The world's local bank - HSBC

HSBC FRANCE
Chairman’s report on corporate governance and internal control procedures (continued)
– The ALCO Credit meets twice a month to
examine all credit-related risks. It is advised of
all material credit decisions and is responsible
for the Group’s overall lending strategy, and
particularly its policy with regard to exposure
to certain types of counterparty or financing.
– The Legal and Tax Committee reviews positions
of principle on legal and fiscal issues
liable to affect the drafting and management
of contracts.
– The Balance Sheet and Markets ALCO
monitors structural risks relating to interest
rates, ALM, risk-weighted assets and market
risks.
– The Complex and Structured Transactions
Committee reviews all legal, accounting, tax
and finance risks connected with complex
structured transactions.
– The Non-Performing Assets Committee
reviews the need for provisions against nonperforming
assets (loans, securities books)
on a consolidated basis.
– The Operational Risks Committee, created
at the end of 2003 as part of the Basel II
requirements, comprises representatives of
senior management, the key business units
and support functions concerned. The
committee reviews risks reported by the
business units, action plans to mitigate these
risks, and any losses incurred as a result of
operational risks.
– Each business unit has an Anti-Money
Laundering Committee, which meets as often
as required. A committee for the Retail &
Commercial Banking and Private Banking
business units was set up in 2004, and a
committee for the CIBM and Asset Management
units in early 2005. The purpose of
these committees is to review all matters
relating to the money laundering prevention
systems of all HSBC France group entities.
– The Product Review Committee (formerly
the New Products Committee) was set up
in the first half of 2005. Each head of a
customer group (Retail & Commercial
Banking, Corporate Investment Banking &
Markets and Private Banking) must submit
all new products or significant changes to
existing products to this committee. Exceptions
are asset management products that
show no genuine innovation, products
developed by Global Markets entities (for
specific types of clients) and products or
services relating to structured finance, which
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are reviewed by the Complex and Structured
Transactions Committee. The committee also
examines all existing products when this is
justified by the related level of risk assumed.
From 2006, following the amendment to
CRBF 97-02, this organisation has been
strengthened by the designation of
HSBC France’s permanent, periodic and compliance
control officers and of similar officers of
subsidiaries subject to this regulation, and by an
increased formalisation of the controls, organised
by risk lines.
Group Audit France (GAF)
GAF carries out audit functions for
HSBC France and is the group’s periodic control
body. It reports directly and hierarchically to the
Chairman of HSBC France and covers all
business operations, including those of subsidiaries.
GAF has 70 staff and carried out
119 audits in 2005. Following the integration of
the six regional banks’ audit functions in late
2004, and due to the significant number of
branches in the south of France, a team of
auditors has been established in Marseille. This
12-strong team carried out 35 audits in 2005.
GAF also reports to the HSBC Group’s
Internal Audit Department. Its role is to oversee
the quality of internal control systems and to
ensure that procedures are implemented and
respected within the HSBC Group. Audits of
internal control systems are performed regularly
to assess the level of control over risk in the
audited units. Recommendations are made to
remedy any shortcomings and are validated by
the audited unit. Audit work is done in accordance
with the HSBC Group’s audit standards,
described in the Group Audit Standards Manual
(GASM). GAF is itself regularly audited by
its peers.
Until late 2005, audit work was undertaken on
a cyclical basis with a frequency determined by
the level of risk assessed after the completion of
the audit.
This approach will be replaced during 2006 by
a risk-based audit system. For banking networks,
this new approach is based on a continuous audit
method, involving indicators that measure each
branch’s risk potential and a model that classifies
branches relative to each other. The aim is
to detect the branches that show the highest
potential risk and to audit them first. The
approach was applied across HSBC France as of
1 January 2006. It is scheduled to be rolled out
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