Banks take risks when they lend money and make investments. People may be unable to repay what they borrow and some investments fail. Banks assess these risks – known as credit risk and market risk – as a normal part of doing business.
But banks also have to cope with mistakes and events that disrupt everyday business. They could include a failure to comply with regulations or losses caused by poor computer systems. These are known as operational risks. They can arise from inadequate internal processes and systems as well as from external events.
Operational risk comes in different forms and its effects can last for many years. HSBC continued to strengthen those controls that manage our most material risks in 2016. Among other measures, we:
Further embedded Global Standards into the Operational Risk Management Framework to help ensure that we know our customers, ask the right questions and escalate concerns to prevent financial crime
Implemented a number of initiatives to raise our standards in relation to the conduct of our business
Increased monitoring and enhanced controls to manage fraud risks arising from new technologies and new ways of banking
Strengthened internal security controls to help prevent cyber-attacks
Improved controls and security to protect customers when using digital channels
Enhanced our third-party risk management to help enable the consistent risk assessment of any third-party service
The objective of our operational risk management is to manage and control operational risk in a cost-effective manner within targeted levels of operational risk consistent with our risk appetite, as defined by the Group Management Board.
Operating with high standards of conduct is central to our long-term success. We have processes, policies and a culture designed to ensure fair outcomes for customers and protect the integrity of financial markets.
In line with our ambition to be recognised as the world’s leading international bank, we aspire to set the industry standard for knowing our customers and detecting, deterring and protecting against financial crime.
We expect businesses who supply goods and services to HSBC to operate responsibly. Our supplier code sets out the standards we require.