertook routine training during 2020. They also
participated in 'deep dive' sessions into specific areas of the
Group's strategic priorities, risk appetite and approach to
managing certain risks. These focused on areas such as:
technology and Cloud capability; climate change; financial
crime; shareholder activism; and business and governance. External
consultants, in conjunction with the Group Company Secretary and
Chief Governance Officer, provided specific training to members of
relevant boards and executive committees within scope for the
Senior Managers and Certification Regime. This included practical
examples of responsibility in decision making and discussion of
relevant case studies.
In addition, non-executive Directors discussed individual
development areas with the Group Chairman during performance
reviews and in conversations with the Group Company Secretary and
Chief Governance Officer. The Group Company Secretary and Chief
Governance Officer makes appropriate arrangements for any
additional training needs identified using internal resources, or
otherwise, at HSBC's expense.
Between the induction and training programmes, the Directors'
understandings of key matters and risks for the business are
supported so that they provide effective, informed and insightful
challenge in their leadership and oversight roles.
Members of Board committees receive relevant training as
appropriate. Directors may take independent professional advice at
HSBC's expense.
Board Directors who serve on principal subsidiary boards also
receive training relevant to those boards. Opportunities exist for
the principal subsidiary and principal subsidiary committee chairs
to share their understanding in specific areas with the Board
Directors.
'I was impressed with the smooth
James Forese and thorough management of my
Non-executive Director induction at a time when the Covid-19
outbreak was otherwise creating
confusion and uncertainty.
Shifting quickly to a remote,
video-enabled process allowed
me to be introduced to other Board
members and to meet a wide range
of senior executives from across
the global businesses, regions
and functions in quick succession.
Conversations with management
were informative and comprehensive.
Where I had questions or wanted
further conversations, the team
responded swiftly and engaged
in additional sessions as requested.
Despite the lack of the usual
in-person induction meetings,
the open culture at HSBC helped
me to come up the learning curve
quickly and made me feel immediately
welcomed.'
======================== ======================================
Directors' induction and ongoing development in 2020
Strategy Global ARCC, Chairs
and business Risk and Corporate mandatory and Remco
Director Induction(1) briefings(2) control(3) governance(4) training(5) Forum Subsidiary
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Kathleen
Casey
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Laura Cha
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Henri de
Castries
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
James Forese
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Steven
Guggenheimer
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Irene Lee
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
José
Antonio
Meade Kuribreña
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Heidi Miller
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Eileen
Murray
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
David Nish
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Noel Quinn
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Ewen Stevenson
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Jackson
Tai
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Mark Tucker
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
Pauline
van der
Meer Mohr
-------------------- ------------ ------------- ----------- -------------- ------------ ------------ ----------
1 The induction programme is delivered through formal briefings
and introductory sessions with Board members, senior management,
treasury executives, legal counsel, auditors, brokers, tax advisers
and regulators. Topics covered included: values, culture and
leadership; governance and stakeholder management; Directors' legal
and regulatory duties; anti-money laundering and anti-bribery;
technical and business briefings; and strategy.
2 Directors participated in business strategy, market
development and business briefings, which are global, regional
and/or market-specific. Examples of specific sessions held in 2020
included 'Asia growth: build and strengthen in Hong Kong' and
'Strategic priority: growth of UK ring-fenced bank'.
3 Directors received risk and control training. Examples of
specific sessions held in 2020 included 'Governance of
climate-related risk', 'Wholesale and retail credit risk
management', 'Forward-looking financial crime risk issues',
'Resolvability assessment framework' and 'Technology
terminology'.
4 All Directors received corporate governance training including
'Senior Managers and Certification Regime' and 'Climate and
sustainable finance'.
5 Global mandatory training, issued to all Directors, mirrored
training undertaken by all employees, including senior management.
These included management of risk under the enterprise risk
management framework, with a focus on operational risk; cyber risk
and fraud; health, safety and well-being; data privacy and the
protection of data of our customers and colleagues; combating
financial crime, including understanding money laundering,
sanctions, and bribery and corruption risks; and our values and
conduct, including workplace harassment and speaking up.
Board committees
The Board delegates oversight of certain audit, risk,
remuneration, nomination and governance matters to its committees.
Each standing Board committee is chaired by a non-executive Board
member and has a remit to cover specific topics in accordance with
their respective terms of reference. Only independent non-executive
Directors are members of Board committees. Details of the work
carried out by each of the Board committees can be found in the
respective committee reports from page 213.
In addition, the Chairman's Committee is convened to provide
flexibility for the Board to consider ad hoc Board and routine
matters between scheduled Board meetings. It meets with attendees
determined by the nature of the proposed business to be
discussed.
Relationship between Board and senior management
The Board delegates day-to-day management of the business and
implementation of strategy to the Group Chief Executive. The Group
Chief Executive is supported in his day-to-day management of the
Group by recommendations and advice from the Group Executive
Committee ('GEC'), an executive forum that he chairs comprising
members of senior management.
The Directors are encouraged to have free and open contact with
management at all levels and full access to all relevant
information. Non-executive Directors are encouraged to visit local
business operations and meet local management when they attend
off-site Board meetings and when travelling for other reasons,
although this was not possible during 2020 due to the Covid-19
outbreak.
The Group's executive governance
is underpinned by the Group operating
rhythm, which sets out the Board
and executive engagement schedule.
This was refreshed for 2020 to facilitate
end-to-end governance flowing up
from executive governance to the
Board.
The Group operating rhythm is characterised
by three pillars:
i. The GEC normally meets every
week to discuss current and emerging
issues. However, during 2020 it
met much more frequently as a result
of Covid-19.
ii. On a monthly basis, the GEC
reviews the performance of global
businesses, principal geographical
areas and legal entities. These
performance reviews are supplemented
by quarterly performance management
review meetings between the Group
Chief Executive and the Group Chief
Financial Officer and each of the
chief executive officers of the
global businesses, principal geographical
areas and legal entities on an individual
basis.
iii. The GEC holds a strategy and
governance meeting two weeks in
advance of each Board meeting.
Separate committees have been established
to provide specialist oversight
for matters delegated to the Group
Chief Executive and senior management,
in keeping with their responsibilities
under the Senior Managers and Certification
Regime. Some of these separate committees
are dedicated sub-committees of
the GEC, and some operate under
individual accountability. These
committees support the Group Chief
Executive and GEC members in areas
such as capital and liquidity, risk
management, disclosure and financial
reporting, restructuring and investment
considerations, transformation programmes,
people issues, diversity and inclusion,
and talent and development.
In addition to our regional company
secretaries supporting our principal
subsidiaries, we have corporate
governance officers supporting our
global lines of business, digital
business services and our larger
global functions to assist in effective
end-to-end governance, consistency
and connectivity across the Group.
--------------------------------------------
Subsidiary governance
Subsidiaries are formally designated as principal subsidiaries
by approval of the Board.
The designated principal subsidiaries are:
The Hongkong and
Shanghai Banking
Corporation Limited Asia-Pacific
---------------------- --------------------------
HSBC Bank plc Europe, Bermuda
(excluding Switzerland
and UK ring-fenced
activities)
---------------------- --------------------------
HSBC UK Bank plc UK ring-fenced
bank and its subsidiaries
---------------------- --------------------------
HSBC Middle East Middle East
Holdings BV
---------------------- --------------------------
HSBC North America US
Holdings Inc.
---------------------- --------------------------
HSBC Latin America Mexico and Latin
Holdings (UK) Limited America
---------------------- --------------------------
HSBC Bank Canada Canada
---------------------- --------------------------
To strengthen accountability and information flow, each
principal subsidiary takes responsibility for the oversight of
Group companies in its region through the subsidiary accountability
framework. The guidance underpinning the framework principles
defines how we escalate and cascade information and procedures
between the Board, the principal subsidiary boards and their
respective committees.
During 2020, a subsidiary governance review was undertaken by
the Group Company Secretary and Chief Governance Officer to
consider the application of the framework by the principal
subsidiaries and certain material subsidiaries. This resulted in
recommended changes to both the subsidiary accountability framework
principles and their application. All relevant boards will consider
and implement any recommendations and actions arising out of this
review over the course of 2021. For further details of the
subsidiary governance review, see the Nomination & Corporate
Governance Committee report on page 213.
The Group Chairman interacts regularly with the chairs of the
principal subsidiaries, including through the Chairman's Forum,
which brings together the chairs of the principal subsidiaries and
the chairs of the Group's audit, risk and remuneration committees
to discuss Group-wide and regional matters. From March 2020, these
meetings moved from twice a year to monthly, in response to the
complex and dynamic environment. The Group Chairman hosted nine
Chairman's Forums, which were also attended by relevant executive
management, to cover sessions on strategy, the economy, regulatory
matters, cyber risk and resilience, implementation of the
subsidiary accountability framework and corporate governance.
The chairs of each of the Group Audit Committee, Group Risk
Committee and Group Remuneration Committee also have regular
dialogues with the respective committees of the principal
subsidiaries to ensure an awareness and coordinated approach to key
issues. These interactions are reinforced through Audit and Risk
Committee Chairs' Forums, and the Remuneration Committee Chairs'
Forum, which are held several times a year. The chairs of the
principal subsidiaries' committees are invited to attend the
relevant forums to raise and discuss current and future global
issues, including regulatory priorities in each of the regions.
Board members attend principal subsidiary meetings as guests
from time to time. Similarly, principal subsidiary directors are
invited to attend committee meetings at Group level, where
relevant.
Board activities during 2020
During 2020, the Board focused on resetting the strategic
direction, supporting the Group Chief Executive and overseeing
performance and risk. It considered performance against financial
and other strategic objectives, key business challenges, emerging
risks, business development, investor relations and the Group's
relationships with its stakeholders. The end-to-end governance
framework facilitated discussion on strategy and performance by
each of the global businesses and across the principal geographical
areas, which enabled the Board to support executive management with
its delivery of the Group's strategy.
The Board's key areas of focus in 2020 are set out by theme
below.
Strategy and business performance
In February 2020, the Group's strategic review and associated
transformation programme was announced. This aimed to reshape
underperforming businesses, simplify the organisation and reduce
costs, to position the Group to increase returns for investors,
create capacity for future investment and build a sustainable
platform for growth.
In contrast to 2019 when the Board held two dedicated strategy
sessions, given the evolving external landscape during 2020, the
Board engaged in ongoing dialogue with management throughout the
year to progress development of the Group strategy. As part of the
strategy review, the Board considered organic and inorganic
opportunities to grow and restructure the business, as well as
disposal options.
The Board announced its new climate statement with the Group's
ambition to align financed emissions to net zero by 2050 and become
net zero for its own operations and supply chain by 2030, its aim
to support clients on the road to a net zero carbon economy and a
focus on sustainable finance opportunities. For further details of
our new climate ambitions, see page 44.
The Board received external insights on topics such as the
economic implications of the Covid-19 outbreak and ongoing
geopolitical issues at regular intervals throughout the year.
Financial decisions
The Board approved key financial decisions throughout the year
and approved the Annual Report and Accounts 2019, the Interim
Report 2020 and the first quarter and the third quarter Earnings
Releases.
The Board approved the annual operating plan for 2020 at the
start of 2020 and since 31 December 2020 has approved the annual
operating plan for 2021. The Board monitored the Group's
performance against the approved 2020 annual operating plan, as
well as the operating plans of each of the global businesses. The
Board also approved the renewal of the debt issuance programme.
On 31 March 2020, HSBC announced that, in response to a written
request from the Bank of England through the UK's Prudential
Regulation Authority ('PRA'), the Board had cancelled the fourth
interim dividend for 2019. Similar requests were also made to other
UK incorporated banking groups. We also announced that until the
end of 2020 we would make no quarterly or interim dividend payments
or accruals in respect of ordinary shares. For further details of
the dividend cancellation, see page 256 and our section 172
statement on page 22.
In December 2020, the PRA announced a temporary approach to
shareholder distributions for 2020 in which it set out a framework
for Board decisions on dividends. After considering the
requirements of the temporary approach, on 23 February 2021 the
Board announced an interim dividend for 2020 of $0.15 per ordinary
share.
The Board has adopted a policy designed to provide sustainable
dividends going forward. We intend to transition towards a target
payout ratio of between 40% and 55% of reported earnings per
ordinary share ('EPS') for 2022 onwards, with the flexibility to
adjust EPS for non-cash significant items such as goodwill or
intangibles impairments. The Board believes this payout ratio
approach will allow for a good level of income to shareholders and
a progressive dividend, assuming good levels of economic and
earnings growth.
The Group will not be paying quarterly dividends during 2021 but
will consider whether to announce an interim dividend at the 2021
half-year results in August. The Group will review whether to
revert to paying quarterly dividends at or ahead of its 2021
results announcement in February 2022. The 2020 interim dividend
will be paid in cash with no scrip alternative. The Group has
decided to discontinue the scrip dividend option as it is dilutive,
including to dividend per share progression over time.
The dividend policy could be supplemented by buy-backs or
special dividends, over time and not in the near term, should the
Group find itself in an excess capital position absent compelling
investment opportunities to deploy that excess.
Risk, regulatory and legal considerations
The Board, advised by the Group Risk Committee, promotes a
strong risk governance culture that shapes the Group's risk
appetite and supports the maintenance of a strong risk management
framework, giving consideration to the measurement, evaluation,
acceptance and management of risks, including emerging risks.
The Board considered the Group's approach to risk including its
regulatory obligations. A number of key frameworks, control
documents, core processes and legal responsibilities were also
reviewed and approved as required. These included:
-- the Group's risk appetite framework and risk appetite statement;
-- the individual liquidity adequacy assessment process;
-- the individual capital adequacy assessment process;
-- the Group's obligations under the Modern Slavery Act and
approval of the Modern Slavery Act statement;
-- stress testing and capabilities required to meet the PRA's
resolvability assessment framework;
-- the revised terms of reference for the Board and Board committees; and
-- delegations of authority.
The Board also reviewed and monitored the implications of
geopolitical developments during the year including US-China
relations and the trade talks between the UK and the EU following
the UK's departure, including no-deal contingency planning.
Technology
Throughout the year, the Board received regular updates on
technology from the Group Chief Operating Officer, including the
refreshed technology strategy and restructuring of the technology
leadership function.
The newly appointed non-executive Directors with deep technology
experience have worked in collaboration with the Group Chief
Operating Officer to enhance the governance of technology.
The Board received technology training and educational sessions
from both internal and external subject matter experts to
understand further the evolving technology landscape.
People and culture
The Board continued to spend time discussing people and
culture-related topics. The Group Chief Executive led discussions
on the development of a new people strategy to support the Group's
growth and transformation.
During the year, the Board shaped the revision of the Group's
purpose and values statement, which was approved in December 2020.
A sub-group of the Board was created to assist the process. It met
regularly with management to provide support, guidance and
constructive challenge, seeking to ensure the revised purpose and
values remained aligned with the Group's culture and future
strategy. For further details of how stakeholder engagement was
used by the Board in setting the revised purpose and values, see
the section 172 statement on page 22.
Governance
The Board continued to oversee the governance, smooth operation
and oversight of the Group and its principal and material
subsidiaries. During 2020, it undertook a review of subsidiary
governance. For further details of the review and subsequent
actions, see page 208.
Succession planning was considered by the Board following a
thorough review at the Nomination & Corporate Governance
Committee. During the year, Kathleen Casey retired as independent
non-executive Director and Sir Jonathan Symonds retired as Deputy
Group Chairman, Senior Independent Director and the Chair of the
Group Audit Committee. The Board appointed David Nish in the role
of Senior Independent Director and Chair of the Group Audit
Committee, and appointed James Forese, Steven Guggenheimer and
Eileen Murray as independent non-executive Directors. The Board,
supported by the Nomination & Corporate Governance Committee,
will continue to review the skills and experience of the Board as a
whole to ensure that it comprises the relevant skills, experiences
and competencies to discharge its responsibilities effectively.
For further details of the changes to the Board, see the
Nomination & Corporate Governance Committee report on page
213.
The Board monitored its compliance with the UK Corporate
Governance Code and the Companies Act 2006 throughout the year.
The Board reaffirmed, in accordance
with the UK Corporate Governance
Code, that it would use 'alternative
arrangements' in approaching workforce
engagement. This flexible method
allowed all non-executive Directors
to have direct engagement across
a wide network of employees in multiple
geographies. The virtual working
environment during the Covid-19 outbreak
enabled more employees to participate
in various workforce engagement activities.
The programme of activities used
a variety of interaction styles:
more bespoke sessions with smaller
groups; formal presentations; Q&A
opportunities; and sessions to facilitate
engagement across a breadth of experience
and seniority. This enabled open
dialogue and two-way discussions
between non-executive Directors and
employees. Non-executive Directors
met with:
* employees of the innovation teams in Wealth and
Personal Banking, Commercial Banking and Global
Banking and Markets where discussions focused on
bespoke business-specific matters;
* representatives of global employee resource groups
where wide-ranging issues were discussed such as
employee sentiment;
* leaders and talent from Digital Business Services at
an employee Exchange session; and
* participants in the Asia talent programme.
The Board received formal updates
from the Group Chief Executive and
the Group Chief Human Resources Officer
on employee views and sentiment.
These include results of employee
engagement surveys, benchmarked data,
and additional surveys to understand
well-being throughout the Covid-19
outbreak. The Chairman's Forum meetings
also discussed employee feedback
from the Group's subsidiaries.
As the Board considered the Group's
strategy and strategic initiatives
throughout 2020, themes emerged that
directly impacted the workforce.
These helped shape subsequent workforce
engagement sessions. These sessions
continue to give the Board valuable
insight on employee perspectives
when reviewing proposals. For further
details of how the Board considered
the views of employees and other
stakeholders, see the section 172
statement on page 22.
The Board looks forward to continuing
its workforce engagement programme
and holding in-person sessions when
possible in 2021.
-----------------------------------------------------------
Board activities in 2020
-------------------------------------------------------------------------------------------------------------
Main topic Sub-topic Meetings at which topics were discussed(1)
Jan Feb Mar Apr May Jun Jul Sep Oct Nov Dec
-------------- ----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Strategy Group strategy
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Regional strategy/Business
line strategy
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Environmental, social,
governance
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Business Region/Business line
and financial
performance
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Financial performance
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Financial Results and accounts
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Dividends
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Group annual operating
plan
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Risk Risk function
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Risk appetite
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Capital and liquidity
adequacy
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Regulatory Regulatory matters
(including resolvability
assessment framework)
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Regulatory matters
with regulators in
attendance(2)
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
External External insights
-------------- ----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Technology Strategic and operational
-------------- ----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
People and Purpose, values and
culture engagement
-------------- ----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Governance Subsidiary governance
framework
-------------- ----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Policies and terms
of reference
-------------- ----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Board/committee effectiveness
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
Appointment and succession
-------------- ----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- --- ---
1 No formal Board meetings were held during August 2020.
2 Meetings attended by members of the Financial Conduct
Authority, Prudential Regulation Authority, Monetary Authority of
Singapore, Hong Kong Monetary Authority.
Board and committee effectiveness,
performance and accountability
The Board and its committees are committed to regular,
independent evaluation of their effectiveness at least once every
three years.
Following the externally facilitated review of the Board and
committee effectiveness in 2019, conducted by the external service
provider Dr Tracy Long of Boardroom Review Limited, the Nomination
& Corporate Governance Committee again invited Dr Long to
support the Board with its annual evaluation. She was invited to
conduct a follow-up review on the Board's progress against the
findings and recommendations from her 2019 report, and more broadly
on the effectiveness of the Board's operations. Dr Long is
independent and has no other connection to the Group or any
individual Director.
This external review was complemented by a review of the Board
committees led by the Group Company Secretary and Chief Governance
Officer. Details of the Board committees' effectiveness reviews,
key findings and recommendations can be found in the respective
committee reports on pages 213 to 232.
Dr Long acknowledged the progress that the Board had made in
respect of her 2019 recommendations, with her 2020 review again
focusing on the main themes from the previous review. These were:
leadership, shared perspective, culture, end-to-end governance and
future thinking. Qualitative feedback was gathered from one-to-one
interviews held with members of the Board and regular Board
attendees.
At the December Board meeting, the key findings presented
were:
-- a strong focus on vision, strategy, and balancing short-term and long-term objectives;
-- a culture of collegiality and inclusion with positive team dynamics and healthy dialogue;
-- an open and transparent communication between the Board and
management and the boards of the principal subsidiaries, a shared
perspective on strategy and risk between the Board and management,
with a focus on clarity of objectives;
-- a clear focus on operational resilience and support for
clients, continuous Board and employee communications, attention to
employee well-being, and documented lessons learned;
-- a clear focus on priorities, with sessions on current and dynamic topics as required; and
-- a strong link between culture and remuneration.
Following Dr Long's final report, the Group Chairman led a Board
discussion in January 2021, at which the Board agreed the actions
and priorities to be implemented, which will be monitored and
addressed on an ongoing basis. Progress against these actions will
be included in the Annual Report and Accounts 2021.
The following table outlines the main findings from the 2019 and
2020 reviews, progress against the 2019 findings and the actions
agreed by the Board to address the areas that were identified as
requiring improvement.
During 2020, a review of the Group Chairman's performance was
led by the Senior Independent Director in consultation with the
other independent non-executive Directors. Non-executive Directors
also undergo regular individual reviews with the Group Chairman.
The reviews confirmed that the Group Chairman and each Director
were effective and had met their time commitments during the
year.
The review of executive Directors' performance, which helps
determine the level of variable pay they receive each year, is
contained in the Directors' remuneration report on page 240.
Summary of Board effectiveness recommendations and actions:
Recommendation from Progress against 2019 Agreed actions for
the 2019 and 2020 evaluations recommendations 2020 recommendations
2019 The Group Chairman The Nomination & Corporate
* Continue to provide strong leadership through a enhanced his communication Governance Committee
culture of collaboration, transparency, open activities with the will allocate additional
communication and cooperation. Board and executive time for discussion
management during and debate of external
2020. Following the candidates for
2020 appointment of the non-executive
* Continue to focus on Board succession planning, new Group Chief Executive, Director succession
building on the progress made during 2020 to the Group Chairman and the internal and
facilitate and manage succession for Board and established a Board external talent pool
committee positions, cognisant of diversity in all Oversight Sub-Group for senior management
aspects and making full use of external advisers and to engage further roles including executive
skills matrix analysis. with management and Directors.
provide a sounding
board.
* Embed executive succession so that it translates into
a stronger, more diversified talent pool for future
senior leadership.
----------------------------------------------------------- --------------------------- --------------------------
2019 The Board adapted The Board will continue
* Build on the shared perspective by ensuring that the the Group operating to enhance the use
Board agenda allows sufficient time and visibility of rhythm and increased of governance practices,
longer-term strategic perspectives aligned to its the frequency of meetings such as the Board
appetite for business risk. throughout the Covid-19 Oversight Sub-Group
outbreak to provide and the Group operating
the opportunity to rhythm. It will also
2020 reflect and act in continue to use Board
* Optimise use of Board information to enhance testing real-time on the evolving committees to underpin
of the effectiveness of the strategic and business external factors. and deliver effective
plans with reference to the evolving external factors decision making.
and competitive landscape across its key markets.
----------------------------------------------------------- --------------------------- --------------------------
2019 Alongside the strategic The Group Chairman
* Reflecting the improvement in corporate culture, keep review, the Board and Group Chief Executive
culture on the agenda to ensure ongoing transparency oversaw work on refreshing will monitor progress
and escalation of issues. Maintain visibility and the Group's purpose of strategic decision
insight into cultural initiatives and differences and values, driving making at pace. Increased
across global businesses. a resetting of the insight into
culture to deliver organisational
the strategy. cultural indicators
2020 provided to the Board
* Continue to review and determine the culture and key will support delivering
behaviours required to support the delivery of the the desired organisational
revised strategy with a clear focus on pace and culture in line with
execution. strategy, purpose
and values.
----------------------------------------------------------- --------------------------- --------------------------
2019 Communications with
* Maintain focus on improving the quality of the principal subsidiary
information and increased communication channels with chairs was increased
subsidiaries and other stakeholders, including the by holding monthly
voice of employees. Chairman's Forums
for most of the year.
The Board continued
to engage with key
investors and regulators,
with some of the key
regulators attending
a session with the
Board. There were
additional opportunities
for employees to engage
throughout the year
given the extreme
circumstances brought
about by the Covid-19
outbreak.
----------------------------------------------------------- --------------------------- --------------------------
2019 The Group Chairman, The Group Chairman
* Continue to develop the Board agenda to provide focus Group Chief Executive and Group Chief Executive
on emerging issues. and Group Company will sponsor a project
Secretary and Chief to review Board reporting
Governance Officer in 2021.
2020 met regularly throughout
* Maintain and evolve good quality papers and the year to plan Board
presentations to the Board to continue providing meeting agendas to
insight and supporting informed decision making. focus more effectively
on emerging matters
and external developments.
----------------------------------------------------------- --------------------------- --------------------------
Board committees
Nomination & Corporate Governance Committee
"The Committee's priorities in 2021
will continue to be composition,
succession and development of the
Board, as well as efforts to enhance
the Group's diversity, talent and
bench strength for key executive
positions."
Dear Shareholder
It has been a busy year for the Nomination & Corporate
Governance Committee. This report provides an overview of the work
of the Committee and its activities during the year.
Priorities during 2020
Succession planning for both the Board and our senior executive
team remained a critical focus of the Committee in line with its
responsibilities. In addition to the appointment of Noel as Group
Chief Executive, we appointed three new independent non-executive
Directors during the year. Details of the appointments are set out
below.
In line with our strategic focus on Asia, we considered
proposals from management on ways to improve how we support and
develop our talent under the Asia talent programme. Asian
representation on the Board remains of critical importance, given
the benefits that having members with deep knowledge and insight
into Asian culture and business practices can bring to our
discussions as a Board.
Subsidiary governance has also been an area of focus for the
Committee, and we have made great progress in this regard during
the past couple of years. The Subsidiary Governance Review, which
is summarised later in this report, has demonstrated the progress
made while acknowledging there is more to do to support our
ambition of achieving world-class governance across the Group.
Focus for 2021
The Committee's priorities in 2021 will continue to be
composition, succession and development of the Board, as well as
efforts to enhance the Group's diversity, talent and bench strength
for key executive positions. In developing our talent, the
Committee will continue to focus on the promotion of diverse
candidates to ensure that the Group Executive Committee and other
senior management are representative of the customers, communities
and markets in which we operate.
As our strategy develops, we know that the skills and
capabilities we require will evolve and the Committee has a key
role to play.
Mark E Tucker
Chair
Nomination & Corporate Governance Committee
23 February 2021
Membership
Meeting attendance
Member since in 2020
---------------------- ------------- ------------------
Mark Tucker
(Chair) Oct 2017 9/9
---------------------- ------------- ------------------
Kathleen Casey(1) Apr 2018 4/4
---------------------- ------------- ------------------
Laura Cha May 2014 9/9
---------------------- ------------- ------------------
Henri de Castries Apr 2018 9/9
---------------------- ------------- ------------------
James Forese May 2020 5/5
---------------------- ------------- ------------------
Steven Guggenheimer May 2020 5/5
---------------------- ------------- ------------------
Irene Lee Apr 2018 9/9
---------------------- ------------- ------------------
José Antonio
Meade Kuribreña Apr 2019 9/9
---------------------- ------------- ------------------
Eileen Murray(2) Jul 2020 3/4
---------------------- ------------- ------------------
Heidi Miller Apr 2018 9/9
---------------------- ------------- ------------------
David Nish Apr 2018 9/9
---------------------- ------------- ------------------
Jackson Tai Apr 2018 9/9
---------------------- ------------- ------------------
Pauline van
der Meer Mohr Apr 2016 9/9
---------------------- ------------- ------------------
Sir Jonathan
Symonds(1) Apr 2017 3/3
---------------------- ------------- ------------------
1 Sir Jonathan Symonds stepped down from the Board on 18
February 2020. Kathleen Casey stepped down from the Board on 24
April 2020.
2 Eileen Murray was unable to attend one Committee meeting owing
to a prior commitment made before her appointment to the Board
Group Chief Executive succession
The choice of Group Chief Executive is a matter of significance,
and it was therefore important that we allowed ourselves the time
to fully assess our options before arriving at our decision, given
the potential ramifications on the future success of the Group and
our stakeholders.
We conducted a thorough and robust search process with the
support of an external search partner, Egon Zehnder, to identify
the new Group Chief Executive. The Committee was delighted to have
been able to source an internal candidate, in Noel Quinn, and
believe that we identified the best candidate for the role and for
the Group. Further information on Noel's appointment is set out in
our section 172 statement on page 22. Egon Zehnder provides
assistance with senior recruitment at HSBC. It has no other
connection with the Group or members of the Board.
Following Noel's appointment on a permanent basis in March 2020,
the Committee agreed a comprehensive induction and development plan
to best support him to succeed in leading the Group through the
various challenges we face. The Committee monitored this throughout
the year, and will continue to support Noel and his executive team
in the delivery of our strategic and business priorities.
Board composition
The composition of both the Board and its Committee continued to
be a key focus during 2020, with progress made in ensuring that the
Board possesses the necessary expertise to oversee, support and
monitor management performance based on the longer-term strategy
and developments in the external environment.
In James Forese, Steven Guggenheimer and Eileen Murray, the
Board has added deep experience in the areas of banking, technology
and operations, which will remain critical to the Board's
discussions in the coming years. Further details on skills and
previous experience are set out in the Board biographies on pages
198 to 201.
Russell Reynolds Associates supported the Board in identifying
prospective non-executive Director candidates. It has also
supported the Committee and the management team in senior executive
succession planning, as part of an integrated approach to talent
identification, assessment and development during 2020. Russell
Reynolds also assists with senior recruitment at HSBC. They have no
other connection with the Group or members of the Board.
We refreshed our Board skills matrix in recognition of the
changing context in which the Group is now operating and the
strategic priorities. The revised skills matrix places greater
emphasis on the need for competencies in areas such as
transformation, ESG and climate given the Group's ambitions in
these areas. The skills matrix will be a key tool in ensuring that
the Board has the necessary range of skills and experience to
discharge its responsibilities, oversee management and respond to
emerging trends.
The Board remains committed to increasing its diversity, and
ensuring that it is reflective of the markets and societies in
which we serve.
Board changes
There have been a number of changes to the Board during the past
year. In addition to the appointment of the three new non-executive
Directors referred to above, in February 2020, we saw the departure
of both Sir Jonathan Symonds and Kathleen Casey during 2020. David
Nish was appointed in the role of Senior Independent Director and
Chair of the Group Audit Committee in place of Sir Jonathan
Symonds.
Laura Cha will retire from the Board at the conclusion of our
2021 AGM at the end of May.
As mentioned earlier in the report, Dame Carolyn Fairbairn will
join the Board on 1 September 2021. We are in the process of
concluding a search for suitable candidates to join and further
strengthen the expertise and experience on the Board and its
committees.
We have also considered our committee membership and as a result
confirm that David Nish will step down from the Group Remuneration
Committee following the publication of the Annual Report and
Accounts 2020. David kindly agreed to remain a member throughout
2020 following his appointment as Senior Independent Director and
GAC Chair in February 2020 to provide a strong link through all
committees while new Board members were onboarded.
Senior executive succession and development
Following Noel's appointment as Group Chief Executive on an
interim basis in August 2019, he took steps to refresh the
composition of the then Group Management Board and repositioned
this as the Group Executive Committee. This included the
appointment of new incumbents for seven roles, meaning that we
actioned a significant number of our succession plans for our most
senior executive positions.
The Committee has therefore focused on rebuilding this bench
strength during 2020 to ensure that we have a strong cohort of
potential future leaders of HSBC. We have worked in partnership
with Noel and our Group Chief Human Resources Officer to support an
integrated approach to our assessment, development and external
market benchmarking of executive talent.
The refreshed Group Executive Committee succession plan, which
we discussed and approved at our meeting in December 2020, reflects
the changing shape of the Group and involves greater diversity, in
particular with regard to gender and ethnicity.
In connection with this, and to ensure we support and develop
talent from the Group's key region, the Committee received an
update on the Asia talent programme. This programme involves
approximately 1,000 employees of high potential talent in the
region and aims to support their development and progression both
within the region and across the broader Group.
Committee evaluation
The annual review of the effectiveness of the Board committees,
including the Committee, was internally facilitated for 2020.
Overall the review concluded that the Committee continued to
operate effectively. The review made certain recommendations for
improvement, in particular regarding the time allocated for
discussion of key items to ensure that the Committee has sufficient
opportunity to discuss topics such as senior executive succession
and development in the required depth. The Committee has considered
and discussed the outcomes of the evaluation and accepts the
findings.
The outcomes of the evaluation have been reported to the Board
and the Committee will track progress on the recommendations during
2020.
Subsidiary governance review
Following the implementation of the subsidiary accountability
framework in 2019, during 2020 the Committee commissioned a
governance review of the Group's seven principal subsidiaries, plus
three material subsidiaries in the form of Hang Seng Bank, HSBC
Global Asset Management and HSBC Private Bank (Suisse).
The review was led by our Group Company Secretary and Chief
Governance Officer and focused on:
-- Board size, skills, tenure and fees;
-- governance support; and
-- the relationship between the Group and its subsidiaries.
Good boardroom practice and adherence to our Group governance
expectations, including under the subsidiary accountability
framework, were observed in the course of the review.
A number of recommendations were identified to raise the
standard and ensure consistent application of governance across the
organisation, and to further improve the transparency and
engagement between the Group and its subsidiaries. These
included:
-- Subsidiary accountability framework: a review and update to
the principles under the subsidiary accountability framework to
clarify and provide greater guidance on the Group's
expectations;
-- Board composition, size and independence: clarification of
the Group's expectations on the size, composition and independence
of subsidiary boards and length of board tenure, to encourage
proactive refreshment of subsidiary board membership. A number of
our longer-serving subsidiary Directors have announced their
retirement from the Group as a result of this review; and
-- Board reporting and management information: the need for
greater consistency in the quality of reporting and management
information, with work underway to ensure that the Board and its
committees, as well as individuals on subsidiary boards and other
senior governance forums, receive the information they require to
make informed decisions.
Given the success and strong support that the review received at
both Group and subsidiary level, including the Group Executive
Committee, it has been agreed that a review of our governance
practices in our global businesses will be undertaken in 2021.
Governance
Our decision to create the Chief Governance Officer role in 2019
was in recognition of the significance the Board assigns to the
governance agenda and the strategic importance of having
best-in-class governance at HSBC, including in the oversight of
subsidiaries. This role is held by the Group Company Secretary, now
designated as the Group Company Secretary and Chief Governance
Officer, reporting to the Group Chairman.
Despite the challenges we have faced as an organisation from a
business and geopolitical perspective, we have made good progress
in enhancing our overall governance arrangements during 2020, in
particular the areas identified as requiring improvement in our
2019 Board effectiveness review.
This has included our new governance operating rhythm, which was
established to provide robust end-to-end governance and more
efficient and effective governance meetings across the Board, Group
Executive Committee and subsidiaries. The new Group operating
rhythm has resulted in greater alignment between our Board and the
Group Executive Committee, and has driven the sequencing of
meetings to allow for our subsidiaries and global business to have
input on key matters prior to discussion and approval at the Board.
This has been particularly pertinent during 2020, given the central
role that our subsidiaries hold in developing and executing our
strategic priorities.
In line with the Board's commitment at the commencement of the
UK Corporate Governance Code 2018, the Committee reviewed the
Board's choice of an alternative mechanism to engage with and
understand the views of the wider workforce with reference to
developing market practice. During 2020, the Committee confirmed
that it remained confident that our preferred mechanism of
'alternative arrangements' remained effective and believed that
this was most appropriate for an organisation of our scale and
geographical diversity. Engagement with the workforce will continue
to be a priority for the Board in 2021. Further details on the
arrangements we have in place to facilitate workforce engagement
can be found on page 210.
Diversity
The Board diversity policy sets out our approach to achieving
our diversity ambitions, and helps to ensure that diversity and
inclusion factors are taken into account in succession
planning.
In line with our ongoing commitment to diversity, we reviewed
our Board diversity policy during 2020. This review included
consideration of developments in best practice as well as
regulatory expectations on board diversity, including those
outlined by the PRA.
A number of minor updates were made to the characteristics that
the Board will take into account when considering candidates for
future appointment as Directors. These included adding social
backgrounds to the Board diversity policy as a factor for
consideration, and making amendments to emphasise the link between
diversity of thought with risk avoidance and improved decision
making. The revised Board diversity policy is available at
www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.
Our recent non-executive Director searches have prioritised
diversity both in terms of gender and representation from those of
Asia-Pacific heritage. These have been identified as areas where we
needed to strengthen in anticipation of retirements from the Board
in the coming years.
At the year-end, at 35% (five out of 14), our Board gender
diversity met the Hampton-Alexander Review target of 33% female
representation by the end of 2020. We have also met and exceeded
the Parker Review targets of at least one Director from an ethnic
minority background by 2021, with four members of our Board
self-identifying as 'Directors of colour' in line with the
definition set by Parker.
The Board is also extremely focused on diversity across the
wider organisation, and believes that this is a critical component
of
HSBC's future success. Further details on activities to improve
diversity across senior management and the wider workforce,
together with representation statistics, can be found on pages 64
to 65.
Independence of non-executive Directors
The Committee has delegated authority from the Board in relation
to the assessment of the independence of non-executive
Directors.
In accordance with the UK and Hong Kong Corporate Governance
Codes, the Committee has reviewed and confirmed that all
non-executive Directors who have submitted themselves for election
and re-election at the AGM are considered to be independent. This
conclusion was reached after consideration of all relevant
circumstances that are likely to impair, or could appear to impair,
independence.
Laura Cha, who joined the Board in 2011, will not be standing
for re-election at the 2021 AGM. The Committee determined that
Laura, notwithstanding her length of service, continues to be
independent when taking into consideration all other relevant
circumstances that are likely to impair, or could appear to impair,
independence and that she will continue to be independent up to the
date of the 2021 AGM when she will retire from the Board.
The Committee also has oversight of the composition of the
boards of the Group's regional principal subsidiaries and approves
the appointment of Directors and senior management in those
subsidiaries.
Matters considered during 2020
Jan Feb Apr May Jul Sep Dec
------------------------------------- --- --- --- --- --- --- ---
Board composition and succession
------------------------------------- --- --- --- --- --- --- ---
Board composition, including
succession planning and skills
matrices
------------------------------------- --- --- --- --- --- --- ---
Approval of diversity and
inclusion policy
------------------------------------- --- --- --- --- --- --- ---
Approval of conflicts of interest
policy
------------------------------------- --- --- --- --- --- --- ---
Executive talent and development
------------------------------------- --- --- --- --- --- --- ---
Senior executive succession
------------------------------------- --- --- --- --- --- --- ---
Approval of executive succession
plans
------------------------------------- --- --- --- --- --- --- ---
Talent programmes
------------------------------------- --- --- --- --- --- --- ---
Governance
------------------------------------- --- --- --- --- --- --- ---
Board and committee evaluation
------------------------------------- --- --- --- --- --- --- ---
Subsidiary governance
------------------------------------- --- --- --- --- --- --- ---
Subsidiary and executive appointments
------------------------------------- --- --- --- --- --- --- ---
Appointment process - assessment of new non-executive Directors
The Committee The Committee Meetings were The Committee Outstanding
agreed the desired considered a arranged between recommended due diligence
criteria sought long-list of members of the the appointment and associated
in the candidates candidates and Committee and of the non-executive procedures completed
for appointment agreed which priority Director to prior to announcement
to the Board. should be non-executive the Holdings of appointment.
An external prioritised. Director candidates. Board for approval, Director onboarding
search partner Relevant candidates Feedback from subject to completion and induction
was engaged. were approached the non-executive of outstanding pack issued
by the external Directors was due diligence. and completed.
search partner discussed alongside
to understand consideration
their interest. of potential
conflicts and
other matters
identified through
due diligence.
------------------- -------------------- --------------------- --------------------- ---------------------
Group Audit Committee
" The Committee spent substantial
time in understanding and assessing
the effect of the Covid-19 outbreak
on expected credit losses, the Group-wide
transformation programme and other
related accounting judgements and
disclosures."
Dear Shareholder
I am pleased to present my first report to you as Chair of the
Group Audit Committee ('GAC'). The Committee had a busy year,
holding 13 meetings. This report sets out some of the issues
considered during 2020.
The Committee has strong, but diverse, financial services
experience. To strengthen our skill set further, we welcomed
Pauline van der Meer Mohr, James Forese and Eileen Murray as new
members. Sir Jonathan Symonds and Kathleen Casey stepped down
during the year and I would like to thank them for their insightful
and significant contributions to the work of the GAC.
The Committee spent substantial time in understanding and
assessing the effect of the Covid-19 outbreak on expected credit
losses, the Group-wide transformation programme, the impact of
regulatory change on the control environment, and other related
accounting judgements and disclosures.
Given the Committee's role in relation to whistleblowing I
regularly met with the Group Chief Compliance Officer and the Group
Head of Whistleblowing Oversight to discuss material whistleblowing
cases, enhancements to whistleblowing arrangements and plans for
periodic updates to the Committee.
To develop a better understanding of the key issues and
challenges at the local level, I attended a number of principal
subsidiary audit committee meetings throughout the Group. These
meetings were complemented by regular Audit and Risk Committee
Chairs' Forums throughout the year to ensure alignment of
priorities and to strengthen our relationship with the principal
subsidiaries.
The Committee received regular updates from the Group Head of
Audit on the progress against the audit plan. During the year the
audit plan was adjusted in response to new risks arising from the
Covid-19 outbreak and assurance work in relation to major change
programmes throughout the Group.
Our external auditor, PricewaterhouseCoopers LLP ('PwC'), has
now completed its sixth audit. PwC continues to provide robust
challenge to management and provide sound independent advice to the
Committee on specific financial reporting judgements and the
control environment.
An internal evaluation concluded that the Committee continued to
operate effectively in 2020, and made certain recommendations for
continual improvement.
David Nish
Chair, Group Audit Committee, 23 February 2021
Membership
Meeting
attendance
Member since in 2020
------------------------ ------------- -----------
David Nish (Chair) May 2016 13/13
------------------------ ------------- -----------
Kathleen Casey(1) Mar 2014 5/5
------------------------ ------------- -----------
James Forese May 2020 7/7
------------------------ ------------- -----------
Eileen Murray(2) Jul 2020 5/6
------------------------ ------------- -----------
Sir Jonathan Symonds(1) Sep 2014 3/3
------------------------ ------------- -----------
Jackson Tai Dec 2018 13/13
------------------------ ------------- -----------
Pauline van der
Meer Mohr Apr 2020 10/10
------------------------ ------------- -----------
1 Sir Jonathan Symonds stepped down from the Board on 18
February 2020. Kathleen Casey stepped down from the Board on 24
April 2020.
2 Eileen Murray was unable to attend a meeting in July 2020 due
to a prior commitment made before her appointment.
Key responsibilities
The Committee's key responsibilities include:
-- monitoring and assessing the integrity of the financial
statements, formal announcements and regulatory information in
relation to the Group's financial performance, as well as
significant accounting judgements;
-- reviewing the effectiveness of, and ensuring that management
has appropriate internal controls over, financial reporting;
-- reviewing and monitoring the relationship with the external
auditor and oversees its appointment, tenure, rotation,
remuneration, independence and engagement for non-audit services;
and
-- overseeing the work of Global Internal Audit and monitoring
and assessing the effectiveness, performance, resourcing,
independence and standing of the function.
Committee governance
The Committee keeps the Board informed and advises on matters
concerning the Group's financial reporting requirements to ensure
that the Board has exercised oversight of the work carried out by
management, Global Internal Audit and the external auditor.
The Group Chief Executive, Group Chief Financial Officer, Group
Head of Finance, Group Chief Accounting Officer, Group Head of
Audit, Group Chief Risk Officer and other members of senior
management routinely attended meetings of the GAC. The external
auditor attended all meetings.
The Chair held regular meetings with management, Global Internal
Audit and the external auditor to discuss agenda planning and
specific issues as they arose during the year outside the formal
Committee process. The Committee also regularly met separately with
the Group Chief Legal Officer, internal and external auditors and
other senior management to discuss matters in private.
The Committee Secretary regularly met with the Chair to ensure
the Committee fulfilled its governance responsibilities and to
consider input from stakeholders when finalising meeting agendas,
tracking progress on actions and Committee priorities.
Meetings of the Committee usually take place a couple of days
before the Board meeting to allow the Committee to report its
findings and recommendations in a timely and orderly manner. This
is done through the Chair who comments on matters of particular
relevance and the Board receives copies of the Committee agenda and
minutes of meetings.
Matters considered during 2020
Jan Feb Apr Jun Jul Sep Oct Dec
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Reporting
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Financial reporting matters including:
* Review of financial statements, ensuring that
disclosures are fair, balanced and understandable
* Significant accounting judgements
* Going concern assumptions and viability statement
* Supplementary regulatory information and the ESG
Update
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Regulatory reporting-related
matters
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Certificates from principal subsidiary
audit committees
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Control environment
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Review of deficiencies and effectiveness
of internal financial controls
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Internal audit
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Reports from Global Internal
Audit
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Annual audit plan, independence
and effectiveness
-------------------------------------------------------- --- --- --- --- --- --- --- ---
External audit
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Reports from external audit,
including external audit plan
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Appointment, remuneration, non-audit
services and effectiveness
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Compliance
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Accounting standards and critical
accounting policies
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Corporate governance codes and
listing rules
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Whistleblowing
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Whistleblowing arrangements and
effectiveness
-------------------------------------------------------- --- --- --- --- --- --- --- ---
Compliance with regulatory requirements
The Board has confirmed that each member of the Committee is
independent according to the criteria from the US Securities and
Exchange Commission, and the Committee continues to have competence
relevant to the sector in which the Group operates. The Board has
determined that David Nish, Jackson Tai and Eileen Murray are all
'financial experts' for the purposes of section 407 of the
Sarbanes-Oxley Act and have recent and relevant financial
experience for the purposes of the UK and Hong Kong Corporate
Governance Codes.
The Committee assessed the adequacy of resources of the
accounting and financial reporting function. It also monitored the
legal and regulatory environment relevant to its
responsibilities.
The GAC Chair had regular meetings with the regulators,
including the UK's PRA and the FCA. These included trilateral
meetings involving the Group's external auditor PwC.
How the Committee discharged its responsibilities
Connectivity with principal subsidiary audit committees
During the year the GAC Chair regularly met with the chairs of
the principal subsidiary audit committees and attended meetings to
enable closer links and deeper understanding on judgements around
key issues. In addition, there was regular interaction with
committee chairs across the Group through the Audit and Risk
Committee Chairs' Forum ('ARCC').
Appointments to the audit committees of the principal subsidiary
audit committees were reviewed and endorsed by the GAC. The GAC
Chair met with proposed new chairs prior to their appointment.
On a half-yearly basis, principal subsidiary audit committees
provided certifications to the GAC regarding the preparation of
their financial statements, adherence to Group policies and
escalation of any issues that required the attention of the
GAC.
Financial reporting
The Committee's review of financial reporting during the year
included the Annual Report and Accounts, Interim Report, quarterly
earnings releases, analyst presentations and Pillar 3
disclosures.
As part of its review, the GAC evaluated management's
application of critical accounting policies, significant accounting
judgements and compliance with disclosure requirements to ensure
these were consistent, appropriate and acceptable under the
relevant financial reporting requirements. The Committee gave
careful consideration to the key performance metrics related to
strategic priorities and ensured that the performance and outlook
statements were fair, balanced and reflected the risks and
uncertainties appropriately.
During the year, the Committee received regular updates from
management on the additional guidance and disclosures made in
relation to the Covid-19 outbreak. The Committee considered and was
satisfied with the management response to the Financial Reporting
Council's ('FRC') comments on HSBC's Annual Report and Accounts
2019 regarding goodwill impairment disclosures, and the
industry-wide FRC publications, including the letter to audit
committee chairs.
In conjunction with the Group Risk Committee ('GRC'), the GAC
considered the current position of the Group, along with the
emerging and principal risks, and carried out a robust assessment
of the Group's prospects, before making a recommendation to the
Board on the Group's long-term viability statement. The GAC also
undertook a detailed review before recommending to the Board that
the Group continues to adopt the going concern basis in preparing
the annual and interim financial statements. Further details can be
found on page 41.
The Committee's review of the long-term viability statement and
the adoption of the going concern basis factored in additional
guidance issued by the FRC on financial reporting in light of the
Covid-19 outbreak.
Following review and challenge of the disclosures, the Committee
recommended to the Board that the financial statements, taken as a
whole, were fair, balanced and understandable. The financial
statements provided the shareholders with the necessary information
to assess the Group's position and performance, business model,
strategy and risks facing the business.
Covid-19 impact on accounting judgements
The Committee devoted significant time, including additional
meetings, to the review and challenge of management's approach and
analysis of IFRS 9 expected credit losses ('ECL') in light of the
Covid-19 outbreak and other geopolitical events. In its review, the
GAC gave due regard to the interpretation and application of
additional guidelines in relation to the Covid-19 outbreak and
estimating ECL that were issued by various regulators.
The Committee gave careful consideration to the measurement of
ECL, in particular the key judgements and management adjustments
made in relation to the forward economic guidance, underlying
economic scenarios, reasonableness of the weightings and the impact
on financial statements and disclosures.
There was detailed discussion on the risks to ECL models as the
unprecedented nature of the pandemic meant that the severity of the
economic conditions was outside the bounds of historical data and
experience used to develop IFRS 9 models. The Committee challenged
management on the approach to modelling ECL, specifically the use
of Credit Risk judgements and invited HSBC's credit experts to
present their views to the Committee.
At the request of the GAC Chair, Global Internal Audit carried
out additional verification and assurance regarding the disclosures
made in quarterly reporting on the range of ECL outlook and
consistency of the ECL disclosures. The Group's external auditor
regularly shared its views with the Committee on the reasonableness
of management assumptions, given the significant changes made to
the estimation of ECL due to the impact of the Covid-19 outbreak on
the design, implementation and operation of ECL controls.
Other areas of significant accounting judgements requiring
in-depth review due to the Covid-19 pandemic included valuation of
financial instruments, goodwill impairment, hedge accounting and
investment in associates. Further details can be found in the
'Principal activities and significant issues considered during
2020' table on page 220.
Internal controls
The GAC assessed the effectiveness of the internal control
system for financial reporting and any developments affecting it.
This was in support of the Board's assessment of internal control
over financial reporting, in accordance with section 404 of the
Sarbanes-Oxley Act.
The Committee received regular updates and confirmations that
management had taken, or was taking, the necessary actions to
remediate any failings or weaknesses identified through the
operation of the Group's framework of controls. Further details of
how the Board reviewed the effectiveness of key aspects of internal
control can be found on page 260.
In 2020 the updates provided to the Committee included the
potential impacts on internal control from the Covid-19 outbreak.
These impacts included both those directly relevant to operational
processes and controls, such as where new or amended controls were
required to administer government relief packages, and more
indirect impacts such as from colleagues working under contingency
arrangements. A number of additional assurance procedures were
performed across the lines of defence to monitor, assess and
mitigate these impacts, with results regularly reported to the
Committee.
External auditor
The Group's external auditor is PwC, which has held the role for
six years, and the senior audit partner is Scott Berryman who has
been in the role since 2019. The Committee reviewed the external
auditor's approach and strategy for the annual audit and also
received regular updates on the impact on the control environment
from the Covid-19 outbreak and the Group transformation programme.
Principal matters discussed with PwC are set out in its report on
page 267.
PwC discussed the impact from the Covid-19 outbreak on the
execution and delivery of the audit and the plans to deliver the
audit through remote working and mitigating actions being taken.
These included accelerating aspects of planning and performing a
number of areas of audit earlier to factor in expected delays due
to remote working. There was also discussion on additional relevant
work in relation to significant accounting judgements, such as
expected credit losses, and the impact of the Covid-19 outbreak on
the basis for determining materiality.
During the year, the GAC assessed the effectiveness of PwC as
the Group's external auditor, using a questionnaire that focused on
the overall audit process, its effectiveness and the quality of
output. The Committee gave particular focus to the actions being
taken by PwC in response to the findings from the HSBC
effectiveness review and the PwC firm-wide Audit Quality Review by
the Financial Reporting Council. PwC highlighted the continuing
investment in both additional resources and new technologies to
improve the quality and consistency of the audit. The Committee
Chair also met the PwC engagement quality control partner for HSBC
privately to discuss the continuous audit improvement actions.
The GAC received an update on the partner rotation and
succession for the Group and its principal subsidiaries and the
steps taken to ensure effective transitions.
The GAC monitored the policy on hiring employees or former
employees of the external auditor, and there were no breaches of
the policy highlighted during the year. The external auditor
attended all Committee meetings and the GAC Chair maintains regular
contact with the senior audit partner and his team throughout the
year.
The Committee also assessed any potential threats to
independence that were self-identified or reported by PwC. The GAC
considered PwC to be independent and PwC, in accordance with
professional ethical standards, provided the GAC with written
confirmation of its independence for the duration of 2020.
The Committee confirms it has complied with the provisions of
the Competition and Markets Authority Order for the financial
statements. The Committee acknowledges the provisions contained in
the UK Corporate Governance Code in respect of audit tendering. In
conformance with these requirements, HSBC will be required to
tender for the audit for the 2025 financial year end and beyond,
having appointed PwC from
1 January 2015.
The Committee believed it would not be appropriate to re-tender
as a change in auditor would have a significant impact on the
organisation, including on the Global Finance function. A change
would lead to disruption and an increase in operational risk given
the ongoing impact from the Covid-19 pandemic and the significant
strategic change underway through the Group transformation
programme. In addition, the Committee is closely monitoring the
consultations and proposals arising from the Competition and Market
Authority's statutory audit market study, the Kingman Review of the
Financial Reporting Council and the Brydon Review on the quality
and effectiveness of audit on the future of the UK external audit
market. The Committee will consider its audit tendering strategy in
line with the outcomes of the UK audit reform and well in advance
of re-tendering in 2025.
The Committee has recommended to the Board that PwC should be
reappointed as auditor. Resolutions concerning the reappointment of
PwC and its audit fee for 2021 will be proposed to shareholders at
the 2021 AGM.
Non-audit services
The Committee is responsible for setting, reviewing and
monitoring the appropriateness of the provision of non-audit
services by the external auditor. It also applies the Group's
policy on the award of non-audit services to the external auditor.
During the year, GAC reviewed changes made to the Group's policy
resulting from the implementation of 'The Financial Reporting
Council Revised Ethical Standard 2019' (effective in 2020) and
changes to internal governance. The key change in the revised
standard is the introduction of a 'whitelist of services' that the
principal accountant can provide. All services not prescribed in
the whitelist are prohibited. The non-audit services are carried
out in accordance with the external auditor independence policy to
ensure that services do not create a conflict of interest. All
non-audit services are either approved by the GAC, or by Group
Finance when acting within delegated limits and criteria set by the
GAC.
The non-audit services carried out by PwC included 45
engagements approved during the year where the fees were over
$100,000 but less than $1m. Global Finance, as a delegate of GAC,
considered that it was in the best interests of the Group to use
PwC for these services because they were:
-- audit-related engagements that were largely carried out by
members of the audit engagement team, with the work closely related
to the work performed in the audit;
-- engagements covered under other assurance services that
require obtaining appropriate audit evidence to express a
conclusion designed to enhance the degree of confidence of the
intended users other than the responsible party about the subject
matter information; or
-- other permitted services to advisory attestation reports on
internal controls of a service organisation primarily prepared for
and used by third-party end users.
Eight engagements during the year were approved where the fees
exceeded $1m. These were mainly engagements required by the
regulator and incremental fees related to previously approved
engagements. One new engagement outside the scope of the
pre-approved services related to preliminary advanced audit
procedures for the adoption of IFRS 17 in 2023.
2020 2019
Auditors' remuneration $m $m
----------------------- ----- -------
Total fees payable 130.2 110.7
----------------------- ----- -----
Fees for non-audit
services 37.3 25.5
----------------------- ----- -----
Global Internal Audit
The primary role of the Global Internal Audit function is to
help the Board and management protect the assets, reputation and
sustainability of the Group. Global Internal Audit does this by
providing independent and objective assurance on the design and
operating effectiveness of the Group's governance, risk management
and control framework and processes, prioritising the greatest
areas of risk.
The independence of Global Internal Audit from day-to-day line
management responsibility is critical to its ability to deliver
objective audit coverage by maintaining an independent and
objective stance. Global Internal Audit is free from interference
by any element in the organisation, including on matters of audit
selection, scope, procedures, frequency, timing, or internal audit
report content. Global Internal Audit adheres to The Institute of
Internal Auditors' mandatory guidance.
The Group Head of Audit reports to the Chair of the GAC and
there are frequent meetings held between them. Results of audit
work, together with an assessment of the Group's overall
governance, risk management and control framework and processes are
reported regularly to the GAC, GRC and local audit and risk
committees, as appropriate. This reporting highlights key themes
identified through audit activity, business and regulatory
developments, and provides an independent view of emerging and
horizon risk, together with details of audit coverage.
Audit coverage is achieved using a combination of business and
functional audits of processes and controls, risk management
frameworks and major change initiatives, as well as regulatory
audits, investigations and special reviews. In addition to the
ongoing importance of regulatory-focused work, key risk theme
categories for 2020 audit coverage were strategy, governance and
culture, financial crime, conduct and compliance, financial
resilience and operational resilience. In April 2020, in response
to the Covid-19 outbreak, Global Internal Audit completed a
risk-based review to revise the 2020 annual audit plan to create
capacity for real-time audits targeted at key risks arising from
the pandemic. Real-time audits provide real-time, independent
ongoing observations to management responding to the Covid-19
outbreak. Issues are raised for significant observations that are
not addressed in a timely manner. In addition, in response to the
business update in February 2020, Global Internal Audit focused on
governance over the transformation programme and performed project
audit activity for selected complex and high-priority business
cases.
Executive management is responsible for ensuring that issues
raised by the Global Internal Audit function are addressed within
an appropriate and agreed timetable. Confirmation to this effect
must be provided to Global Internal Audit, which validates closure
on a risk basis.
Consistent with previous years, the 2021 audit planning process
includes assessing the inherent risks and strength of the control
environment across the audit entities representing the Group.
Results of this assessment are combined with a top-down analysis of
risk themes by risk category to ensure that themes identified are
addressed in the plan. Risk theme categories for the 2021 audit
work continue to be strategy, governance and culture, financial
crime, conduct and compliance, financial resilience, and
operational resilience. During 2021, a quarterly assessment of key
risk themes will form the basis of thematic reporting and plan
updates and will ultimately drive the 2022 planning process. The
annual audit plan and material plan updates are approved by the
GAC. Based on regular internal audit reporting to the GAC, private
sessions with the Group Head of Audit, the Global Professional
Practices annual assessment and quarterly Quality Assurance
updates, the GAC is satisfied with the effectiveness of the Global
Internal Audit function and the appropriateness of its
resources.
Global Internal Audit maintains a close working relationship
with HSBC's external auditor, PwC. The external auditor is kept
informed of Global Internal Audit's activities and results, and is
afforded free access to all internal audit reports and supporting
records.
Principal activities and significant issues considered during
2020
Collaborative oversight by GAC and GRC
The GAC and GRC worked closely to ensure there were procedures
to manage risk and oversee the internal control framework. They
also worked together to ensure any common areas of responsibility
were addressed appropriately with inter-committee communication or
joint discussions with the Chairs.
The Chairs are members of both committees and engage on the
agendas of each other's committees to further enhance connectivity,
coordination and flow of information. This is further complemented
with significant overlap in membership of the GAC and GRC to ensure
deeper understanding and informed challenge at both meetings.
During 2020, the GAC and GRC Chairs reviewed and challenged
management's proposals to transition the responsibility for
oversight of entity level controls from the GAC to the GRC. The
Chairs considered whether there was the suitable level of
management seniority for ownership of entity level controls and
whether there was regular and appropriate reporting to both
committees to fulfil their oversight responsibilities.
In 2020, five ARCC Forums were held with the chairs of principal
and regional subsidiaries' audit and risk committees, together with
senior management from these subsidiaries. The purpose of these
ARCC Forums was to discuss mutual priorities, improvement and
remediation programmes and forward-looking issues in relation to
the management of risk and the internal control framework. The
topics discussed at the ARCC Forums can be found in the GRC report
on page 226.
Three areas of joint focus for the GAC and GRC during 2020
were:
Sustainable control environment
With oversight from the GAC, the Group Executive Committee
continued a programme to ensure there is clear understanding,
accountability and ownership for internal controls and end-to-end
processes to deliver operational quality and consistent outcomes
for customers and simpler operation of controls for colleagues.
The GAC provided constructive challenge to management proposals
and received regular progress updates on the work streams.
Improvements were measured and tracked through a new
enterprise-wide non-financial risk forum with escalation paths into
the GAC and GRC.
Financial reporting
The GAC reviewed and provided feedback on the assurance work and
management's opinion on internal controls over financial reporting,
as required by the Sarbanes-Oxley Act. In conjunction with the GRC,
the GAC monitored the remediation of significant deficiencies and
weaknesses in entity level controls raised by management and the
external auditor. The GAC will continue to monitor the progress of
remediation as well as efforts to integrate requirements of the
Sarbanes-Oxley Act with the operational risk framework as part of
the sustainable control environment programme.
In 2020, the GAC and the GRC reviewed the risks arising from
models used for the estimation of expected credit losses under IFRS
9, particularly given the economic backdrop of the Covid-19
outbreak. The committees challenged the underlying economic
scenarios, additional scenarios added by management and the
reasonableness of the weightings applied to each scenario in order
to understand the impact on the financial statements.
Monitoring changes to regulatory requirements
The GAC approved an annual priorities plan to review
management's response to current and future changes in regulatory
requirements affecting financial reporting. In 2020, this included
interpretation of new accounting standards, industry-wide
regulatory reform programmes and their impact on accounting
judgements. The GAC will continue to monitor specific accounting
issues identified during the year and future regulatory items that
will impact the integrity of financial reporting, the Group and its
relationships with regulators.
There continues to be an increased focus on the quality of
regulatory reporting by the PRA and other regulators globally. The
GAC will review the steps taken by management to strengthen the
controls over regulatory reporting and as we strengthen our
processes and controls, there may be impacts on some of our
regulatory ratios.
In conjunction with the GRC, the GAC continued to oversee the
progress of management's proposals and implementation of the Basel
III Reforms and the Ibor transition. The GAC focused on the
operational and control environment impacts from Basel III Reforms
and Ibor transition on HSBC's financial reporting and
interdependencies with other Group transformation programmes.
Whistleblowing and 'speak up' culture
Whistleblowing is a key element of 'speak up' culture, with the
Group's whistleblowing channel, HSBC Confidential, offering a
variety of ways for our people to raise whistleblowing concerns
(see page 68 for further information). The GAC is responsible for
the oversight of the effectiveness of the Group's whistleblowing
arrangements. The Group's Chief Compliance Officer provides
periodic reporting to the GAC on the efficacy of the whistleblowing
arrangements, providing an assessment of controls and detailing the
results of internal audit assessments. The Committee is also
briefed on culture and conduct risks and associated management
actions arising from whistleblowing cases. The Chair of the GAC
acts as the Group's whistleblowers' champion, with responsibility
for ensuring and overseeing the integrity, independence and
effectiveness of HSBC's policies and procedures on whistleblowing
and the protection of whistleblowers. The Chair met with the Group
Head of Whistleblowing Oversight throughout the year for briefings
on material whistleblowing cases and assessments of the
whistleblowing arrangements.
The Committee has requested updates on a number of key areas
during 2020, including an assessment of the timeliness of
whistleblowing investigations. The arrangements were subject to an
internal audit review during 2020, which rated the design, control
and management oversight of the arrangements as satisfactory. As
part of the ongoing assessment of the end-to-end arrangements, the
Committee has requested a deeper review in key markets of the
employee investigation function in which the whistleblowing
arrangements have a dependency. An external benchmarking assessment
was presented to the GAC in December 2020. This provided an
overview of the overall effectiveness of whistleblowing
arrangements and investigations processes against a number of
industry peers, and best practice guidance issued by external
consultancy and legal firms as well as the UK charity, Protect. The
assessment reflected the significant progress made during 2020 such
as the implementation of a new whistleblowing platform (Navex), the
enhanced global minimum standards and improvements observed in the
'speak up' culture. In addition, governance was improved with a
particular focus on key emerging conduct themes to enable timely
management action, and a mechanism was introduced for
whistleblowers to provide feedback post-investigation. The
assessment also identified further opportunities for 2021 as part
of the Group's fit for the future programme with updates to be
provided to the whistleblowing champion and the GAC throughout
2021.
Principal activities and significant issues considered during 2020
------------------------------------------------------------------------------------------------
Areas of
focus Key issues Conclusions and actions
-------- ----------------------------------- -------------------------------------------------
Key financial metrics In exercising its oversight, the Committee
and strategic priorities assessed management's assurance and
The GAC considered the preparation of external financial reporting
key judgements in relation disclosures. The Committee was particularly
to external reporting focused on the ongoing Covid-19-related
to track the key financial uncertainty and how management addressed
metrics and strategic and reflected the impact of the pandemic
priorities and to review in external reporting and disclosures.
the forecast performance The Committee reviewed the draft external
and outlook. reporting disclosures and provided
feedback and challenge on the top sensitive
disclosures, including key financial
metrics and strategic priorities to
ensure HSBC was consistent and transparent
in its messaging.
Environmental, social The GAC reviewed the approach to combining
and governance ('ESG') the ESG Update into the Annual Report
reporting and Accounts for the 2020 reporting
The Committee considered period. This included consideration
management's efforts to of the steps taken by management to
embed and enhance ESG address findings from Global Internal
reporting to demonstrate Audit regarding the controls and assurance
strong controls, operation processes for ESG content. The Committee
and governance, including will review the steps taken by management
key performance indicators in developing the target operating
and assurance plans. model to deliver integrated reporting
in 2021.
Regulatory reporting assurance The Committee reflected on the continued
programme focus on the quality and reliability
The GAC monitored the of regulatory reporting by the PRA
progress of the regulatory and other regulators globally. The
reporting assurance programme GAC reviewed management's efforts to
to enhance the Group's strengthen and simplify the end-to-end
regulatory reporting, operating model, including commissioning
impact on the control independent external reviews of various
environment and oversee aspects of regulatory reporting. The
regulatory reviews and Committee discussed and provided management's
engagement. engagement plans with the Group's regulators,
including any potential impacts on
some of our regulatory ratios such
as CET1 and LCR. We continue to keep
the PRA and other relevant regulators
informed of our progress.
----------------------------------- -------------------------------------------------
Expected credit losses The actions taken are summarised above
The measurement of expected in the 'Covid-19 impact on accounting
credit losses involves judgements' section of this report.
significant judgements,
particularly under current
economic conditions. There
remains an elevated degree
of uncertainty over ECL
estimation under current
macroeconomic, political
and epidemiological uncertainties.
Further details are provided
in the 'Covid-19 impact
on accounting judgements'
section of this report.
-------- ----------------------------------- -------------------------------------------------
Long-term viability and In accordance with the UK and Hong
going concern statement Kong Corporate Governance Codes, the
During the year, the GAC Directors carried out a robust assessment
has considered a wide of the principal risks of the Group
range of information relating and parent company. The GAC considered
to present and future the statement to be made by the Directors
projections of profitability, and concluded that the Group and parent
cash flows, capital requirements company will be able to continue in
and capital resources. operation and meet liabilities as they
These considerations include fall due, and that it is appropriate
stressed scenarios that that the long-term viability statement
reflect the increasing covers a period of three years.
uncertainty that the global
Covid-19 outbreak has
had on HSBC's operations,
as well as considering
potential impacts from
other top and emerging
risks, and the related
impact on profitability,
capital and liquidity.
Goodwill and other non-financial The GAC received reports on management's
assets impairment approach to goodwill and other non-financial
During the year, management assets impairment testing and challenged
tested for impairment the approach and models used. The GAC
goodwill and other non-financial also challenged management's key judgements
assets. Key judgements and considered the reasonableness of
in this area relate to the outcomes as a sense check against
long-term growth rates, the business forecasts and strategic
discount factors and what objectives of HSBC. The GAC reviewed
cash flows to include the results of management's detailed
for each cash-generating analysis of the balance sheet and agreed
unit tested, both in terms with the conclusions.
of compliance with the
accounting standards and
reasonableness of the
forecast. During the year,
the Group recognised $1.3bn
impairment in relation
to non-financial assets,
following which a detailed
analysis of various balance
sheet amounts was initiated.
Associates (Bank of Communications The GAC reviewed the judgements in
Co., Limited and The Saudi relation to the impairment reviews
British Bank) of HSBC's investment in BoCom and SABB,
During the year, management including the sensitivity of the results
performed the impairment to estimates and key assumptions such
review of HSBC's investment as projected future cash flows and
in Bank of Communications regulatory capital assumptions. Additionally,
Co., Ltd ('BoCom') and the GAC reviewed the models' sensitivity
The Saudi British Bank to long-term assumptions including
('SABB'). The impairment the continued appropriateness of the
reviews are complex and discount rates.
require significant judgements,
such as projected future
cash flows, discount rate,
and regulatory capital
assumptions.
Legal proceedings and The GAC received reports from management
regulatory matters on the legal proceedings and regulatory
Management has used judgement matters that highlight the accounting
in relation to the recognition judgements for matters where these
and measurement of provisions, are required. The matters requiring
as well as the existence significant judgements were highlighted.
of contingent liabilities The GAC has reviewed these reports
for legal and regulatory and agree with the conclusions reached
matters, including, for by management.
example, an FCA investigation
into HSBC Bank's and HSBC
UK Bank's compliance with
the UK money laundering
regulations and financial
crime systems and controls
requirements.
Valuation of defined benefit The GAC has considered the effect of
pension obligations changes in key assumptions on the HSBC
The valuation of defined UK Bank plc section of the HSBC Bank
benefit pension obligations (UK) Pensions Scheme, which is the
involves highly judgemental principal plan of HSBC Group.
inputs and assumptions,
of which the most sensitive
are the discount rate,
pension payments and deferred
pensions, inflation rate
and changes in mortality.
Valuation of financial The GAC considered the key valuation
instruments metrics and judgements involved in
Due to the volatile market the determination of the fair value
conditions in 2020, management of financial instruments. The GAC considered
refined its approach to the valuation control framework, valuation
valuing Group's investment metrics, significant year-end judgements
portfolio. In addition, and emerging valuation topics and agrees
as losses were incurred with the judgements applied by management.
on the novation of certain
derivative portfolios,
management considered
whether fair value adjustments
were required under the
fair value framework.
Management's analysis
provided insufficient
evidence to support the
introduction of these
adjustments in line with
IFRS.
Tax-related judgements The GAC considered the recoverability
HSBC has recognised deferred of deferred tax assets, in particular
tax assets to the extent in the US and the UK. The GAC also
that they are recoverable considered management's judgements
through expected future relating to tax positions in respect
taxable profits. Significant of which the appropriate tax treatment
judgement continues to is uncertain, open to interpretation
be exercised in assessing or has been challenged by the tax authority.
the probability and sufficiency
of future taxable profits,
future reversals of existing
taxable temporary differences
and ongoing tax planning
strategies.
UK customer remediation The GAC considered and challenged management's
Management's judgement assumptions and the approach for estimating
is used in determining potential outflows relating to the
the assumptions used to calculations of the customer remediation
calculate the Group's provisions.
remediation provisions,
of which the most material
are PPI and a programme
in relation to the collections
and recoveries operations
of the bank.
Long-term asset return The GAC reviewed the assumptions determined
assumptions in PVIF by management under existing insurance
Market volatility during governance processes, which involve
2020 resulted in further significant expert judgement, and concluded
review of the long-term that they were supportable given internal
investment assumptions and external benchmarks and information
used in the measurement reviewed.
of the present value of
in-force business ('PVIF')
intangible assets recorded
on the balance sheet in
relation to shareholder
returns expected from
long-term insurance contracts.
Hedge accounting The GAC noted that the effect of Covid-19
Significant judgements payment deferrals on hedge accounting
relating to hedge accounting was limited and no additional actions
matters under current were required. Additionally the GAC
economic conditions include was informed about the mitigation actions
the impact of Covid-19 management has taken to reduce the
payment deferrals on the risk associated with floored hedged
highly probable cash flow items, such as designating new hedge
forecasts required by accounting relationships.
macro cash flow programmes;
and whether hedge accounting
relationships, where hedged
items include interest
rate floors and the hedging
instrument does not, would
be highly effective over
the hedged horizon.
Transformation and sustainable The Committee received regular updates
control environment on the Group transformation programme
The GAC will oversee the to review the impact on the risk and
impact on the risk and control environment and to oversee
control environment from progress of the Group transformation
the Group transformation programme.
programme. In these updates the Committee monitored
the development of management's approach
to structuring and governing the Group
transformation programme and risk management
processes. This oversight helped satisfy
the Committee of the appropriateness
of these processes and associated benefits
delivery. Management kept the Committee
apprised of the changes and adjustments
made to the Group transformation programme
in response to Covid-19, and associated
impact on the financial performance.
Management's updates were supplemented
by significant focus and assurance
work from Global Internal Audit where
a dedicated team continuously monitored
and reviewed the Group transformation
programme. This included carrying out
a number of targeted audit reviews,
in addition to audits of significant
programmes. These reviews focused on
key elements of change management.
--------
Global Finance transformation The Committee has oversight for the
The Committee reviewed adequacy of resources and expertise,
the proposals for the as well as succession planning for
Global Finance organisational the Global Finance function. During
design, the migration 2020, the Committee dedicated significant
to Cloud and the impact time to the review and progress of
on financial controls. the multi-year Global Finance transformation
programme, with the overall objectives
being to improve the control environment
and customer outcomes and to leverage
technology to increase overall efficiency.
In particular, the Committee discussed
the challenges to Global Finance operations,
including financial reporting, from
the Covid-19 pandemic and sought assurance
that controls were in place to maintain
standards and quality.
The Committee reviewed and challenged
the key change programmes and delivery
milestones and tracked the progress
of the deliverables. In particular,
the Committee considered the impact
from the Global Finance transformation
on the Group transformation programme,
regulatory change programmes and where
there were interdependencies and concentrations
risks through key programmes such as
Finance on the Cloud. There were frequent
discussions with management with input
from Global Internal Audit on the impact
on key risks and controls, including
steps taken to mitigate these risks.
Management regularly updated the Committee
on the approach and plans for regulatory
engagement, including follow-up on
the outcomes and actions to be taken
post-meetings with regulators.
The Group Chief Financial Officer
had private sessions with the Committee
to share his perspectives on the progress
of the Global Finance transformation,
areas of strategic priorities and where
additional focus was required. The
private sessions included discussion
on succession planning and resourcing
and areas where GAC members could support
and guide management by leveraging
members' experience.
-------- ----------------------------------- -------------------------------------------------
IFRS 17 'Insurance Contracts' Management provided an update on the
The Committee will oversee final standard amendments that were
the transition to IFRS issued in June 2020 and discussed the
17 and consider the wider impact on the transition programme
strategic implications necessitated by the one-year delay
of the change on the insurance to the effective date, both from a
business. policy implementation and model build
perspective. The discussions highlighted
the significant uncertainty that remained
in the interpretation of key areas
and the working assumptions adopted
by management to enable design solutions,
investment in technology and data infrastructure
to proceed.
The Committee discussed the impact
from IFRS 17 on HSBC's reported numbers
in the financial statements and management
will continue to consider how to appropriately
apply the standard to HSBC's insurance
business, as well as monitoring insurance
industry developments on disclosures.
Management will continue to keep the
Committee updated on plans for the
investor narrative, taking into account
the relevant disclosure requirements
applicable to HSBC, and ongoing presentation
of insurance results up to the time
of the transition.
-------- ----------------------------------- -------------------------------------------------
Basel III Reform The Committee received an update on
The GAC considered the the progress and impact of the Basel
implementation of the III Reform programme on the Group.
Basel III Reform and the Management discussed the uncertainty
impact on the capital over the final definition of the rules
requirements and RWA assurance. and the actions taken to ensure sufficient
This was considered in flexibility to make changes and mitigate
the context of the strategy risks from legislation being finalised
and structure of the balance at a later date. The discussion highlighted
sheet. the dependencies of the Basel III Reform
programme with other Group transformation
programmes, in particular the dependency
on adoption of the Finance on the Cloud
solution and the impact on data delivery
and storage.
The Committee reviewed and challenged
management on the findings from an
audit on the programme structure, governance
and the significant cost increase year
on year. Management explained the actions
being taken in response to the audit
findings and the reasons for the increase
in costs, which included delays to
implementation dates caused by Covid-19.
--------
Interest rate benchmark The GAC noted management's early adoption
replacement of 'Interest Rate Benchmark Reform
The financial reporting - Phase 2' amendments to IFRSs in relation
risks of interest rate to benchmark reform, including the
benchmark transition include disclosures necessary to support adoption
the potential for volatility of the reliefs.
arising from financial The Committee considered the risks
instruments valuation, and financial reporting impacts arising
contract modification from the Ibor transition. Management
and hedge accounting. discussed actions being taken to mitigate
The transitions involve the risks, which included new product
significant operational development and a client outreach programme
complexity for financial to ensure readiness to migrate and
institutions, and industry explain the changes and outcomes arising
approaches to transition from the transition to clients. Management
continue to develop. advised about the operational challenges
such as the updates to current systems
and processes that were required to
support the accounting for the Ibor
transition and our external dependency
on market and client readiness. In
particular, management drew attention
to the potentially material impact
on hedge accounting programmes from
the Ibor transition and the substantial
costs and risks involved in the redocumentation
of hedges.
The Committee discussed the approach
being taken across the industry with
management and PwC and potential impacts
on the control environment relevant
to financial reporting from the Ibor
transition.
--------
Committee evaluation and effectiveness
The annual review of the effectiveness of the Board committees,
including the GAC, was conducted internally in 2020. Overall the
review concluded that the GAC continued to operate effectively, and
highlighted improvements made in 2020 in relation to Committee
structure and focus. The review also made certain recommendations
for continuous improvement, including in relation to further
enhancing the quality of information presented to the meeting
through revised executive governance oversight. The Committee has
considered and discussed the outcomes of the evaluation and accepts
the findings.
The outcomes of the evaluation have been reported to the Board
and the Committee will track progress on the recommendations during
2021.
Focus of future activities
At the beginning of each year the Committee discusses its key
priorities for the year ahead. In 2021, the Committee will continue
to monitor execution of the Group transformation programme and its
impact on the risk and control environment. In monitoring the Group
transformation programme, the Committee will consider the
interdependencies between the Group transformation programme and
implementation of large-scale regulatory change programmes such as
Basel III Reforms, the Ibor transition and IFRS 17 'Insurance
Contracts'. A major area of focus is also expected to be the GAC's
engagement with the UK Government's consultation and proposals for
the future of the UK external audit market.
Group Risk Committee
"Geopolitical developments, civil
unrest, the UK's trade negotiation
with the EU and the Covid-19 outbreak
introduced new challenges for our
organisation, customers and people.
The Group Risk Committee responded
by working closely with management
to understand and appropriately
challenge scenario stress testing,
early warning indicators and management
of information."
Dear Shareholder
I am pleased to present the Group Risk Committee ('GRC')
report.
Geopolitical developments, civil unrest in Hong Kong, the UK's
trade negotiations with the EU and the Covid-19 outbreak introduced
new challenges for our organisation, customers and people. The GRC
responded by working closely with management to understand and
appropriately challenge scenario stress testing results, early
warning indicators and key management metrics. Importantly, we
monitored heightened capital and liquidity risks against the
prospect of greater market volatility, large customer financing
needs, rapid credit deterioration and lapses in fair outcomes for
our customers. We reviewed and challenged the impact of forward
economic growth assumptions on our markets and credit exposures. We
maintained close watch over people and operational risks arising
from fatigue, the health impact of the virus, and
government-imposed restrictions.
The GRC continued to strengthen its composition and skills to
promote proactive risk governance. During the year we welcomed
seasoned technology and operations experts Steven Guggenheimer and
Eileen Murray to the GRC. We also extended deep appreciation to Sir
Jonathan Symonds and Kathleen Casey for their valuable insight and
contribution upon their retirement from the GRC and the Board.
The GRC convened eight formal meetings plus seven special
sessions to review and challenge our most important
responsibilities, including Group internal stress testing, internal
liquidity adequacy assessment process ('ILAAP'), and internal
capital adequacy assessment process ('ICAAP'). We also organised
timely education sessions, including a full-day training on
sanctions in Hong Kong for non-executive Directors and management
in Asia-Pacific.
Throughout 2020, the GRC and GAC coordinated closely our
respective agendas, as evident in our five jointly organised
regional Audit and Risk Committee Chairs' Forums, which featured
discussion on key audit and risk issues with our principal
subsidiaries, ensuring alignment of priorities between the Group
and its subsidiaries.
Jackson Tai
Chair
Group Risk Committee
23 February 2021
Membership
Meeting attendance
Member since in 2020
---------------------- ------------- ------------------
Jackson Tai
(Chair) Sep 2016 8/8
---------------------- ------------- ------------------
Kathleen Casey(1) Jan 2020 3/3
---------------------- ------------- ------------------
Steven Guggenheimer May 2020 4/4
---------------------- ------------- ------------------
José Antonio
Meade Kuribreña May 2019 8/8
---------------------- ------------- ------------------
Heidi Miller Sep 2014 8/8
---------------------- ------------- ------------------
Eileen Murray Jul 2020 3/3
---------------------- ------------- ------------------
David Nish Feb 2020 7/7
---------------------- ------------- ------------------
Sir Jonathan
Symonds(1) Apr 2018 2/2
---------------------- ------------- ------------------
Pauline van
der Meer Mohr Apr 2018 8/8
---------------------- ------------- ------------------
1 Sir Jonathan Symonds stepped down from the Board on 18
February 2020. Kathleen Casey stepped down from the Board on 24
April 2020.
Key responsibilities
The Group Risk Committee has overall non-executive
responsibility for oversight of risk-related matters and the risks
impacting the Group. The GRC's key responsibilities includes:
-- advising the Board on risk appetite-related matters, and key
regulatory submissions, including the ICAAP and ILAAP, as well as
recovery and resolution planning;
-- overseeing and advising the Board on all risk-related
matters, including financial risks, non-financial risks and the
effectiveness of the Group's conduct framework;
-- undertaking a review and challenge of the Group's stress testing exercises; and
-- reviewing the effectiveness of the Group's enterprise risk
management framework and internal controls systems (other than
internal financial controls overseen by the GAC).
Committee governance
In carrying out its responsibilities, the GRC is supported by
the participation of senior management, including Noel Quinn who
attended six GRC meetings in 2020.
The Group Chief Risk Officer, Group Chief Financial Officer,
Group Head of Audit, Group Chief Compliance Officer and Global Head
of Risk Strategy are standing attendees and regularly attend GRC
meetings to contribute their subject matter expertise and insight.
They facilitate GRC members' review and challenge of current and
forward-looking risk issues, working together with business,
functional and regional leaders across all three lines of defence.
The Chair also regularly meets with the Group Chief Risk Officer,
the Group Head of Audit and external auditor, PwC, without
management present.
The Chair also has regular meetings with members of senior
management to discuss specific risk matters that arise during the
year outside formal meetings. The Chair consults regularly with the
Committee Secretary to ensure the GRC meets its governance
responsibilities and to consider input from stakeholders when
finalising meeting agendas, tracking progress on actions and
Committee priorities.
Matters considered by the GRC in 2020
Jan Feb Mar Apr May Jun Jul Sep Oct Nov Dec
------------------------- --- --- --- --- --- --- --- --- --- --- ---
Financial risk
------------------------- --- --- --- --- --- --- --- --- --- --- ---
Credit risk
------------------------- --- --- --- --- --- --- --- --- --- --- ---
IT and operational
risk including
outsourcing, third-party
risk management,
cyber risk
------------------------- --- --- --- --- --- --- --- --- --- --- ---
Model risk
------------------------- --- --- --- --- --- --- --- --- --- --- ---
People and conduct
risk
------------------------- --- --- --- --- --- --- --- --- --- --- ---
Risk appetite
------------------------- --- --- --- --- --- --- --- --- --- --- ---
Financial crime
risk
------------------------- --- --- --- --- --- --- --- --- --- --- ---
Regulatory compliance
------------------------- --- --- --- --- --- --- --- --- --- --- ---
Legal risk
------------------------- --- --- --- --- --- --- --- --- --- --- ---
How the GRC discharges its responsibilities
During 2020, the GRC reshaped its meeting agenda to place
greater emphasis on a regular review of the Group's risk landscape
and to track the management of information and desired outcomes for
our most important risk areas. Each meeting now commences with a
review of our enterprise risk landscape through the Group Chief
Risk Officer's update of the Group risk profile followed by a
comprehensive review of critical management information, led by the
Group Chief Risk Officer, and supported by the Group Chief
Financial Officer, Group Chief Operating Officer, Group Chief
Compliance Officer and Group Human Resources Officer.
The GRC also reviewed internal and external audit reports and
regular risk reports, which provided deeper reporting on the
Group's risk profile and highlighted the material current and
forward-looking risks and issues, such that the GRC could
effectively identify any areas that required more of the GRC's
attention. A summary of coverage is set out in the table above.
Throughout the year, the GRC adhered to an agenda that sought to
regularly address topics and oversight responsibilities set out in
the Group risk taxonomy, while being flexible to undertake informed
review and appropriate challenge of timely risk issues that have
economic, commercial, regulatory and reputational implications for
the Group's franchise.
Three thematic risk areas are described below to illustrate the
GRC's focus during the year.
Sustainable control environment
During 2020, the GRC undertook in-depth reviews of a number of
topics relating to the Group's internal controls and the necessary
culture change needed to improve the control environment. The GRC
reviewed model enhancements needed as a result of changes in the
economy due to the Covid-19 outbreak. The GRC also continued its
review of the Group's approach to operational resilience and
identified improvements from a pilot study to identify areas for
further enhancements. The GRC also reviewed the effectiveness of
the Group's anti-fraud controls. At the November meeting of the
Committee, it was agreed the ultimate oversight for all of the
Group's entity level controls move from the GAC to the GRC. This
change supports the Committee's responsibility for review and
oversight of the risk management culture, framework and internal
control systems.
Financial risk
The GRC provided informed review and constructive challenge to
the Group's regulatory submissions of ICAAP and ILAAP. It also
monitored progress on the Group's liquidity risk management
improvement plan, including the development of the internal
liquidity metric. It reviewed work by the Global Finance function
on strengthening recovery planning.
The GRC continued to maintain oversight of the Group's
regulatory and internal stress testing programmes, particularly in
light of the impact of the Covid-19 outbreak with specific review
and challenge of the key assumptions, strategic management actions
and outcomes of the principal tests conducted. Through these
reviews, the GRC assessed risks facing the Group to determine the
principal risks to its long-term viability, including those that
would threaten its solvency and liquidity.
Monitoring changes to regulatory requirements
During 2020, the GRC undertook review and challenge of a number
of risk areas for which the Group has regulatory obligations or is
facing regulatory change. These included operational resilience,
climate risk and sanctions. The Committee received updates on
regulators' rules and guidance relating to operational resilience,
which is designed to protect customers and maintain economic
stability by preventing incidents leading to intolerable consumer
harm, market disruption, and impact to the safety and soundness of
firms. To reinforce continued emphasis and visibility on financial
crime and sanctions compliance, the GRC organised a full-day
training session on international sanctions early in the year in
Hong Kong for our Asia-Pacific non-executive Directors and
management.
The GRC also considered the PRA's latest requirements and
expectations relating to evidencing of the embedding of climate
risk management capabilities within regulated firms.
Activities outside formal meetings
The GRC organised a number of activities outside of its regular
meeting cycle to facilitate more effective oversight of the risks
impacting the Group. In particular, the GRC's formal meetings
continue to be supported by training and 'walk-through' sessions to
raise the GRC's understanding of the underlying domain issues,
ensuring the GRC is well prepared in its informed review and
constructive challenge. The chairs of principal subsidiary risk
committees were also invited. Activities included, among
others:
-- a Directors' education session, held in October 2020,
focusing on the increasingly complex international sanctions and
export control landscape, including key sanctions challenges facing
the Group with the imposition of new US sanctions following the US
Hong Kong Autonomy Act. This education session was attended by 27
non-executive Directors from across the Group;
-- a Directors' education session, held in November 2020, led by
senior leaders in Group Treasury on the implementation of the
internal liquidity metric, which is designed to provide an internal
view of liquidity risk and to ensure the Group holds enough
liquidity to meet and recover from a defined stress;
-- GRC Chair's Working Sessions on a range of topics including
financial crime developments, progress on FCA conduct remediation
matters (May 2020), the Wealth and Personal Banking conduct
programme (May 2020), progress on regulatory remediation programmes
(January and December 2020), the outcomes and implications of the
2020 Group internal stress test (November 2020), and progress on
the 2020 ICAAP and ILAAP submissions (November 2020); and
-- three cybersecurity consultation sessions and regular updates
on cyber developments such as cyber-crime, legislation and
technology led by the GRC's independent cybersecurity adviser.
Connectivity with principal subsidiary risk committees
The risk committees of principal subsidiaries provided
half-yearly confirmations to the GRC. These certifications
confirmed that the principal subsidiary risk committees had
challenged management on the quality of the information provided,
reviewed the actions proposed by management to address any emerging
issues or trends and that the risk management and internal control
systems in place were operating effectively.
Throughout 2020, the GRC proactively encouraged principal
subsidiary risk committee chairs to participate in regular GRC
meetings and special review or learning sessions, leading to
improved connectivity between the Group and principal subsidiary
risk committees. In addition the GRC Chair participated in the
meetings of principal subsidiary risk committees for Asia, the UK,
Europe, the US, Latin America, Canada and the Middle East, with the
aim of ensuring strong alignment, information sharing and
connectivity between the GRC and principal subsidiaries.
Collaboration between the GRC and GAC
The GRC worked closely with the GAC to ensure that there are no
gaps in risk oversight, and that any areas of significant overlap
are appropriately addressed by inter-committee coordination or
joint meetings where appropriate. The GRC and GAC Chairs are
members of both committees to further enhance connectivity,
coordination and flow of information.
Audit and Risk Committee Chairs' Forum
The Audit and Risk Committee Chairs' ('ARCC') Forum meetings
continue to be one of the more collaborative GRC and GAC exercises.
The forum meetings promote shared risk and audit subject matter
expertise, align Group and subsidiary priorities, support the
subsidiary accountability framework and promote two-way
connectivity between the Group and principal subsidiary risk and
audit committees. The meetings are jointly hosted by the GAC and
GRC Chairs and attended by members of the GAC and GRC, the Group
Executive Committee (more than half of whom attended at least one
meeting), several Group non-executive Directors, the chairs of
principal and regional subsidiary audit and risk committees,
together with non-executive Directors and senior management from
those subsidiaries.
In May, the ARCC Forum provided updates through video calls with
the Asia-Pacific region and a combined call with the Europe, Middle
East and Americas regions. This was followed by three ARCC Forum
calls for each of the Asia-Pacific, UK, Europe and Middle East, and
Americas regions in September and November.
The ARCC Forums provided an important opportunity for the GRC to
understand locally-specific issues and priorities with potential
read-across to other areas and regions of the Group. They also
served to help the GRC hear the observations, concerns and
achievements from subsidiary risk and audit chairs, with a
particular focus on pressing issues or concerns (such as the
Covid-19 outbreak, business restructuring, or macroeconomic
issues); where Group initiatives need to be recalibrated to reflect
regional constraints; cross-regional dependencies; and where the
Group can progress faster. In light of the Covid-19 pandemic and
highly uncertain macroeconomic environment, the ARCC Forum meetings
included discussion on:
-- reinforcing the control environment and embedding of non-financial risk management;
-- sustaining operational integrity and resilience during a
Covid-19 and restructuring environment;
-- need for even stronger risk appetite, credit, counterparty
and conduct risk management during a Covid-19 and
macroeconomic-sensitive environment;
-- strengthening model risk management and our portfolio of
models at the Group level and in the regions;
-- subsidiaries' role and responsibilities in our Group recovery
and resolvability planning in a more macroeconomic-sensitive
environment; and
-- understanding the perspectives and feedback from regional subsidiaries.
Focus of future activities
The GRC's focus for 2021 will include the following activities.
It will:
-- provide oversight of the execution risk arising from the Group transformation programme;
-- oversee enhancements to our risk appetite statement so that
it is more regular, forward-looking and risk responsive;
-- ensure the risk appetite statement is closely linked to our
strategic goals, our annual operating plan, stress testing, ILAAP
and ICAAP exercises, and our recovery and resolution planning;
-- monitor and appropriately challenge management's plans to
manage and mitigate the impacts of geopolitical risks on our
operations and portfolios in Asia, the Middle East and the rest of
the world;
-- monitor the impact of the Covid-19 outbreak on the Group's
customer franchise as well as on the capital and liquidity risk,
credit risk, market risk, people and operational risk for the
Group;
-- monitor continued progress in financial crime compliance,
including enhancements in our transaction monitoring programme and
the application of new analytical tools and applications to improve
our fraud detection and prevention;
-- continue to monitor developments and enhancements in the
Group's management of conduct and culture, as well as people risk
management;
-- continue to review and challenge management's progress in
developing and implementing our operational resilience
strategy;
-- oversee the Group's approach to climate risk management and climate risk appetite;
-- review plans, jointly with the GAC, to strengthen the Group's
data strategy and management so that we can better serve our
customers, protect customer data as well as strengthen model risk
management, credit risk management and risk appetite, including
climate risk appetite; and
-- track progress regularly in remediating outstanding,
unresolved regulatory actions across the Group and principal
subsidiaries, including progress in closing-out any regulatory
consent orders or matters requiring attention.
Committee evaluation
The GRC is committed to regular, independent evaluation of its
own effectiveness. During 2020, the GRC undertook an internal GRC
effectiveness exercise, which concluded that the GRC continued to
operate effectively and in line with regulatory requirements.
The effectiveness exercise highlighted improvements made in 2020
to anchor meetings with the regular review of the Group's risk
landscape and management information. Progress made in relation to
the Committee's operation and engagement with principal
subsidiaries was acknowledged. The review also made certain
recommendations for enhancement, including in relation to
rebalancing the breadth of the GRC agenda, and increasing the use
of alternative mechanisms to allow the GRC to efficiently exercise
oversight of risk matters through additional education and
supplementary sessions. The Committee has considered and discussed
the outcomes of the evaluation and accepts the findings.
The outcomes of the evaluation have been reported to the Board
and the Committee will track progress on the recommendations during
2020.
Principal activities and significant issues considered during 2020
--------------------------------------------------------------------------------------------------------
Areas of Key issues Conclusions and actions
focus
-------- -------------------------------- ------------------------------------------------------------
The Group risk appetite The GRC undertook its biannual risk
statement defines the appetite review and recommended the
Group's risk appetite Group's 2020 risk appetite statement
and tolerance thresholds to the Board with enhancements to both
and forms the basis of financial and non-financial risk metrics.
the first and second lines It then continued to work closely with
of defence's management Group Risk Strategy to enhance the 2021
of risks, our capacity risk appetite statement including a
and capabilities to support climate risk qualitative statement and
our customers, and the quantitative measures that focus on
pursuit of the Group's the Group's exposure and risk profile
strategic goals to high transition risk sectors, as
well as improvements to the suite of
resilience risk metrics. The GRC also
raised the importance of strengthening
the granularity risk appetite statements
to be forward-looking and risk-responsive
at GRC meetings and at regional ARCC
Forums. In the process, the GRC has
reinforced the importance of stronger
linkage of the risk appetite statements
to the Group's annual operating plan,
strategic planning, stress testing exercises,
annual capital adequacy and liquidity
management exercises, and to the Group's
recovery and resolution planning.
------------------------------------------------------------
Geopolitical developments The GRC reviewed the Group's readiness
and risks continue to to address major geopolitical developments,
present significant challenges including the short- and longer-term
for the Group's customer impact of civil unrest in Hong Kong
franchise and for the and heightened trade tensions between
resilience of our operations. the US and China on our Asia and global
franchise, as well as our ability to
maintain our high service levels in
our multi-channels to serve our customers.
The GRC also monitored the Group's preparedness
for financial market, operational and
commercial disruptions arising out of
protracted UK trade negotiations with
the EU.
Managing operational risk The GRC reviewed how the Group leveraged
and counterparty credit its capital and liquidity strength,
risk to enable the Group's robust credit standards, and digital
support of our customers, capabilities to assist customers during
communities and the local the Covid-19 outbreak and to maintain
economy throughout the market strength. In doing so, the Committee
Covid-19 outbreak. closely assessed credit trends, economic
outlook and the impact on portfolio
credit quality. The GRC also reviewed
the operational, reputational and conduct
challenges in implementing government
support schemes across different geographies
and regulatory jurisdictions, including
associated risks, controls and oversight.
-------- -------------------------------- ------------------------------------------------------------
Management's operational The GRC maintained its focus on the
resilience programme is Group's policies, programmes and practices
being redesigned to enable for strengthening and prioritising our
our priority business ability to test, detect, resolve and
services to continue to recover from unforeseen operational
serve our customers in disruptions in our key markets. With
the event of unforeseen the goal of minimising harm to our customers
disruptions in our key and to the local financial markets,
markets. the GRC continued its review of the
Group's approach to operational resilience,
which incorporates learnings from the
Group's response to the Covid-19 outbreak
across our franchise. The GRC's oversight
activities included:
* the review and challenge of progress on the
formulation of a comprehensive operational resilience
strategy including working with the Group Chief
Control Officer on the programme to comply with
regulatory standards for operational resilience;
* the planned 'operationalisation' of critical business
services and impact tolerances, and risk and control
mapping to strengthen the ability to prevent, respond
to, recover, and learn from operational disruptions,
such as Covid-19;
* the embedding of ownership with first line business
and function leaders to deliver operational
resilience outcomes for customers, for the Group's
own safety and soundness, and to avoid disruptions to
market integrity and financial stability; and
* the review and challenge of management's progress in
managing third-party risk in the context of an
increasing reliance on technology services provided
by third parties and growing regulatory scrutiny.
------------------------------------------------------------
Technology resilience The GRC reviewed the Committee's approach
is the risk of unmanaged to governance of technology risk and
disruption to any IT system Cloud adoption, which was a high priority
within HSBC, as a result area under regulatory scrutiny. The
of malicious acts, accidental GRC also continued its oversight and
actions or poor IT practice challenge of the Group's cybersecurity
or IT system failure. strategy and management of cyber risks.
-------- -------------------------------- ------------------------------------------------------------
The Group promotes a culture The GRC continued to exercise oversight
that is effective in managing in the area of people risk and employee
risk and leads to fair conduct, supported by the Group Chief
conduct outcomes. Human Resources Officer and Group business
heads, including:
It seeks to actively * regular monitoring of the Group's progress in
manage the risk of adverse remediating the market conduct issues underlying the
impact due to not having 2018 deferred prosecution agreement with the US
the right people with Department of Justice and the related 2017 Federal
the right skills doing Reserve Bank Consent Order;
the right thing, including
risks associated with
employment practices and * informed review and challenge of the alignment of
relations. risk and reward, satisfying itself that risk and
compliance objectives and outcomes were reflected in
the Group variable pay pool;
* discussion of the people risk issues arising due to
the impact of the Covid-19 outbreak; and
* the review of workplace harassment data and insights,
action taken and 2020 focus areas.
Successful delivery of The GRC recognises the Group's regulatory
HSBC's climate ambition commitments due in 2021 and the Group's
will be determined by own publicly stated climate risk targets,
our ability to measure as well as the need to manage climate
and manage all components risk of the Group's existing portfolios
of climate risk. and future business. The GRC reviewed
the Group's approach to climate risk
management and climate risk appetite
including associated stress testing
and scenario analysis.
-------- -------------------------------- ------------------------------------------------------------
The GRC oversees the Group's The GRC reviewed the Group's capability
management of its financial to track environmental and macroeconomic
risk, particularly in headwinds through early warning indicators
the context of the challenges and scenario stress testing. It also
of the Covid-19 outbreak. oversaw the Group's progress in developing
a range of strategic management actions
capable of timely execution and the
development of recovery and resolution
capabilities that meet PRA and local
regulatory expectations. The GRC also
maintained oversight of the Group's
liquidity risk management with particular
emphasis on the outlook, lessons learned
from the Covid-19 outbreak, metric development,
systems and controls, and regulatory
feedback.
The GRC reviewed and challenged the
assessment of the Group ICAAP and ILAAP
programmes and engaged with Group management
in overseeing and evaluating the Group's
forward-looking capital and liquidity
strategies and capabilities, including
the Group's liquidity risk management
improvement programme. Additionally,
the GRC Chairs participated in several
subsidiary risk committees' review of
ICAAP, leading up to final GRC review,
challenge and recommendation of ICAAP
to the Board.
--------
The Group is committed Throughout 2020, the GRC reviewed the
to closely monitoring Group's approach to managing its financial
and managing the risk crime risk across a number of important
of knowingly or unknowingly areas. This included:
helping parties to commit * the Group's progress in enhancing its transaction
or to further potentially monitoring framework;
illegal activity, including
both internal and external
fraud. * the fraud landscape, particularly against heightened
Covid-19 conditions, the Group's fraud risk profile
and the impact of regulatory developments; and
* the nature and scale of insider risk and the Group's
strategies for managing insider risk.
The GRC also maintained oversight of
the ever-changing and increasingly complex
international sanctions landscape in
which the Group and its customers operate,
as well as the Group's approach to managing
its compliance with sanctions regimes
globally. The GRC held a full-day training
session on sanctions in Hong Kong in
January for our Asia-Pacific non-executive
Directors and management. A further
education session on sanctions was held
for Group-wide non-executive Directors
in October to address the US government
imposition of sanctions in connection
with its Hong Kong Autonomy Act.
Following the organisational restructuring
of Financial Crime Compliance, the GRC
requested the Committee's independent
financial crime advisers to examine
the effectiveness of the financial crime
function in the Group's subsidiaries.
HSBC faces risk from the The GRC raised awareness of progress
inappropriate or incorrect and importance of models at a number
business decisions arising of its meetings and at the regional
from the use of models Audit and Risk Committee Chairs' Forums.
that have been inadequately It reviewed progress under the Group's
designed, implemented model risk transformation programme.
or used, or from models The Committee oversaw the development
that do not perform in and embedding of improved model risk
line with expectations management controls and oversight in
and predictions. the first line of defence, as well as
enhancements to model risk governance.
The GRC also considered the adverse
impact of the Covid-19 outbreak on model
uncertainty including the need for enhancements
as necessary.
HSBC is required to show The GRC monitored the Group's progress
how its resolution strategy in demonstrating that it has developed
could be carried out in capabilities to support its own resolution,
an orderly way, including in line with the Group's resolution
identification of any strategy in order to meet new requirements
risks to successful resolution. from the Bank of England under its resolvability
assessment framework by 1 January 2022,
including the requirement to comply
with the valuation in resolution requirement
by 1 April 2021, to submit a self-assessment
to the PRA/Bank of England by 1 October
2021 and to publicly disclose HSBC's
resolvability in June 2022. Together
with the Group Chief Financial Officer,
the GRC and GAC programmed our five
regional Audit and Risk Committee Chairs'
Forums to raise the importance of Boards
and management of principal subsidiaries
in upgrading their awareness and compliance
with new regulatory standards for recovery
and resolution.
-------- -------------------------------- ------------------------------------------------------------
Directors' remuneration report
Page
Group Remuneration Committee 236
---------------------------------------- ----
Workforce remuneration 238
---------------------------------------- ----
Our approach to Directors' remuneration 241
---------------------------------------- ----
Annual report on remuneration 245
---------------------------------------- ----
Additional remuneration disclosures 265
---------------------------------------- ----
All disclosures in the Directors' remuneration report are
unaudited unless otherwise stated. Disclosures marked as audited
should be considered audited in the context of financial statements
taken as a whole.
'The remuneration outcomes for 2020
strike the right balance between
rewarding our employees for their
exceptional efforts this year and
being equitable in the broader context.'
Dear Shareholder
I am pleased to present our 2020 Directors' remuneration report
on behalf of the members of the Group Remuneration Committee.
Making remuneration decisions in the face of the challenges
presented by the Covid-19 pandemic required a delicate balancing of
factors. Recognising our people for their performance is a key
element of our reward strategy and helps to drive ongoing
engagement, which is critically important as we navigate through
the Covid-19 outbreak and the Group's transformation. However, we
must also recognise the impact of these circumstances on our
stakeholders and the wider community.
Actions taken in response to Covid-19
In determining the remuneration outcomes, the Committee noted
the following:
-- We did not apply for government support packages for our
employees across the countries and territories in which we operate,
and put employee well-being, customer experience, and supporting
the economy at the centre of our response to the pandemic.
-- Our front-line employees continued to serve customers in
challenging circumstances. Our customer contact centres were fully
operational during the period, and between 70% and 90% of branches
remained open, as we continued to enhance our digital
capabilities.
-- We worked with governments to support national schemes,
granting over 720,000 payment holidays to our personal customers
and 237,000 loans to our wholesale customers. We provided more than
$26bn in customer relief to our personal customers during the
initial stages of the pandemic and more than $52bn in lending to
wholesale customers, many of whom still require our support.
-- In line with all other large UK-based banks and at the direct
request of the Group's lead regulator, the UK's PRA, we cancelled
the fourth interim dividend of 2019 and suspended dividend payments
until the end of 2020. In December 2020, the PRA announced a
temporary approach to shareholder distributions for 2020. After
considering the requirements of the temporary approach, the Board
announced an interim dividend for 2020 of $0.15 per ordinary
share.
Membership
Member Meeting attendance
since in 2020
------------------- --------- ------------------
Pauline van der
Meer Mohr (Chair) Jan 2016 5/5
------------------- --------- ------------------
Henri de Castries May 2017 5/5
------------------- --------- ------------------
James Forese May 2020 4/4
------------------- --------- ------------------
Irene Lee Apr 2018 5/5
------------------- --------- ------------------
David Nish May 2017 5/5
------------------- --------- ------------------
Reflecting on these actions, the Committee concluded that the
2020 remuneration outcomes should strike the right balance between
rewarding our employees for their exceptional efforts this year and
being equitable in the broader context.
Performance and pay for 2020
Financial performance
The Group's financial performance deteriorated in 2020,
reflecting the impact of the Covid-19 outbreak on the global
economy. Adjusted profit before tax of $12bn was down 45% due to
lower revenue and a higher expected credit loss charge directly
linked to the impact of the pandemic.
However, the Group continued to make good progress on its
strategic plan, demonstrated by a $51.5bn reduction of RWAs in 2020
in low-return franchises and a 3% reduction in adjusted costs.
Economic activity in Asia has proven to be resilient and is
rebounding. We continue to elevate our ambition in the region by
stepping up our investment.
Non-financial performance
We made progress in creating a simpler, more efficient
organisation by combining our wholesale back office operations, and
bringing our retail, wealth and private banking businesses together
into a single global business. We also continue to increase
investment in technology to drive improved customer experience and
operational efficiency. Technology enhancements introduced in 2020
included automated lending processes for Covid-19 relief
programmes, upgraded global payment systems, transformed customer
onboarding processes, and use of Cloud technology for risk
analytics systems.
Remuneration funding approach
While events such as those seen in 2020 are rare, our
remuneration framework was designed with the entire economic cycle
in mind, including the possibility of exceptional years. We use a
countercyclical funding methodology, with both a floor and a
ceiling, to recognise that there will be times when profitability
is exceptionally low or exceptionally high as a result of factors
not directly linked to employee performance. In such years, factors
such as applying franchise protection and limiting the risk of
inappropriate behaviour need to be considered when setting the
variable pay pool. Nonetheless, financial performance and
affordability remain central tenets in determining the
appropriateness of the variable pay pool.
Group variable pay pool
For 2020, the Committee reviewed and agreed the Group variable
pay pool of $2,659m, taking into account performance against
financial and non-financial metrics set out in the Group risk
appetite statement, including conduct, and targets set out in our
operating plan. This represents a 20.4% reduction in the pool
compared with 2019, with the variable pay pool down approximately
15% in Global Banking and Markets, asset management and private
banking, and approximately 22.5% in other areas of the Group. We
also differentiated by market, with a better year-on-year outcome
in Asia, reflecting the region's strategic importance and
consistent contribution towards Group performance.
In determining the size of the pool, the Committee took into
account the fact that overall financial performance was lower than
what we had targeted at the start of the year, and certain
non-financial risk metrics were outside of our risk appetite. We
also took into account the exceptional circumstances faced by our
shareholders, including the impact of the regulatory request to
cancel the final 2019 dividend and suspend dividend payments until
the end of 2020.
While it is appropriate that the pool is significantly lower
this year, the Committee was cognisant of the extraordinary effort
and performance of many of our colleagues in 2020. Equally, it is
critical we retain talent for the long-term interests of our
stakeholders. This is of particular importance in growth markets
and our areas of strategic focus, and is most acute for our high
performers who are helping us restore the business to our expected
performance levels. As a result, the variable pay accrual was
increased in the fourth quarter in response to financial
performance and market pay challenges.
Review of workforce remuneration
Remuneration outcomes
In allocating the pool, the Committee decided that while the
variable pay outcomes for junior colleagues should reflect Group
performance, they should receive better outcomes with less
differentiation relative to our senior employees. Overall, total
compensation for our junior members of staff was broadly flat,
which we felt was important given their significant efforts in a
challenging year. Higher paid employees had an overall decrease in
total compensation. We also made limited fixed pay increases for
2021 and targeted these towards our junior colleagues. As part of
the year-end pay review, the Committee reviewed results of
remuneration outcomes to ensure they were in line with our pay
principles and the approach decided by the Committee for 2020.
Support for our employees
Throughout 2020, the well-being of our people was our paramount
concern. Many employees had to juggle personal and professional
priorities, while adapting to new and unfamiliar ways of working.
In March 2020, we temporarily paused the redundancy programme
intended to deliver the reduction in headcount that we set out in
the transformation programme announced in February 2020. The Board
was conscious of the impact of proceeding with redundancies,
particularly at the outset of the crisis given the significant
stress for our people and communities, and the need to protect our
capacity to serve our customers. The Board lifted the pause on the
redundancy programme in June 2020 while continuing the freeze on
the vast majority of external recruitment to make every effort to
fill vacancies internally. We maintained a regular flow of
communication and listened closely to our colleagues' needs,
providing the support and flexibility required to help them manage
their lives during the pandemic, and maintained their full pay
without applying for government support packages.
We ran a mid-year employee survey to determine how the Covid-19
outbreak was impacting our colleagues and how we could support them
through this period. More than 50% of our total employee population
responded, of which more than 89% said they were getting the
information they needed from the organisation, 86% reported that
they were getting the support they needed from their line manager
and 86% of the respondents reported they felt confident in
leadership. In addition, 75% of employees that participated in our
2020 Snapshot survey said they believed HSBC values their
well-being.
For our departing colleagues, we took steps to offer them
support on searching and applying for jobs and preparing for
interviews. We also maintained a dedicated advice website, offered
virtual workshops and provided access to career development tools
to set them up for success outside HSBC.
Key remuneration decisions for Directors
Voluntary decisions made by executive Directors
Reflecting on the severity of the impact of Covid-19 at the
outset, our two executive Directors made personal contributions to
the fight against the pandemic by donating to charity a quarter of
their base salaries for six months, and our Group Chairman donated
his entire fee for 12 months to charity. Additionally, as an
organisation, we provided $25m in charitable donations, which went
toward immediate medical relief, access to food, and care for the
most vulnerable people. Our executive Directors also decided to
voluntarily forgo any annual cash bonus for 2020 due to the impact
of the suspension of dividends on our shareholders.
Executive Director annual performance assessment
With regard to performance-based pay for 2020, the financial
measures in the executive Directors' annual scorecards were aligned
to the delivery of profit before tax, our strategic priority of
reducing RWAs in low-return franchises and, for the Group Chief
Financial Officer, effective management of Group costs. Following
careful consideration, these targets were not revised for the
significant economic impact of the Covid-19 outbreak to reflect the
Committee's view that reward for our executive Directors should
align with the experience of our shareholders.
Non-financial performance measures were linked to customer
satisfaction, employee engagement and diversity, environmental
stewardship, risk and compliance, and organisational
simplification. The Committee noted strong non-financial
performance as our commitment to delivering responsibly for our
stakeholders remained unchanged throughout the pandemic. In
addition to the actions noted to support our customers and the
wider economy, customer and digital satisfaction scores increased
in some of our scale markets, employee engagement scores improved,
we met our diversity goal of having at least 30% women in senior
management roles, and we achieved carbon reduction and sustainable
finance and investment targets. We were also recognised by
Euromoney for 'Global Excellence in Leadership during the Covid-19
pandemic' in its Awards for Excellence 2020.
Executive Director annual incentive scorecard outcome
The above resulted in an overall outcome of 64.50% for the Group
Chief Executive and 63.75% for the Group Chief Financial Officer
(further details of performance are provided on page 240). The
Committee reviewed this outcome in the context of a number of
internal and external considerations to determine whether it should
exercise its discretion to reduce the outcome, including:
-- overall share price performance in the year, which was
significantly impacted by both the Covid-19 outbreak and the impact
of the PRA's request to suspend dividend payments;
-- the impact of the bonus pool reduction on the total compensation for our wider workforce;
-- profit before tax and return on tangible equity ('RoTE') performance; and
-- the positive actions taken by the Board to support our
customers, colleagues and communities in these uncertain times.
The Committee determined the 2020 formulaic scorecard outcomes
appropriately reward the executive Directors for their performance
within the context of overall stakeholder experience. With the
voluntary waiver of cash bonuses by executive Directors, the Group
Chief Executive's effective payout was reduced to 32.25% of its
maximum, and the Group Chief Financial Officer's was reduced to
31.88%. The effective payouts are 51.43% and 58.86% below their
respective outcomes compared with 2019.
2020 long-term incentive ('LTI') for executive Directors
To reflect the Group's strategy, and after listening to our
shareholders, the Committee has agreed that the 2020 LTI will be
based on four equally weighted measures.
-- RoTE: We have retained a key measure of our financial
performance and how we generate returns that deliver value for our
shareholders.
-- Capital reallocation to Asia: We have set a new metric to
assess a key lever of our strategy and business transformation
plan.
-- Environment and sustainability: We have set a new measure to
align with the Group's climate ambition to bring our own operations
to net zero by 2030 and support our customers in their transition
to a more sustainable future.
-- Relative total shareholder return: We have retained this
metric, which rewards executive Directors based on comparison of
the total shareholder return performance of the Group and a
relevant peer group.
2020 LTI grant size
The Committee is aware of shareholders' expectations on the need
to adjust the size of LTI awards to ensure they do not result in
'windfall gains' in the event that the share price falls
significantly due to the impact of the Covid-19 outbreak. While
this does not impact outstanding LTI awards, the Committee agreed,
in line with investor expectations, that the 2020 LTI awards should
be subject to a 'windfall gain' adjustment at grant if the share
price falls significantly relative to the grant price of the 2019
LTI. This is to ensure that the reward for our executive Directors
aligns with the experience of our shareholders and is reflective of
management performance over the performance period.
While the share price to be used for the 2020 LTI award is not
known at this stage, the Committee has agreed, in line with
investor expectations, if the 2020 LTI grant share price
experiences a greater than 30% decline since the previous grant,
this would be considered a material share price fall, and an
adjustment percentage equal to half the share price percentage
decline would be applied to the awards to mitigate the potential
for 'windfall gains'.
Executive Directors' fixed pay for 2021
We have increased the base salary of our executive Directors by
1.6% in line with the average increase for our Group employees.
Additionally, in an expansion to his current remit, the Group Chief
Financial Officer will assume responsibility for the Group's
transformation programme, effective immediately, and its mergers
and acquisitions agenda, from April. In acknowledgement of the
expanded remit and responsibilities, the Committee has decided to
adjust his fixed pay allowance from GBP950,000 to GBP1,085,000 in
accordance with the terms of the Directors' remuneration policy
approved at the 2019 AGM. The executive Directors have made the
personal decision to donate 100% of their salary and fixed pay
allowance increases for 2021 to charity given the ongoing
challenging external environment.
Investor consultation
The Committee considers that regular dialogue with our
shareholders, including outside of our policy vote years and
especially during these uncertain times, is important to ensure our
remuneration policy operates as intended and in line with
shareholder expectations. In 2020, we met with a number of our
significant shareholders and proxy voting agencies to hear their
views on executive and wider workforce remuneration. As ever, we
found this engagement to be very helpful as we considered the
implementation of our remuneration policy, including the 'windfall
gain' adjustment for the 2020 LTI award, and use of ESG measures in
the forward-looking scorecards. Further details of the 2020 LTI
measures and targets are on page 243. The 2021 annual incentive
scorecard is provided on page 249.
On behalf of the Committee, I would like to thank investors for
their time during the consultations and their support for the
direction of travel.
The Group's Directors' remuneration policy is due to expire at
the 2022 AGM. During the course of 2021, we will be reviewing our
current approach to Directors' remuneration and will consult with
our large shareholders and proxy advisory bodies with the aim of
introducing a new policy in 2022. The review will continue to be
based on our following key principles:
-- The policy should be simple and transparent.
-- There should be a strong alignment between rewards and the
interests of our stakeholders, including shareholders, customers
and employees.
-- The policy should maintain a focus on long-term performance.
-- The total compensation package should be competitive to
ensure we can retain and attract talent.
-- The structure should meet the expectations of investors and our regulators.
The Committee is concerned that over time, HSBC's overall
remuneration opportunity has fallen behind desired levels to
reflect the calibre of the executives and market positioning. While
conscious of external sentiment, one of the areas of focus for the
Committee will therefore be ensuring that overall remuneration
levels remain appropriate in the context of the above and support
delivery of our strategic priorities. Any proposed changes would be
discussed with shareholders and the proxy advisory bodies as part
of the wider consultation on the remuneration policy in 2021.
Our annual report on remuneration
As Chair of the Committee, I hope you will support the 2020
Directors' remuneration report.
Pauline van der Meer Mohr
Chair
Group Remuneration Committee
23 February 2021
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END
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