
Other information

Contents

	~~Page~~
141		Disclosure controls
~~134~~141
Management’s assessment of internal controls over financial reporting
~~134~~141
Regulation and supervision
~~134~~149
Disclosures pursuant to Section 13(r) of the Securities Exchange Act		~~143~~


Disclosure controls

The Group Chief Executive and Group Chief Financial Officer, with the assistance of other members of management, carried out an evaluation of the effectiveness of the design and operation of HSBC Holdings’ disclosure controls and procedures as at
31 December ~~2021.~~2022. Based upon that evaluation, the Group Chief Executive and Group Chief Financial Officer concluded that the disclosure controls and procedures at 31 December ~~2021~~2022 were effective to provide reasonable assurance that information required to be disclosed in the reports that the company files and submits under the US Securities Exchange Act of 1934, as amended, is recorded, processed, summarised and reported as and when required. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

There have been no changes in HSBC Holdings’ internal control over financial reporting during the year ended 31 December ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, HSBC Holdings’ internal control over financial reporting.


Management’s assessment of internal controls over financial reporting

Management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting, and has completed an assessment of the effectiveness of the Group’s internal controls over financial reporting for the year ended 31 December ~~2021.~~2022. In making the assessment, management used the framework for internal control evaluation contained in the Financial Reporting Council’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (September 2014), as well as the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (‘COSO’) in ‘Internal Control-Integrated Framework (2013)’.

Based on the assessment performed, management concluded that for the year ended 31 December ~~2021,~~2022, the Group’s internal controls over financial reporting were effective.

PricewaterhouseCoopers LLP, which has audited the consolidated financial statements of the Group for the year ended 31 December ~~2021,~~2022, has also audited the effectiveness of the Group’s internal control over financial reporting under Auditing Standard No. 5 of the Public Company Accounting Oversight Board (United States) as stated in their report on page ~~334.~~346.


Regulation and supervision

The ordinary shares of HSBC Holdings are listed in London,
Hong Kong, New York and Bermuda. As a result of the listing in London, HSBC Holdings is subject to the Listing Rules of the ~~Financial Conduct Authority (‘FCA’).~~FCA. As a result of the listing in Hong Kong, HSBC Holdings is subject to The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (‘~~HKE’~~HKEX’). In the US, where the listing is through an American Depositary Receipt Programme, shares are traded in the form of American Depositary Shares (‘ADS’), which are registered with the US Securities and Exchange Commission (‘SEC’). As a consequence of its US listing, HSBC Holdings is also subject to the

reporting and other requirements of: the US Securities Act of 1933, as amended; the Securities Exchange Act of 1934, as amended; and the New York Stock Exchange’s (‘NYSE’) Listed Company Manual, in each case as applied to foreign private issuers. In Bermuda, HSBC Holdings is subject to the listing rules of the Bermuda Stock Exchange applicable to companies with secondary listings.

A statement of our compliance with the provisions of the UK Corporate Governance Code issued by the Financial Reporting Council and with the Hong Kong Corporate Governance Code set out in Appendix 14 to the Rules Governing the Listing of Securities on ~~The Stock Exchange of Hong Kong Limited~~HKEX can be found in the ‘Report of the Directors: Statement of Compliance’ on page ~~332.~~344.

Our operations throughout the world are regulated and supervised globally by a large number of different regulatory authorities, central banks and other bodies in those jurisdictions in which we have offices, branches or subsidiaries. These authorities impose a variety of requirements and controls designed to provide financial stability, transparency in financial markets and a contribution to economic growth. The requirements to which our operations must adhere include those relating to capital and liquidity, disclosure standards and restrictions on certain types of products or transaction structures, recovery and resolution, governance standards, conduct of business and financial crime.

The UK Prudential Regulation Authority (‘PRA’) is the HSBC Group’s consolidated lead regulator. HSBC Holdings is now approved by, and directly responsible to the PRA for ensuring the HSBC ~~group~~Group meets consolidated prudential requirements. The Group's other lead UK regulator, the FCA, supervises 1514 of HSBC entities in the UK, including eight where the PRA is responsible for those entities' prudential ~~supervision.The~~supervision. The FCA maintains global oversight of the Group’s management of financial crime risk both generally, in the exercise of its wider powers under the Financial Services and Markets Act 2000, and more specifically through the exercise of direct supervisory powers over HSBC ~~Holdings and the 2020 Direction, as described in the Financial crime section on page 244.~~Holdings. In addition, and as required under relevant local laws, each operating bank, finance company and insurance operation within HSBC is regulated by relevant local regulatory authorities.

~~The Group’s primary regulatory authorities include those in the UK, Hong Kong and the US and our other principal jurisdictions of operation. However, and in~~In addition, with the implementation of the European Union's (‘EU’) Single Supervisory Mechanism (‘SSM’) in 2014, the European Central Bank (‘ECB’) assumed direct supervisory responsibility for HSBC Continental Europe and HSBC Malta as ‘significant supervised entities’ within the eurozone for the purposes of the EU’s SSM Regulation. Under the SSM, the ECB increasingly engages with the relevant ‘national competent authorities’ in relation to HSBC’s businesses in other eurozone countries and more widely with ~~HSBC's~~HSBC‘s other regulators. It is therefore expected that we will continue to see changes in how the Group is regulated and supervised on a day-to-day basis in the eurozone and, more generally, as the ECB and other of our regulators develop their powers having regard to some of the developments highlighted in this report including those that follow the UK’s exit from the EU.


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UK regulation and supervision

The ~~UK's~~UK‘s financial services regulatory structure is comprised of three regulatory bodies: ~~the~~The Financial Policy Committee, a committee of the ~~BOE;~~BoE; the PRA; and the FCA.

The Financial Policy Committee is responsible for macro-prudential supervision, focusing on systemic risks that may affect the UK’s financial stability.

The BoE ~~prudentially regulates~~conducts prudential regulation and ~~supervises~~supervision of financial services firms through the PRA, and in addition to its wider role as the UK’s central bank, the BoE is the resolution authority responsible for taking action to manage the failure of financial institutions in the UK, if necessary.

The latter involves a set of responsibilities and powers that apply outside of an actual bank failure and relate to general resolution planning, including an assessment of any barriers to the resolution of banks, the exercise of powers to require the removal of impediments to resolvability and the setting of minimum requirements for own funds and eligible liabilities.

The PRA and the FCA are micro-prudential supervisors. The Group’s banking subsidiaries in the UK, such as HSBC Bank plc and HSBC UK, are ‘dual-regulated’ firms, subject to prudential regulation by the PRA


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and to conduct regulation by the FCA. Other (generally smaller, non-bank) UK-based subsidiaries are ‘solo regulated’ by the FCA (i.e. the FCA is responsible for both prudential and conduct regulation of those subsidiaries). HSBC Group is subject to consolidated supervision by the PRA.

UK banking and financial services institutions are subject to multiple regulations. The primary UK statute in this context is the Financial Services and Markets Act 2000, as amended by subsequent ~~legislation. As a result of a referendum~~legislation, in 2016, the UK left the EU on 31 January 2020 and agreed a transition period which ended at 11pm on 31 December 2020. At the end of the transition period, HSBC Holdings and its subsidiaries in the UK ceased to be subjectaddition to EU ~~law. However, at that time, the EU’s~~ financial services legislation that was "onshored" into UK law under the European Union (Withdrawal) Act 2018 (‘EUWA’). after the UK’s withdrawal from the EU. EU law continues to apply to HSBC’s subsidiaries in the EU.

The UK and the EU have entered into a Trade and Cooperation Agreement, and have made certain declarations relating to financial services. ~~See~~For further details on the ~~European Regulation section for more information.~~UK’s withdrawal from the EU, see page 155.

The PRA and FCA are together responsible for authorising and supervising all our operating businesses in the UK that require authorisation under the Financial Services and Markets Act 2000.

These include deposit-taking, retail banking, consumer credit, life and general insurance, pensions, investments, mortgages, custody and share-dealing businesses, and treasury and capital markets activity. The FCA is also responsible for promoting effective competition in the interests of consumers, and an independent subsidiary of the FCA, the Payment Systems Regulator, regulates payment systems in the UK.

The PRA and ~~FCA's~~FCA‘s rules establish the minimum criteria for the authorisation of banks and other financial sector entities that carry out regulated activities. In the UK, the PRA and FCA have the right to object, on prudential grounds, to persons who hold, or intend to hold, 10% or more of the voting power or shares of a financial institution that they regulate, or of its parent undertaking. In its capacity as our supervisor on a consolidated basis, the PRA receives information on the capital adequacy of, and sets requirements for, the Group as a whole. In addition, it conducts stress tests both on HSBC’s UK entities and more widely on the Group. Individual banking subsidiaries in the Group are directly regulated by their local banking supervisors, who set and monitor, inter-alia, their capital adequacy requirements.

The Group is subject to capital requirements as set out in Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms of the ~~Capital Requirements Regulation~~European Parliament and of the Council of 26 June 2013, as amended or supplemented, as it forms part of domestic law in the UK by virtue of the EUWA (the ~~‘CRR’~~‘UK CRR’), the PRA Rulebook and the UK law implementing the Capital Requirements Directive (the ‘CRD’ and together with the UK CRR, and the relevant rules of the PRA ~~rulebook,~~Rulebook, the ‘Capital Requirements Legislative Package’). Broadly, the changes to the framework that resulted from onshoring the legislation under EUWA will be delayed until
31 March 2022 under transitional powers exercised by the PRA.

The Pillar 1 regulatory capital framework has been, and continues to be, significantly enhanced. The UK implemented the first tranche of changes associated with ~~the~~ Basel ~~III Reforms~~3.1 in January 2022. These include the changes in relation to the counterparty risk, equity investments in funds and market risk RWAs and the leverage ratio. The other elements of ~~the~~ Basel ~~III Reforms,~~3.1, including the changes to credit, operational and ~~operational~~market risk and credit valuation adjustment RWAs, and the implementation of an RWA output floor ~~are currently~~were scheduled by the Basel Committee for implementation in January 2023. ~~Given~~In November 2022, the PRA ~~is currently not expected to consult~~issued a consultation on these other elements ~~until mid-2022,~~of the Basel 3.1 package with a proposed implementation ~~in the UK is likely to be delayed. UK law implementing~~date of 1 January 2025.

The Banking Act and the Bank Recovery and Resolution ~~Directive (the 'BRRD')~~(No. 2) Order 2014 requires the UK’s resolution authority to set a minimum requirement for own funds and eligible liabilities ~~('MREL'~~(‘MREL‘) for banks in the UK.

These include own funds and liabilities that can be written down or converted into capital resources ~~in order~~ to absorb losses or recapitalise a bank in the event of its failure. These requirements are based on the resolution strategy for the Group, as agreed by the BoE in consultation with our local regulators. The UK has implemented the MREL requirements through the Banking Act, and the Bank Recovery and Resolution (No 2) Order 2014. The BoE separately updated its statement of policy on its approach to setting MREL in December 2021. The BoE has set ~~interim~~end state MREL requirements for the Group ~~and to some of the Group’s UK subsidiaries,~~which ~~were applicable from 1 January 2019; end state MREL requirements are applicable~~applied from 1 January 2022.

The UK MREL framework has been designed to be broadly compatible with the term sheet published by the Financial Stability Board (the 'FSB') on total loss absorbing capacity ('TLAC') requirements for global systemically important banks ('G-SIBs'). Additional TLAC requirements were implemented in 2019 through amendments to the CRR in line with the FSB's TLAC standards and these also apply to HSBC as a G-SIB.

The Group is also subject to liquidity requirements as set out in the ~~Capital Requirements Legislative Package~~UK CRR and as implemented by the PRA, and, in January 2022 became subject to the net stable funding ratio ~~('NSFR'~~(‘NSFR‘) requirements ~~prescribed under~~as part of the first tranche of changes arising as part of Basel ~~III Reforms in January 2022.~~3.1.

The PRA and FCA monitor authorised institutions through ongoing supervision and the review of routine and ad hoc reports relating to financial, prudential, ~~and~~ conduct of business and financial crime matters. They may also obtain independent reports from a Skilled Person on the adequacy of procedures and systems covering internal control and governing records and accounting. The PRA meets ~~regularly with~~ the Group’s senior executives regularly to discuss our adherence to its prudential requirements. In addition, both the PRA and FCA regularly discuss with relevant management fundamental matters relating to our business in the UK and internationally, including areas such as strategic and operating plans, risk control, loan portfolio composition, organisational changes, succession planning and recovery and resolution arrangements.

Hong Kong regulation and supervision

The Banking Ordinance provides the legal framework for banking supervision in Hong Kong. Section 7(1) of the Ordinance provides that the principal function of the Hong Kong Monetary Authority (‘HKMA’) is to ‘promote the general stability and effective working of the banking system’. The HKMA seeks to establish a regulatory framework in line with international standards, in particular those issued by the Basel Committee ~~on Banking Supervision (‘Basel Committee’)~~ and the Financial Stability Board (‘FSB’). The objective is to maintain a prudential supervisory system that underpins the general stability and effective working of the banking system, while at the same time providing sufficient flexibility for authorised institutions to take commercial decisions. Under the Banking Ordinance, the HKMA is the licensing authority responsible for the authorisation, suspension and revocation of authorised institutions. To provide checks and balances, the HKMA is required under the Ordinance to consult with the Financial Secretary on important authorisation decisions, such as suspension and involuntary revocation.


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The Hongkong and Shanghai Banking Corporation Limited and its overseas branches and subsidiaries are licensed under the Banking Ordinance and hence subject to the supervision, regulation and examination of the HKMA.

The HKMA follows international practices as recommended by the Basel Committee to supervise authorised institutions. Under the Banking Ordinance, the HKMA imposes capital requirements on authorised institutions through the Banking (Capital) Rules, liquidity requirements through the Banking (Liquidity) Rules and large exposure limits through the Banking (Exposure Limits) Rules. These rules take into account the latest standards set by the Basel Committee.

~~The~~As outlined in the HKMA Supervisory Policy Manual SA-1 – Risk based Supervisory Approach, the HKMA adopts a risk-based supervisory approach ~~based~~which consists of a structured methodology designed to establish a forward-looking view on the risk profile of authorised institutions. During the process, the HKMA assesses eight inherent risks, namely, credit, market, interest rate, liquidity, operational, legal, reputation and strategic risks. In the assessment of these risks, the HKMA will also consider any new risk types that may emerge from time to time, e.g. climate risk. The HKMA also follows a policy of ‘continuous supervision’ through on-site examinations, off-site reviews, prudential meetings, cooperation with external auditors and sharing information with other ~~supervisors.~~

~~The HKMA requires all authorised institutions to have adequate systems~~supervisors as a part of ~~internal control and requires the institutions’ external auditors, upon request, to report on those systems and other matters, such as the accuracy of information provided to the HKMA.~~

~~In addition, the HKMA may from time to time conduct tripartite discussions with authorised institutions and their external auditors.~~its risk-based supervisory methodology.

The HKMA aims to ensure that the standards for regulatory disclosure in Hong Kong remain in line with those of other leading financial centres.

The Banking (Disclosure) Rules take into account the latest disclosure standards released by the Basel Committee, which prescribe quarterly, semi-annual and annual disclosure of specified items, including in the form of standard templates and tables, in order to promote user-relevance and the consistency and comparability of regulatory disclosure among banks and across jurisdictions.


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The ~~HKMA's powers~~Banking Ordinance empowers the HKMA to collect prudential data from authorised institutions on a routine or ad hoc basis ~~are provided by Section 63 of the Banking Ordinance. The same section of the Ordinance also empowers the HKMA~~and to require any holding company or subsidiary or sister company of an authorised institution to submit such information as may be required for the exercise of the HKMA’s functions under the Ordinance.

The HKMA has the power to serve a notice of objection on persons if they are no longer deemed to be fit and proper to be controllers of the authorised institution, if they may otherwise threaten the interests of depositors or potential depositors, or if they have contravened any conditions specified by the HKMA. The HKMA may revoke authorisation in the event of an institution’s non-compliance with the provisions of the Banking Ordinance. These provisions require, among other things, the furnishing of accurate reports.

The HKMA is the relevant authority under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance for supervising authorised institutions’ compliance with the legal and supervisory requirements set out in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance and the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (for Authorised Institutions). The HKMA requires authorised institutions in Hong Kong and its overseas branches and subsidiaries to establish effective systems and controls to prevent and detect money laundering and terrorist financing. It works closely with other stakeholders within both the government and the industry to ensure that the banking sector is able to play its gatekeeper role in Hong Kong’s anti-money laundering and counter-financing of terrorism regime.

To enhance the exchange of supervisory information and cooperation, the HKMA has entered into a Memorandum of Understanding or other formal arrangements with a number of banking supervisory authorities within and outside Hong Kong.

The marketing of, dealing in and provision of advice and asset management services in relation to securities and futures in Hong Kong are subject to the provisions of the Securities and Futures Ordinance of Hong Kong. Entities engaging in activities regulated

by the Ordinance (including ~~the~~The Hongkong and Shanghai Banking Corporation Limited) are required to be licensed or registered with the Securities and Futures Commission (‘SFC’). The HKMA is the front-line regulator for banks involved in the securities and futures business.

The HKMA and the SFC work very closely to ensure that there is an open market with a level playing field for all intermediaries in the securities industry of Hong Kong. The HKMA has entered into a Memorandum of Understanding with the SFC, which elaborates on the legal framework and sets out the operational details relating to the respective roles and responsibilities of the two regulators regarding the securities-related activities of authorised institutions. The HKMA and the SFC hold regular meetings under the Memorandum of Understanding to discuss matters of mutual interest.

Among other functions, the Securities and Futures Ordinance vests the SFC with powers to set and enforce market regulations, including investigating breaches of rules and market misconduct and taking appropriate enforcement action.

The SFC is responsible for licensing and supervising intermediaries conducting SFC-regulated activities, such as investment advisers, fund managers and brokers. Additionally, the SFC sets standards for the authorisation and regulation of investment products, and reviews and authorises offering documents of retail investment products to be marketed to the public.

To promote proper conduct and increase awareness of individual responsibility and accountability, the SFC introduced and implemented the Manager-In-Charge (‘MIC’) regime in Hong ~~Kong in October 2017.~~Kong. The MIC regime applies to senior individuals of licensed corporations responsible for managing core functions within financial services businesses supervised by the SFC. The regime required SFC licensed corporations to review their organisational structure and the roles of senior management and their responsible officers in light of the SFC’s classification of core functions within licensed corporations and its guidelines on identifying Managers-In-Charge of Core Functions. The regime also imposes ~~new~~ reporting requirements on SFC licensed corporations.

Similar to the SFC, the HKMA launched its Management Accountability Initiative ~~in October 2017~~which aimed at increasing the accountability of the senior management of Hong Kong registered institutions (‘RIs’) i.e. Hong Kong banks registered to carry on one or more regulated activities under the SFO. The Management Accountability Initiative clarified the HKMA’s expectations on the responsibility and accountability of RIs’ senior management and enhanced its

information gathering on RIs’ regulated activities, while requiring RIs to better identify lines of responsibility and accountability for their regulated activities. In order to support capacity building and talent development, the HKMA ~~is also~~has been working with the banking industry and relevant professional bodies to implement an industry-wide enhanced competency framework for banking practitioners. The availability of a set of common and transparent competency standards enables more effective training for new entrants and professional development for existing practitioners. Authorised institutions are encouraged to adopt it as the benchmark for enhancing the level of core competence and ongoing professional development of banking practitioners.

Currently, the enhanced competency framework for banking practitioners covers ~~five~~seven professional work streams: anti-money laundering and counter-financing of terrorism; cybersecurity; treasury management; retail and wealth ~~management, with Fintech,~~management; credit risk ~~management~~management; operational risk management; and ~~compliance to be launched in due course.~~compliance.

Relevant to the Group's insurance business in Hong Kong, the HKMA and the Hong Kong Insurance Authority (‘IA’) have ~~also~~ signed a Memorandum of Understanding to enhance the cooperation, exchange of information and mutual assistance between the two authorities. This Memorandum of Understanding sets out the framework between the HKMA and the IA for strengthening co-operation in respect of regulation and


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supervision of entities or financial groups in which the two authorities have a common regulatory interest.

Pursuant to the statutory regulatory regime for insurance intermediaries under the Insurance Ordinance, the IA has delegated its inspection and investigation powers to the HKMA in relation to insurance related businesses of authorised institutions in Hong Kong, which aims to improve efficiency and minimise possible regulatory overlap.

Under the statutory regime for the regulation of Mandatory Provident Fund (‘MPF’) intermediaries, the Mandatory Provident Fund Schemes Authority is the lead regulator in respect of regulation of MPF intermediaries whereas the HKMA, the IA and the SFC are the front-line regulators of the MPF intermediaries.

A Memorandum of Understanding Concerning the Regulation of Regulated Persons with Respect to Registered Schemes under the Mandatory Provident Fund Schemes Ordinance has been signed by the four regulators. It sets out certain administrative and operational arrangements among the four regulators regarding the exercise of their respective functions under the Mandatory Provident Fund Schemes Ordinance concerning regulation of MPF intermediaries.

The Financial Institutions (Resolution) Ordinance established the legal basis for a cross-sector resolution regime in Hong Kong, under which the HKMA is the resolution authority for banking sector entities, including all authorised institutions. The HKMA is also designated as the lead resolution authority for the cross-sectoral groups in Hong Kong that include banking sector entities within the scope of the Financial Institutions (Resolution) Ordinance ~~('FIRO'~~(‘FIRO‘). The HKMA’s function as a resolution authority is supported by the Resolution Office within the HKMA. The Resolution Office is operationally independent and has a direct reporting line to the chief executive of the HKMA.

The Financial Institutions (Resolution) (Loss-absorbing Capacity Requirements – Banking Sector) Rules (‘LAC Rules’) were made by the HKMA under section 19(1) of the FIRO. The LAC Rules enable the HKMA to designate entities within Hong Kong as resolution entities or material subsidiaries and require them to issue Loss Absorbing Capacity (‘LAC’) instruments, in accordance with the ~~Financial Stability Board’s~~FSB’s standard ‘Principles on Loss-absorbing and Recapitalisation Capacity of G-SIBs in Resolution – Total Loss-absorbing Capacity (‘TLAC’) Term Sheet’. The LAC Rules also incorporate the Basel Committee’s disclosure standards on TLAC.

The HKMA finalised the Operational Continuity in Resolution (‘OCIR‘) Chapter within their Financial Institution (Resolution) Ordinance (‘FIRO‘), publishing a Code of Practice (‘CoP‘) that provides further guidance on OCIR. These are compliant with international resolution standards defined by the FSB Key Attributes. The HKMA expects an Authorised Institution (‘AI‘) to be able to demonstrate that it has assessed the risks to OCIR and that appropriate arrangements are in place to support the preferred resolution strategy.

The HKMA has also recently issued LFIR-1 ‘Resolution Planning – Liquidity and Funding in Resolution‘, a new chapter of the code of practice pursuant to section 196 of the FIRO. The chapter sets out the HKMA’s expectations as to the capabilities and arrangements that an AI should have in place, in business as usual, in order to address the potential impediment to orderly resolution that would arise if an AI were unable to assess its liquidity and funding needs and access funding in resolution.


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US regulation and supervision

The Group is subject to federal and state supervision and regulation in the US. Banking laws and regulations of the Federal Reserve Board ~~(‘FRB’~~(the ‘FRB’), the Office of the Comptroller of the Currency (the ‘OCC’) and the Federal Deposit Insurance Corporation (the ‘FDIC’) (collectively, the ‘US banking regulators’) govern all aspects of our US business. HSBC Bank USA, N.A. (‘HSBC Bank USA’) is subject to direct supervision and regulation by the Consumer Financial Protection Bureau (‘CFPB’), which has the authority to examine and take enforcement action related to compliance with US federal consumer financial laws and regulations. The Group’s US securities broker/dealer and investment banking operations are also subject to ongoing supervision and regulation by the Securities and Exchange Commission ~~('SEC'~~(‘SEC‘), the Financial Industry Regulatory Authority and other government agencies and self-regulatory organisations under US federal and state securities laws. Similarly, the Group’s US commodity futures, commodity options and swaps-related and client clearing operations are subject to ongoing supervision and regulation by the Commodity Futures Trading Commission (‘CFTC’), the National Futures Association and other self-regulatory organisations under US federal commodities laws. Furthermore, since we have substantial operations outside the US that conduct many of their day-to-day transactions with the US, HSBC entities’ operations outside the US are also subject to the extraterritorial effects of US regulation in many respects.

HSBC Holdings and its US operations are subject to supervision, regulation and examination by the FRB because HSBC Holdings is a ‘bank holding company’ ~~('BHC'~~(‘BHC‘) under the US Bank Holding Company Act of 1956, as a result of its control of HSBC Bank USA and HSBC Trust Company (Delaware), N.A., Wilmington, Delaware (‘HTCD’). ~~HNAH~~HSBC North America Holdings (‘HNAH‘) and HSBC USA Inc., are each a ‘bank holding company’ and HNAH is also an intermediate holding company (‘IHC’) regulated by the FRB. HSBC Holdings, HNAH and HSBC USA Inc. have elected to be financial holding companies pursuant to the provisions of the Gramm-Leach-Bliley Act and, accordingly, may affiliate with securities firms and insurance companies, and engage in other activities that are financial in nature or incidental or complementary to activities that are financial in nature.

Under regulations implemented by the FRB, if any financial holding company, or any depository institution controlled by a financial holding company, ceases to meet certain capital or management standards, the FRB may impose corrective capital and/or managerial requirements on the financial holding company and place limitations on its ability to conduct the broader financial activities permissible for financial holding companies. In addition, the FRB may require divestiture of the holding company’s depository institutions or its affiliates engaged in broader financial activities in reliance on the Gramm-Leach-Bliley Act if the deficiencies persist.

The regulations also provide that if any depository institution controlled by a financial holding company fails to maintain a satisfactory rating under the Community Reinvestment Act of 1977, the FRB must prohibit the financial holding company and its subsidiaries from engaging in any additional activities other than those permissible for bank holding companies that are not financial holding companies.

The two US banks, HSBC Bank USA and HTCD, are subject to regulation and examination primarily by the OCC. HSBC Bank USA and HTCD are subject to additional regulation and supervision by the FDIC, the Consumer Financial Protection Bureau and the FRB. Banking laws and regulations restrict many aspects of their operations and administration, including the establishment and maintenance of branch offices, capital and reserve requirements, deposits and borrowings, investment and lending activities, payment of dividends and numerous other matters.

In 2019, the FRB and the other US banking regulators jointly finalised rules that ~~would~~ tailor the application of the enhanced prudential standards for large US banking organisations and the US operations of certain foreign banking organisations (the ‘Tailoring Rules’). The Tailoring Rules assign each BHC and US IHC with $50bn or more in total US assets to one of five ~~categories~~buckets (Categories I, II, III, IV, and 'Other Firms') based on their relative


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size and complexity and assessed on

asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, ~~nonbank~~non-bank asset size, and off-balance sheet exposures. As of ~~31 December, 2021, HNAH and HSBC Bank USA were subject to Category III standards. As of~~ 1 January 2022, HNAH ~~met~~continues to be classified as Category IV firm per the criteria ~~to be re-classified as~~set forth by the US banking regulators. As a Category IV ~~firm and the~~banking organization, HNAH will continue to be subject to specific enhanced prudential standards applicable to banking organizations assigned to Category IV. As the depository institution subsidiary of HNAH, ~~and~~ HSBC Bank USA ~~are expected~~is also subject to ~~change commensurate with their risk profile.~~the regulatory capital requirements applicable to Category IV firms.

~~Following implementation of the Basel III capital framework by the US banking regulators,~~ HNAH, HSBC USA Inc. and HSBC Bank USA are required to maintain minimum capital ratios (exclusive of any capital buffers), including a minimum Tier 1 leverage ratio of 4%, and a minimum total risk-based capital ratio of at least 8%. ~~Through 31 December 2021, HNAH and HSBC Bank USA were subject to a minimum supplementary leverage ratio ('SLR') of 3%.~~ HNAH, HSBC USA Inc. and HSBC Bank USA each calculate their risk-based capital requirements as Non-Advanced Approaches banks in accordance with the Basel III rule as adopted by US banking regulators. As a result of HNAH's re-classification as a Category IV firm, HNAH and HSBC Bank USA expect to no longer be subject to the SLR or the countercyclical capital buffer, but continue to review the composition of their capital structure and capital buffers in light of these developments. Over and above the minimum risk-based requirements, HNAH is subject to a Stress Capital Buffer (‘SCB’), which ~~has replaced the static 2.5% Capital Conservation Buffer (‘CCB’) and~~ is floored at 2.5%. and is recalibrated annually. HSBC USA Inc. and HSBC Bank USA continue to be subject to the static 2.5% CCB. Compliance with the SCB/CCB does not represent minimum requirements per se, but rather a necessary condition to allow capital distributions and discretionary bonus payments.

In ~~addition~~September 2022, the US banking regulators issued a joint press release reaffirming their commitment to implementing regulatory capital requirements that align with the Basel III standards issued by the Basel Committee on Banking Supervision (‘BCBS’) in 2017. The US banking regulators stated that once a consultation is issued, they will seek public comment on the new proposed standards.

Under FRB regulations, HNAH is subject to supervisory stress testing requirements ~~imposed~~that are designed to evaluate whether a bank holding company has sufficient capital on a total consolidated basis to absorb losses and support operations under severely adverse economic conditions. As part of the ~~FRB’s~~ Comprehensive Capital Analysis and Review ~~('CCAR'~~(‘CCAR‘), the ~~Dodd-Frank Act Stress Test (‘DFAST’) requires that HNAH undergo supervisory~~FRB uses pro-forma capital positions and ratios under such stress ~~tests conducted by~~scenarios to determine the ~~FRB.~~

Under CCAR, the FRB assesses whether the largest US banking organisations have sufficient capital to continue operations throughout times of economic and financial stress and whether they have robust, forward-looking capital-planning processes that account for their unique risks. As partsize of the SCB for each CCAR ~~process, the FRB undertakes a supervisory assessment of the capital adequacy of bank holding companies, including HNAH, based on a review of a comprehensive capital plan submitted by each~~ participating bank holding company to the FRB that describes the company’s planned capital actions, such as plans to pay or increase common stock dividends, reinstate or increase common stock repurchase programmes, or redeem preferred stock or other regulatory capital instruments, during the nine-quarter review period, as well as the results of stress tests conducted under different hypothetical macroeconomic scenarios, including a severely adverse scenario provided by the FRB.

HNAH submitted its CCAR capital plan and company-run DFAST results in April 2021. The company-run stress tests are forward-looking exercises to assess the impact of hypothetical macroeconomic baseline and severely adverse scenarios provided by the FRB, and internally developed scenarios for both the periodic exercises, on the financial condition and capital adequacy of a bank holding company over a nine-quarter planning horizon.firm.

As ~~a result of re-classification as~~ a Category IV firm, HNAH ~~expects to no longer be subject to company-run stress testing and related disclosure requirements. Category IV firms are~~is subject to supervisory stress testing on an every-other-year basis ~~although they~~and is currently expected to be next subject to the FRB’s supervisory stress test in 2024. As part of CCAR, HNAH is required to submit an annual capital plan to the FRB on or before April 5 of each year. Category IV firms may opt into ~~such~~CCAR supervisory stress testing in an "off year" in order to recalibrate their SCB based on their most recent supervisory stress test. The SCB equals (i) a CCAR ~~firm's~~firm‘s projected decline in common equity tier 1 under the CCAR supervisory severely adverse stress testing scenario plus (ii) one year of planned common stock dividends. In response to the Covid-19 pandemic, during the first six months of 2021, the FRB imposed additional restrictions on certain capital distributions for CCAR firms separate from the SCB. These additional capital distribution restrictions were lifted on 1 July 2021. In August ~~2021,~~2022, the FRB announced a new SCB for ~~participating~~each CCAR ~~firms~~firm based on ~~2021~~its most recent CCAR stress tests and planned common stock distributions, which took effect 1 October ~~2021. The FRB continues to~~

~~supervise Category IV firms on an ongoing basis, including evaluation of the capital adequacy and capital planning processes during off-cycle years.~~2022.

HNAH already utilizes an internal capital assessment approach that is analogous to the SCB and continues to review the composition of its capital structures and capital buffers in light of these developments.

Under the Tailoring Rules, certain US banking organizations are subject to heightened liquidity and risk management requirements, including the US LCR ~~rule~~ and NSFR. Category IV firms, including HNAH and HSBC Bank USA, are ~~required~~subject to ~~report their LCRs to~~a less stringent US ~~regulators on a daily basis. An 85 percent~~ LCR and NSFR modified regulatory requirement ~~applies to Category III firms with~~so long as HNAH‘s weighted short-term wholesale funding ~~under $75 billion and their depository institution subsidiaries.~~equals or exceeds $50 billion. As a result, under the modified US LCR rule, a LCR of 100 percent or higher reflects an unencumbered HQLA balance that is equal to or exceeds 8570 percent of ~~a Category III firm's~~the firm’s liquidity needs for a 30 calendar day liquidity stress scenario. ~~In 2020,~~

Under the modified US ~~regulators issued a final~~NSFR rule as applied to ~~implement the NSFR in the US, applicable to certain large banking organizations, including~~ HNAH and HSBC Bank USA, which took effect on 1 July 2021. Consistent with the Tailoring Rules, an 85 percent NSFR requirement applies to Category III firms with weighted short-term wholesale funding under $75 billion and their depository institution subsidiaries. As a result, under the US NSFR rule, a NSFR of 100 percent or more reflects an available stable funding balance from liabilities and capital over the next 12 months that is equal to or exceeds 8570 percent of ~~a Category III firm's~~the firm’s required stable funding amount ~~of funding~~ for assets and off-balance sheet exposures. As a ~~result of HNAH re-classification as a~~ Category IV firm, HNAH and HSBC Bank USA expect to be subject to a further reduced US LCR and NSFR requirement of 70 percent so long as HNAH's weighted short-term wholesale funding equals or exceeds $50 billion. As a Category III firm, HNAH was subject to liquidity stress testing on a monthly basis and related liquidity buffer and liquidity risk management requirements. As a Category IV firm, HNAH remainsis also subject to liquidity risk management and liquidity buffer requirements ~~but would be subject to~~as well as liquidity stress testing on a quarterly ~~rather than monthly~~ basis.


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Simultaneous with the Tailoring Rules, the FRB and FDIC jointly adopted revisions to the regulations implementing the SIFI Plan requirements in the Dodd-Frank Act (the ‘SIFI Plan Rule’).

Under the SIFI Plan Rule, HSBC Holdings is required to file a resolution plan every three years, alternating between a full resolution plan and a targeted resolution plan, which would generally be limited to core areas such as capital and liquidity, as well as material changes in other areas. HSBC submitted its latest SIFI Plan, which was a targeted plan, in December 2021. AsThe FRB and FDIC provided feedback on this targeted plan in December 2022. The FRB and FDIC did not identify any shortcomings or deficiencies as a result of ~~HNAH's re-classification as~~this review in HSBC Holdings’ 2021 targeted plan, but noted areas where further progress will help improve HSBC Holdings’ preparation for a ~~Category IV firm,~~rapid and orderly resolution of its U.S. subsidiaries and operations that may be addressed in HSBC ~~would be required to submit a reduced SIFI Plan every three years. Reduced plans generally include only changes to the firm's~~Holdings’ next full resolution plan, ~~since its previous filing.~~which is due on 1 July 2024. The SIFI Plan Rule did not revise the resolution plan requirements applicable to HSBC Bank USA, which are administered solely by the FDIC. ~~In April 2019, the FDIC requested comment on an advance notice of proposed rulemaking that would alter~~Under the FDIC’s separate resolution plan requirements for insured depository institutions (the ~~'IDI Plan'~~‘IDI Plan‘) with total consolidated assets of at least $50bn (‘Covered IDIs’), including HSBC Bank USA. The proposal delayed the requirement for HSBC Bank USA (as well as other Covered IDIs) to file a resolution plan under the FDIC’s current rules until a future date to be specified by the FDIC. Consequently, HSBC Bank USA has not been required to file an IDI Plan since 2018. In January 2021, the FDIC announced it will resume requiring IDI Plan submission for banks with $100 billion or more in total consolidated assets, (‘Large IDIs’) and will provide at least
12 months advance notice to firmsincluding HSBC Bank USA, are required to submit an IDI ~~Plans.~~Plan every three years. HSBC Bank USA submitted its latest IDI plan in December 2022. The FRB has separately established a framework for recovery plans, although HSBC is not currently required to submit a recovery plan to US regulators unless specifically requested to do so.

The FRB limits credit exposures to single counterparties for large BHCs and ~~IHCs, including HNAH.~~IHCs. As a Category III firm, HNAH, together with its subsidiaries, is prohibited from having net credit exposure to a single unaffiliated counterparty in excess of 25% of HNAH's Tier 1 capital. As a result of re-classification as a Category IV firm, HNAH ~~expects to no longer be~~is not directly subject to


~~138~~			~~HSBC Holdings plc~~

these single counterparty credit limits. Independent of HNAH's ~~re-classification to~~classification as a Category IV firm, HNAH, together with its subsidiaries, could become subject to ~~a separate limit~~limits on its exposures to ~~certain~~ unaffiliated ~~systemically important~~ counterparties if its parent, HSBC, cannot certify its compliance with a large exposure regime in the UK that is consistent with the Basel large exposure framework.

In 2018, the FRB adopted final rules implementing the FSB’s TLAC standard. The rules require that IHCs of non-US G-SIBs, including HNAH, maintain minimum amounts of TLAC that may include minimum levels of tier 1 capital and long-term debt satisfying certain eligibility criteria, and a related TLAC buffer commencing
1 January 2019 without the benefit of a phase-in period. In October 2020, the FRB finalised a proposal to align the calculation of TLAC buffer for US IHCs of non-US G-SIBs with the calculation methodology used by US G-SIBs which took effect on 1 April 2021. The TLAC rules also include ‘clean holding company requirements’ that impose limitations on the types of financial transactions HSBC’s US IHC, HNAH, may engage in. HNAH maintains TLAC and long-term debt to support compliance with the TLAC rules and will continue to assess if additional long-term debt is needed to remain compliant in future periods.

In September 2017, HSBC Holdings and HNAH entered into a consent order with the FRB in connection with its investigation into HSBC’s historical foreign exchange activities, which requires HSBC Holdings and HNAH to undertake certain remedial steps.

The US government response to the Covid-19 pandemic included enactment of the Coronavirus Aid, Relief, and Economic Security Act (‘CARES Act’) and a number of emergency lending and liquidity facilities established by the FRB. The CARES Act provides financial institutions with the option to temporarily suspend certain requirements under US GAAP for loan modifications related to Covid-19 and any determination that a loan modified as a result of Covid-19 is a troubled debt restructuring (including impairment for accounting purposes). The CARES Act also created the Paycheck Protection Program (the ‘PPP’), a programme designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks. In December 2020, additional federal stimulus legislation was enacted, which included additional funding for the PPP. HSBC Bank USA participated in the PPP program. Throughout 2020, the US banking regulators issued a number of regulatory rule changes in response to the Covid-19 pandemic, including ~~the following key rules:~~

~~In March 2020, the US banking regulators issued~~ an interim final rule allowing US banks the option to delay, over a five-year transition period, the regulatory capital impacts of implementing the Current Expected Credit Loss accounting standard. In May 2020, the US banking regulators issued an interim final rule allowing banks that are subject to the SLR to temporarily exclude on-balance sheet US Treasury securities and deposits held at the Federal Reserve from the SLR denominator until 31 March 2021.

Title VII of the Dodd-Frank Act ~~provides for~~required the SEC and CFTC to adopt rules to implement an extensive framework for the regulation of over-the-counter (‘OTC’) derivatives by the CFTC and the SEC, including mandatory clearing, exchange trading, and public and regulatory transaction reporting of certain OTC ~~derivatives, as well as rules regarding the registration of~~derivatives. It also includes requirement for swap dealers, major swap participants and security-based swap (‘SBS’) dealers, to register with the CFTC and ~~major SBS participants~~SEC, respectively, and be subject to related capital, margin, business conduct, record keeping and other requirements ~~applicable to such entities.~~(as well as significant oversight).

~~The CFTC has adopted rules implementing the most significant provisions of Title VII. In particular,~~ HSBC Bank USA and HSBC Bank plc are provisionally registered as swap dealers with the CFTC. Because HSBC Bank plc is a non-US swap dealer, application of certain CFTC requirements is limited to HSBC Bank ~~plc's~~plc‘s swap transactions with US persons and certain ~~affiliates of~~persons guaranteed by or affiliated with US persons. ~~In July 2020, the CFTC finalised rules that largely codified existing cross-border guidance and existing no action relief issued to date for transactions between non-US persons.~~

The ~~cross-border application of CFTC requirements that were not addressed in the final rule, including mandatory clearing,~~

exchange trading and public transaction reporting requirements, remain subject to prior CFTC guidance and, where applicable, exemptive relief until the CFTC addresses each in further rulemakings. In addition, the CFTC has ~~continued to permit UK-based~~also permitted UK swap dealers ~~(e.g.,~~(such as HSBC Bank plc) to ~~temporarily rely on existing substituted compliance orders for comparable EU regulations~~continue to satisfy certain CFTC ~~requirements. The ability~~requirements through ‘substituted compliance’ with EU requirements that the CFTC has determined to be comparable (notwithstanding that the UK is no longer a member of the EU and the relevant EU regulations have been transposed into UK law).

HSBC Bank USA, N.A. and HSBC Bank plc are provisionally registered as SBS dealers with the SEC. Because HSBC Bank plc is a non-US SBS dealer, application of certain SEC requirements is limited to ~~transact~~HSBC Bank plc‘s swap transactions with ~~non-US~~US persons ~~and compete~~or which are arranged, negotiated, or executed by US persons. HSBC Bank plc can also satisfy certain SEC requirements through ‘substituted compliance’ with ~~other non-UK swap dealers could~~UK requirements that the SEC has determined to be ~~negatively affected were existing CFTC exemptive relief to expire or additional CFTC requirements to apply.~~

comparable. In October 2020, the CFTC finalised rules that applied position limits to certain futures contracts as of 1 January 2021 and will apply position limits to certain swaps as of 1 January ~~2023~~

2023. The expansion of position limits requirements for swaps will significantly increase the burden and cost of executing certain commodity swaps

and may adversely affect HSBC to a greater extent than some of our competitors.

Also, HSBC Bank plc and HSBC Bank USA engage in equity and credit derivatives businesses that are subject to the SEC’s jurisdiction to regulate security-based swaps (‘SBS’) under Title VII of the Dodd-Frank Act. The SEC has finalised the key rules governing the application of Title VII requirements to SBS dealers and major SBS participants. The registration requirements and other rules applicable to SBS dealers and major SBS participants generally came into effect on 1 November 2021. Both HSBC Bank plc and HSBC Bank USA registered with the SEC as SBS dealers prior to that date.

While the SEC’s rules have largely paralleled many of the CFTC’s rules, key differences between the final CFTC and SEC rules could materially increase the compliance costs associated with, and hinder the efficiency of, our equity and credit derivatives businesses with US persons.

The SEC has issued final orders for substituted compliance for non-US, SEC-registered SBS dealers that are subject to certain UK regulations, which would allow such SBS dealers to comply with certain SBS requirements via compliance with corresponding requirements of the UK.

HSBC Bank plc expects to avail itself of such substituted compliance, which reduces the extent of its burden of having to reconcile compliance with conflicting SEC and UK requirements. However, the order includes extensive conditions and limitations, especially with respect to certain counterparty protection and financial reporting requirements, which will limit the extent to which HSBC Bank plc may avail itself of substituted compliance and subject HSBC Bank plc to additional costs and burdens.

In 2015, the US banking regulators adopted final rules establishing margin requirements for non-cleared swaps and SBS. Subject to certain exceptions, the final margin rules require HSBC Bank USA and HSBC Bank plc to collect and post initial and variation margin for non-cleared swaps and SBS entered into with other swap dealers and financial end-users that exceed a minimum threshold of transactional activity and for financial end-users that do not meet the minimum transactional activity threshold, to collect and post variation margin (but not initial margin).

The margin rules also limit the types of assets that are eligible to satisfy initial and variation margin requirements, require initial margin to be segregated at a third-party custodian, impose requirements on internal models used to calculate initial margin requirements and contain specific provisions for cross-border and inter-affiliate transactions. The margin rules follow a phased implementation schedule with additional counterparties becoming subject to initial margin requirements in September 2021 and September 2022, depending on the transactional volume of the parties and their affiliates. These final rules, as well as parallel non-cleared swaps and SBS margin rules from the CFTC, the SEC and certain non-US regulators increase the costs and liquidity burden associated with trading non-cleared swaps and SBS, and may adversely affect our business in such products.


~~HSBC Holdings plc~~			~~139~~

~~Other information~~ ~~| Regulation and supervision~~

In June 2020, the US banking regulators finalized a rule that makes significant amendments to the margin rules, including (i) mostly exempting swap entities from needing to collect initial margin for swaps with affiliates; (ii) preserving legacy status for swaps that are amended to replace certain interest rate provisions or due to technical amendments, notional reductions, or portfolio compression exercises; (iii) clarifying the time at which initial margin trading documentation must be in place; and (iv) adding a new compliance phase for initial margin requirements. ~~The amendments in the final rule took effect 31 August 2020, which reduced the amount of initial margin HSBC Bank USA and HSBC Bank plc need to collect from many of their affiliates.~~

Dodd-Frank grants the SEC discretionary rule-making authority to modify the standard of care that applies to brokers, dealers and investment advisers when providing personalised investment advice to retail customers and to harmonise other rules applying to these regulated entities. In June 2019, pursuant to this authority, the SEC finalised a rule that requires broker-dealers to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities. This rule impacts the manner in which business is conducted with customers seeking investment advice and may affect certain investment product offerings.

Dodd-Frank also expands the extra-territorial jurisdiction of US courts over actions brought by the SEC or the US with respect to violations of the anti-fraud provisions in the Securities Act, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

In addition, regulations which the FSOC, the Consumer Financial Protection Bureau or other regulators may adopt could affect the nature of the activities that our FDIC-insured depository institution subsidiaries may conduct, and may impose restrictions and limitations on the conduct of such activities. The implementation of the remaining Dodd-Frank provisions could result in additional costs or limit or restrict the way we conduct our business in the US.

Global and regional prudential and other regulatory developments

The Group is subject to regulation and supervision by a large number of regulatory bodies and other agencies. In addition to changes being introduced at a country level, changes are often driven by global bodies such as the G20, the FSB and the Basel Committee, which are then implemented at country level or regionally, sometimes with modifications and with separate additional measures.

Of principal importance from a prudential perspective are the changes that relate to Basel 3.1. The UK implemented the first tranche of Basel 3.1 in January 2022. These include the changes in relation to counterparty risk, equity investments in funds and market risk RWAs and the leverage ratio. The other elements of Basel 3.1, including the


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Other information | Regulation and supervision

changes to credit risk, operational risk, market risk and credit valuation adjustment RWAs, and the implementation of an RWA output floor are currently scheduled for implementation in the UK in January 2025.

The PRA is responsible for implementing Basel 3.1 in the UK under powers granted in the Financial Services Act 2021 (‘Financial Services Act‘). The Financial Services Act enables the PRA to introduce reforms to update the UK’s prudential regime. At present, the UK CRR, which is retained EU legislation that takes the status of primary legislation in the UK, contains many of the existing prudential rules. The Financial Services Act enables HM Treasury to delegate responsibility to the PRA for making the firm-facing rules required to implement the Basel standards. The Act ensures that public policy considerations including sustainable growth, the relative standing of the UK, and the Basel standards themselves, are considered by the PRA when making these rules. This does not require that the PRA implement rules that replicate Basel 3.1; instead, the PRA has been given the discretion to decide the substance of the rules, having regards to the likely effect of the rules on the relative standing of the UK as a place for internationally active banks to be based or to carry on activities. The PRA issued a consultation on the implementation of the remainder of Basel 3.1 in November 2022. The UK is not expected to implement these final changes until January 2025

We are also subject to regulatory stress testing in many jurisdictions. These have increased both in frequency and in the granularity of information required by supervisors. They include the programmes of the BoE, the FRB (as explained in the ‘US regulation and supervision’ section), the OCC, the EBA, the ECB, the HKMA and other regulators. For further details, see ‘Stress testing’ on page ~~109.~~153. On prudential changes, further details can be found in the ‘Regulatory developments’ section on page 6 of the Pillar 3 Disclosures as at 31 December ~~2021.~~

2022
.

Recovery and resolution

As outlined above, the HSBC Group is subject to recovery and resolution requirements in many of the jurisdictions in which it operates. In the UK, the Banking Act implemented the BRRD to create the SRR. Under the SRR, the Authorities are granted substantial powers to resolve and stabilise UK-incorporated institutions. In Europe, the BRRD establishes a framework for the recovery and resolution of EU credit institutions and investment firms. This framework applies where HSBC has operating banks in the European region, including France and Malta. In Hong Kong, the Banking Ordinance and Financial Institutions (Resolution) Ordinance sets out requirements for recovery and resolution planning, respectively. In the US, the Board of Governors of the Federal Reserve System ~~('FRB'~~(‘FRB‘) and Federal Deposit Insurance Corporation ~~('FDIC'~~(‘FDIC‘) have jointly implemented Dodd-Frank Act resolution planning requirements for depository institution holding companies that are at or above certain thresholds. The FDIC has a separate resolution planning requirement for insured depository institutions (the ‘IDI Plan’). The FRB has separately established a framework for recovery plans, although HSBC is not currently required to submit a recovery plan to US regulators unless specifically requested to do ~~so.~~so (although recovery capabilities are still maintained for the US and an internal plan is still produced each year). In general, each respective part of the HSBC Group is responsible for ensuring that it meets local recovery and resolution requirements where they exist, which are mainly applicable only to those regulated entities in a particular jurisdiction.

The PRA and BoE, however, ~~represent~~are the lead regulators from a prudential and resolution perspective for the consolidated HSBC Group.

Recovery

HSBC maintains recovery plans that are designed to outline credible actions that the HSBC Group could implement in the event of severe stress in order to restore its business to a stable and sustainable condition. HSBC typically submits a Group recovery ~~plans~~plan on an annual basis ~~both~~ to the PRA and submits local recovery plans to other host regulators ~~that have implemented recovery planning requirements.~~where local requirements are in place. HSBC’s recovery plans are frequently re-appraised to meet regulatory and internal feedback, and this involves stress testing and ‘fire drill’ tests at the Group and material entity levels.

Resolution

In general terms, resolution refers to the exercise of statutory powers where a financial institution and/or its parent or other group company is deemed by its regulators to be failing, or likely to fail and it is not reasonably likely that action could be taken that would result in the institution recovering.

In view of the HSBC Group’s corporate structure, which comprises a group of locally regulated operating banks, the preferred resolution strategy for the HSBC Group, as confirmed by its regulators, is a multiple point of entry (‘MPE’) bail-in strategy. This provides flexibility for HSBC to be resolved either (i) through a bail-in at the HSBC Holdings level, which enables the recapitalisation of operating bank subsidiaries in the HSBC Group (as required) while restructuring actions are undertaken, with the HSBC Group remaining together; or (ii) at a local subsidiary level pursuant to the application of statutory resolution powers by local resolution authorities.

In the event of a resolution of the HSBC Group, it is anticipated that the MREL issued externally by HSBC Holdings plc would be written down or converted to equity by the BoE using its statutory powers. This would enable subsidiaries of the HSBC Group to be recapitalised, as needed, to support the resolution objectives and maintain the provision of critical ~~functions.~~functions locally. Recapitalisation of operating bank subsidiaries could be achieved through the write-down, or conversion to equity, of internally issued MREL, TLAC or LAC. It is anticipated that this approach to recapitalising the HSBC Group’s operating bank subsidiaries would allow the HSBC Group to stay together in order to ensure an effective stabilisation of the HSBC Group, as a whole, whilst also facilitating an orderly restructuring process, as needed, to remediate the cause of resolution. Any resolution of HSBC as a group would be coordinated by the BoE.

Given the geographical footprint of the HSBC ~~Group’s corporate structure,~~Group, resolution authorities have determined that HSBC has three resolution groups that together account for 93% of total HSBC Group RWAs: The Asia resolution group, The European resolution group and the US resolution group. As a result, HSBC is overseen by various regulators and resolution authorities ~~such as~~including its lead


~~140~~			~~HSBC Holdings plc~~

global regulators and resolution authority, the BoE and the PRA and a number of host regulators and resolution authorities, such as the ~~ECB,~~SRB, the European Banking Union’s Single Resolution Board, the HKMA, and, in the US, the FRB, FDIC and OCC. ~~Many of these~~These host resolution authorities have statutory resolution group powers which could be applied to subsidiaries of the HSBC Group in their jurisdictions. The application of these local statutory resolution powers may result in one or more individual resolution authorities leading a local resolution of the subsidiaries within their jurisdiction.

This may or may not result in such subsidiaries ceasing to be part of the HSBC Group, depending on the drivers of failure and the resolution ~~strategy adopted~~powers exercised by the relevant resolution authority.

HSBC considers that a bail-in at the HSBC Holdings plc level that enables subsidiaries in the HSBC Group to be recapitalised, (as required), and the subsequent implementation of restructuring actions while the HSBC Group remains together, is the strategy most likely to deliver the ~~most effective~~optimal resolution outcome for ~~the HSBC Group’s~~all of HSBC’s stakeholders.

In July 2019, the BoE and PRA published final policies on the Resolvability Assessment Framework ~~('RAF'~~(‘RAF‘), which places the onus on firms to demonstrate their own resolvability and is designed to increase transparency and accountability for resolution planning. In order to be considered resolvable, HSBC must meet three outcomes (i) have adequate resources in resolution; (ii) be able to continue business through resolution and restructuring; and (iii) be able to co-ordinate its resolution and communicate effectively with stakeholders.

The RAF requires HSBC to prepare a report on the HSBC Group’s assessment of its resolvability, which must be submitted to the ~~PRA~~BoE on a biennial basis. HSBC submitted its first such report to the ~~PRA~~BoE in October 2021 summarising the progress it has made to achieve the resolvability outcomes set out in the BoE’s RAF, followed by an additional addendum in February 2022. On 10 June 2022, HSBC made its first public disclosure on its resolvability, which summarised the key findings from its RAF Self-assessment. Alongside this report, the BoE publicly disclosed its own assessment of HSBC’s resolvability, as well as other firm's subject to the RAF requirements in the UK.


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Certain shortcomings and areas of further enhancement were identified under the first RAF cycle and HSBC is currently addressing these to ensure it meets the objectives of the RAF. Regular engagement with the BOE and PRA will continue as HSBC prepares for the second RAF cycle, whereby the Group’s next Self-assessment is due in October 2023.

The PRA’s supervisory statement SS4/21 Operational Continuity in Resolution (’OCIR’) requirements, became effective on 1 January 2023 and introduced additional requirements for OCIR. The HSBC Group had already established comprehensive OCIR capabilities in line with the earlier OCIR policy in order to meet expectations under the RAF. These existing capabilities have been built on and developed to meet the new requirements under SS4/21 and a report on compliance was submitted to the BoE and PRA in December 2022

EU Directive 2019/878 (CRD V) introduced an obligation to appoint an Intermediate Parent Undertaking (‘IPU‘) for third-country groups that consists of two or more banks in the EU (Article 21b). HSBC Continental Europe (‘HBCE‘), headquartered in Paris, France, will act as the IPU for the European subgroup, following planned changes in the Group structure, which are expected to become effective during 2023. As a result of these changes it is worth noting the following: (i) HBCE will be the main contact point with regulators of the EU and the Banking Union, and will ~~publish a public summary~~centralise all coordination and requests to the unique Joint Supervisory Team (‘JST‘) and the unique Internal Resolution Team (‘IRT‘), made up respectively of the ~~report~~European Central Bank (‘ECB‘) and the national supervisory authorities on one hand, and the Single Resolution Board (‘SRB‘) and the national resolution authorities on the other, (ii) Reporting to the relevant authorities will consecutively be simplified. In particular, HBCE will have to submit consolidated reports directly onto the portal of the French resolution authority (ACPR), as the host authority of HBCE (iii) HBCE is already fully integrated in ~~June 2022. The BoE~~the RAF framework monitored at HGHQ level, and will ~~similarly publish a statement concerning~~therefore channel the ~~resolvability~~application of the RAF provisions down to its branches and subsidiaries.

At the end of 2021, HBCE operated 10 branches in the following jurisdictions: Belgium, Czech Republic, Greece, Ireland, Italy, Luxembourg, Netherlands, Poland, Spain and Sweden. In 2022, HBCE went through further transformation to support its role as the Group’s EU IPU by completing the acquisitions of HSBC atBank Malta plc (‘HBMT’), and HSBC Trinkaus & Burkhardt GmbH (‘HTDE’) in Germany in November 2022, with a further proposal to transfer HTDE’s operations into a new German branch of HBCE in Q2 2023. Subject to receipt of regulatory approval, the ~~same time.~~final stage of HBCE’s conversion into the Group’s EU IPU is also scheduled to take place in Q2 2023, with the acquisition of HSBC Private Bank (Luxembourg) SA. Any resulting changes to recovery and resolution plans will be discussed with relevant regulatory authorities.

From a group perspective, HTDE and HBMT will not be referred to on a standalone basis in the Group RAF submission, but will be reflected under the HBCE consolidated view.

The Single Resolution Board (‘SRB‘) and the National Resolution Authorities in Europe have developed their views and standards on resolution, culminating in the creation of the Expectations for Banks (‘EFB‘), published in March 2020. The overarching aim of the EFB is to ensure that European banks demonstrate that they could be resolved in an orderly way and are accountable for ensuring they are prepared for resolution. The EFBs brought together new and existing rules and policies regarding resolution planning into seven dimensions to apply for both home and host banks by the end of 2023.

HSBC continues to engage with the BoE, PRA and its global regulators in other jurisdictions to ensure that it meets current and future recovery and resolution requirements.

~~UK's~~

UK‘s withdrawal from the EU

~~Through the UK’s membership of the EU, HSBC was both directly and indirectly subject to EU financial services regulation.~~ The UK left the EU on 31 January 2020 but was subject to EU law during a transition period, which ended on 31 December 2020. ~~At the end of the transition period, the HSBC Group and its subsidiaries in the UK ceased to be subject to EU law. However,~~ EU law continues to apply to HSBC’s EU subsidiaries.

On 30 December 2020, the UK and the EU signed a Trade and Cooperation Agreement ~~('TCA'~~(‘TCA‘) setting out their future relationship. The UK Parliament ratified the TCA the same day and the EU completed its ratification process in April 2021. The financial services provisions of the agreement are limited. In particular, the TCA provided no new arrangements to replace the "passporting" arrangements which previously allowed UK and EU firms access to the others markets. The agreement preserves the respective rights of both the UK and EU to put in place measures for prudential reasons. In a declaration accompanying the TCA, the UK and EU have agreed to establish structured regulatory cooperation on financial services, with the aim of establishing a durable and stable relationship. The declaration states that these arrangements will allow for ‘transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions’ and ‘enhanced cooperation and coordination’. On 26 March 2021, the EU and UK announced the completion of negotiations for a Memorandum of Understanding establishing a Joint UK-EU Financial Regulatory Forum to serve as a platform for dialogue on financial services ~~issues~~issues.

During the transition period, the UK implemented EUthe EU’s legislative changes that were scheduled to enter into force before the end of the transition period.

Certain changes that were scheduled to enter into force after 31 December 2020 have been implemented separately by the UK under the Financial Services ~~Act (the ‘Act’) which gave powers to HMT to revoke rules within the CRR where they were superseded by new rules published by the Basel~~

Committee. The Act contains a specified list of publications by the Basel Committee that may be used as a basis to revoke the CRR. This includes all of the papers that form the basis of the Basel III Reforms, including those that have been enacted by the EU as part of its amendments to the CRR (‘CRR2’).

~~The PRA is responsible for designing and writing the new rules. The Act does not require that the PRA implement rules that replicate the Basel III Reforms~~Act. For example, in the UK; instead, the PRA has been given the discretion to decide the substance of the rules, having regards to the likely effect of the rules on the relative standing of the UK as a place for internationally active banks to be based or to carry on activities.

In the EU, the ~~principal changes arising from the CRR2 entered~~first tranche of Basel 3.1 came into force in June 2021.

In order to ~~give~~allow UK firms to have a reasonable time to implement following the finalisation of the rules, the UK’s implementation of equivalent rules was delayed until 1 January 2022. ~~This includes~~

On 20 July 2022, the Financial Services and Markets Bill (‘FMSB’) was introduced to the UK Parliament. The FMSB provides for a number of changes to the ~~RWA~~regulatory architecture in the UK. Amongst other things, it contains provisions that would allow for specified ‘onshored‘ EU legislation, including the UK CRR, to be revoked and replaced by legislation or rules ~~on counterparty risk, equity investments in funds~~made by HM Treasury or the regulators and ~~market risk, NSFR~~provides for a ‘Designated Activities Regime‘ that would allow HM Treasury to bring certain activities, products or conduct within the scope of the Financial Services and ~~the leverage ratio.~~Markets Act 2000.

Financial crime regulation

HSBC has built a ~~strong~~ financial crime risk management framework that is applicable across ~~its~~all global ~~business~~businesses and ~~functions.~~functions, and all countries and territories in which it operates. We ~~are~~remain committed to acting with integrity, and conducting our activities in ~~each of the countries and territories in which we operate around the world in~~ accordance with all applicable financial crime laws and ~~regulations relating to financial crime; money laundering, terrorist financing and proliferation financing, tax evasion, bribery and corruption, sanctions and fraud.~~regulations.

HSBC has an established a global ~~anti-money laundering ('AML')~~financial crime programme ~~which is~~ designed to enable the bank to ~~mitigate~~detect, prevent and manage the fraud, bribery and corruption, tax evasion, sanctions and export control violations, money laundering, terrorist financing and proliferation financing risks that we may face. HSBC’s Global AML Policy is informed by applicable laws, regulations and regulatory guidance of the United Kingdom, Hong Kong Special Administrative Region, the European Union and the United States of America, although where country requirements are more stringent, the

HSBC ~~business or entity will apply local standards. The AML programme is designed~~continues to ~~enable our employees to detect, prevent and manage money~~develop its anti-money laundering ~~risks, and we continue to evolve our AML~~ programme in light of emerging risks and new ~~regulations.~~

legislation. Technical and digital innovation in the financial sector continues ~~apace~~to gather pace and we are actively monitoring developments, defining risk appetite and developing appropriate controls to manage the risks associated with the accelerated digitisation of payments, the increasing use of alternate payment methods and digital assets and ~~currencies~~currencies. HSBC continues to enhance its control framework to detect, deter and more generally, the effects of accelerated digitisation as a result of the Covid-19 pandemic, which has seen changes in customer behaviour and required enhancements to our transaction monitoring capabilities.

~~We have also spent time and attention on the detection, deterrence and disruption of~~disrupt terrorist financing and proliferation financing ~~as well as on our commitment~~more effectively, introducing the use of intelligence-led technologies to ~~act with integrity and conduct our global activities in accordance with all applicable laws and regulations relating~~monitor customer activities. HSBC has also continued to embed procedures designed to prevent tax evasion and tax evasion facilitation ~~risks. These include the UK Corporate Criminal Offence for failing to prevent the criminal facilitation of tax evasion which has extra-territorial reach.~~

~~HSBC’s Global Sanctions Policy is derived from the sanctions resolutions, laws, regulations~~risks, as well as bribery and ~~regulatory guidance of the United Nations, the United Kingdom, the Hong Kong Special Administrative Region, the European Union~~corruption risks associated with its customer’s activities and the ~~United States~~activities of ~~America~~third parties, which may expose HSBC to corporate criminal liability. HSBC requires compliance with all applicable anti-bribery and takes into account broader financial crime concerns. The Policy seeks, subject to the primacy of local law, to establish a globally consistent standard to effectively manage sanctions compliance risk across all HSBC legal entitiescorruption laws in all ~~jurisdictions in which HSBC operates.~~

~~The external sanctions environment remains dynamic,~~markets and sanctions regimes are increasingly complex and less predictable as geopolitical tensions continue to rise, particularly between the US and China but increasingly extending to the UK, the EU, India and other countries, and more recently as between Russia and the US, the UK and the EU in response to an escalation of hostilities


HSBC Holdings plc			~~141~~147

Other information | Regulation and supervision

relating to Ukraine. Other material sanctions regulatory developments in 2021 include, but are not limited to: new EU, UK and US debt, equity and insurance restrictions involving the Government of Belarus as well as certain EU and UK trade restrictions involving Belarus. Further, the new autonomous UK sanctions regulations, which became effective following expiry of the Brexit transition period, with notable divergences from the EU in relation to Libya and Russia. HSBC continues to monitor regulatory developments and their impact to HSBC’s Global Sanctions Policy and risk appetite. We do not consider that our business activities with counterparties with whom transactions are restricted under applicable sanctions are material to our business for the year ended 31 December 2021.

~~HSBC requires compliance with all applicable anti-bribery and corruption laws in all markets and~~ jurisdictions in which ~~we operate. These include the UK Bribery Act, the US Foreign Corrupt Practices Act, the Hong Kong Prevention of Bribery Ordinance and France's "Sapin II" law. We have~~it operates. HSBC sets a consistently high standard globally in its global anti-bribery and corruption policy, which ~~gives practical effect to these laws and regulations, but~~ also ~~requires compliance with~~focusses on the spirit of relevant laws and regulations to demonstrate HSBC’s commitment to ethical behaviours and conduct as part of our environmental, social and corporate governance.

HSBC provides annual mandatory ~~AB&C~~ training on the prevention of money laundering, bribery and corruption and tax evasion to all staff and carries out regular risk assessments, monitoring and testing of its ~~AB&C programme, with any~~programmes and incorporates applicable findings ~~included~~ within the annual ~~AB&C Policy~~policy refresh. HSBC also maintains clear whistleblowing policies and processes, to ensure that individuals can confidentially report concerns.

HSBC continues to develop its fraud controls and invest in capabilities to fight financial crime through the application of advanced analytics and artificial intelligence. HSBC strengthened its first party lending fraud framework, reviewed and published an updated fraud policy and associated control library, and continued to develop fraud detection tools.

HSBC's sanctions programme seeks to apply a globally consistent standard to manage export controls and sanctions compliance risk effectively across all HSBC legal entities in all jurisdictions in which HSBC operates. The external sanctions environment remains dynamic, and sanctions regimes are increasingly complex and less predictable as geopolitical tensions continue to rise. In 2022, Russia has been the major target of western sanctions following its invasion of Ukraine, resulting in the imposition of an unprecedented and diverse set of sanctions and trade restrictions that are often complex in nature and are aimed at a broader range of targets or activities. For their involvement in the invasion of Ukraine, sanctions have also been imposed on Belarus, similar to those imposed on Russia, but to a lesser extent. Other material sanctions regulatory developments in 2022 include, but are not limited to: the US enhancing export restrictions to further limit China’s access to semi-conductor technology and other critical technologies as well as the UK enacting legislation to implement a “strict liability” basis in relation to the imposition of civil monetary penalties, a material shift in the UK’s previous approach to civil enforcement of sanctions breaches. HSBC continues to monitor regulatory developments and their impact to HSBC’s global sanctions policy and risk appetite. HSBC does not consider that its business activities with counterparties with whom transactions are restricted under applicable sanctions are material to its business for the year ended 31 December 2022.

In August 2022, the Board of Governors of the Federal Reserve System terminated its 2012 ~~Holdings entered into a~~ cease-and-desist order, with immediate effect. This order was the ~~Federal Reserve Board (the “2012 Order”) and agreed to an undertaking with the Financial Services Authority (replaced with a Direction from~~final remaining regulatory enforcement action that HSBC had entered into in 2012. In June 2021, the UK Financial Conduct Authority ~~in 2013~~had already determined that no further Skilled Person work was required under section 166 of the Financial Services and ~~again in 2020 (the “FCA Direction”)), both~~Markets Act. The Group Risk Committee retains oversight of ~~which contained certain forward-looking obligations in relation~~matters relating to ~~HSBC’s AML and sanctions compliance programme. The 2012 Order and the FCA Direction remain in effect~~financial crime, including any remaining remedial activity not yet completed as part of ~~year-end 2021.~~previous recommendations.


~~142~~148			HSBC Holdings plc


Disclosures pursuant to Section 13(r) of the Securities Exchange Act

Section 13(r) of the Securities Exchange Act requires each issuer registered with the SEC to disclose in its annual or quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions with persons or entities targeted by U.S. sanctions programmes relating to Iran, terrorism, or the proliferation of weapons of mass destruction, even if those activities are not prohibited by U.S. law and are conducted outside the U.S. by non-U.S. affiliates in compliance with local laws and regulations.

To comply with this requirement, HSBC Holdings plc (together with its affiliates, “HSBC”) has requested relevant information from its affiliates globally. The following activities conducted by HSBC are disclosed in response to Section 13(r):

Legacy contractual obligations related to guarantees

Between 1996 and 2007, we provided guarantees to a number of our non-Iranian customers in Europe and the Middle East for various business activities in Iran. In a number of cases, we issued counter indemnities involving Iranian banks as the Iranian beneficiaries of the guarantees required that they be backed directly by Iranian banks. The Iranian banks to which we provided counter indemnities included Bank Tejarat, Bank Melli, and the Bank of Industry and Mine.

There was no measurable gross revenue in ~~2021~~2022 under those guarantees and counter indemnities. We do not allocate direct costs to fees and commissions and, therefore, have not disclosed a separate net profit measure. We are seeking to cancel all relevant guarantees and counter indemnities, and we do not currently intend to provide any new guarantees or counter indemnities involving Iran. ~~Three~~No guarantees were cancelled in ~~2021,~~2022, and approximately 14 remain outstanding.

Other relationships with Iranian banks

Activity related to U.S.-sanctioned Iranian banks not covered elsewhere in this disclosure includes the following:

•We act as the trustee and administrator for a pension scheme involving eight employees of a U.S.-sanctioned Iranian bank in ~~Hong Kong.~~Asia. Under the rules of this scheme, we accept contributions from the Iranian bank each month and allocate the funds into the pension accounts of the Iranian bank’s employees. We run and operate this pension scheme in accordance with ~~Hong Kong~~applicable laws and regulations. Estimated gross revenue, which includes fees and/or commissions, generated by this pension scheme during ~~2021,~~2022, was approximately ~~$3,011.~~$2,475.

For the Iranian ~~bank related-activity~~bank-related activity discussed above, we do not allocate direct costs to fees and commissions and, therefore, have not disclosed a separate net profit measure.

We have been holding a safe custody box for the Central Bank of Iran. For a number of years, the box has not been accessed by the Central Bank of Iran, and no fees have been charged to the Central Bank of Iran.

We currently intend to continue to wind down the above activities, to the extent legally permissible, and not enter into any new such activity.

Activity related to U.S. Executive Order 13224

During 2022, we engaged in domestic payment to the beneficial owner of an entity customer in Asia as part of the customer exit process. Our customer and its beneficial owner were designated under Executive Order 13224 in the third quarter of 2021, and the entity customer account was restricted at that time.

We maintain a number of accounts for an individual customer in the Middle East who was designated under Executive Order 13224 in the fourth quarter of 2022. The customer’s accounts are restricted and the relationship is being exited. The customer engaged in two local

currency domestic transactions during the fourth quarter of 2022, and we processed athese transactions.

During 2022, we processed one small ~~number of low-value domestic~~ local currency ~~payments~~payment on behalf of ~~UK customers~~a customer in Europe to a UK-registered charity that is designated under Executive Order 13224, but that is not sanctioned by the UK, EU, or the United Nations Security Council.

~~HSBC maintained accounts for two individual customers in the Middle East who were designated under Executive Order 13224 in 2021. The accounts were closed and exited during 2021. HSBC~~

~~engaged in three local currency domestic transactions as part of the exit processes for the two customers.~~

~~There~~For these activities, there was no measurable gross revenue or net profit to HSBC during ~~2021 relating to these transactions.~~2022.

Other activity

~~HSBC has an~~We have a non-Iranian insurance company customer in the ~~United Arab Emirates~~Middle East that, during ~~2021,~~2022, made local currency domestic payments for the reimbursement of medical treatment to a hospital located ~~in the United Arab Emirates and~~outside Iran that is owned by the Government of Iran. ~~HSBC~~We processed these payments from ~~its~~our customer to the hospital.

~~HSBC has~~We have four individual customers in the ~~United Arab Emirates~~Middle East that, during ~~2021,~~2022, made local currency domestic payments for medical treatment or reimbursement of medical treatment to a hospital located ~~in the United Arab Emirates and~~outside Iran that is owned by the Government of Iran. ~~HSBC~~We processed these payments from ~~its~~our customers to the hospital.

~~HSBC has~~We have fifteen customers in the ~~United Arab Emirates~~Middle East that, during ~~2021,~~2022, received local currency ~~checks~~cheques from an insurance company located outside Iran that is owned by the Government of Iran. ~~HSBC~~We have processed these ~~checks~~cheques from the insurance company to ~~its~~our customers.

~~HSBC has~~We have an individual customer in the Middle East that, during 2022, made a local currency payment to an Iranian Consulate outside Iran for document fees. We processed this payment.

We have three customers in ~~France~~Europe that, during ~~2021,~~2022, received local currency payments from a bank owned by the Government of Iran in relation to management charges and office supplies for property owned by the bank. ~~HSBC~~We processed these payments to ~~its~~our customers.

~~HSBC has~~We had an individual customer in ~~Hong Kong~~Europe that ~~during 2021, received local currency salary payments from a bank owned by the Government of Iran. HSBC processed these payments to its customer.~~

HSBC has a customer in Hong Kong that, during 2021, received local currency payments, for rental income and management fees, from a bank owned by the Government of Iran. HSBC processed these payments to its customer.

~~HSBC has an individual customer in Malta that, during 2021, made a Euro-denominated payment to the Iranian Consulate in Rome for passport renewal fees. HSBC processed this payment.~~

~~The HSBC Group has an individual customer in the UK that, during 2021,~~ was ~~identified~~employed as a director of a bank owned by the Government of Iran. The ~~HSBC Group processed~~customer’s account was closed and exited during 2022. We engaged in local currency domestic transactions for our customer and as part of the exit process for our customer.

We have an individual customer in Asia who was employed as a clerk for the local Iranian Consulate. During 2022, we engaged in local currency domestic transactions for our customer, including the receipt of local currency domestic salary payments from the local consulate remitted by a bank owned by the Government of Iran. The customer is no longer employed by the consulate and has confirmed all payroll with the Iranian Consulate has been settled.

We have five individual customers in Asia who made a small number of local currency domestic payments for ~~its customer.~~

~~HSBC has an international organisation as a customer in France that, during 2021, received~~visa applications and passport renewals to a local ~~currency payment from the~~ Iranian ~~Embassy in Austria for membership fees. HSBC processed this payment.~~

HSBC has individual customers in the Middle East that, during 2021, made local currency credit card payments to an Iranian Consulate for visa, birth certificate, passport, dual citizenship, and marriage license application fees. HSBCEmbassy. We processed these ~~payments.~~payments from our customers to the Embassy.

For these activities, there was no measurable gross revenue or net profit to HSBC during ~~2021.~~2022.

Frozen accounts and transactions

We maintain several accounts that are frozen as a result of relevant sanctions programmes, and safekeeping boxes and other similar custodial relationships, for which no activity, except as licensed or otherwise authorised, took place during ~~2021.~~2022. There was no measurable gross revenue or net profit to HSBC during ~~2021~~2022 relating to these frozen accounts.


HSBC Holdings plc			~~143~~149


Corporate governance report

HSBC continues to enhance its corporate governance practices and procedures to support the Board's ambition of world-class governance.

The corporate governance report gives details of our Board of Directors, senior management, and Board committees. It outlines key aspects of our approach to corporate governance, including internal control.

It also includes the Directors’ remuneration report, which explains our policies on remuneration and their application.

Contents


~~Corporate governance report~~
The corporate governance report gives details of our Board of Directors, senior management, and Board committees. It outlines key aspects of our approach to corporate governance, including internal control. ~~It also includes the Directors’ remuneration report, which explains our policies on remuneration.~~
	~~Page~~
~~Group Chairman's governance statement~~	~~254~~
~~The Board~~	~~256~~
~~Senior management~~	~~260~~

272	The Board
276	Senior management

280	How we are governed
~~263~~287
Board activities during ~~2021~~2022	~~268~~



289	Board and committee effectiveness, performance and accountability	~~270~~
291	Board committees
~~273~~308
Directors' remuneration report
~~290~~334
Share capital and other related disclosures
~~323~~339
Internal control
~~327~~341
Going concern
~~329~~341
Employees
~~330~~344
Statement of compliance	~~332~~

We have a comprehensive range of policies and systems in place designed to help ensure that the Group is well managed, with effective oversight and control.


HSBC Holdings plc			~~253~~271

Report of the Directors || Corporate governance report


~~Group Chairman's governance statement~~ ~~The Board and its committees continued to operate well in a challenging environment, and focused on enhancing governance practices.~~

~~"Following the launch of the Group’s refreshed purpose, strategy and values in March, we introduced a 'culture moment' at the beginning of each Board meeting."~~

~~Dear Shareholder~~

The global health crisis continued into 2021 as a result of the Covid-19 pandemic. Despite promising developments in relation to the efficacy of vaccines in combating the virus, there remained significant restrictions across our markets. It was therefore important that our governance framework and practices remained flexible to ensure that the Board could effectively discharge its duties.

While the Board and its committees have operated well in a virtual environment, it was unfortunate that we were again unable to come together physically as a Board. It has been two years since the full Board was last together in person for a Board meeting, with five new Directors appointed in that time. I hope to hold in-person meetings as soon as it is safe to do so, particularly in our largest markets of Hong Kong and the UK.

~~We continued our focus on enhancing our governance practices throughout the year, with key decisions and areas of focus set out in further detail below.~~

~~Board changes~~

A key aspect of my role as Group Chairman is ensuring that collectively the Board has the skills, knowledge and experience it requires. The Nomination & Corporate Governance Committee retained a keen focus on succession planning during the year. For further details on its work, see page 273. We are currently in the process of completing a search for new non-executive Directors to join our Board, with knowledge and experience of banking and Asia a priority. The Committee is actively progressing this search and will provide an update in due course.

There were a number of changes to the Board during 2021, with Laura Cha, Heidi Miller and Henri de Castries retiring following our 2021 Annual General Meeting ('AGM') in May, and Rachel Duan and Dame Carolyn Fairbairn appointed with effect from 1 September.

We also recently announced that, in line with our succession planning and having each served on the Board for six years, Irene Lee and Pauline van der Meer Mohr would step down from the Board at the conclusion of our 2022 AGM in April. Irene’s existing roles on our subsidiary boards in Asia are not impacted by her retirement from the Holdings Board. On behalf of the Board, I wish to thank Irene and Pauline for their outstanding dedication and the enormous contributions they have made to the success of HSBC during their time on the Board. We wish them both well in their future endeavours.

~~Purpose, strategy and values~~

Following the launch of the Group’s refreshed purpose, strategy and values in March, we introduced a 'culture moment' at the beginning of each Board meeting. These discussions have allowed Board members to share their insights on the culture of the Group, and have raised awareness of employee and stakeholder perspectives in the Boardroom. This has supported the Board in helping to create greater alignment between culture and strategy, and in driving a tone from the top focused on the Group’s purpose of opening up a world of opportunity.

~~Technology governance~~

Digitise at scale is one of our four strategic pillars and reflects the increasingly important role that technology plays in delivering for our customers. It is therefore critical that our governance helps enable the Board to effectively shape and oversee progress against our technology strategy. As such, we took the decision to establish the Technology Governance Working Group at the beginning of 2021 to determine the most effective approach for the Board to discharge its responsibilities in relation to technology strategy and oversight.

The Co-Chairs of the Technology Governance Working Group presented to the Board in January 2022 on their work during 2021. In light of the significant role that technology will continue to play in the Group's strategy, it was recommended that the Technology Governance Working Group continues to meet throughout 2022. The Board agreed to continue with the Technology Governance Working Group in its current format through 2022, but with the scope extended to include a focus on business execution of the technology strategy. This will allow for a better understanding of the progress, challenges involved in implementing the strategy and the impact on key stakeholders.

~~Environmental, social and governance~~

The Board recognises the growing importance of ESG and oversees the ESG agenda. It was a significant year for the Group in its efforts to support the transition to net zero – a key pillar of our overall Group strategy – with the passing of our climate resolution at our 2021 AGM and the publication of our thermal coal phase-out policy, being two of the most notable achievements. Given its significance, the Board has decided to retain responsibility for development and oversight of our ESG strategy directly, rather than establishing a specific Board-level committee and we will include a dedicated item on our agenda for ESG matters. Within their existing responsibilities, the Group Risk Committee, Group Audit Committee and Group Remuneration Committee will also continue to have specific roles to play in overseeing and supporting the delivery of our ESG objectives.

At the management level, we have asked our team to further enhance ESG governance, with the introduction of an ESG Committee, co-chaired by our Group Chief Sustainability Officer, Celine Herweijer, and our Group Company Secretary and Chief Governance Officer, Aileen Taylor. This committee will regularly report to the Board on progress against our ESG ambitions, climate strategy and related commitments. In February 2022, the Board also approved the proposal to develop and implement a sustainability target operating model for the Group. The new operating model will help ensure that our businesses have the technical expertise, specialist resources and training to equip and support them in assisting our clients in their transition to net zero.

~~For further information on our climate ambition and progress against our transition to net zero strategic pillar, see page 45.~~

~~Board evaluation~~

We again conducted a review of the effectiveness of the Board and Board committees, which helps to support the continuous improvement of the operation of our key governance practices. Following two successive externally facilitated evaluations, we took the decision that the 2021 evaluations should be facilitated internally. The process was led by our Group Company Secretary and Chief Governance Officer and involved the completion of online surveys tailored for each Board and committee,


~~254~~			~~HSBC Holdings plc~~The Board

~~complemented by individual interviews with Directors and attendees.~~

Further details on the progress made against the 2020 findings, as well as the findings and recommendations from the 2021 review, can be found on page 271 and in each of the respective committee reports on pages 273 to 303.

~~Subsidiary governance~~

Subsidiary governance remained a key priority, as it has been since my appointment as Group Chairman, and we continued to build strong connectivity with our principal subsidiaries. In 2021, we sought to enhance the standard and consistency of governance across the Group, with the launch of our refreshed subsidiary accountability framework. The refreshed framework makes clear the Group's expectations of subsidiaries in relation to their governance approach and board practices through overarching principles and detailed provisions.

A key aspect of the framework is focused on the composition of our subsidiary boards, with our most significant subsidiaries required to submit their succession plans to the Nomination & Corporate Governance Committee through the course of the year. This provided clarity on plans to refresh and enhance the calibre and diversity of boards across the Group. Further details are set out in the Nomination & Corporate Governance Committee report on page 273.

Given the continued uncertainty externally, we looked to strengthen the connectivity between the Group and principal subsidiaries during the year through virtual forums held between the Board and committee chairs and our counterparts at subsidiary level. We further supplemented this connectivity with the introduction of a virtual Non-Executive Director Summit, which saw all subsidiary non-executive directors invited to come together to discuss areas of common interest. This was a valuable opportunity to share and discuss material topics, including strategy, risk, data, culture, diversity, climate and technology. Following the success of the summit, we have taken the decision to make these sessions a part of our annual governance calendar.

~~Workforce engagement~~

Various opportunities for members of the Board to engage with employees have been provided during 2021, including through partnerships with our employee resource groups and sessions with members of our global graduate programme. The Board greatly values the opportunity to engage with employees from across the business and markets, and of different backgrounds and seniority. We will continue to prioritise this, along with interaction with all our key stakeholders, during 2022.

~~For further details on the arrangements we have in place to facilitate workforce engagement, see page 269.~~

~~2021 Annual General Meeting~~

The pandemic has continued to pose many challenges for the Group, as it does for many of our stakeholders. However, the Group has benefited significantly from the speed at which digital tools have been adopted since the beginning of the pandemic.

This has also been true of our AGM, where I was delighted to host our first hybrid AGM, which enabled shareholders globally to attend virtually, or in person. The use of technology enabled a broader range of shareholders to attend and participate than had been the case pre-pandemic.

~~Further details of our plans for the 2022 AGM, which will be a hybrid meeting again, will be provided when our Notice of AGM is published on 25 March 2022.~~

~~Looking ahead~~

Despite the concerns of the Covid-19 pandemic, I am hopeful that the success of vaccine roll-out will allow us to safely resume in-person engagement with each other and all stakeholders in the near future.

~~On behalf of myself and the Board, many thanks for your continued commitment and support.~~

~~Mark E Tucker~~

~~Group Chairman~~

~~22 February 2022~~


~~HSBC Holdings plc~~			~~255~~

~~Report of the Directors~~ ~~| Corporate governance report~~

The Board,

~~The Board aims~~ which seeks to promote the Group’s long-term success, deliver sustainable value to shareholders and promote a culture of openness and ~~debate.~~debate, comprises diverse, high-calibre members who have experience in our global markets.

Chairman and executive Directors

Mark E Tucker ~~(64)~~(65) 4C

Group Chairman

Appointed to the Board: September 2017

Group Chairman since: October 2017

Skills and ~~experience:~~experience: With over 35 years of experience in financial services in Asia, Africa, the US, the EU and the UK, including 2530 years ~~based~~living and working in Hong Kong, Mark has a deep understanding of the industry and markets in which we operate.

Career: Mark was ~~most recently~~previously Chairman, Group Chief Executive and President of AIA Group Limited (‘AIA’), ~~having joined in July 2010. Prior~~and prior to AIA he was Group Chief Executive of Prudential plc. ~~He served on Prudential's Board for nearly 10 years.~~

Mark previously served as a non-executive Director of the Court of the Bank of England and as an independent non-executive Director of Goldman Sachs Group.

Other appointments:

•~~Chair of TheCityUK~~

•Non-executive Chairman of Discovery Limited

•Supporting Chair of Chapter Zero

•Member of the UK Investment Council

•Member of the Advisory Group on Trade Finance to the International Chamber of Commerce

•Member of the Trade Advisory Group on Financial Services to the UK Government’s Department for International Trade

•Member of the Asia Business Council

•Chairman of the Multinational Chairman’s Group

•Co-Chair of the Indian B20 ~~Finance and Infrastructure Task Force (Indonesia 2022)~~Taskforce on Financial Inclusion for Economic Empowerment

•Director, Peterson Institute for International Economics

•Director, Institute of International Finance

•~~International Adviser to the Hong Kong Academy of Finance~~

•Asia Society Board of Trustees

Noel Quinn ~~(60)~~(61)

Group Chief Executive

Appointed to the Board: August 2019

Group Chief Executive since: March 2020

Skills and ~~experience~~experience:: Having qualified as an accountant in 1987, Noel has more than 30 years of banking and financial services experience, both in the UK and Asia.

Career:Noel was ~~formally named~~appointed Group Chief Executive in March 2020, having held the role on an interim basis since August 2019. ~~He has held various roles across~~Since joining HSBC orand its constituent companies ~~since 1987.~~

~~Prior to becoming Group~~in 1987, Noel has held a variety of roles including Chief Executive ~~Noel was most recently CEO,~~Officer, Global Commercial ~~Banking. He has also served as~~Banking; Regional Head of Commercial Banking for Asia-Pacific; Head of Commercial Banking UK; and Head of Commercial Finance ~~Europe; and Group Director of Strategy and Development at HSBC Insurance Services North America.~~Europe.

Other appointments:

•Chair of the Financial Services Task Force of ~~HRH The Prince of Wales’~~the Sustainable ~~Market~~Markets Initiative

•Member of the ~~Principals Group~~Advisory Council of the Sustainable Markets Initiative

•Founding member of CNBC ESG Council

•Member of the Advisory Board of the China Children Development Fund

•Principal member of the Glasgow Financial Alliance for Net Zero

•Member of the World Economic ~~Forum’s~~Forum's International Business Council

~~Ewen Stevenson~~Georges Elhedery ~~(55)~~(48)

Group Chief Financial Officer

Appointed to the Board: January ~~2019~~2023

Skills and experience: ~~Ewen~~Georges has ~~over~~ 25 years of experience in the banking industry ~~as an adviser~~across Europe, the Middle East and Asia, and has held a number of executive roles at both a regional and global business level.

Career: Georges was appointed Group Chief Financial Officer and executive ~~to major banks and large financial institutions. In addition to his existing leadership responsibilities for Group Finance, Ewen assumed responsibility~~Director with effect from 1 January 2023. He is also responsible for the oversight of the ~~Group's~~Group’s transformation programme ~~in February 2021~~ and ~~the Group’s~~ corporate development ~~activities in April 2021.~~

~~Career:~~ ~~Ewen~~activities. Georges was ~~Chief Financial~~previously co-Chief Executive Officer, ~~at the Royal Bank of Scotland Group plc from 2014 to 2018. Before this, Ewen spent 25 years with Credit Suisse, where his last role was co-Head~~Global Banking and Markets and also Head of the ~~EMEA Investment Banking Division~~Markets and ~~co-Head~~Securities Services division of the business. Georges joined HSBC in 2005 with extensive trading experience in London, Paris and Tokyo. He has since held a number of senior leadership roles, including Head of Global ~~Financial Institutions Group.~~

~~Other appointments:~~

•~~Director~~Banking and Markets, Middle East and North Africa; Chief Executive Officer for HSBC, Middle East, North Africa and Türkiye; and Global Head of ~~The Hongkong and Shanghai Banking Corporation Limited~~

Markets based in London.

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-and-governance.


~~256~~272			HSBC Holdings plc

Independent non-executive Directors

Geraldine Buckingham (45) 2,3,4

Independent non-executive Director

Appointed to the Board: May 2022

Skills and experience: Geraldine is an experienced executive within the global financial services industry, with significant leadership experience in Asia.

Career: Geraldine is the former Chair and Head of Asia-Pacific at BlackRock, where she was responsible for all business activities across Hong Kong, mainland China, Japan, Australia, Singapore, India and Korea. After stepping down from this role, she acted as senior adviser to the Chairman and Chief Executive Officer of BlackRock. She earlier served as BlackRock's Global Head of Corporate Strategy, and previously was a partner within McKinsey & Company’s financial services practice.

Other appointments:

•Independent non-executive Director of Brunswick Group Partnership Ltd

•Member of the Advisory Board of ClimateWorks Centre Australia

Rachel Duan ~~(51)~~(52) ~~3,4~~1,3,4

Independent non-executive Director

Appointed to the Board: September 2021

Skills and experience: Rachel is aan experienced business leader with exceptional international experience in the US, Japan, mainland China and Hong Kong.

Career: Rachel spent 24 years at General Electric (‘GE’), ~~most recently as~~where she held positions including Senior Vice President of GE, and President and Chief Executive Officer of GE’s Global Markets where she was responsible for driving GE’s growth in Asia-Pacific, the Middle East, Africa, Latin America, ~~and~~ Russia and the Commonwealth of Independent States. She ~~has~~ also previously served as President and Chief Executive Officer of GE Advanced Materials China and then of the ~~Asia-Pacific,~~Asia-Pacific; President and CEO of GE Healthcare ~~China,~~China; and President and CEO of GE China.

Other appointments:

•Independent non-executive Director of Sanofi S.A.

•Independent non-executive Director of AXA S.A.

•Independent non-executive Director of the Adecco Group AG

Dame Carolyn Fairbairn ~~(61)~~(62) ~~2,3,4~~2,3C,4

Independent non-executive Director

Appointed to the Board: September 2021

Skills and experience: Carolyn has significant experience across the media, government and finance ~~sectors.~~sectors, and a deep understanding of the macroeconomic, regulatory, and political environment.

Career: An economist by training, Carolyn has served as a ~~Partner~~partner at McKinsey & Company, Director-General of the Confederation of British Industry, and ~~Group Development~~held senior executive positions at BBC and ~~Strategy Director at~~ ITV plc. She has extensive board experience, having previously served as non-executive Director of Lloyds Banking Group plc, ~~the~~The Vitec Group plc, Capita plc and ~~Capita~~BAE Systems plc. She has also served as a non-executive Director of the UK Competition and Markets Authority and the Financial Services Authority.

Other appointments:

•~~Non-executive Director~~Honorary Fellow of ~~BAE Systems plc~~Gonville and Caius College, Cambridge

•Honorary Fellow of Nuffield College, Oxford

•Chair of Trustees at Royal Mencap Society


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James Forese ~~(58)~~(59) ~~1,3,4~~2,3,4

Independent non-executive Director

Appointed to the Board: May 2020

Skills and experience: James has over 30 years of international business and management experience in the finance ~~industry.~~industry working in areas including global markets, investment and private banking.

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 Citigroup's President, he was Chief Executive Officer of Citigroup’s Institutional Clients Group. He has ~~also been~~held the positions of Chief Executive of its Securities and Banking division and ~~head~~Head of its Global Markets business.

Other appointments:

•Non-executive Chair of HSBC North America Holdings Inc

•Non-executive Chairman of Global Bamboo Technologies

•Trustee of Colby College

Steven Guggenheimer ~~(56)~~(57) 2,4

Independent non-executive Director

Appointed to the Board: May 2020

Skills and experience: Steven brings extensive insight into technologies ranging from artificial intelligence to Cloud computing, through his experience advising businesses on digital transformation.

Career: Steven has more than 25 years of experience at Microsoft, where he held a variety of senior leadership roles. These included: Corporate Vice President, Artificial Intelligence and Independent Software Vendor Engagement; ~~Corporate Vice President, Chief Evangelist;~~ and Corporate Vice President, Original Equipment Manufacturer.

Other appointments:

•~~Non-executive~~Independent non-executive Director of BT Group plc

•Independent non-executive Director of Leupold & Stevens, Inc

•Independent non-executive Director of Forrit ~~Technologies~~Holdings Limited

•Independent non-executive Director of Software Acquisition Group

•~~Adviser to Tensility Venture Partners LLC~~

•~~Advisory Board Member of 5G Open Innovation Lab~~


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~~Irene Lee (68)~~ 4

~~Independent non-executive Director~~

~~Appointed to the Board: July 2015~~

~~Skills and experience:~~ ~~Irene has more than 40 years of experience in the finance industry, having worked in the UK, the US and Australia.~~

~~Career:~~ Irene held senior investment banking and fund management roles at Citibank, the Commonwealth Bank of Australia and SealCorp Holdings Limited. She has served as a member of the Advisory Council for J.P. Morgan Australia, a member of the Australian Government Takeovers Panel and as a non-executive Director of QBE Insurance Group Limited, Keybridge Capital Limited, ING Bank (Australia) Limited, Noble Group Limited, CLP Holdings Limited and Cathay Pacific Airways Limited.

~~Other appointments:~~

•~~Chair of Hang Seng Bank Limited~~

•~~Non-executive Director of the Hongkong and Shanghai Banking Corporation Limited~~

•~~Executive Chair of Hysan Development Company Limited~~

•~~Member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority~~

Dr José Antonio Meade Kuribreña ~~(52)~~(53) ~~2,3,4~~3,4

Independent non-executive Director

Appointed to the Board: March 2019

Workforce engagement non-executive Director since: June 2022

Skills and experience: José has extensive experience in public administration, banking and financial ~~policy and foreign affairs.~~policy.

Career: José has 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.

Other appointments:

•~~Non-executive~~Independent non-executive Director of Alfa S.A.B. de C.V.

•~~Non-executive~~Independent non-executive Director of Grupo Comercial Chedraui, S.A.B. de C.V.

•Board member of The Global Center on Adaptation

•Member of the ~~Independent Task Force on Creative Climate Action~~Advisory Board of the University of California, Centre for US Mexican Studies

•Member of the UNICEF Mexico Advisory Board


274			HSBC Holdings plc

Eileen Murray ~~(63)~~(64) ~~2,4~~1,4

Independent non-executive Director

Appointed to the Board: July 2020

Skills and experience: Eileen has extensive knowledge in financial services, technology and corporate strategy from a career spanning more than 40 years.

Career: Eileen ~~most recently~~previously served as co-Chief Executive Officer of Bridgewater Associates, LP. Before this, she was Chief Executive Officer for Investment Risk Management LLC, and President and co-Chief Executive Officer of Duff Capital Advisors. Eileen started her professional career at Morgan Stanley, ~~having~~where she held positions including Controller, Treasurer, and Global Head of Technology and Operations, as well as Chief Operating Officer for its Institutional Securities Group. ~~At Credit Suisse, she~~She was also Head of Global Technology, Operations and Product ~~Control.~~Control at Credit Suisse.

Other appointments:

•~~Chair of the Financial Industry Regulatory Authority~~

•~~Non-executive~~Independent non-executive Director of Guardian Life Insurance Company of America

•Independent non-executive Director of Broadridge Financial Solutions, Inc

•Independent non-executive Director and Chair of Carbon Arc

•Strategic Adviser of Invisible Urban Charging

•Adviser of ConsenSys ~~Aquarion Company~~

David Nish ~~(61)~~(62) 1C,2,4

Independent non-executive Director

Appointed to the Board: May 2016

Senior Independent non-executive Director since: February 2020

Skills and experience: David has international experience in financial services, corporate governance, strategy, financial ~~accounting, and strategic~~reporting, 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, Thus plc, London Stock Exchange Group plc, the UK Green Investment Bank plc and Zurich Insurance Group.

Other appointments:

•~~Non-executive~~Independent non-executive Director of Vodafone Group plc

•Honorary Professor of University of Dundee ~~University~~ Business School


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Jackson Tai ~~(71)~~(72) 1,2C,4

Independent non-executive Director

Appointed to the Board: September 2016

Skills and experience: Jackson has 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.,~~Ltd, having previously served as Chief Financial Officer and ~~then as~~ President and Chief Operating Officer. He worked for 25 years ~~with~~in the investment banking division of J.P. Morgan & Co. Incorporated, holding roles as Chairman of the Asia-Pacific Management Committee and Head of Japan Capital Markets. ~~Other former~~Former non-executive Director appointments included ~~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.

Other appointments:

•~~Non-executive~~Independent non-executive Director of Eli Lilly and Company

•~~Non-executive~~Independent non-executive Director of MasterCard Incorporated

~~Pauline van der Meer Mohr (62)~~ ~~1,3C,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 also Deputy Chair of the Supervisory Board of Royal DSM N.V. from 2018 to 2021, while also chairing its Sustainability Committee. Pauline was formerly President of Erasmus University Rotterdam, a member of the Dutch Banking Code Monitoring Commission, 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. Pauline also chaired the Group’s former Conduct and Values Committee.

~~Other appointments:~~

•~~Chair of the Dutch Corporate Governance Code Monitoring Committee~~

•~~Chair of the Supervisory Board of EY Netherlands LLP~~

•Member of the ~~Selection and Nomination Committee~~Advisory Panel of the ~~Supreme Court of the Netherlands~~Russell Reynolds Associates Board and CEO Advisory Group

•Member of the ~~Capital Markets Committee~~Board of Trustees of the ~~Dutch Authority for Financial Markets~~Rensselaer Polytechnic Institute

•~~Non-executive Director of Viatris, Inc.~~

•~~Chair~~Member of the ~~ASM International NV Supervisory~~Association of the Metropolitan Opera Board

Aileen Taylor ~~(49)~~(50)

Group Company Secretary and Chief Governance Officer

Appointed: November 2019

Skills and experience: Aileen is a solicitor with significant governance and regulatory experience across various roles in the banking industry. She is a member of the European Corporate Governance Council, the GC100 and the Financial Conduct Authority's Listing Authority Advisory Panel.

Career: Prior to joining HSBC, Aileen spent 19 years at the Royal Bank of Scotland Group, holding various legal, risk and compliance roles. She was appointed Group Secretary in 2010 and subsequently Chief Governance Officer and Board Counsel.

Former Directors who served ~~for part of~~during the year

~~Heidi Miller~~

~~Heidi Miller~~Irene Lee

Irene Lee retired from the Board on ~~28 May 2021.~~29 April 2022

~~Henri de Castries~~Pauline van der Meer Mohr

~~Henri de Castries~~Pauline van der Meer Mohr retired from the Board on ~~28 May 2021.~~29 April 2022

~~Laura Cha, GBM~~Ewen Stevenson

~~Laura Cha, GBM retired~~Ewen Stevenson resigned from the Board on ~~28 May 2021.~~31 December 2022

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-and-governance.


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~~Senior management~~


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, 5354 Group Chief Human Resources Officer

Elaine joined HSBC as Group Chief Human Resources Officer in June 2017. Prior to joining HSBC, she was Group Human Resources Director at Royal Bank of Scotland Group for six years. She has held a number of human resources and employee relations roles throughout her career in financial services, including with Clydesdale Bank and Direct Line Group. Elaine is a member of the Chartered Institute of Personnel and Development, and a ~~fellow~~Fellow of the Chartered Institute of Banking in Scotland.


~~Chira Barua,~~ 48 ~~Global Head of Strategy~~

Chira joined HSBC in May 2020 as Global Head of Strategy and was appointed to the Group Executive Committee in April 2021. Before joining HSBC, he was a partner at McKinsey & Company in its financial services practice and a managing director at Sanford C. Bernstein between 2011 and 2017. Earlier in his career, Chira held a number of strategy, management and operational roles at Standard Chartered and Citigroup in India.


Colin Bell, 5455 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 in February 2021. He previously held the role of Group Chief Compliance Officer. Before HSBC, Colin worked at UBS as Global Head of Compliance and Operational Risk Control. He served for 16 years in the British Army, ~~having~~where he held a variety of command and staff positions, including within operational tours of Iraq and Northern Ireland, and roles in the Ministry of Defence and NATO.


Jonathan Calvert-Davies, 5354 Group Head of Internal Audit

Jonathan is a standing attendee of the Group Executive Committee, having joined HSBC as Group Head of Internal Audit in October 2019. 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. ~~Jonathan's~~Jonathan’s previous roles included leading KPMG UK’s financial services internal audit services practice and ~~PwC's~~PwC’s UK internal audit services practice. He ~~has~~ also previously served as interim Group Head of Internal Audit at the Royal Bank of Scotland Group.


~~Georges Elhedery,~~ 47 ~~Co-Chief Executive Officer, Global Banking and Markets~~

Georges joined HSBC in 2005 and was appointed 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, with responsibility for its strategic direction in more than 55 countries and territories. Georges previously served as Head of Global Markets; Chief Executive Officer for HSBC, Middle East, North Africa and Turkey; Head of Global Banking and Markets, MENA; and Regional Head of Global Markets, MENA. Georges will be on sabbatical leave between March and September 2022.


Greg Guyett, 5859 ~~Co-Chief~~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. Greg will assume~~2020, before assuming sole responsibility ~~of the business while Georges Elhedery is on sabbatical leave between March and September~~in October 2022. Before 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 for Asia-Pacific.


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Dr Celine Herweijer, 4445 Group Chief Sustainability Officer

Celine joined HSBC as Group Chief Sustainability Officer in July 2021, and is responsible for the Group’s execution of its sustainability ~~agenda including its ambition to transition to net zero.~~strategy. She is also co-chair of the Group's ESG Committee. She was previously ~~worked as~~ a partner at PwC for over a decade, where she held global leadership roles including acting as its global innovation and sustainability leader. Before joining PwC in 2009, Celine worked as Director of Climate Change and Consulting for Risk Management Solutions. She is a World Economic Forum Young Global Leader, a co-chair of the We Mean Business Coalition, a PhD climate scientist and a NASA ~~fellow by training.~~Fellow.


John Hinshaw, 5152 Group Chief Operating Officer

John became Group Chief Operating Officer in February 2020, having joined HSBC in December 2019. He has an extensive background in transforming and digitising organisations across a range of industries. ~~Most recently,~~ John ~~served as~~was previously Executive Vice President of Technology and Operations and Chief Customer Officer at Hewlett Packard and Hewlett Packard Enterprise, ~~where he managed technology~~ and ~~operations and was Chief Customer Officer. He also~~has held senior ~~roles~~executive positions at ~~Boeing~~Verizon and ~~Verizon~~Boeing. John serves on the boards of Sysco Corporation and Illumio, Inc., and has previously served on the ~~Board of Directors~~boards of BNY Mellon, DocuSign and the US National Academy Foundation.


Bob Hoyt, 5758 Group Chief Legal Officer

Bob joined HSBC as Group Chief Legal Officer in January 2021. He was ~~most recently~~previously 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 and ~~senior policy adviser~~Senior Policy Adviser to the US Department of the Treasury under Secretary Henry M. Paulson Jr, and as Special Assistant and Associate Counsel to the White House under President George W. Bush.


Steve John, 4849 Group Chief Communications and Brand Officer

Steve ~~was appointed as Group Chief Communications Officer~~joined HSBC in December 2019 and was appointed to the Group Executive Committee in April 2021. He has a wealth of senior communications, public policy and leadership experience acquired across a number of multinational and charitable organisations. ~~Prior to joining HSBC,~~ Steve was previously a partner and Global Director of Communications at McKinsey & Company from 2014 to 2019. He has also held roles with Bupa as Global Director of ~~Communications~~Corporate Affairs and PepsiCo as Director of Corporate Affairs for their UK and Ireland franchises.


Pam Kaur, 5859 Group Chief Risk and Compliance Officer

Pam was appointed Group Chief Risk and Compliance Officer in ~~July~~ 2021, having held the ~~role~~position of Group Chief Risk Officer since ~~January~~ 2020. ~~She joined~~Since joining HSBC in 2013, ~~and was previously~~her roles included Group Head of Internal Audit and Head of Wholesale Market and Credit ~~Risk, and Chair of the enterprise-wide non-financial risk forum.~~Risk. Pam has also held a variety of audit, compliance, finance and ~~compliance~~operations roles in the banking industry, including with Deutsche Bank, Royal Bank of Scotland Group, Lloyds TSB and Citigroup. She serves as a non-executive Director of abrdn plc, and was previously a non-executive Director of Centrica plc.


David Liao, 4950 Co-Chief Executive Officer, Asia-Pacific – The Hongkong and Shanghai Banking Corporation Limited

David was appointed co-Chief Executive Officer of the Asia-Pacific region in ~~June~~ 2021. He is a Director of the Hongkong and Shanghai Banking Corporation Limited, Bank of Communications Co., Limited, and Hang Seng Bank ~~Limited and HSBC Global Asset Management~~ Limited. David joined HSBC in 1997, with previous roles including: Head of Global Banking Coverage for Asia-Pacific; President and Chief Executive atof HSBC China; Head of Global Banking and Markets, at HSBC China; and Treasurer and Head of Global Markets, at HSBC China.


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Nuno Matos, 5455 Chief Executive Officer, Wealth and Personal Banking

Nuno ~~joined HSBC in 2015 and~~ was appointed Chief Executive Officer of Wealth and Personal Banking in ~~February~~ 2021. ~~He is a Director of~~Since joining HSBC ~~Global Asset Management Limited. He was previously the~~in 2015 from Santander Group, he has held various roles, most recently as Chief Executive Officer of HSBC Bank plc and HSBC ~~Europe, a role he held from March 2020. Nuno~~Europe. He has also ~~served as~~held the positions of Chief Executive Officer of HSBC Mexico and ~~as regional head~~Regional Head of Retail Banking and Wealth Management infor Latin America. ~~Before joining~~He is currently a Director of HSBC ~~he held senior positions at Santander Group.~~Global Asset Management Limited.


Stephen Moss, 5556 Regional Chief Executive Officer – Middle ~~East.~~East, North Africa and ~~Turkey~~Türkiye

Stephen was appointed Regional Chief Executive Officer for the Middle East, North Africa and ~~Turkey~~Türkiye in ~~April~~ 2021. He has held a series of roles in Asia, the UK and the Middle East since joining HSBC in 1992, including as Chief of Staff to the Group Chief Executive and overseeing the Group’s mergers and acquisitions, and strategy and planning activities. Stephen is a Director of ~~The Saudi British Bank,~~ HSBC Bank Middle East Limited, HSBC Middle East Holdings B.V, HSBC Bank Egypt ~~S.A.E and~~S.A.E., HSBC Saudi ~~Arabia.~~Arabia and The Saudi British Bank.


Barry O'Byrne, 4647 Chief Executive Officer, Global Commercial Banking

Barry ~~joined HSBC in April 2017 and~~ was appointed Chief Executive ~~Officer~~ of Global Commercial Banking in ~~February~~ 2020, having served in the role on an interim basis since August 2019. He ~~was previously~~joined HSBC in 2017 as Chief Operating Officer for ~~Global~~ Commercial Banking. Before joining HSBC, Barry worked at GE Capital for 19 years inwhere he held a number of senior leadership roles, including as Chief Executive Officer and Chief Operating Officer for GE Capital International.


Michael Roberts, 6162 Chief Executive Officer, HSBC USA and Americas

Michael was appointed Chief Executive Officer ~~for~~of HSBC USA ~~and~~when he joined HSBC in 2019. He became Chief Executive Officer of the Americas with oversight responsibility for Canada and Latin America in ~~April~~ 2021. He ~~joined HSBC in October 2019 and~~ is a Director of HSBC Bank Canada; ~~executive~~ Director, President and Chief Executive Officer of HSBC North America Holdings Inc.; and Chairman of HSBC Bank USA, N.A., HSBC USA Inc and HSBC ~~USA Inc.~~Latin America Holdings (UK) Limited. Previously, Michael spent 33over 30 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.


Surendra Rosha, 5354 Co-Chief Executive Officer, Asia-Pacific – The Hongkong and Shanghai Banking Corporation Limited

Surendra was appointed co-Chief Executive Officer of the Asia-Pacific region in ~~June~~ 2021. He is a Director of The Hongkong and Shanghai Banking Corporation Limited, HSBC Global Asset Management Limited and HSBC Bank ~~Australia Limited.~~Malaysia Berhad. Surendra joined HSBC in 1991 and has held several senior positions within Global Banking and Markets, including as Head of Global Markets in Indonesia and Head of Institutional Sales, Asia-Pacific. He ~~was~~previously held the position of Chief Executive for HSBC India and Head of HSBC’s financial institutions group for Asia-Pacific.


John David Stuart (known as Ian Stuart), 5859 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 in the UK and Europe in 2014, having previously led the corporate and business banking businesses at ~~Barclays~~Barclays. He has also held various roles at the Royal Bank of Scotland Group, 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 and UK Finance Board.

Additional members of the Group Executive Committee

Noel Quinn

~~Ewen Stevenson~~Georges Elhedery

Aileen Taylor

Biographies are provided on pages ~~256~~272 and ~~259.~~275.


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Board and senior management diversity

We value difference

Diversity and inclusion are embedded within the culture of HSBC. The Board remains committed to having an inclusive culture that recognises the importance of gender, social and ethnic diversity, and the benefits gained from different perspectives.

This section outlines the key diversity and inclusion metrics for Board members and executive management as at 31 December 2022. This includes tenure, age, skills and experience, gender and ethnic representation.

Gender and ethnic diversity

The Financial Conduct Authority, in its capacity as the UK Listing Authority, introduced new rules during 2022 that require listed companies to publish information on female and ethnic heritage representation on the Board and in senior management within the Annual Report and Accounts 2023. The tables below outline the current gender and ethnic diversity of the HSBC Holdings Board and executive management in advance of these requirements becoming applicable.

Gender

Board Executive management


	Board members			Executive management2
	Number	%	Number of senior positions1	Number	%
Male	8	67	4	17	81
Female	4	33	0	4	19
Other	—	—	—	—	—
Not specified/prefer not to say	—	—	—	—	—

BoardExecutive management

Ethnic diversity


	Board members			Executive management2
	Number	%	Number of senior positions1	Number	%
White British or other White (including minority-White groups)	9	75	4	14	66
Mixed/multiple ethnic groups	—	—	—	1	5
Asian/Asian British	2	17	—	4	19
Black/African/Caribbean/Black British	—		—	—	—
Other ethnic groups, including Arab	1	8	—	1	5
Not specified/prefer not to say	—		—	1	5

1 Senior positions on the Board comprise the Group Chairman, Group Chief Executive, Group Chief Financial Officer and Senior Independent non-executive Director.

2 Executive management comprises the Group Chief Executive, his direct reports, and the Group Company Secretary and Chief Governance Officer.

Board composition, tenure and age

2 Executive Directors 10 Non-executive Directors

Tenure on the Board

Age

Skills and experience

The Board, through its Nomination & Corporate Governance Committee, regularly reviews the skills and experience it requires to effectively discharge its responsibilities. A skills matrix, which is a key tool used by the Board to inform its succession planning discussions, is reviewed at least annually by the Board. An extract of the skills matrix, showing a selection of the current skills and experience of the non-executive Directors, is shown below.


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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 help ensure that it is well managed, with effective oversight and controls. We comply with the UK Corporate Governance Code and the applicable requirements of the Hong Kong Corporate Governance Code.

Board’s role, Directors’ responsibilities and meeting 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~~financial resource plans for achieving strategic ~~objectives;~~objectives, including material transactions;

•considering and approving ~~material transactions;~~the Group’s technology and environmental, social and governance strategies;

•approving the appointment and remuneration of Directors, including Board roles; and

•reviewing the ~~Group's~~Group’s overall corporate governance arrangements.

The ~~Board's~~Board’s responsibilities are set out in a schedule of matters reserved within its terms of reference, which are available on our website at www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities. The ~~Board's~~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, oversee risk, hold management to account and ensure the executive Directors are discharging their responsibilities properly, while creating the right culture to encourage constructive challenge. Further details on the independence of the Board ~~and the value independence brings~~ can be found in the Nomination & Corporate Governance Committee ~~report.~~report on page 291. 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 ~~2021,~~2022, the Board comprised the Group Chairman, 10nine non-executive Directors, and two executive Directors who are the Group Chief Executive and the Group Chief Financial Officer. ~~Two~~One non-executive ~~Directors~~Director will not stand for re-election at the AGM in ~~April 2022.~~May 2023.

For further details of ~~the Board’s~~Board members' career ~~background,~~backgrounds, skills, experience and external appointments, see ~~pages 256 to 259.~~their biographies on page 272, and for a breakdown of the diversity and skills of the Board and senior management, see page 279.

Operation of the Board

The Board is ordinarily scheduled to meet at least seven times a year. In ~~2021,~~2022, the Board held 1215 meetings. For further details on attendance at those meetings, see page ~~264.~~282. The Board agenda is agreed by the Group Chairman, working with both the Group Chief Executive and the Group Company Secretary and Chief Governance Officer. For ~~more~~further information, see ~~'Board~~’Board activities during ~~2021'~~2022’ on page ~~268.~~287.

The Group Company Secretary and Chief Governance Officer, the Group Chief Risk and Compliance Officer, the Group Chief Legal Officer and the non-executive Chairman of The Hongkong and Shanghai Banking Corporation Limited are all regular attendees at

Board meetings. Other senior executives attend Board meetings for specific items as required.

In addition to formal Board meetings, the Board Oversight Sub-Group ~~established by the Group Chairman in 2020, meets~~met in advance of each Board ~~meeting.~~meeting during 2022. Such meetings ~~are~~were established following the appointment of Noel Quinn as Group Chief Executive and changes to the senior management team as an informal mechanism for a smaller group of Board members and management to discuss emerging issues and upcoming Board matters. Standing attendees comprise the Group Chairman, the Chair of the Group Audit Committee (who is also the Senior Independent Director), the Chair of the Group Risk Committee, the Chair of the Group Remuneration Committee, the Group Chief Executive, the Group Chief Financial Officer, the Group Chief Risk and Compliance Officer, and the Group Company Secretary and Chief Governance Officer. Other non-executive Directors and senior management are invited on ~~a rotational~~an ad hoc basis, depending on the subject matter to be discussed. The forum is not decision making but provides regular opportunities for Board members to communicate with senior management to deepen their understanding of, and provide input into, key issues facing the Group. Following a review by the Group Chairman and Group Chief Executive of the role of the Board Oversight Sub-Group, it was agreed that it would only be used on an ad hoc basis where necessary going forward.

Relationship between the 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 management of the Group by recommendations and advice from the Group Executive Committee (’GEC’), an executive forum comprising members of senior management that include chief executive officers of the global businesses, regional chief executive officers and functional heads. For further details ~~on how~~of the senior management team, see page 276.

The Directors are encouraged to have contact with management at all levels, and have full access to all relevant information. Non-executive Directors are encouraged to visit local business operations and meet local management when they attend Board ~~engages~~meetings in different locations, and when travelling for other reasons. Board and senior management travel resumed in 2022, which allowed for more opportunities for Board members to meet together in person and with key stakeholders. As Covid-19 restrictions remained in place for some markets, and with the ~~wider workforce, see page 269.~~safety of colleagues and customers a priority, several virtual meetings with senior executives continued to take place, which included business meetings, induction meetings and subject matter ’deep dives’.


~~Board governance enhancements due to Covid-19~~
The Board continued many of the governance changes introduced in 2020 in response to the Covid-19 pandemic, including meeting online during 2021. The Board was kept informed of the continuing challenges and priorities of the management team as part of the formal executive reporting received at these meetings. The following practices continued: 280			•HSBC Holdings plc~~The Group Chairman prepared a weekly Board update note.~~ •~~The Group Chief Risk and Compliance Officer produced a weekly Board report on risk matters, including in relation to the Covid-19 pandemic, as well as market highlights, industry events and results.~~ •~~Immunologists and pandemic experts updated the Board on emerging issues.~~ •~~The Group Chairman's Forum was held monthly. It was attended by Board committee chairs, as well as chairs of principal subsidiaries.~~

Executive governance

The Group’s executive governance is underpinned by the Group operating rhythm, which helps facilitate end-to-end governance between senior leadership and the Board, and sets out the Board and executive engagement schedule.

The Group operating rhythm has the following three pillars:

•The GEC normally meets every week to discuss current and emerging issues.

•On a monthly basis, the GEC reviews the performance of each of the global businesses in principal geographical areas and legal entities. These performance reviews are supplemented by operating unit performance review meetings between the Group Chief Financial Officer and each of the chief executive officers of the respective global businesses, regions and principal subsidiaries. The Group Chief Risk and Compliance Officer usually attends these meetings.

•The GEC holds a strategy and governance meeting two weeks in advance of each Board meeting.

In addition, during the year, the Group Chief Executive independently conducts several business reviews on focus areas such as costs and the financial reporting plan.

Separate committees have been established to provide specialist oversight for matters delegated to the Group Chief Executive and senior management. For further details of these committees, see page 283.

To further support our senior management, we have dedicated corporate governance officers supporting our global businesses and global functions to assist in effective end-to-end governance, consistency and connectivity.

Subsidiary governance

We are committed to maintaining high standards of corporate governance throughout the Group. All subsidiary boards and their respective businesses are required to have in place effective governance arrangements with regard to the businesses’ nature, size, locations and the sectors in which they operate.

Certain subsidiaries are designated formally as principal subsidiaries by approval of the Board. In addition to their obligations under their respective local laws and regulation, principal subsidiaries, supported by regional company secretaries, perform an important role in supporting effective and high standards of governance across the Group.

The designated principal subsidiaries are:


~~Technology governance~~Principal subsidiary			Oversight responsibility
~~A Technology Governance Working Group was established in 2021, initially for a period of 12 months, to provide recommendations to enhance the Board's oversight of technology strategy, governance~~The Hongkong and ~~emerging risks,~~Shanghai Banking Corporation Limited			Asia-Pacific
HSBC Bank plc			Europe, Bermuda (excluding Switzerland and ~~to enhance connectivity with the principal subsidiaries. Given their industry expertise~~UK ring-fenced activities)
HSBC UK Bank plc			UK ring-fenced bank and ~~experience, the working group is jointly chaired by Eileen Murray~~its subsidiaries
HSBC Middle East Holdings BV			Middle East, North Africa and ~~Steven Guggenheimer. Its members include Group Risk Committee chair Jackson Tai~~Türkiye
HSBC North America Holdings Inc.			US
HSBC Latin America Holdings (UK) Limited			Mexico and other non-executive Directors representing each of our US, UK, European and Asian principal subsidiaries. Key technology and business stakeholders have attended the working group to provide insights on technology and information security issues across the Group. The working group has met formally eight times since its inception, and has held additional ad hoc sessions on priority strategic topics including data and cybersecurity. The Technology Governance Working Group's recommendations were presented to the Board in January 2022 when it was decided that the working group will remain an informal committee of the Board. For further details on the future of the working group, see the Group Chairman's governance statement on page 254.Latin America
HSBC Bank Canada1			Canada

1 On 29 November 2022 HSBC announced it had entered into an agreement to sell HSBC Bank Canada, subject to regulatory and governmental approvals. The sale is expected to complete in late 2023.

Principal subsidiaries play a critical role in overseeing the implementation of the subsidiary accountability framework in the regions for which they are responsible. The subsidiary accountability

framework, refreshed by the Board in 2021, aims to provide subsidiaries with a shared understanding and a consistent approach towards the Group’s strategic objectives, culture and values, and ensure that corporate governance best practice is applied throughout. The framework sets clear overarching principles for subsidiaries to follow to improve communications and connectivity within the Group.

It also focuses on ensuring that each subsidiary is led by an effective board with an appropriate balance of skills, diversity, experience and knowledge, having regard to the nature of the subsidiary's business and any local legal and regulatory requirements. Board composition of the Group's subsidiaries is kept under review as part of succession planning.

The framework is subject to periodic review by the Board and/or its Nomination & Corporate Governance Committee and is updated to ensure that there is clarity for the directors and officers of their respective roles and responsibilities.

Since the revised framework was implemented in 2021, there has been a notable improvement in the diversity of subsidiary board composition.

To continue this progress, HSBC in 2022 launched a Bank Director Programme to develop and equip internal talent to undertake non-executive employee director roles on subsidiary boards. This programme is delivered in partnership with an external business school, and provides certified qualifications to its participants in becoming highly skilled and knowledgeable subsidiary director candidates.

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, and depending on the topic for discussion, also the Group Chief Executive, non-executive Directors and relevant executive management, advisers and/or external experts. In 2022, the Chairman’s Forum covered strategic business considerations, geopolitics, global public health, liability pricing, shareholder engagements, ESG insights, delegations of authority, employee engagement and financial performance. The Non-Executive Director Summits, hosted by the Group Chairman, are also effective subsidiary directors’ engagement events.

During 2022, the Group Chairman hosted two virtual Non-Executive Director Summits in March and September, where approximately 180 independent non-executive directors from the Group’s subsidiaries attended along with HSBC Holdings Board Directors. The summits provide a platform for sharing key messages across subsidiaries, as well as facilitating greater connectivity and helping to build a sense of community among our subsidiaries’ non-executive directors. In 2022, the non-executive directors received updates on Group-wide matters including strategy, ESG issues, technology and governance.

The annual Remuneration Committee Chairs’ Forum took place in November, and provided the principal subsidiary chairs with an opportunity to discuss the Group’s performance and the Group Remuneration Committee’s priorities. A follow-up forum was held in late November to provide transparency around pay outcomes and allocation, with feedback from the discussion used to shape the final pay proposals, which were considered and approved by the Group Remuneration Committee.

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. The chairs of the principal subsidiary risk committees are regular attendees at the Group Risk Committee. Similarly, the Group Audit Committee Chair meets regularly with the principal subsidiary audit committee chairs to promote the sharing of information and best practices. These Group Board committees received escalated reports and certifications from the principal subsidiary risk and audit committees through the year.


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~~Board engagement with shareholders~~
In 2021, the Group Chairman, Senior Independent Director and other non-executive Directors, often with the Group Company Secretary and Chief Governance Officer, engaged with a number of our large institutional investors in 15 meetings. The Group Chief Executive and the Group Chief Financial Officer attended over 30 meetings with investors in 2021. Key topics included our financial performance, climate policies and progress in relation to the climate resolution passed at the 2021 AGM. Other topics discussed with investors 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, and the impact of the Covid-19 pandemic on the Group, its employees, customers and communities. The Group Remuneration Committee Chair met with representatives from key investors and proxy advisory firms numerous times during the fourth quarter of 2021, in preparation for its discussion and decision making on the 2021 executive Directors' performance outcomes and the renewal of the 2022 Directors' remuneration policy.



Board roles, responsibilities and meeting attendance


The table below sets out the Board ~~members'~~members’ respective roles, responsibilities and attendance at Board meetings and the AGM in ~~2021.~~2022. For a full description of key Board members’ responsibilities, see www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.
Roles	Board attendance in ~~2021~~2022	Responsibilities
Group Chairman Mark E Tucker1,2	~~12/12~~15/15	•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 fosters open and constructive debate among Directors. •Maintains internal and external relationships with key stakeholders, and communicates ~~investors'~~investors’ views to the Board. •Organises periodic monitoring and evaluation, including externally facilitated evaluation, of the performance of the Board, its committees and individual Directors. •Leads on succession planning for the Board and its committees, ensuring appointments reflect diverse cultures, skills and experiences.
Executive Director Group Chief Executive Noel Quinn2	~~12/12~~15/15	•Leads and directs the implementation of the Group’s business strategy, embedding the organisation’s 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 internal and external stakeholders including the Group Chairman, the Board, customers, regulators, governments and investors. •Maintains responsibility and accountability for the Group’s and its employees’ compliance with applicable laws, codes, rules and regulations, good market practice and HSBC’s own standards.
Executive Director Group Chief Financial Officer Ewen Stevenson22,4,6	~~12/12~~14/15	•Supports the Group Chief Executive in developing and implementing the Group strategy and recommends the annual budget and long-term strategic and financial resource 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 ~~Directors~~Director Senior Independent Director David Nish2,3	~~12/12~~15/15	•Supports the Group Chairman, acting as intermediary for non-executive Directors when necessary. •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'~~shareholders’ views if they have concerns that cannot be resolved through the normal channels.
~~Laura Cha~~Non-executive Directors~~2,3,4~~	~~6/6~~	•Develop and approve the Group strategy. •Challenge and oversee the performance of management. •Approve the Group’s risk appetite and review risk profile and performance. •Contribute to the assessment and monitoring of culture. •Maintain internal and external relationships with the Group’s key stakeholders.
~~Henri de Castries~~Geraldine Buckingham~~2,3,4,6~~3,5	~~5/6~~9/9
Rachel Duan~~3,5~~2,3	~~4/4~~15/15
Dame Carolyn Fairbairn~~3,5~~2,3	~~4/4~~15/15
James Forese~~2,3~~2,3,6	~~12/12~~14/15
Steven Guggenheimer2,3	~~12/12~~14/15
Irene Lee~~2,3~~2,4	~~12/12~~6/6
Dr José Antonio Meade Kuribreña2,3	~~12/12~~
~~Heidi Miller2,3,4~~	~~6/6~~15/15
Eileen Murray~~2,3.6~~2,3,6	~~9/12~~14/15
Jackson Tai2,3	~~12/12~~15/15
Pauline van der Meer Mohr~~2,3~~2,3,4,6	~~12/12~~4/6
Group Company Secretary and Chief Governance Officer Aileen Taylor		•Maintains strong and consistent governance practices at Board level and throughout the Group. •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 Attended the AGM on ~~28 May 2021.~~29 April 2022.

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.

4 ~~Heidi Miller, Laura Cha~~Irene Lee and ~~Henri de Castries~~Pauline van der Meer Mohr retired from the Board on ~~28 May 2021.~~29 April 2022. Ewen Stevenson retired from the Board on 31 December 2022.

5 ~~Rachel Duan and Dame Carolyn Fairbairn~~Geraldine Buckingham joined the Board effective 1 ~~September 2021.~~May 2022.

6 ~~Henri de Castries~~Due to prior commitments Eileen Murray and Pauline van der Meer Mohr were not able to attend on 28 March 2022 and Steven Guggenheimer on 2 November 2022. Meetings held on 10 February 2022 and 25 November 2022 were ad hoc meetings called at short notice, and due to prior commitments, James Forese and Pauline van der Meer Mohr were unable to attend on 10 February 2022 and Ewen Stevenson was unable to attend ~~one~~ on 25 November 2022.


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Board ~~meeting due~~committees and working groups

The Board delegates oversight of certain audit, risk, remuneration, nomination and governance matters to its committees. Each standing Board committee is chaired by a ~~conflict~~non-executive Board member and has a remit to cover specific topics in accordance with their respective terms of ~~interest. Eileen Murray was unable~~reference. Only the Group Chairman and the 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 291.

The Chairman’s Committee provides the Board with the opportunity to consider ad hoc and routine matters between scheduled Board meetings. All Board members are invited to attend meetings in the last few months of 2021 due to personal health reasons, but was kept informed of Board and relevant committee matters. She was fully briefed ahead of her return to regular meeting attendance in January 2022. Eileen continues to have sufficient time to dedicate to her role with HSBC.Chairman’s Committee meetings.

In addition to Board committees, working groups have been established to enhance Board governance, when appropriate, including the Board Oversight Sub-Group and the Technology Governance Working Group, which were first convened in 2019 and 2021, respectively. For further details of these committees, see page 280 and the box below.

The Group Executive Committee has established a number of committees to provide specialist oversight for matters delegated to the Group Chief Executive and senior management, which help fulfil their responsibilities under the Senior Managers and Certification Regime.

These committees support the Group Chief Executive and senior management in areas such as capital and liquidity, risk management, disclosure and financial reporting, restructuring and investment considerations, transformation oversight, ESG matters and talent and development.

Board

Chair: Mark Tucker

Chairman’s Committee

Nomination & Corporate Governance Committee

Group Audit Committee

Group Risk Committee

Group Remuneration Committee

Informal governance

Board Oversight Sub-
Group

Chair: Mark Tucker

Chair: David Nish

Chair: Jackson Tai

Chair: Dame Carolyn Fairbairn

Chair: Mark Tucker

See page 291

See page 294

See page 303

See page 308

Technology
Governance Working
Group

Co-Chairs:
Eileen Murray and Steven Guggenheimer

Group Executive Committee

Chair: Noel Quinn

Acquisitions and Disposals Committee

Disclosure and Controls Committee

Environmental, Social and Governance Committee

Group People Committee

Group Risk Management Meeting

Holdings Asset and Liability Committee

Transformation Oversight Executive Committee

Chair: Noel Quinn

Chair: Ewen Stevenson1

Co-Chairs:
Celine Herweijer and Aileen Taylor

Chair: Elaine Arden

Chair: Pam Kaur

Chair: Ewen Stevenson1

1 Georges Elhedery took over as chair from 1 January 2023.


ESG governance
With ESG issues rising up the global agenda, including with the transition to a sustainable economy, we understood the need to embed ESG considerations more deeply into our governance processes. In February 2021, the Board approved the establishment of an executive level ESG committee to support senior management in the delivery of the Group’s ESG strategy and development of key policies. The ESG Committee also aims to track the Group's progress against material commitments by providing holistic oversight, coordination and management of ESG activities. The ESG Committee is jointly chaired by the Group Chief Sustainability Officer and the Group Company Secretary and Chief Governance Officer. The committee oversees all areas of environmental, social and governance issues, with support from accountable senior management in relation to their particular areas of responsibilities. Key representatives from the functions and global businesses attend to provide insights on the implementation of the ESG strategy across the Group, allowing the ESG Committee to make recommendations to the Board in respect of ESG matters.


Technology governance
The Technology Governance Working Group was established by the Board in early 2021 to enhance its oversight of technology strategy, governance and emerging risks, as well as to strengthen connectivity with the principal subsidiaries. The role of the working group is regularly reviewed by the Board. It was agreed in January 2022 that it should continue as an informal committee of the Board for the duration of 2022, and it was extended for a further 12 months in January 2023. The working group continues to be jointly chaired by two of the Board’s non-executive Directors, Eileen Murray and Steven Guggenheimer, and members include the Group Risk Committee chair and other non-executive Directors representing our US, UK, European and Asian principal subsidiaries. The working group met formally six times in 2022. These meetings included deep dives on key strategic business initiatives, as well as updates on technology strategy implementation and cybersecurity matters, with attendance from key technology and business stakeholders. There were a number of joint sessions between the working group, the Group Audit Committee and the Group Risk Committee. For further details of these sessions, see pages 294 and 303.


~~264~~			HSBC Holdings plc			283

Report of the Directors | Corporate governance report

Board induction and training

The Group Company Secretary and Chief Governance Officer works with the Group Chairman to ~~oversee~~ensure that all Board members receive appropriate ~~induction~~training, both individually and ~~ongoing training programmes for~~collectively, throughout their time on the Board. On appointment, new ~~Board members~~Directors are provided with tailored and comprehensive induction programmes to fit with their individual experiences and needs, including the process for ~~dealing with~~managing conflicts.

During 2022, we welcomed one new non-executive Director, Geraldine Buckingham, to our Board. In October, we also announced that Ewen Stevenson would be stepping down as Group Chief Financial Officer on 31 December 2022 and be replaced by Georges Elhedery. Georges Elhedery’s induction programme commenced upon announcement of his proposed appointment, which included a detailed handover prepared by the Group Chief Financial Officer prior to Georges commencing the role from 1 January 2023.

The induction programme is delivered through formal briefings and introductory sessions with other Board members, senior management, legal counsel, auditors, tax advisers and regulators, as appropriate. Topics covered in the induction programme include, but are not limited to: purpose and values; culture and leadership; governance and stakeholder management; ~~Directors'~~Directors’ legal and regulatory duties; recovery and resolution ~~risk;~~planning; anti-money laundering and anti-bribery; technical and business briefings; and strategy.

~~An early focus on~~Where possible, the induction ~~allows a~~process is initiated before appointment to allow each new Board member to contribute meaningfully from appointment. The structure of the induction supports good information flows within the Board and its committees, as well as between senior management and non-executive Directors, providing a clear understanding of our culture and way of operating.

During 2021 we welcomed two new non-executive Directors, Rachel Duan and Dame Carolyn Fairbairn, to our Board. We gave careful consideration to creating relevant and bespoke induction programmes for each of the new non-executive Directors, particularly given their differing geographical locations and the continuing Covid-19-related challenges for meetings in person.

For illustrations of ~~the~~ typical induction modules, see the ~~'Directors'~~’Directors’ induction and ongoing development in ~~2021'~~2022’ table ~~on the following page.~~

Non-executive Directors continued to engage with each other through virtual meetings amid continuing Covid-19-related travel restrictions. We continue to plan and look forward to opportunities to facilitate safe and comprehensive person-to-person engagement, both in and out of Board meetings. These opportunities provide invaluable insight and understanding of our business, customers, culture and people.below.

Directors undertook routine training during ~~2021.~~2022 in subject matters that included: the risk management framework; financial crime; and health, safety and well-being. They were provided training by external counsel on their obligations when handling confidential and sensitive information. The Directors also participated in ~~'deep dive'~~’deep dive’ sessions into specific areas of the Group’s strategic priorities, risk appetite, ~~and~~ approach to managing certain ~~risks.~~risks, climate-aligned finance and market abuse regulations. These training sessions included external consultants who provided insights into geopolitical matters, macroeconomics and investor sentiments. Other topics of focus included: operations and technology strategy; the resolvability assessment framework; and climate change and sustainability.

Non-executive Directors also 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.

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 that is pertinent to circumstances and context 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. During 2021, the Group Chairman hosted a Non-Executive Director Summit where 200 independent non-executive directors from the Group's subsidiaries attended a virtual session along with Board Directors. They received updates and training on Group-wide matters including climate change, technology, culture and the launchDirectors as part of the ~~newly developed Non-Executive Director Handbook. Following its success, further Non-Executive Director Summits will take place during 2022.~~Chairman’s Forum.














~~Q&A with Rachel Duan~~



~~Q: What is your impression and experience of the onboarding process for HSBC?~~ From the very start of the process I was impressed at the level of attention given to my induction programme. Care was taken to tailor my meetings and the information provided so that it was relevant for me and thereby ensured a smooth, efficient and thoughtful process. ~~Q: How have you managed to get insight into the wider Group governance?~~ Before my joining date I was afforded many opportunities to meet colleagues, both virtually and physically. Shortly after joining, I visited our Hong Kong office to meet, among others, Peter Wong, non-executive chairman of The Hongkong and Shanghai Banking Corporation Limited. This gave me the chance to gain insight into governance matters in Asia. In July 2021, I was invited to attend the Non-Executive Director Summit, which was a great introduction into the Group's and its subsidiaries' governance matters. These engagements highlighted key areas of focus for HSBC and provided clear insight into the Group's way of working. ~~Q: How prepared did you feel for the first Board meeting in September?~~ My tailored engagements and bespoke briefings started shortly after the announcement of my intention to join the HSBC Board in March, all of which helped me get my arms around this complex organisation and made me feel included and ready to execute my role in the boardroom with ease.



			~~Q&A with Dame Carolyn Fairbairn~~


			~~Q: How have you got an understanding of the Board's focus on culture?~~ The culture at HSBC is thoughtful and inclusive. I could see from the carefully planned induction meetings which were arranged well ahead of my joining. I have been introduced to two employee resource groups: Ability, the disability and mental health network, and Embrace, an ethnicity network, and value the opportunity to support them. Also, the Board opens every meeting with a ‘culture moment’, which really demonstrates how it connects closely with the corporate values, and openly expresses how these are observed. ~~Q: What has been your experience of preparing for membership of the Group Remuneration Committee and the Group Risk Committee?~~ Before I joined, I engaged closely with the committees' chairs, as well as senior management, to understand their priorities, including a new remuneration policy for the 2022 AGM and the climate agenda. I remain actively engaged with the members to ensure a smooth transition onto these committees. ~~Q: Did your attendance at the 2021 AGM give you a better understanding of the Group's business?~~ Attending the 2021 AGM, ahead of my official appointment to the Board, enabled me to witness HSBC’s first hybrid meeting with shareholders. I was pleased to see that the company’s planning enabled as many shareholders as possible to participate in this annual event, despite the persistent Covid-19 pandemic challenges, demonstrating HSBC's inclusive culture. The questions from shareholders were insightful and gave me a good sense of what was top of investors’ minds and how the company was responding to such concerns, particularly on the climate agenda.


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Directors’ induction and ongoing development in ~~2021~~2022

Director

Induction1

Strategy and business briefings2

Risk and

control3

Corporate governance, ESG and other reporting matters4

Board ~~and~~ global mandatory training5

Chair and subsidiary non-executive Director forums6

Geraldine Buckingham

Rachel Duan

lô

Dame Carolyn Fairbairn

lô

James Forese

Steven Guggenheimer

~~Irene Lee~~

José Antonio Meade Kuribreña

Eileen Murray

David Nish

Noel Quinn

Ewen Stevenson

Jackson Tai

Mark Tucker

~~Pauline van der Meer Mohr~~l

Matter considered

lMatter not considered

1 The induction programme was delivered through formal briefings and introductory sessions with Board members, senior management, legal counsel, auditors, tax advisers and regulators, as appropriate. Topics covered included, but were not limited to: purpose and values; culture and leadership; governance and stakeholder management; Directors’ legal and regulatory duties; recovery and resolution risk; 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 ~~2021~~2022 included: ~~'US strategy: restructuring~~’Sustainability operating model’, ’Implications from the Russia-Ukraine conflict’ and ’Strategy execution of ~~the operating model' and 'Climate change: becoming net zero by 2050'~~Asia wealth’.

3 Directors received risk and control ~~training.~~training and briefings. Examples of specific sessions held in ~~2021~~2022 included: ~~'Stress testing'~~’Interest rate risk of the banking book strategy’ and ~~'ICAAP/ILAAP'~~’ICAAP/ILAAP’.

4 All Directors received training on topics such as: ~~'Resolvability~~’Resolvability assessment ~~framework'~~framework’, ~~'Climate~~’Climate-aligned finance’, ’Data literacy’ and ~~sustainable finance' and 'IFRS 17'~~’Cyber ransomware’.

5 Global mandatory training, issued to all Directors, mirrored training undertaken by all employees, including senior management. This included: management of risk under the ~~enterprise~~ risk management ~~framework, with a focus on operational risk;~~framework; cybersecurity risk; health, safety and well-being; sustainability; financial crime, including understanding money laundering, terrorist financing, tax, sanctions, fraud and bribery and corruption risks; our values, including workplace harassment; and data privacy and the protection of data of our customers and colleagues; combating financial crime, including understanding money laundering, sanctions, fraud and bribery and corruption risks; and our values and conduct, including workplace harassment and speaking up.colleagues.

6 ~~Chairman's~~These included the Chairman’s Forum, Remuneration Committee ~~Chairs'~~Chairs’ Forum and the Non-Executive Director ~~Summit.~~

~~Board committees and working groups~~

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 273.

In addition to the Board committees, working groups are established to enhance Board governance. The Technology Governance Working Group was first convened in March 2021 to enhance the Board's oversight of technology strategy, governance

and emerging risks, and to enhance connectivity with the principal subsidiaries. The working group will continue in 2022 but will remain a working group, not a formal committee of the Board. For further details, see page 263.

The Board Oversight Sub-Group is also part of the group operating rhythm ahead of Board meetings. As described on page 263, this group offers the Board and senior management an informal forum to discuss key matters before they are considered by the Board.

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. All Board members are invited to attend all Chairman's Committees.

Summits.


~~266~~284			HSBC Holdings plc

~~Relationship between~~ Board ~~and senior management~~stakeholder engagement during 2022

The Board ~~delegates day-to-day management~~is committed to engaging with key stakeholders, including colleagues, and welcomed the increased focus on bringing the employee voice into the boardroom, as envisaged by the revisions made to the UK Corporate Governance Code in 2018.

The Board had previously decided that, given HSBC’s size, scale and geographical spread, the ’alternative arrangements’ approach for workforce engagement under the UK Corporate Governance Code was the suitable option. The Board reviews this annually, and in light of the ~~business~~challenges facing the organisation and ~~implementation~~colleagues from factors outside of ~~strategy~~HSBC’s control, including the Covid-19 pandemic, decided to strengthen its practices through the introduction of a non-executive Director with designated responsibility for workforce engagement. It was agreed by the Board’s Nomination & Corporate Governance Committee in May 2022 to appoint José Meade to the new role of dedicated workforce engagement non-executive Director. This approach assists with the employee voice being heard in Board discussions and helps inform decision making.

The appointment of a designated workforce engagement non-executive Director does not restrict other Board members from engaging with the workforce, particularly as it is not possible for one person to represent the diversity of views across the entirety of the Group. It remains the responsibility of all Directors to consider stakeholder views, including employees.

The programme of workforce engagement for 2022 continued to be delivered through a variety of interaction styles, both in person and virtually, to accommodate the breadth of experience, geographical spread and range of seniority of our employees. Such activities included bespoke sessions with smaller groups, formal presentations and Q&A opportunities. These engagements were designed to promote and deliver open dialogue and two-way discussions between Directors and colleagues, allowing the Board to gain valuable insight on employee perspectives. This in turn informed Directors’ deliberations and decision making in Board and committee meetings.

To help inform the Board of employee initiatives and sentiment and allow the Board to plan for future engagement activities, Directors received regular workforce engagement papers at Board meetings. The Board’s agenda also regularly included non-executive Director workforce and other stakeholder engagement updates. These updates were addressed in the Group Chief Executive. The Group Chief Executive is supported in his management of the Group by recommendations and advice from the Group Executive Committee ('GEC'), an executive forum comprising members of senior management that include chief executive officers of the global businesses, regional chief executive officers and functional heads.

The Directors are encouraged to have contact with management at all levels, and have full access to all relevant information. Non-executive Directors are encouraged to visit local business operations and meet local management when they attend off-siteExecutive’s Board meetings and when travelling for other reasons but only when it is safe to do so. While there were limited physical opportunities for Board members to meet in 2021, there were several virtual meetings with senior executives including induction meetings and subject matter 'deep dives', as well as regular working meetings.

~~Connectivity between management and the Board is further facilitated through informal discussion held as required on an ad hoc basis, and as part of the Board Oversight Sub-Group meetings.~~


~~Executive governance~~
The Group’s executive governance is underpinned by the Group operating rhythm, which helps facilitate end-to-end governance between senior leadership and the Board, and sets out the Board and executive engagement schedule. ~~The Group operating rhythm is characterised by three pillars:~~ •~~The GEC normally meets every week to discuss current and emerging issues.~~ •On a monthly basis, the GEC reviews the performance of global businesses, principal geographical areas and legal entities. These performance reviews are supplemented by operating unit performance review meetings between 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. The Group Chief Executive and Group Risk and Compliance Officer have standing invitations to these meetings. •~~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 committees are dedicated sub-committees of the GEC, including the new ESG Committee, the Transformation Oversight Executive Committee and the Acquisitions and Disposals Committee, and all committees together support and facilitate collective decision taking and individual accountabilities. 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, ESG matters and talent and development. In addition to our regional company secretaries supporting our principal subsidiaries, we have corporate governance officers supporting our global businesses and our larger global functions to assist in effective end-to-end governance, consistency and connectivity.

~~Subsidiary governance~~

Certain subsidiaries are formally designated as principal subsidiaries by approval of the Board. In addition to their obligations under their respective local laws and regulation, principal subsidiaries have an important role in supporting effective and high standards of governance across the Group.

~~The designated principal subsidiaries are:~~


~~Principal subsidiary~~			~~Oversight responsibility~~
~~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 Holdings BV~~			~~Middle East and North Africa~~
~~HSBC North America Holdings Inc.~~			US
~~HSBC Latin America Holdings (UK) Limited~~			~~Mexico and Latin America~~
~~HSBC Bank Canada~~			~~Canada~~

In general, principal subsidiaries are responsible for overseeing the implementation of the subsidiary accountability framework for Group companies in the region for which they are responsible. The subsidiary accountability framework, approved in 2020, and refreshed by the Board in 2021, set out to improve communications and connectivity between the Group and its subsidiaries. It is subject to regular review and is occasionally updated to improve how the respective roles of principal subsidiaries and other subsidiaries are articulated. This helps to provide the Group with a shared understanding and a consistent approach towards its strategic objectives, culture and values and furthers the efforts to streamline and align corporate governance.

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, the chairs of the Group's audit, risk and remuneration committeesreport and the Group Chief ~~Executive to discuss Group-wide~~Human Resources Officer's report on employee views and ~~regional matters.~~sentiment, particularly around employee Snapshot surveys. The ~~Group Chairman hosted 11~~ Chairman’s ~~Forums in 2021, which were~~Forum meetings also ~~attended by relevant executive management, to cover sessions on strategy, financial performance and investor sentiment, geopolitics, culture,~~discussed employee engagement, diversity and inclusion, technology and data, group recovery planning, corporate governance and implementation of the updated subsidiary accountability framework. The Non-Executive Director Summit, hosted by the Group Chairman, was also an effective subsidiary directors' engagement event. For further details, see page 265.

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. While the Audit and Risk Committee Chairs' Forums did not take place in 2021, the chairs of the Group Audit Committee and Group Risk Committee continued to have regular dialogue with the respective committees of the principal subsidiaries to ensure an awareness and coordinated approach to key issues. The annual Remuneration Committee Chairs' Forum took place in October, and provided the principal subsidiary chairs with an opportunity to discuss performance, key considerations and positioning in advance of the pay review process. A follow-up forum was held in early December to provide transparency around pay outcomes and allocation, with feedback from the ~~discussion used to shape the final pay proposals, which were considered~~Group's subsidiaries and ~~approved by the Group Remuneration Committee.~~

~~Board members attend principal subsidiary meetings as guests~~received workforce engagement updates from time to time. Similarly, principal subsidiary directors are invited to attend committee meetings at Group level, where relevant, and in particular, when the Prudential Regulation Authority ('PRA') is in attendance. The chairseach of the principal subsidiary ~~risk committees~~chairs.

Engagement activity between the Board and the wider workforce included meetings and events between representatives of the eight employee resource groups and the non-executive Directors who have been designated to support them. These included:

•a virtual Nurture event with working parents and carers, which reflected on the HSBC colleague survey and how more relevant data could be captured and actioned;

•two Pride events with our LGBTQ+ colleagues, during which participants shared their thoughts, explored what Pride had achieved, discussed future opportunities and considered how Directors could advocate and support the work of Pride; and

•an in-person event with employee resource group leaders based in Hong Kong to discuss what motivates them to be employee resource group leaders, share achievements and discuss opportunities to align outcomes across the Group.

Workforce engagement non-executive Director

“I was pleased when the Board took the decision to create this role and asked me to assume the position of workforce engagement non-executive Director. Our colleagues, and the culture we promote, are ~~regular attendees at~~key to our success in achieving our purpose of opening up a world of opportunity.

My role and responsibilities, summarised in the ~~Group Risk Committee.~~chart below, are clear, but I appreciate that given the scale of our organisation, and the newness of this responsibility, it is critical that I execute this role with focus and intent to understand the employee voice, and communicate this to the Board. Notwithstanding the challenges, I am dedicated to do what I can to meet and speak with a broad spectrum of our people, across global businesses, regions and functions.

With the easing of Covid-19 restrictions in 2022, and as the Board resumed travel for meetings, I used these opportunities to connect with employees on a number of topics. Each experience has been enlightening and I am encouraged to see how common themes and reflections are being addressed.

While I cannot represent and hear every employee voice, I will endeavour to listen to what our colleagues are saying around the world. With a dedicated plan of action for 2023, I see this role evolving such that I will be able to add value to – and help drive more in-depth Board discussions on – topics that affect our people.

I look forward to reporting in the future on the progress made.”

Dr José Antonio Meade Kuribreña

Workforce engagement non-executive Director

Lunch with graduates

Mexico City, HSBC Tower

July 2022


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Role of the workforce engagement non-executive Director at a glance

Headline responsibilities:

•Engages, understands, represents colleagues globally.

•Receives employee perspectives through formal and informal engagement.

•Represents the employee voice at Board meetings for consideration during decision making.

Holdings Board

Feedback given and considered

↑

Workforce engagement
non-executive Director

↑

Data

Direct engagement

Means of engagement

Surveys/Snapshot

Employee jams

Audits

Chairs of principal subsidiaries

Virtual 'field' trips

Geographical visits

Reach

Global

Sample

Regional

Specific interest groups

Direct engagement

↑

Likely issues/topics

Purpose, culture values

Strategy and growth

Pay

Performance management

Working conditions/ future of work

Diversity and inclusion

Change and transformation

Climate/ESG

Activities during 2022

José Meade’s appointment was announced to the workforce jointly by the Group Chairman and Group Chief Executive on 1 June 2022. This was positively received by colleagues, several of whom reached out directly to José with engagement ideas.

Since his appointment, José has undertaken a variety of engagements in his role including:


Employee views – Mexico, US, India, UK, Hong Kong, Argentina, Brazil, Chile and Uruguay
In the weeks immediately following his appointment, José had 25 meetings with colleagues in nine countries, in person and virtually, across most areas of the Group. Topics discussed included: the need for continued focus on areas such as well-being, and diversity and inclusion; and enhancement of technology. Following such discussions, several suggestions were made, including strengthening employee retention strategies, increasing career ownership within teams and improving information gathering analysis and dissemination following exit interviews to relevant colleagues in the Group.


Graduates – Mexico, US
During the year, José met with Mexican graduates in person and US graduates virtually to share experiences of HSBC’s graduate programme.


GBM – UK
José participated in an in-person meeting with a diverse group of Global Banking colleagues in London to share experiences and views on people matters, women in finance, diversity and inclusion, and career development.


Global Service Centre – Mexico
José joined colleagues for a meeting with Global Service Centre employees to understand their perspective on working life.


Employee resource groups – Global
José participated in the virtual annual employee resource group summit and heard about the groups' leaders' successes and challenges. He connected with representatives in the UK, Mexico, India, Dubai, Hong Kong, Singapore and the US.


Employee resource groups – Dubai
José joined an in-person meeting with the chapter leads of the five employee resource groups active in MENA (Ability, Balance, Embrace, Generations and Nurture).

Visit to Global Service Centre, Mexico City, Tecnoparque

October 2022

Engagement highlights


65			1,500+
Sessions attended by executive and/or non-executive Directors			Number of employees engaged

38			600+
Sessions attended by workforce engagement non-executive Director			Number of employees engaged by workforce engagement non-executive Director

12+			73%
Countries of engagement			Highest employee engagement survey response

Priorities for 2023

•Review opportunities with Human Resources to ensure the right insight is being gained from employees to support and better inform the Board when taking decisions.

•Attend six larger-scale employee engagement events aligned to Board meeting agenda items to foster debate and discussion.

•Plan further international employee engagement opportunities in addition to the Board travel plans.


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Board activities during ~~2021~~2022

During ~~2021,~~2022, the Board ~~was~~remained focused on ~~HSBC's~~HSBC’s strategic direction, ~~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~~Board’s key areas of focus in ~~2021~~2022 are set out by theme below.

Strategy and business performance

Since the Group announced a new strategic focus and associated transformation programme in February 2020, it has set out to reshape underperforming businesses, simplify the organisation and reduce costs. The Group’s strategy ~~aims to increase~~remains focused on increasing returns for investors, ~~create~~creating capacity for future investment and ~~build~~building a sustainable platform for growth.

~~The~~ In 2022, each Board ~~which held a dedicated strategy session in May 2021, assessed~~meeting featured the ~~delivery of~~Group's strategic ~~achievements~~performance on its agenda, facilitating opportunities to track its delivery throughout the year, ~~through both~~and providing opportunity to shape how it was developed. The Board reviewed progress within the ~~perspectives of the~~Group’s global businesses and ~~the regions. The Board took a holistic view by reviewing management’s strategic alignment to, and outcomes~~regions, as well as against ~~HSBC's~~its four strategic pillars of: focus on our strengths, digitise at scale, energise for growth and transition to net zero.

The Group’s strategic transformation programme came to a formal conclusion in December 2022, having delivered against its objectives to reshape underperforming businesses, simplify the organisation, reduce costs and reallocate risk-weighted assets. Transformation remains a key business focus as it is embedded throughout the organisation and its operations.

Environmental, social and governance

In 2020, the Group announced ~~its new~~a climate ambition to align its financed emissions to net zero by 2050, and to become net zero ~~for~~in its own operations and supply chain by 2030. The Group aims to achieve this by supporting ~~clients on the road~~clients’ transition to a net zero carbon economy and ~~a focus~~focusing on sustainable finance ~~opportunities. In 2021,~~opportunities, as well as by reducing the ~~Board considered more climate matters at~~carbon emissions in its meetings, including participating in four climate 'deep-dives' and approving the climate-related resolution for the 2021 AGM. For further details on how the Board is meeting its climate agenda ambitions, see the ESG review on page 43.

The Board has also considered other sustainability matters, including human rights, a new thermal coal phase-out policy, the operating model for sustainability and the methodology for climate-aligned financing.

The Board received regular reports on the continuing challenges presented by the ongoing Covid-19 pandemic, which supported the Group’s responses and measures to mitigate the effects, including, providing medical aid and assistance to our colleagues in India and other regions.own operations.

The Board takes overall responsibility for ESG strategy, overseeing executive management in developing the approach, execution and associated reporting. ~~It has enhanced its~~The Board considered whether to establish a Board committee dedicated to ESG issues, but instead decided that the best way to support the oversight and delivery of the Group’s climate ambition and ESG ~~matters, with a dedicated agenda item on this topic introduced for 2022. Management has also~~strategy was to retain governance at Board level. The Group Executive Committee enhanced its governance model of ESG matters with the introduction of a ~~new~~dedicated ESG Committee and supporting ~~forums, which will~~forums. These support senior management in the delivery of the Group’s ESG strategy, key policies and material commitments by providing ~~holistic~~ oversight over – and management and coordination of – ESG commitments and ~~activities.~~initiatives.

In 2022, the Board oversaw the implementation of ESG strategy through regular dashboard reports and detailed updates including: reviews of net zero policies, financed emissions target setting and climate-aligned financing initiatives.

Financial decisions

The Board and its dedicated committees approved key financial decisions throughout the year, ~~and approved~~including the Annual Report and Accounts ~~2020~~2021, theInterim Report ~~2021~~2022 and the first quarter and the third quarter Earnings Releases.

At the ~~start~~end of 2021, the Board approved the ~~2021 annual~~2022 financial resourcing ~~plan and in December 2021 approved the financial resourcing plan for 2022.~~plan. The Board monitored the ~~Group's~~Group’s performance against the approved ~~2021 financial resourcing~~ plan, as well as the plans of each of the global businesses. The Board

also approved the renewal of the debt issuance ~~programme, and as announced on 26 October 2021~~programme. In December 2022, the ~~buy-back programme.~~

~~Following~~Board approved the ~~decision in 2020 to cancel the fourth interim dividend~~financial resourcing plan for 2019, on 23 February 2021, we announced that after considering the requirements set out in the PRA's temporary approach to shareholder distributions for 2020, an interim dividend for 2020 of $0.15 per ordinary share would be paid in cash on
29 April 2021. On 2 August 2021, we announced an interim dividend of $0.07 for the 2021 half-year paid in cash on
30 September 2021. For further details of dividend payments, see page 425.2023.

The Board ~~has~~ adopted a dividend policy designed to provide sustainable cash dividends, ~~going forward.~~while retaining the flexibility to invest and grow the business in the future, supplemented by additional shareholder distributions, if appropriate. For the financial year ~~2021,~~2022, we ~~are at the lower end of our target~~ achieved a

dividend payout ratio within our 2022 target range of between 40% and 55% of reported earnings per ordinary share ~~(‘EPS’~~(’EPS’)~~, driven by ECL releases~~. As previously communicated, given our current returns trajectory, we are establishing a dividend payout ratio of 50% of reported earnings per share for 2023 and ~~higher restructuring costs. The dividend policy has the flexibility to adjust EPS for non-cash~~2024, excluding material significant items ~~such as goodwill or intangible impairments. The Board believes this payout ratio approach will allow~~(including the planned sale of our retail banking operations in France and the planned sale of our banking business in Canada).

On 22 February 2022, we announced an interim dividend of $0.18 per share for ~~a good level~~the 2021 full-year, and on 1 August 2022 we announced an interim dividend of ~~income to shareholders and a progressive~~$0.09 per share for the 2022 half-year. For further details of dividend ~~assuming good levels of economic and earnings growth.~~payments, see page 443.

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.~~required by the Board and/or its relevant committees. These included:

•the ~~Group's~~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 and Human Trafficking 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~~the Group's revised delegation of ~~authority.~~authority policy.

The Board also reviewed and monitored the implications of geopolitical and macroeconomic developments during the ~~year including US-China relations and the impacts to trade following the UK's departure from the EU.~~year.

Technology

Throughout the year, the Board received regular updates on technology from the Group Chief Operating Officer, including ~~updates~~ on the ~~refreshed~~implementation of the technology strategy and ~~restructuring of~~key strategic business initiatives. As technology is crucial to help deliver the Group’s strategic objectives, including the strategic pillar ’Digitise at scale’, strategy papers covered technology ~~leadership function.~~issues throughout the year. In December, the Board discussed a digital technology map, a new tool that could help simplify, prioritise and drive change in the Group’s technology estate. For further details, see ’Principal decisions’ on page 22.

~~In early 2021, the~~The Technology Governance Working Group ~~was established~~continued to oversee and enhance the Group's governance of technology. For further details onof this ~~group’s work and the future of the Board’s oversight of technology governance,~~working group, see page ~~263.~~283.

People and culture

The Board continued to ~~spend~~dedicate time ~~discussing people~~in its meetings to discuss people-related and culture-related ~~topics. To set~~topics, to help raise its awareness of employee and other stakeholder perspectives. The Board is committed to setting the right cultural tone, ~~since March 2021,~~with each Board meeting ~~has begun~~beginning with a ~~Director or regular attendee describing a 'cultural moment' he or she had experienced, including~~’culture moment’, which includes observations of behaviours within the Group aligned to ~~the~~its purpose and values. ~~Once a year~~

Group subsidiary directors’ approaches to workforce engagement were presented by each of the chairs from ~~each of~~ the principal subsidiaries ~~present~~ to the Chairman's Forum, onwhere they discussed their respective board engagement activities with the workforce, as well as what they learned as part of such engagements and ~~learnings, including~~other cultural insights. The


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~~cultural insights. Twice a year~~Board also receives insights from the ~~Group Chief Human Resources Officer attends the Board to provide insights into the Group’s employee~~all-employee Snapshot survey, ~~results measuring~~which measures employee ~~sentiment, talent plans, progress on the embedding of the new purpose and values, and the measurement of culture. This reporting includes a~~sentiment. A culture insights report, ~~which allows~~developed in 2021, provides the Board with key data indicators, such as behaviours, sentiment, business outcomes and people to allow it to monitor culture ~~through receipt of data on culture perceptions and using~~across the ~~indicators of behaviours/sentiment and business outcomes/people data. These presentations help enable the Board to monitor and assess the organisation's culture.~~Group.

Board engagement with management and the wider workforce continued to remain a strong area of ~~attention.~~attention, particularly with the appointment of a dedicated workforce engagement non-executive Director. For further details of the work of the workforce engagement non-executive Director, see page 285.

Governance

The Board continued to oversee the governance, smooth operation and oversight of the Group and its principal and material subsidiaries. ~~Following a review of subsidiary governance, the Board oversaw the implementation of the review findings, with the support of the Nomination & Corporate Governance Committee.~~

The Board ~~also~~and senior management supported ~~new~~improvements to governance initiatives to encourage simplification and promote effective decision making in the business. Such ~~initiatives~~improvements included ~~the refinement of~~making refinements to Board and committee ~~papers,~~paper templates, and ~~a review to reduce~~reducing unnecessary committee meetings to free management time and encourage individual accountability and decision taking.

~~Succession planning was considered at the Nomination & Corporate Governance Committee.~~ During the year, ~~Laura Cha, Henri de Castries~~Pauline van der Meer Mohr and ~~Heidi Miller~~Irene Lee retired as independent non-executive ~~Directors.~~Directors, and Ewen Stevenson resigned as Group Chief Financial Officer. The Board appointed ~~Rachel Duan and Dame Carolyn Fairbairn~~Geraldine Buckingham as an independent non-executive ~~Directors who joined the Board~~Director in ~~September 2021.~~May 2022, and Georges Elhedery as Group Chief Financial Officer from 1 January 2023. The Board, supported by the Nomination & Corporate Governance Committee, ~~will continue to review~~reviews the skills and experience of the Board ~~as a whole to ensure~~on an ongoing basis. This ensures that ~~it comprises~~ the ~~relevant~~Board and its committees comprise the necessary skills, diversity, ~~experiences~~experience and

competencies to discharge ~~its~~their responsibilities effectively.

For further details onof the review ~~subsequent actions~~ and changes to the Board, see the Nomination & Corporate Governance ~~Committee~~ report on page ~~273.~~291. For further details of diversity of the Board, see page 279.

The Board monitored its compliance with the UK Corporate Governance Code, the Hong Kong Corporate Governance Code and the Companies Act 2006 throughout the year.

Board engagements with shareholders


~~Workforce engagement~~
The Board continued to place great emphasis on the importance of engagement with the workforce, including colleagues affected by the continued impact of the Covid-19 pandemic and the return to offices in the UK and elsewhere. The Board also considered the impact of the launch of our new purpose and values and the ongoing transformation activity, including the announcement of the disposal of our retail businesses in the US and France. In accordance with the UK Corporate Governance Code, the Board reaffirmed that it continued to believe that the 'alternative arrangements' approach remained most appropriate for the Group in engaging and understanding the views of the workforce. The programme of engagement covered a variety of interaction styles: more bespoke sessions with smaller groups; formal presentations; Q&A opportunities; and other sessions to facilitate engagement across a breadth of experience, geographical spread and seniority. This variety of engagements enabled open dialogue and two-way discussions between Directors and employees. These sessions allowed the Board to gain valuable insight on employee perspectives, which in turn informed their deliberations and decision making at Board and committee meetings. The Board receives updates on how the Group engages with stakeholders, including the workforce, by way of the Group Chief Executive's Board report and the Group Chairman's weekly Board note. In addition, the Board's agenda regularly includes non-executive Director workforce and other stakeholder engagement updates. These help to inform the Board of employee initiatives and sentiment and allow the Board to plan for future engagement activities. The flexibility of this approach allowed all Board members the opportunity for direct engagement – albeit often virtually during 2021 – with a broad cross-section of the workforce, spanning global businesses, functions and geographies. It also gave insights provided by management through our employee listening tools and surveys. 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 pandemic. The Chairman’s Forum meetings also discussed employee feedback from the Group's subsidiaries. ~~Specific engagement between the Board and the wider workforce included meetings and events with:~~ •representatives of the employee resource groups and each of the non-executive Directors who have been partnered to support the designated groups: Ability, Balance, Embrace, Faith, Generations, Nurture, Pride, and Communities; •the Nurture employee resource group, which hosted online events on domestic abuse and working fathers, during which non-executive Directors discussed with a small group of employees how the Group had supported them during such challenging times and how the Board could promote further initiatives; •~~first and second year members of the HSBC graduate scheme, who discussed their experiences of hybrid working and HSBC's culture, purpose and values;~~ •~~US executive management, who held succession and emerging talent sessions, and who also discussed our net zero ambitions, career pathways, and the delivery of our strategy; and~~ •~~African heritage employee resource group leaders, who held a roundtable event to discuss inclusivity at work.~~


~~HSBC Holdings plc~~			~~269~~

~~Report~~In 2022, Board members remained responsive to shareholder requests to engage, and certain of the Board met with key investors including Ping An Asset Management Co. Ltd. The Group Chairman and the Senior Independent Director, often with the Group Company Secretary and Chief Governance Officer, engaged with a number of our large institutional investors in 19 meetings. The Group Chief Executive and the Group Chief Financial Officer, together and separately, attended over 100 meetings with investors. Key topics included our financial performance, updates on strategy and market presence, geopolitical risks and the macroeconomic outlook in key geographies.

The Group Remuneration Committee Chair also met with key investors and proxy advisory firms during the fourth quarter of 2022. These sessions provided useful insight into investor views on key areas of decision making for the Group Remuneration Committee, including our approach to the 2022 pay review for executive Directors |~~Corporate governance~~and the wider workforce. For further details of the Group Remuneration Committee report, see page 308.

Board activities in ~~2021~~2022

Main topic

Sub-topic

Meetings at which topics were discussed1

Jan

Feb

Mar

Apr

May

Jun

Jul

Sep

Nov

Dec

Strategy

Group strategy

ôl

Regional strategy/global business strategy

Environmental, social, governance

ôl

Business and financial performance

Region/global business

Financial performance

Financial

Results and accounts

ôl

Dividends

ôl

Group financial resource planning

ôl

Risk

Risk function

ôl

Risk appetite

ôl

Capital and liquidity adequacy

lô

ôl

Regulatory

Regulatory and legal matters2

ôl

Regulatory matters with regulators in attendance3

lô

External

External insights

~~Technology~~

~~Strategic and operational~~

Technology

Strategic and operational

People and culture

Purpose, values and engagement

lô

Governance

Subsidiary governance framework

Policies and terms of reference

Board/committee effectiveness

~~Board/committee effectiveness~~Appointment and succession

AGM and resolutions

ôl

Matter considered

~~Appointment and succession~~

~~AGM and resolutions~~

ôMatter not considered

1 No ~~formal~~ Board meetings were held during August and October ~~2021.~~2022.

2 Includes resolvability assessment framework, modern slavery and human trafficking, statement of business principles and code of conduct, regional updates and listing renewals.

3 ~~Meetings~~Meeting attended by members of the ~~Financial Conduct Authority,~~ Prudential Regulation ~~Authority, Monetary Authority of Singapore, Hong Kong Monetary~~ Authority.


288			HSBC Holdings plc


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. The Board intends to conduct an independent evaluation in 2023.

~~In 2020,~~For 2022, the Nomination & Corporate Governance Committee ~~invited Dr Tracy Long of Boardroom Review Limited to support~~agreed that the ~~Board with its annual evaluation and to conduct a follow-up review on the Board's progress against the findings and recommendations from her 2019 report.~~

~~In 2021, the Nomination & Corporate Governance Committee approved the conducting of an internal~~ evaluation of the Board and its committees ~~with~~would again be conducted internally. The process included the ~~assistance~~completion of ~~an externally facilitated~~a questionnaire, ~~system managed~~issued by Lintstock, an independent service provider with no other connection to the Group or any individual Director. The questions were designed by the Group Company Secretary and Chief Governance Officer, ~~and included~~ some ofbased on themes from the ~~themes addressed by Dr Long's previous reviews, namely: leadership, shared perspective, culture, end-to-end governance and future thinking.~~2021 evaluation findings. A summary of the effectiveness reviews of the Board and the Board committees can be found on page ~~271~~290 and in the respective committee reports ~~on pages 273 to 303.~~from page 291.

To gather qualitative feedback, the Group Company Secretary and Chief Governance Officer, together with the Deputy Group Secretary, conducted ~~one-to-one~~ interviews with ~~all~~each questionnaire ~~respondents,~~respondent, including all the Board Directors, regular attendees of the relevant meetings and key advisers. The Group Chairman and committee chairs also participated in additional ~~discussion~~discussions following the consolidation of feedback in respect of the individual committees.

Overall, the work of the Board was rated highly and it was viewed as operating effectively. In general, there were consistent findings across the Board and committee reviews. These included:

•a positive view of the effectiveness of the Chairs of the Board and committees and the participation of its members;

•a greater desire to be even more forward looking; ~~more discussion~~

•a need for continued focus on the quality of ~~contextual matters such as economic, social,~~meeting materials to ensure that content remains focused, clear and ~~geopolitical issues; maintaining a supportive~~precise; and ~~challenging relationship~~

•continued collaboration between the Board ~~its committees and senior management; providing clear governance for our subsidiaries; and a more consistent approach in leading and living the Group purpose and values.~~committees.

At its January ~~2022~~2023 meeting, the Board considered the findings and noted the following areas of focus: in person Board and committee meetings; succession planning; diversity in Board composition including the need for more Asian and banking experience; prioritising digital opportunities; and more Board meeting time dedicated to customers.

~~The~~ Group Chairman led a discussion ~~at which~~with the Board ~~agreed~~and considered the findings. The following areas of focus were discussed and actions agreed: a revised approach to tracking strategy execution; continued development of the timeline of sustainability and ~~priorities to be implemented, which~~technology deliverables; simplification and prioritisation of deliverables and interdependencies; and enhanced focus on customer stakeholder engagement.

Actions will be monitored and addressed on an ongoing basis. Similar discussions were ~~carried out~~led by each of the committee chairs in their respective January meetings. Progress against these actions will be included in the Annual Report and Accounts ~~2022.~~2023.

During ~~2021,~~2022, a review of the Group Chairman’s performance was led by the Senior Independent Director in consultation with the other independent non-executive Directors, management and key stakeholders. Non-executive Directors also undergo regular individual reviews with the Group Chairman. These reviews confirmed that the performance of the Group Chairman and each Director was effective and that each had met their time commitments during the year.

The review of executive Directors’ performance, which helps determine ~~the level of variable~~their pay ~~they receive~~outcomes each year, is contained in the Directors’ remuneration report on page ~~304.~~308.

Board and Committee evaluation process

The Board made good progress against all of the action points identified during the 2021 evaluation. In particular, the Board:

•enhanced its composition with the appointment of Geraldine Buckingham, which brought significant Asia leadership experience;

•maintained a focus on succession planning, with a view to strengthening its expertise in banking and improving its representation from Asia;

•strengthened workforce engagement, with the appointment of José Antonio Meade Kuribreña as designated non-executive Director for workforce engagement;

•devoted time to the consideration of key areas of focus, including digital opportunities and threats, ESG and strategic risk;

•continued to monitor compliance with the subsidiary accountability framework; and

•enhanced coordination and collaboration between its committees, with combined meetings of the Group Audit Committee, Group Risk Committee and Technology Governance Working Group held during the year.


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Report of the Directors | Corporate governance report | Board committees

Summary of ~~2020~~2022 Board effectiveness findings and recommendations ~~and actions:~~

~~Recommendation from the evaluation~~

~~Progress against recommendations~~

~~Leadership~~

•~~Continue to focus on Board succession planning, building on the progress made during 2020 to facilitate and manage succession~~ for ~~Board and committee positions, cognisant of diversity in all aspects and making full use of external advisers and skills matrix analysis.~~

•~~Embed executive succession so that it translates into a stronger, more diversified talent pool for future senior leadership.~~

Significant time has been allocated at Nomination & Corporate Governance Committee meetings to discuss these items. An additional session was held in March to discuss Board and committee composition, and senior executive changes. Discussions have included succession candidates at the layer below the GEC, and plans to simplify the senior grade structure at managing director level and above.

~~Progress reports for the Asia talent programme were submitted to Nomination & Corporate Governance Committee meetings, with the first received at the May meeting.~~

~~Shared perspective~~

•Optimise use of Board information to enhance testing of the effectiveness of the strategic and business plans with reference to the evolving external factors and competitive landscape across its key markets.

~~The Board operating rhythm continues to be effective. Positive feedback from non-executive and executive Directors confirmed that the Board Oversight Sub-Group is valuable for all stakeholders.~~

~~We have made use of the expertise and experience of our non-executive Directors by rotating attendance at our Board Oversight Sub-Group meetings, according to the topic to be discussed.~~

~~Regular feedback is sought from members of the GEC and the Board to ensure that the Board operating rhythm continues to support the Group's decision making.~~

~~Culture~~

•~~Continue to review and determine the culture and key behaviours required to support the delivery of the revised strategy with a clear focus on pace and execution.~~

The Board Oversight Sub-Group meetings supported both the executive Directors and the Board to take strategic decisions in a timely manner, and ensure effective use of time in Board meetings. The enhanced strategy was announced alongside the 2021 interim results, including the Group's proposed disposal of the US retail banking franchise.

Cadence of reporting to the Board in support of its oversight of culture was agreed. This takes place twice per year alongside updates on workforce engagement. The Board has adopted a 'culture moment' at the beginning of each meeting.

~~Future thinking~~

•~~Maintain and evolve good quality papers and presentations to the Board to continue providing insight and supporting informed decision making~~

~~The Group’s new Board paper template and guidance on the most effective writing approach has now been implemented across the Board and committee meetings.~~

~~We also provided presenter and chair training to members of the Group Executive and wider management.~~


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~~Report of the Directors~~ |~~Corporate governance report~~

~~Summary of 2021 Board effectiveness recommendations and actions~~action:

Findings from the evaluation

Recommendations for action

~~Composition~~Strategy, execution and ~~Board dynamics~~deliverables

•The ~~Board's~~Board’s strategic oversight was rated positively overall, ~~skills~~although the consistency of management’s articulation, tracking and ~~capability, and diversity and inclusion representation,~~execution of progress against the Group’s strategy could be ~~improved, particularly with Asian background and banking experience.~~

•~~Significant collective knowledge~~strengthened. It was recommended to increase the use of ~~existing chairs who are all extremely able and active in their roles must be considered as part of succession planning.~~

•~~Strong relationships exist among Board members and senior management with the Board providing appropriate challenge and support as necessary.~~metrics to show comparable progress against key deliverables.

•The ~~Board Oversight Sub-Group has been a useful forum for Directors and senior management~~Board’s approach to ~~hold discussions in advance~~the oversight of ~~Board meetings.~~the Group’s sustainability strategy was rated positively, although the monitoring of sustainability-related key targets required greater clarity.

•~~There is~~The Board’s oversight of technology strategy was considered strong and it was suggested that the Board required a ~~strong desire~~more detailed plan of digital deliverables to ~~return to in-person meetings.~~ enable continuous monitoring and performance tracking.

•The Group ~~Chairman was complimented on his~~Chief Executive should develop a revised set of metrics related to performance, execution and risk management, ~~of meetings and Board communication throughout the pandemic.~~as well as other key value drivers, as appropriate.

•~~Increased engagement outside~~The Group Chief Executive and relevant accountable executives should develop a timeline of ~~formal meetings with executives~~ESG and ~~employees to aid focused, informed~~technology deliverables and ~~efficient discussion in formal meetings was welcomed.~~milestones.

The Board will support the Nomination & Corporate Governance Committee’s focus on identifying and securing additional Board members, reflecting on the membership of the committees, and with a particular focus on Hong Kong, mainland China and south-east Asian representation, as well as banking expertise and diversity. In addition, through the Nomination & Corporate Governance Committee, the Board should consider the tenure of the Chairs of the Board, the Group Audit Committee and the Group Risk Committee to ensure there is well planned succession so as not to lose their collective knowledge and experience within too short a space of time.

The Board will explore different approaches to in-person meetings during 2022 to allow members to meet face to face in different locations, and to continue to facilitate communication between the Board and management.

~~The Board will support an appropriate level of employee and customer engagement outside formal meetings while ensuring both receive adequate time on the Board agenda.~~

~~Meetings, priorities~~Simplification and ~~materials~~prioritisation

•The importance of devoting sufficient time to challenging management’s progress on simplification and prioritisation was highlighted. It was suggested that the Board ~~meetings were efficiently~~provide greater oversight of management prioritisation of key projects and effectively managed, in terms of the logistics and support, as well as the quality of materials which had improved during the year as a result of the introduction of the new templates. Continuation of that improvement would help the effort to reduce length, improve timelines and drive clarity.strategic deliverables.

•~~The~~A Board session should ~~build~~be held annually on ~~foundational work to date to provide greater clarity on climate matters,~~organisational simplification and ~~more broadly ESG issues.~~

•~~The Board should increase its focus on understanding~~prioritisation of –deliverables and ~~attention to – customers, and also digital opportunities and threats.~~interdependencies.

•Strategic oversight was highly regarded overall, with a request for the development of Board materials to more easily track progress of the strategic priorities. Attention to execution, prioritisation, capability and capacity were recurring themes.

Senior management will clearly articulate progress against strategic objectives in Board materials, particularly in relation to relevant strategic levers and prioritisation. The forward agenda planner will capture the key areas of future focus, particularly ESG, digital and customer issues.

The improvement in style and content of Board and committee papers will continue in 2022 with the Corporate Governance and Secretariat facilitating management’s commitment to improving information to the Board.

~~A 2022 Board meeting will include digital opportunities and threats as an agenda item.~~

~~Risk~~Stakeholder engagement

•Engagement with stakeholders was strong, including the focus on the employees, in the year. The Board oversaw risk matters as part of its dedicated sessions but suggested more focus on emerging risks and consideration of 'what keeps management awake at night' with forward-looking discussion and debate at Board meetingsasked that further enhancements be considered, in ~~addition to at~~particular customers given the ~~Group Risk Committee.~~current macroeconomic headwinds.

•The ~~Board will hold two forward-looking strategic risk discussions per year focused on emerging areas of threat and/or opportunity,~~Board’s stakeholder engagement plan should be reviewed to ensure that all members of the Board ~~is considering how~~have sufficient opportunity to ~~maximise growth opportunities~~engage with, and ~~appropriate mitigants.~~understand the views, of the Group’s key stakeholders.

~~Principal subsidiaries~~Meeting materials

•~~The~~It was recognised that meeting materials had improved considerably over recent years, but it was emphasised there was opportunity for further improvement around consistency, comparability and ownership. Stakeholder considerations could be better incorporated in Board ~~should continue~~papers to ~~evolve good quality papers and presentations at meetings to continue providing insight, and~~ support ~~for, informed~~ decision making.

~~Through the subsidiary accountability framework, the Board will continue~~•Training and/or guidance should be provided to ~~monitor progress of governance of principal subsidiaries and maintain subsidiary director interactions through the annual virtual Non-Executive Director Summit.~~all paper authors in 2023.

~~Committee connectivity and collaboration~~

•The Board should look to improve coordination between Board committees and the Technology Governance Working Group to ensure minimal overlap in content and optimal coverage of relevant matters, and ensure appropriate reporting to the Board for discussion.

The Board will undertake a review of the Board committees’ and Technology Governance Working Group's terms of reference, with particular reference to technology, transformation, data, cyber-related matters and ESG matters. In each case, the Board will ensure that there is clarity as to the remit and responsibilities of each committee and the Technology Governance Working Group, with a view to reducing any duplication and ensuring optimal coverage of relevant matters. Enhanced planning will be implemented across Board and committee agendas to improve rhythm of topics for discussion by the Board.


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~~Board committees~~Nomination & Corporate Governance Committee

~~Nomination & Corporate Governance Committee~~



"~~The~~Developing our skills and experience, and diversity and inclusion ambitions remains a priority and the Committee ~~has overseen another year of significant activity, with a number of changes~~will continue to oversee and enhance the succession pipeline at Board and senior ~~executive team, as well as to our subsidiary governance practices."~~leadership level.”

Dear Shareholder

I am pleased to present the Nomination & Corporate Governance Committee report, which provides an overview of the work of the Committee and its activities during the year.

~~The~~During 2022, the Committee ~~has overseen another year~~continued to review the Board’s composition, succession planning, skills, experience and diversity, to ensure that the Group operated in line with its ambition of ~~significant activity, with~~world class governance.

On behalf of the Board, the Committee oversaw a number of changes to Board composition, including the retirements of Pauline van der Meer Mohr and Irene Lee, and the appointment of Geraldine Buckingham. The Committee also closely monitored executive succession planning, in particular the transition of the Group Chief Financial Officer, with Georges Elhedery succeeding Ewen Stevenson from 1 January 2023. Ewen leaves with our sincere thanks for the significant contribution that he has made to the Board and to the broader Group over the past four years.

Jackson Tai will retire from the Board at the conclusion of our 2023 AGM in May and will be succeeded as Chair of the Group Risk Committee by James Forese. On behalf of the Board, I wish to thank Jackson for his outstanding dedication and the significant contribution he has made to the success of the Group, in particular the improvement in our oversight and governance of risk and conduct. James' significant banking and risk experience will be invaluable in the leadership of the Group Risk Committee as the Group continues to deliver on its transformation and growth strategy, in a safe and sustainable manner.

On 1 March 2023, Kalpana Morparia will join the Board, strengthening both its collective Asia business and banking knowledge and experience, and diversity.

Developing our skills and experience, and diversity and inclusion ambitions of the Board and senior ~~executive team, as well as to our subsidiary governance practices.~~

~~Executive development and succession has continued to be~~management, remains a priority ~~for the Committee, with various joiners approved throughout the year, improving the capability~~ and depth of our senior leadership team. This included the approval of a new senior leadership structure with an expanded Group Executive Committee and a new General Manager cohort with enterprise-wide responsibilities. The Committee has supported the establishment of a flagship development programme for senior executives and the first HSBC Bank Director Programme, which aims to prepare senior talent for roles on subsidiary boards.

Significant progress has also been made in enhancing our subsidiary governance practices over recent years, with further improvements made during 2021. In accordance with the recommendation arising from the subsidiary governance review undertaken in 2020, we implemented a refreshed subsidiary accountability framework, which now applies to all HSBC subsidiaries on a proportionate basis and provides greater clarity on the Group’s expectations of subsidiary boards. A key element of this has been succession planning for our principal and material subsidiary boards, with the Committee overseeing all succession plans and considering requests for exceptions from the requirements of the framework.

~~As we look ahead to the remainder of 2022,~~ the Committee will continue to ~~play an important~~oversee and enhance the succession pipeline at Board and senior leadership level through 2023. This will build on the revised gender and ethnic representation targets introduced within the diversity and inclusion policy, and the work led by management on developing successors for senior leadership roles and under the Asia Talent programme. Our Board diversity and inclusion policy, which contains our revised targets, can be found on hsbc.com.

During 2022, we also took the decision to establish a new Board role ~~in overseeing~~designated with responsibility for ensuring that the employee voice is strengthened within the Board’s deliberations. The creation of the role was a natural evolution of the work already undertaken to enhance stakeholder engagement within Board decision making. In this role, José Meade will lead our ~~work in improving~~workforce engagement on behalf of the ~~standards of corporate governance across HSBC and achieving our ambition of world class governance.~~

~~Mark E Tucker~~

~~Chair~~

~~Nomination &~~Board, supported by the Corporate Governance ~~Committee~~

~~22 February 2022~~

and Secretariat and Human Resource functions. Further details on the role and initial areas of focus can be found on page 285.


Membership
	Member since	Meeting attendance in ~~2021~~2022
Mark Tucker (Chair)	Oct 2017	~~8/8~~7/7
~~Laura Cha~~Geraldine Buckingham1	May ~~2014~~	~~4/4~~
~~Henri de Castries~~1	~~Apr 2018~~2022	4/4
Rachel Duan2	Sep 2021	~~2/2~~6/7
Dame Carolyn Fairbairn2	Sep 2021	~~2/2~~7/7
James Forese	May 2020	~~8/8~~7/7
Steven Guggenheimer	May 2020	~~8/8~~7/7
Irene Lee3	Apr 2018	~~8/8~~3/3
José Antonio Meade Kuribreña	Apr 2019	~~8/8~~7/7
Eileen Murray32	Jul 2020	~~7/8~~
~~Heidi Miller~~1	~~Apr 2018~~	~~4/4~~5/7
David Nish	Apr 2018	~~8/8~~7/7
Jackson Tai	Apr 2018	~~8/8~~7/7
Pauline van der Meer Mohr3	Apr 2016	~~8/8~~3/3

1 ~~Laura Cha, Henri de Castries~~Geraldine Buckingham was appointed to the Board and ~~Heidi Miller~~joined the Committee on 1 May 2022.

2 Rachel Duan was unable to attend the July committee meeting due to a pre-existing engagement. Eileen Murray was unable to attend the April and September meetings for personal health reasons.

3 Irene Lee and Pauline van der Meer Mohr stepped down from the Board and the Committee following the conclusion of the AGM on ~~28 May 2021.~~29 April 2022.

~~2 Rachel Duan and Dame Carolyn Fairbairn were appointed~~The Committee’s role in overseeing these changes is outlined on the following pages.

As we look ahead to 2023, the Committee will consider the changes to the ~~Board on 1 September 2021.~~

~~3 Eileen Murray was unable~~UK audit, governance and regulatory regimes, including updates to ~~attend~~ the ~~December committee meeting for personal health reasons.~~UK Corporate Governance Code, and the steps needed to ensure the Group continues to operate in line with best practice.

Mark E Tucker

Chair

Nomination & Corporate Governance Committee

21 February 2023

Key responsibilities

The Committee’s key responsibilities include:

•leading the process for identifying and nominating candidates for appointment to the Board and its committees;

•overseeing succession planning and development for the Group Executive Committee and other senior executives; and

•overseeing and monitoring the corporate governance framework of the Group and ensuring that this is consistent with best practice.

Committee governance

The Group Chief Executive, the Group Chief Human Resources Officer, and the Group Head of Talent routinely and selectively attended Committee meetings. The Group Company Secretary and Chief Governance Officer ~~routinely attended Nomination & Corporate Governance~~attends all Committee ~~meetings.~~meetings and supports the Group Chairman in ensuring that the Committee has fulfilled its governance responsibilities.

Russell Reynolds Associates, which supported the Committee and the management team in relation to Board and senior ~~executive~~management succession planning, regularly and selectively attended meetings during the year. It has no other connection with the Group or members of the Board.

~~The Group Company Secretary and Chief Governance Officer ensured that~~


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Report of the ~~Committee fulfilled its~~Directors | Corporate governance ~~responsibilities, considering input from various stakeholders when finalising meeting agendas and tracking progress on actions and Committee priorities.~~report | Board committees

Board composition and succession

The ~~main~~Committee continued its focus ~~of the Committee during 2021 was~~ on ~~succession planning for the Board and committees. The Committee keeps the composition of~~ensuring that the Board and its ~~committees under constant review~~members, both collectively and ~~continually strives to ensure that the membership, both~~ individually, ~~and collectively, has~~possess the skills, knowledge and experience necessary to oversee, challenge and support management in the achievement of the Group’s strategic and business objectives.

~~There were a number of retirements from the Board during the year, with Henri de Castries, Laura Cha and Heidi Miller retiring at the conclusion of the 2021 AGM.~~ In addition ~~since~~to the ~~year-end, we announced that~~retirements of Irene Lee and Pauline van der Meer Mohr, ~~would retire~~the Board welcomed Geraldine Buckingham, who most recently held the position of Head of Asia-Pacific at BlackRock. She was appointed to the Board with effect from 1 May 2022.

In October, the Group announced the appointment of Georges Elhedery as an executive Director and Group Chief Financial Officer with effect from 1 January 2023. This decision followed a review by the Committee of the composition of the Group Executive Committee with a particular focus on long-term succession planning. It was concluded, based on the recommendation of the Group Chief Executive, that Georges, who was previously co-Chief Executive Officer of Global Banking and Markets, should replace Ewen, who stepped down from the Board at the ~~conclusion~~end of 2022. Georges, who has a track record of driving growth and managing change and who brings a strong focus on execution, will help the Group to accelerate delivery of improved financial performance and shareholder returns.

In advance of taking up the role, Georges spent significant time with Ewen to ensure an orderly handover of responsibilities. The Board has put in place a tailored development and support plan for Georges as he transitions to his new role, which will be overseen by the Committee.

The Committee expects that non-executive Directors serve two three-year terms, with any appointments beyond this to be determined on an annual basis with reference to the needs of the ~~2022 AGM. The~~Board and the performance and contribution of the individual. In view of the importance of continuity for key roles on the Board, particularly given the current economic and geopolitical environment, the Committee ~~is actively considering Pauline’s successor as~~agreed that David Nish’s appointment should be extended for a further year to the 2024 AGM, subject to his re-election by shareholders. In taking this decision, the Committee considered the need for an effective transition in relation to the Senior Independent Director and Chair of the Group ~~Remuneration~~Audit Committee roles, both of which David currently holds. It is the Board’s strong belief that this extension of David’s appointment, given his performance and ~~will provide an update~~contribution to the Board during 2022, is in ~~due course.~~

~~The Committee considered both~~ the ~~short-term and long-term succession needs to identify candidates for immediate~~


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~~Report~~best interests of the ~~Directors~~ ~~| Corporate governance~~Group and all of its stakeholders.

As referenced in our 2021 report,

appointment, and to develop a pipeline for potential future appointments. This will ensure that the longer-term shape of the Board is well aligned to our purpose, strategy and values, and provides relevant skills, experience and knowledge of our priority markets.

~~In late 2020,~~ the Committee ~~engaged Russell Reynolds Associates~~agreed to ~~conduct a thorough~~prioritise in future appointments significant previous executive experience in banking, as well as with deep business and ~~robust search to identify prospective candidates for appointment to the Board. This identified a~~cultural expertise across Hong Kong and mainland China, and south-east Asia. A number of potential candidates ~~who met our agreed search criteria,~~meeting the desired skills and experiences were identified, a shortlist of which ~~reflected prior feedback from stakeholders including investors, regulators and the management team. This was initially reviewed by the Group Chairman, with potential candidates presented~~were considered and discussed by the ~~Committee at various meetings during 2021.~~Committee. Following ~~consideration by the Committee, and~~ meetings between various members of the Committee and priority candidates to understand their ~~interest~~respective interests and ~~capacity,~~capacities, the Board accepted the Committee’s recommendations and approved the appointments of ~~Rachel Duan and Dame Carolyn Fairbairn~~Geraldine Buckingham with effect from 1 ~~September 2021.~~May 2022 and Kalpana Morparia with effect from 1 March 2023.

~~A search for additional non-executive Director candidates, which looks to enhance~~Strengthening the Board’s collective ~~knowledge~~experience in these areas remains a priority, and the Committee will continue to discuss broader succession planning for key roles on the Board and committees through 2023, and beyond. In addition, succession planning will have regard to diversity and inclusion targets and expectations. The Committee is focused on identifying candidates with the following skills and experience ~~of banking~~for future appointments to the Board:

•significant executive experience in banking;

•deep business and cultural expertise across Asia, in particular ~~was initiated during 2021.~~ Hong Kong and mainland China, and the Middle East, given the geographical mix of the Group’s business and the importance of these regions to the strategy and future growth; and

•previous public company leadership experience.

The ~~search~~Committee will ~~also look~~continue to ~~further enhance diversity on~~monitor the market for potential candidates for appointment to the Board in ~~line with~~both the short and medium term, to ensure that the Board has a pipeline of credible successors and continues to be equipped to effectively discharge its ~~diversity and inclusion policy. The Committee’s search was again supported by Russell Reynolds. The Committee is actively progressing this search and will provide an update in due course.~~responsibilities.

Board diversity

The Board recognises the importance of gender, social and ethnic diversity, and the strengths ~~this~~diversity brings to Board effectiveness. ~~There was a~~Diversity is taken into account in its broadest sense when considering succession plans and appointments at both Board and senior management level, as well as more broadly across the Group.

Over the past 12 months, there has been significant focus on diversity at Board level, including as a result of the updated guidance and ~~senior executive levels in 2021, with consultations~~targets issued by ~~our UK regulators~~the FTSE Women Leaders Review (formerly the Hampton-Alexander review) and the UK Listing Authority. ~~We are well positioned against~~The Board is supportive of the proposals ~~outlined in those consultations~~ and, in line with the Board diversity and inclusion policy, ~~remain~~remains committed to increasing diversity at Board and senior levels to ensure we reflect the markets and societies we serve. ~~The~~This policy, which was updated in ~~2021~~2022 to incorporate new targets on female representation, details our approach to achieving our diversity ambitions, and ~~helps to ensure~~ensures that diversity and inclusion factors are ~~taken into account~~considered in succession planning. The revised Board diversity and inclusion policy is available at www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.

At the end of ~~2021, we~~2022, the Board had ~~a 38%~~33% female ~~Board~~ representation, with ~~five~~four female Board members out of ~~13. Our~~12. Following our recent announcement in relation to Kalpana Morparia and Jackson Tai, this leaves us on track to meet our aspirational ~~female representative~~ target isof at least 40% female representation on the Board by the end of 2023, ~~aligned~~ahead of the end of 2025 expectations set by the FTSE Women Leaders Review for gender representation on Boards.

The FTSE Women Leaders Review also published revised gender representation targets, specifically the expectation that a woman holds at least one of the senior Board positions of Chair, Chief Executive Officer, Senior Independent Director or Chief Financial Officer by the end of 2025. The Committee considers succession for these key Board roles on an ongoing basis and will take into account the need for greater diversity when considering candidates for appointment to these roles in future. At the ~~recommendation in~~end of 2022, all those holding these senior Board positions at the ~~final Hampton-Alexander Review. We continue~~Group were male. The Board is committed to achieving this target by the review’s end of 2025 deadline.

The Board continued to exceed the Parker Review target of having at least one Director ~~from an~~of diverse ethnic ~~minority background by 2021,~~heritage, with ~~four~~three members of our Board self-identifying in line with the ethnicity/ethnic definition set by ~~Parker.~~the Parker Review. Given the global and international nature of ~~HSBC,~~our business, including our strong presence and heritage in Asia, the Committee ~~expects the composition of~~considers that the Board should comprise a greater proportion of diverse ethnic heritage Directors than anticipated by the Parker Review. The Board’s targets were revised to ~~exceed~~reflect this commitment and therefore to maintain or improve the current ~~Parker Review recommendations. In line with our purpose and values, the Board believes that~~representation of directors from a diverse ~~and inclusive Board, reflective of the communities we serve, is key to effective decision making and to developing a sustainable and successful business for HSBC.~~ethnic heritage.

Further details on activities to improve diversity across senior management and the wider workforce, together with representation statistics, can be found on page ~~72.~~341.

Diversity of our principal subsidiary boards has also improved as a result of the Committee’s focus on succession planning and regular refreshment of subsidiary boards, with gender representation improving across all seven of our principal subsidiaries. The HSBC Bank Director Programme, delivered in partnership with IMD Business School during the first half of 2022, has also helped to prepare senior talent for roles on our subsidiary boards. A number of the graduates who participated in the programme have been provided with opportunities on subsidiary boards, enhancing the skills, experience and diversity of our subsidiary boards. This programme will operate regularly with the next cohort scheduled to take place in 2024.


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Independence

Independence is a critical component of good corporate governance, and is a principle that is applied consistently at both Holdings and subsidiary level. 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.

In line with the requirements of the Hong Kong Corporate Governance Code, the Committee also reviewed and considered the mechanisms in place to ensure independent views and input are available to the Board. These mechanisms include:

•having the appropriate Board and Committee structure in place, including rules on the appointment and tenure of non-executive Directors;

•facilitating the option of having brokers and external industry experts in attendance at Board meetings during 2022, as well as having representatives from the Group’s key regulators attend Board meetings in relation to specific regulatory items;

•ensuring non-executive Directors are entitled to obtain independent professional advice relating to their personal responsibilities as a Director at the Group’s expense;

•having terms of reference for each Committee and the Board provide authority to engage independent professional advisers; and

•holding annual Board and Committee effectiveness reviews, with feedback sought from members on the quality of, and access to, independent external advice.

Senior executive succession and development

The ~~Group Executive Committee underwent a period of significant change during 2021 and engaged Russell Reynolds to identify~~outputs from the best talent for roles on the committee. The changes included the addition of three new roles, as well as the appointments of new Co-Chief Executives for our Asia-Pacific region. These appointments recognised the leadership and capabilities that the Group requires to deliver our strategic commitments.

~~Succession~~annual capability review, including updated succession plans for the Group Executive Committee members, were considered and approved atby the ~~Nomination & Corporate Governance~~ Committee ~~meeting~~ in ~~December.~~December 2022. These reflected continued efforts to support the development and progression of diverse talent and promote the long-term success of the ~~Group.~~Group, with the gender diversity and proportion of Asian heritage successors improving year on year. This included future internal and external succession options for the Group Chief Executive, to ensure that the Committee has a robust and actionable succession plan when required.

The Committee also ~~discussed progress under the Asia talent programme, which aims~~continued to ~~support~~receive updates on the development of ~~potential future leaders from~~our talent programme within the ~~Group’s key~~Asia-Pacific region. ~~The initiative exceeded the target of appointing the top talent from the region into stretch roles as part of their development. As part of~~

Since its launch in 2020, significant progress has been made towards ensuring that we have a deeper and more diverse leadership bench-strength. Succession plans are more robust, with greater diversity and good succession plans, we also identified at least one credible successor of Asia heritage for the region's key roles. Other regions across the Group have begun work to replicate the success in Asia, with updates on their efforts to be provided to the Committee during 2022.fulfilment outcomes.

Committee evaluation

The annual review of the effectiveness of the Committee was internally facilitated in ~~2021.~~2022. The review concluded that, overall, the Committee continued to operate effectively and in line with regulatory requirements. However, a number of ~~positive aspects of the Committee’s operation and practices highlighted. Areas~~areas for ~~improvement that~~enhancement were identified, including the need for a continued focus on succession planning for the Group Chief Executive, the Committee Chair, the Senior Independent Director and future non-executive Directors, ensuring plans supporting the Board’s objectives in relation to diversity and stakeholder needs. Other areas of focus included the ~~Committee’s succession planning practices,~~continued identification of both internal and external talent, training requirements and the retention strategy for high performing individuals. Certain priority areas of focus for the Committee across 2023 were suggested, including the continued monitoring of progress of governance within material and principal subsidiaries (as defined in the subsidiary accountability framework), and the need to review the ~~support and guidance provided in relation to executive succession activity, including~~external advisers supporting the ~~expectations of leaders in relation to succession preparedness. The Committee discussed the outcomes of the evaluation in January 2022, and endorsed the findings and actions to be taken.~~Committee. The outcomes of the evaluation have been reported to the Board, and the Committee will track the progress in implementing recommendations during 2023. In line with the UK Corporate Governance Code, the 2023 Board and Committee performance review will be externally facilitated.

The Committee has initiated the process for the selection of the independent board evaluator, with a decision on the evaluator to be taken within the first half of the year to allow the review to commence in the second half of 2023. A report on the process, findings and recommendations will be disclosed in the Annual Report and Accounts 2023.

The Committee was kept updated on progress on ~~the recommendations through the year.~~actions agreed following its 2021 evaluation, which were all completed.

Subsidiary governance

~~The importance of robust, effective and proportionate governance at all levels of the Group is critical,~~In line with ~~the 2020 subsidiary governance review of principal subsidiaries identifying a number of areas of good practice and areas where further improvement would be beneficial.~~

~~One of the recommended areas for improvement was a refresh of the existing subsidiary governance policy, and~~ the subsidiary accountability framework introduced in 2021, the Committee continued to ~~provide greater clarity and guidance on~~oversee the ~~Group’s expectations of various subsidiaries. The refreshed framework, which included additional principles, underpinned by provisions and detailed guidance, took effect from 1 April 2021.~~

~~Subsidiary board composition and ensuring effective succession planning practices were key objectives of the refreshed framework. The subsidiary~~corporate governance ~~review also recommended that guidance should be developed and enhanced with additional provisions to support effective board composition~~ and succession ~~planning. It also expected that boards should use a skills matrix. In connection with~~arrangements across the ~~revised expectations, all~~ principal and material ~~subsidiaries submitted their succession plans for~~subsidiary portfolio. Where appropriate and subject to strong rationale, the ~~Committee’s review. The~~ Committee approved ~~a number of required~~ exceptions from strict compliance with the framework, ~~to manage transition for a limited period, and~~including to reflect ~~varying~~local law and regulation, as well as market ~~practices, laws and regulations across our markets.~~

~~As part of efforts~~practice. The Committee has reinforced its expectations that subsidiaries take steps to make greater use of the skills, expertise and experience among our senior employees for roles on subsidiary boards, the Committee approved the development of the HSBC Bank Director Programme. This programme seeks to equip our internal talentachieve full compliance with the ~~appropriate skills~~framework, with any exception requests subject to thorough review and ~~knowledge required to serve on a HSBC subsidiary board. The initiative was developed following consultation with our principal subsidiary chairs, who~~consideration by the Group Company Secretary and Chief Governance Officer in advance of consideration by the Committee.


~~274~~			~~HSBC Holdings plc~~

~~supported the greater use of an internal talent pool on subsidiary boards, where permitted by applicable laws and regulations.~~

~~Business governance review~~

Following the success of the 2020 review, an equivalent review of the executive governance practices across our three global businesses, Wealth and Personal Banking, Commercial Banking and Global Banking and Markets, was conducted during the fourth quarter of 2021. This work had the strong support of the Group Executive Committee, and involved desktop reviews, meeting observations and interviews.

~~Overall, the review concluded that the governance of the three global businesses operated effectively, and had improved as a~~

result of governance simplification initiatives sponsored by the Group Executive Committee. The main opportunities for improvement related to further simplification of governance structures. In particular, the role of the global business governance forums within regions and countries will be considered to avoid duplication by ensuring that their roles and responsibilities are clear and distinct.

The findings and recommendations from the review were discussed and endorsed by the Committee in January 2022, with oversight of the actions and next steps to be overseen by the respective global business executive committees and the Group Executive Committee.

Matters considered during ~~2021~~2022

Jan

Feb

~~Mar~~

Apr

May

Jul

Sep

Dec

Board composition and succession

Board composition, including succession planning and skills matrices

lô

Approval of diversity and inclusion policy

Executive talent and development

Senior executive succession

Approval of executive succession plans

Talent programmes

lô

ôl

Governance

Board and committee evaluation

Subsidiary governance

Subsidiary and executive appointments


l			lMatter considered			ô			Matter not considered


HSBC Holdings plc			~~275~~293

Report of the Directors | | Corporate governance report


~~Group Audit Committee~~

| Board committees


~~"In 2021, the~~ Group Audit Committee ~~carried out significant development in our internal financial controls~~



"The Committee reviewed management's arrangements for compliance and assurance over regulatory reporting processes, ~~to meet a number~~and progress of ~~challenges.~~HSBC-specific reviews of regulatory reporting."

Dear Shareholder

~~The~~I am pleased to introduce the Group Audit Committee (‘GAC’) ~~had a busy agenda~~report setting out the key matters and issues considered in ~~2021.~~2022.

We ~~carried out significant development~~welcomed Eileen Murray, who rejoined the GAC in ~~our~~2022, and Rachel Duan, who was appointed to the Committee in April 2022. Pauline van der Meer Mohr stepped down from the Board and James Forese stepped down from the GAC to assume new Board responsibilities. I would like to thank them both for their support and insightful contributions to the work of the GAC.

The GAC continued to provide oversight of change and transformation programmes to enhance the Group’s internal controls over financial ~~controls~~reporting. We challenged management on its forecasts and confidence in the delivery of externally communicated targets in an uncertain external environment. The Committee also reviewed management's arrangements for compliance and assurance over regulatory reporting processes, ~~to help meet the challenges~~and progress of ~~organisational transformation, the continued impact~~HSBC-specific reviews of ~~the Covid-19 pandemic, a changing~~ regulatory ~~landscape and the growing demand for better and more ESG and climate~~ reporting.

~~To ensure alignment~~We continued to strengthen our relationships and understanding of ~~priorities~~issues at the local level through regular information sharing with the principal subsidiary audit committee chairs. This was supplemented with regular meetings with the principal subsidiary audit committee chairs to discuss key issues, and ~~understand local challenges,~~through their attendance at GAC meetings. I ~~attended~~also joined a number of principal subsidiary audit committee ~~meetings. These were supplemented with regular communications that we cascade through~~meetings throughout the ~~Group, informal meetings with audit committee chairs~~Group.

The Group’s whistleblowing arrangements continue to satisfy regulatory obligations and ~~a breakout session on key areas for focus at the Non-Executive Director Summit in July 2021.~~

I regularly met the whistleblowing team to discuss material whistleblowing ~~cases~~cases. Efforts were made in 2022 to drive continuous operational improvements and to provide deeper insights to support our purpose, values and conduct approach. Actions were also taken to make use of best practices across investigative functions and to enhance the ~~effectiveness~~experiences of whistleblowing arrangements. The GAC spent significant time considering enhancements to whistleblowing arrangements, management's responses to internal audit findings and the thematic and cultural insights that could be used to improve the speak-up culture.colleagues when they report concerns at HSBC.

The Committee ~~received regular updates from~~oversaw the ~~Group Chief Financial Officer~~retendering for statutory audit services for the 2025 year-end. This process included detailed qualification activities, thorough evaluation of firms, consideration of evolving UK legislation and guidelines, and engagement with regulators. The GAC recommended to the Group Head of Internal Audit on functional transformation, its impact on the control environment and the capacity and capabilities of the functions. The Committee also invited the Global Finance Executive CommitteeBoard that PwC be reappointed for a ~~private session, and I attended a session~~further term of ~~the Global Internal Audit Executive Committee to discuss key topics and themes from a management perspective.~~

Recognising the importance of providing enhanced trust in reporting to all stakeholders, the Committee provided a detailed response to the UK Government's consultation paper on ‘Restoring Trust in Audit and Corporate Governance’.10 years commencing 1 January 2025.

The Committee implemented all the actions from the ~~2020 evaluation. The 2021~~2022 evaluation and the 2023 review determined that the GAC continued to operate effectively.

Eileen Murray stepped down as a member at the 2021 AGM. The Committee continues to have a wide range of financial services experience and I would like to thank all the GAC members and management for their diligent contributions and support to the work of the Committee during the year.

David Nish

Chair

Group Audit Committee22

21 February ~~2022~~2023


Membership
	Member since	Meeting attendance in ~~2021~~20221
David Nish (Chair)	May 2016	~~11/11~~13/13

Rachel Duan2	Apr 2022	6/8
James Forese23	May 2020	~~10/11~~5/5
Eileen Murray34	~~Jul 2020~~Jun 2022	~~5/6~~6/8

Jackson Tai	Dec 2018	~~11/11~~13/13
Pauline van der Meer Mohr45	Apr 2020	~~10/11~~5/5

1 These included ~~two~~four joint meetings with the Group Risk ~~Committee.~~Committee (‘GRC’) and the Technology Governance Working Group.

2 Rachel Duan was unable to join two meetings due to prior commitments made before becoming a GAC member.

3 James Forese stepped down from the GAC on 1 June 2022.

4 Eileen Murray rejoined the GAC on 1 June 2022, and was unable to attend ~~one meeting due to extreme weather conditions disrupting air travel.~~

~~3 Eileen Murray was unable to attend one meeting~~two meetings due to personal ~~circumstances and stepped down from the Group Audit Committee on 28 May 2021.~~circumstances.

45 Pauline van der Meer Mohr ~~was unable to attend one meeting due to personal circumstances and another due to a prior commitment.~~retired from the Board on 29 April 2022.

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~~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 management’s arrangements for compliance with prudential regulatory financial reporting;

•reviewing and monitoring the relationship with the external auditor and overseeing its appointment, tenure, rotation, remuneration, independence and engagement for non-audit services;

•overseeing the Group’s policies, procedures and arrangements for capturing and responding to whistleblower concerns and ensuring they are operating effectively; 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~~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.

Committee meetings usually take place a couple of days before Board meetings 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.~~ The Board also receives copies of the Committee ~~agenda~~agendas and minutes of meetings.

The Group Chief Executive, Group Chief Financial Officer, Group Head of Finance, Global Financial Controller, Group Head of Internal Audit, Group Chief Risk and Compliance Officer, Group Company Secretary and Chief Governance 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 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.


~~276~~294			HSBC Holdings plc

Matters considered during ~~2021~~2022

Jan

Feb

~~Mar~~

Apr

Jun

Jul

Sep

Oct

~~Nov~~

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

ESG and climate reporting

Regulatory reporting-related matters

Certificates from principal subsidiary audit committees

Control environment

Control enhancement programmes

Group transformation

lô

Review of deficiencies and effectiveness of internal financial controls

Internal audit

Reports from Global Internal Audit

~~Annual audit~~Audit plan updates, independence and effectiveness

lô

External audit

Reports from external audit, including external audit plan

Appointment, remuneration, non-audit services and effectiveness

lAudit tender

Compliance

Accounting standards and critical accounting policies

lô

Corporate governance codes and listing rules

Whistleblowing

Whistleblowing arrangements and effectiveness


l			Matter considered			ô			lMatter not considered

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, ~~and~~ Jackson Tai and Eileen Murray are ‘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 GAC Chair ~~had regular meetings~~continued to engage with ~~the~~ regulators, including the UK’s PRA and the Financial ~~Conduct Authority ('FCA').~~Reporting Council. These included trilateral meetings involving the Group’s external auditor, PwC.

The Committee assessed the adequacy of resources of the accounting, ~~and~~internal audit, financial reporting ~~function.~~and ESG performance and reporting functions. It also monitored the legal and regulatory environment relevant to its responsibilities.

How the Committee discharged its responsibilities

Connectivity with principal subsidiary audit committees

The ~~Committee maintains a close~~GAC strengthened its working relationship with the principal subsidiary audit committees through formal and informal channels. The GAC Chair regularly met the chairs of the principal subsidiary audit committees to enable close links and deeper understanding on judgements around key issues. The GAC Chair attended a number of the principal subsidiary audit committee meetings and certain chairs of the principal subsidiary audit committees also joined meetings of the GAC during the year.

This continuous engagement supported effective information sharing and targeted collaboration between audit committee chairs and management to ensure there was appropriate focus on the local implementation of programmes. Subsidiary audit committee chairs were also able to directly share local challenges, including regulatory expectations with Group management and the GAC Chair.

On a half-year basis, principal subsidiary audit committees ~~provide~~provided certifications to the GAC ~~regarding~~that regarded the preparation of their financial statements, adherence to Group policies and escalation of any issues that ~~require~~required the attention of the GAC. ~~Recognising the additional focus on prudential regulatory reporting, the GAC sought additional~~These certifications also included information ~~via these certifications~~ regarding the governance, review and

assurance activities undertaken by ~~the~~ principal subsidiary audit committees in relation to prudential regulatory reporting.

The GAC Chair regularly met with the chairs of the principal subsidiary audit committees, and attended meetings to enable close links and deeper understanding on judgements around key issues. Certain chairs and audit committee members from the principal subsidiary audit committees were also invited to attend meetings of the GAC on relevant topics.

At the Non-Executive Director Summit, the GAC Chair engaged with a number of subsidiary non-executive Directors in a breakout session to discuss key focus areas, including regulatory reporting, ESG and climate reporting and whistleblowing arrangements.

Regular post-meeting communications to principal subsidiary audit chairs were supplemented with informal quarterly catch-ups with a group of the audit committee chairs. These provided opportunities for the discussion of key matters impacting subsidiaries and the Group in between formal meetings.

Internal controls

~~In 2021, the GAC~~The Committee devoted significant time in ~~overseeing management’s approach to~~understanding the effect on financial reporting risk from high-impact programmes aimed at enhancing and enabling ~~a sustainable~~the transformation of the control environment ~~that supports~~to support financial, prudential regulatory and other regulatory ~~reporting~~reporting. The GAC provided detailed feedback and challenge to ~~meet the evolving expectations~~management on a number of ~~regulators~~aspects, including requesting external assurance, replanning and other stakeholders. The programme will drive end-to-end organisational alignment so that principles and control standards can be designed to deliver a more integrated, standardised and automated control environment. The Committee received regular updates on the mobilisation of ~~the~~ programme workstreams, resourcing and engagement throughout the Group and with regulators. Common themes from these discussions included the need to improve understanding and accountability for data capture, improve data quality from the implementation and embedding of data policies while ensuring there was a stronger appreciation throughout the Group of the downstream impact on financial and regulatory reporting. The oversight and implementation of ~~the programme~~these programmes and ~~its~~their component parts will beremain a key focus for the Committee in ~~2022.~~2023.

The ~~Committee~~GAC 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 internal financial controls. These updates included the Group’s work on compliance with section 404 of the Sarbanes-Oxley Act. Based on this work, the GAC recommended that the Board support its assessment of the internal controls over financial reporting.

For further details on how the Board reviewed the effectiveness of key aspects of internal control, see page ~~327.~~

As required by the Sarbanes-Oxley Act, the GAC received updates on the Group's work on section 404 compliance and the Group's broader financial control environment during the year. This was to assess the effectiveness of the internal control system for financial reporting and any developments affecting it. Based on this work, the GAC recommended that the Board support the assessment of the internal controls over financial reporting.339.

Financial reporting

The Committee is responsible for reviewing the Group’s financial reporting during the year, including the Annual Report and Accounts,Interim Report, quarterly earnings releases, analyst presentations and, where material, Pillar 3 disclosures and other items arising from the review of the Group Disclosure and Controls Committee. As part of its review, the GAC:

•evaluated management’s application of critical accounting policies and material areas in which significant accounting judgements were applied;


HSBC Holdings plc			~~277~~295

Report of the Directors | | Corporate governance report| Board committees

•gave particular regard to the analysis and measurement of IFRS 9 expected credit losses (‘ECL’), including the key judgements and management adjustments made in relation to the forward economic guidance, underlying economic scenarios and reasonableness of the weightings;

•focused on compliance with disclosure requirements to ensure these were consistent, appropriate and acceptable under the relevant financial and governance reporting requirements;

•provided advice to the Board on the form and basis underlying the long-term viability statement; and

•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.

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.~~viability. 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 ~~329.~~42.

Fair, balanced and understandable

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, including in relation to the increasingly important ESG considerations.

The Committee reviewed the draft Annual Report and Accounts ~~2021~~2022 and results announcements to enable input and comment. It was supported by the work of the Group Disclosure and Controls Committee, which also reviewed and assessed the Annual Report and Accounts ~~2021~~2022 and investor communications.

This work enabled the GAC to provide positive assurance to the Board to assist them in making the statement required in compliance with the ~~2018~~ UK and Hong Kong Corporate Governance ~~Code.~~Codes.

Key financial metrics and strategic priorities

The Committee assessed management’s assurance and preparation over external financial reporting disclosures, in particular the monitoring and tracking of key financial metrics and strategic priorities. In the second quarter of 2022, the Committee was involved at all stages in overseeing and challenging management on the revised financial targets.

The GAC challenged management on the forecasting, analysis and additional assurance work undertaken to support the revised financial targets in light of geopolitical risks, deteriorating outlook, ongoing impact of the Covid-19 pandemic in certain jurisdictions and a rising interest rate environment.

Further details can be found in the ‘Principal activities and significant issues considered during 2022‘ table on page 298.

ESG and climate reporting

~~During~~The GAC, supported by the ~~year,~~executive-level ESG Committee and Group Disclosure and Controls Committee, provided close oversight of the disclosure risks in relation to ESG and climate reporting, amid rising stakeholder expectations.

The GAC ~~reviewed~~tracked and monitored developments from a number of prominent consultations and considered them when reviewing the strategy ~~scope~~ and ~~status~~scope of ESG and climate ~~reporting,~~disclosures in 2022. In particular, the Committee asked management to provide further

details on the pipeline of mandatory regulatory and externally committed ESG and climate-related disclosures over the next 12 to 24 months, including the ~~climate change resolution and scenario analysis disclosure. Management updates were also informed by an HSBC-specific stakeholder feedback survey, which highlighted~~delivery status. This allowed the ~~appetite for more detailed ESG disclosures on climate metrics, emissions targets and plans on how these would be achieved. The~~ Committee ~~considered the operational, disclosure and litigation risks, which could arise from making further external commitments related~~ to ~~ESG and climate reporting.~~

~~The~~consider management’s development of methodologies, tools and data solutions holistically to ~~support our~~ fulfil external disclosure requirements and commitments.

ESG ~~strategy remained~~reporting is fast evolving with few globally consistent reporting standards and a ~~key challenge.~~high reliance on external data. The ~~GAC discussed management plans to enhance and assure~~Committee focused on internal and external ~~ESG data sourcing across the Group to develop a common ESG data inventory. The Committee considered the approach to subsidiary reporting,~~assurance in ~~particular the availability of granular data to support the Group subsidiaries~~this area in ~~fulfilling their mandatory disclosure requirements.~~

line with wider market developments. Management updated the Committee on the verification and assurance framework to ensure that ESG and climate disclosures were materially accurate, consistent, fair and balanced. The GAC discussed the roles and work of the three lines of defence as part of this framework, discussed the nature and root cause of issues identified through the increased assurance work, as well as proposals for further limited third-party assurance to be performed over specific ESG-related metrics.

~~The Committee oversaw and challenged management on the proposals to further expand the ESG review section of the~~ ~~Annual Report and Accounts~~ to incorporate additional disclosures. These include the integration of TCFD disclosures, which were previously published in a stand-alone supplement, and net zero disclosures in relation to the special shareholder resolution on climate change.

~~The GAC and the GRC held a joint meeting to review the progress made to deliver on the commitment – under the climate change special resolution – to publish a policy to phase out the financing~~

of coal-fired power and thermal coal mining. The committees discussed the positions taken, and the risks associated with the policy, as well as the methodology for capturing and reporting the emissions data across the financing portfolio.

Regulatory reporting

~~The GAC focused on what improvements were required to regulatory reporting processes and controls, which were operating outside the Board’s risk tolerance.~~ The Committee continued to focus heavily on the quality and reliability of regulatory reporting and oversight of key programmes to strengthen the end-to-end processes to meet regulatory expectations. ~~It also challenged management~~

Management provided updates on the ~~scope~~status of ~~the regulatory reporting enhancement programmes. This was in response to findings from~~ongoing HSBC-specific external reviews, and ~~other~~discussed the issues and themes identified from the increased assurance work and focus on regulatory ~~pronouncements including~~reporting. They also discussed root cause themes, remediation of known issues and new issues identified through the ~~PRA's ‘Dear CEO’ letter~~increased assurance work and focus on ~~thematic findings on~~regulatory reporting. The GAC was instrumental in the ~~reliability~~initiation of a global programme designed to deliver consistent control frameworks for our regulatory reporting ~~across~~globally over the ~~industry.~~next few years. The Committee challenged management on remediation plans, to ensure there was a sustainable reduction in issues and that dependencies with other key programmes were well understood. The Committee Chair invited certain principal subsidiary audit committee ~~members~~chairs to GAC meetings to participate in discussions to ensure alignment and understanding of key issues and ongoing regulatory engagement.

Management discussed root cause themes, remediation of known issues and areas of increased risk identified from the risk-based read-across exercise. The Committee considered the near-term actions being taken by management, as well as the strategic remediation plan, including the costs, resources and time for implementation. It also challenged management on the delivery risks and the dependency on other ongoing programmes.

~~Management also highlighted potential impacts on some of the Group's regulatory ratios, such as CET1 and LCR, and adjustments required to external disclosures.~~

UK audit reform

~~The Committee spent significant time in reviewing a~~In May 2022, the UK ~~Government~~government published its response to the consultation paper, ~~– from the Department of Business, Energy and Industrial Strategy – on~~ ‘Restoring Trust in Audit and Corporate Governance’~~. The GAC oversaw~~, on strengthening the ~~development of~~UK’s audit, corporate reporting and corporate governance systems. This summarised the ~~direct HSBC response~~responses received to the consultation ~~as well as management’s engagement across a number of industry bodies to understand wider views.~~and set out the next steps towards implementation.

~~In addition, the Committee discussed the management activities being undertaken in preparation for future stages~~One of the ~~consultation. The GAC took steps~~key changes proposed is for large public interest entities, such as HSBC, to ~~review its~~develop and publish an audit and assurance policy every three years, setting out the approach to assurance of information beyond the financial statements. The government will also introduce a new statutory resilience statement.

The Committee received updates on the outcome of the consultation and ~~expand~~reviewed management’s proposed actions to support the future requirement for disclosure of an audit and assurance policy. This includes the work towards designing an integrated internal assurance approach across the three lines of defence, with the development during the year of an integrated assurance framework in support of the Group’s risk management framework.

While the legislation and expected guidance around the form and content of an audit and assurance policy is still being drafted, it is expected that the areas below will be covered by any future disclosures. Current disclosures exist in respect of certain of these areas, although these will need to be enhanced and expanded as guidance develops. The areas highlighted below are in addition to disclosures on the statutory audit and assurance work required by regulators.


296			HSBC Holdings plc


Area			Relevant current disclosure
Overview of risk and internal control framework			Risk review, pages 150 to 270
Assurance over internal controls			Risk review, pages 150 to 270, ’Global Internal Audit’, page 298, and ‘Internal controls’ page 339.
Specific information subject to assurance			Environmental, social and governance review, page 14
Resilience statement (currently viability statement)			Long-term viability and going concern statement, page 42
External auditor engagement			’External auditor’, page 297
Stakeholder engagement on audit and assurance policy			No existing disclosure.

The Committee continues to focus on ESG and regulatory reporting as areas for expanded assurance, in ~~certain areas, particularly regulatory reporting~~line with the risk assessment framework established in 2021. The specific external assurance over ESG disclosures is set out in the ESG review section of the Annual Report and ~~ESG.~~Accounts. The Committee ~~also considered~~continued to respond to various regulatory engagement requests and surveys, including the impact on the future audit tender strategy, and will be looking to tender in advance of the 10-year rotation point. The Committee has proactively started engagement with the Big Four and challenger audit firms, as part of its preparations.

Financial Reporting Council’s Draft Minimum Standards for Audit Committees. The Committee will continue to monitor ~~outcomes~~developments as legislation is drafted to enact the requirements and ~~next steps arising from~~ the ~~UK Government’s consultation.~~associated guidance is developed.

External auditor

The GAC has the primary responsibility for overseeing the relationship with the Group’s external auditor, PwC.

PwC completed its ~~seventh~~eighth audit, providing robust challenge to management and sound independent advice to the Committee on specific financial reporting judgements and the control environment. 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 audit, including observations on the control environment. Critical audit matters discussed with PwC are set out in its report on page ~~334.~~346.

External audit plan

The GAC reviewed the PwC external audit approach, including the materiality, risk assessment and scope of the audit. ~~The Committee invited a number of the principal subsidiary audit partners to discuss their priorities as part of the review of the external audit plan.~~

PwC highlighted the changes being made to their approach to enhance the quality and effectiveness of the audit. Changes for the


~~278~~			~~HSBC Holdings plc~~

~~2022~~ 2023 audit included more auditing being performed centrally across legal ~~entities and the~~entities. The Committee also focused on PwC's increased use of technology solutions, ~~some of which are aligned~~and received detailed briefings on its approach to ~~technology change~~data and ~~transformation activities across HSBC.~~analytics.

Effectiveness of external audit process

The GAC assessed the effectiveness of PwC as the ~~Group's~~Group’s external auditor, using a questionnaire that focused on the overall audit process, its effectiveness and the quality of output.

In addition, the GAC Chair, certain principal subsidiary audit chairs and members of the Group Executive Committee met with the Head of Audit, PwC UK to discuss findings from the questionnaire and provide in-depth feedback on the interaction with the PwC audit team.

PwC highlighted the actions being taken in response to the HSBC effectiveness review, including the development of audit quality indicators, which would provide a balanced scorecard and transparent reporting to the GAC. These audit quality indicators focused on the following areas:

•findings from inspections across the Group and regulators on PwC as a firm;

•the hours of audit work delivered by senior PwC audit team members, the extent of specialist and expert involvement, delivery against agreed timetable and milestones and the use of technology;

•any new control deficiencies in Sarbanes-Oxley locations, proportion of management identified deficiencies and delivery of audit deliverables to agreed timelines; and

•outcomes and scores from annual audit surveys, independent senior partner reviews and prior period errors.

The GAC will continue to receive regular updates from PwC and management on the progress of the external audit plan and PwC performance across the audit quality indicators.

~~The GAC monitored~~There were no breaches of 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.

Independence and objectivity

The Committee 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 and applicable rules and regulations, provided the GAC with written confirmation of its independence for the duration of ~~2021.~~2022.

The Committee confirms it has complied with the provisions of ~~the~~ The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 for the financial statements. The Committee acknowledges the provisions contained in the 2018 UK Corporate Governance Code in respect of audit tendering. In conformance with these requirements, ~~HSBC will be required to tender for~~ the GAC oversaw the retendering of statutory audit services for the 2025 ~~financial year end~~year-end, including considering the tendering and ~~beyond, having appointed PwC~~shared audit proposals from ~~1 January 2015.~~

~~The Committee believed it would not be appropriate to re-tender in 2021 as a change in auditor would have a significant impact~~the UK government’s consultation. More details on the ~~organisation, including~~audit tender can be found on the Global Finance function and would increase operational risk. In 2021, the Committee's priority was to monitor closely the ongoing industry developments and proposals on reform of the UK external audit market and the impact this may have on any tender process. As a result, the Committee has commenced planning for the next tender process in advance of the 10-year re-tender period, likely to take place no later than early 2023.page 299.

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 ~~2022~~2023 will be proposed to shareholders at the ~~2022~~2023 AGM.

Non-audit services

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.

During the period, it was identified that PwC provided an impermissible training service via a publicly available seminar in respect of the implementation of a new Indonesian IT security regulation. The attendees at this seminar included six members of staff from HSBC Indonesia. The HSBC staff who attended the course were not from the Finance function and were not in roles relevant to the audit. In addition, HSBC Indonesia is not within the scope of the Group audit. In light of the nature and scope of the original service and the mitigating factors mentioned above, we do not believe that the provision of the service has affected PwC’s professional judgement or integrity in respect of the audit of the Group. Mitigating actions have been implemented by both PwC and HSBC to reinforce the controls around the provision of non-audit services by PwC, including additional independence training and improved communication between relevant parties.

The non-audit services carried out by PwC included 6973 engagements approved during the year where the fees were over $100,000 but less than $1m. Global Finance, as a delegate of the 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.

~~Ten~~Eleven 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, including the provision of services by PwC relating to the Section 166 Financial Services and Markets Act 2000 Skilled Person report. ~~The PRA instructed a Section 166 review of HSBC's credit risk RWAs as reported at 31 December 2020 and agreed for PwC to provide a reasonable assurance opinion on the accuracy~~


	2022	2021
Auditors‘ remuneration	$m	$m
Total fees payable	148.1	129.4
Of which fees for non-audit services	50.5	41.3


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Report of the ~~regulatory reporting at that date. 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.~~Directors | Corporate governance report | Board committees

2021 2020
Auditors‘ remuneration $m $m
Total fees payable 129.4 130.2
Fees for non-audit services 41.3 37.3

Global Internal Audit

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. The Group Head of Internal Audit reports to, and meets frequently with, the Chair of the GAC. In addition, in 2022, there was more interaction between Global Internal Audit senior management and the members of the GAC, aimed at increasing knowledge and awareness of the audit universe and existing and emerging risks identified by Global Internal Audit. Global Internal Audit adheres to The Institute of Internal ~~Auditors'~~Auditors’ mandatory guidance.

~~The Group Head~~Consistent with previous years, the 2023 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 annual plan. 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 2023 audit coverage remain as: strategy, governance and culture; financial crime, conduct and compliance; financial resilience; and operational resilience. A quarterly assessment of key risk themes will form the basis of thematic reporting and plan updates and will ultimately drive the 2024 planning process.

In 2023, Global Internal Audit ~~reports~~will maintain significant focus on the Group transformation portfolio, increase coverage of treasury risks, financial forecasting processes and regulatory reporting, and include coverage of ESG risk, with focus on climate commitments, operationalisation and reporting. In addition, Global Internal Audit will continue its programme of culture audits to assess the ~~Chair~~extent that behaviours reflect HSBC’s purpose, ambition, values and strategy, and expand its coverage of franchise audits for locally significant countries, following the development of the ~~GAC~~approach in 2022. The annual audit plan and ~~there~~material plan updates made in response to changes in the Group’s structure and risk profile are ~~frequent and regular meetings held between them.~~

approved by the GAC.


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~~Results~~The 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, and the output from continuous monitoring. This includes business and regulatory developments and an independent view of emerging and horizon risk, together with details of audit coverage and any required changes to the annual audit plan.

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 2021 audit coverage were strategy, governance and culture, financial crime, conduct and compliance, financial resilience and operational resilience. In 2021, Global Internal Audit increased coverage on the Group’s transformation programme and performed project audit activity for selected complex and high-priority business cases. Global Internal Audit also continued its 'real-time audit' approach, notably to cover areas of strategic importance. 'Real-time audits' provide real-time, independent ongoing observations to management, with issues being raised for significant observations that are not addressed in a timely manner. In addition, in 2021, Global Internal Audit implemented its revised 'culture audit' approach which assesses the impact of culture in supporting or inhibiting sustainable performance against strategic aspirations and managing risk within risk appetite. The approach combines internal audit and behavioural science principles, which align to regulator culture assessments and industry best practice.

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 2022 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 annual plan. Risk theme categories for the 2022 audit work continue to be strategy, governance and culture, financial crime, conduct and compliance, financial resilience and operational resilience. In 2022, a quarterly assessment of key risk themes will form the basis of thematic reporting and plan updates and will ultimately drive the 2023 planning process. The annual audit plan and material plan updates made in response to changes in the Group’s structure and risk profile are approved by the GAC.

Based on regular internal audit reporting to the GAC, private sessions with the Group Head of Internal 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.

Executive management is responsible for ensuring that issues raised by Global Internal Audit 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.

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 ~~2021~~2022

Collaborative oversight by GAC, GRC and ~~GRC~~Technology Governance Working Group

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.

A further development, based on 2022 evaluation findings, was to have joint meetings of the GAC, GRC and Technology Governance Working Group. These meetings would ensure there was coordinated oversight and consistent joint feedback to management on areas of significant overlap.

Areas of joint focus for the GAC, GRC and ~~GRC~~the Technology Governance Working Group during ~~2021~~2022 were:

~~Sustainable control environment~~Finance on the Cloud

~~As discussed in~~Finance on the ~~‘Internal controls’ section of this report,~~Cloud is a key multi-year data and reporting transformation programme using Cloud technology to enable the ~~GAC oversaw management’s approach to create a sustainable~~ transformation of the ~~control environment.~~ Global Finance operating model and re-engineering of core reporting processes.

The ~~programme, and its impact~~committees conducted a deep dive review of Finance on the ~~internal control environment as a whole, was also discussed by~~Cloud and held multiple meetings throughout 2022 to challenge management on the ~~GRC.~~

~~In conjunction with~~programme’s overall objectives, scope and target end-state. As part of these discussions, the ~~GRC, the GAC monitored the remediation of significant deficiencies~~committees considered organisational realignment and ~~weaknesses in controls raised by~~programme leadership, and asked management to seek external assurance and ~~the external auditor. The GAC will continue to monitor the progress of remediation as well as efforts to integrate requirements~~validation of the ~~Sarbanes-Oxley Act with~~Finance on the ~~operational risk framework as part~~Cloud investment case and technology architecture. The committees also ensured that there was a greater understanding of the ~~sustainable control environment programme. The committees will also continue~~complexities and dependencies between Finance on the Cloud and other key programmes to ~~monitor the~~ensure that deadlines for financial and regulatory reporting ~~enhancements programmes to bring regulatory reporting processes within the risk appetite.~~deliverables were met.

~~In 2021, the GAC and GRC Chairs worked closely with the Group Chief Risk and Compliance Officer and the Group Head of Internal Audit to:~~

•~~ensure that risks and issues highlighted at the GAC from audit reports were appropriately captured and reported as part of the wider internal controls discussion at the GRC; and~~

•coordinate the approach and oversight required for the remediation of very high risk and high risk issues identified by Global Internal Audit, as well as the establishment of a single repository of issues across HSBC.Digital Business Services

The ~~GAC and the GRC also~~committees held a joint meeting to ~~consider~~develop a deeper understanding of the risk and internal controls issues across key components of Digital Business Services. The joint meeting discussed:

•the regulatory purpose of the service company structure, and management providing an update on initiatives to streamline, simplify and automate the services;

•actions taken by the Identity and Access Management sub-function to tackle access risks through automation and a new toolset;

•monitoring and governance activities carried out by the Global Operations and Payments teams, and its shift towards an automated control environment; and

•actions carried out within Global Procurement to enhance the risk management and control culture, in particular with regard to the oversight of critical third parties and its upgrade to a Cloud-based procurement platform.

Embedding data into our culture

The committees reviewed and challenged the Group’s data strategy and the work required for the Group to embed its data ~~management. Further details can be found in~~policies, define the ~~GRC report on page 286.~~

~~Financial reporting~~

~~In addition to~~data technology landscape, and build a data-led culture. The committees also reviewed the GRC’s overall review of the Group’s risk appetite and risk management framework, the GAC gave particular focus to risk measures impacting financial reporting. This included the review of the financial reporting, tax and pension risk appetite statements. The GAC and the GRC also considered how theGroup's approach to ~~financial reporting risk appetite could be evolved~~harnessing and using data to ~~drive a reduction in the exposure to this risk over the medium term and provide~~ better ~~visibility to financial and prudential regulatory reporting separately.~~

The committees worked collaboratively in reviewing ESG and climate risks, as well as the financial and regulatory reporting impacts. For further details, see the 'ESG and climate reporting’ section of this report on page 80.

~~Given the continued impact from the Covid-19 pandemic, the GAC and the GRC reviewed the risks arising from models used~~unlock value for the estimation of expected credit losses under IFRS 9. 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.our customers.

Whistleblowing and speak-up culture

An important part of ~~HSBC's~~HSBC’s values is speaking up when something does not feel right. HSBC remains committed to ensuring ~~that~~ colleagues have ~~the~~ confidence to speak up and acting when they ~~observe unlawful or unethical behaviour. HSBC provides a~~do. A wide variety of channels are provided for colleagues to raise concerns, including ~~through~~ the Group’s whistleblowing channel, HSBC Confidential (see page 8792 for further information). The GAC is responsible for the oversight of the effectiveness of the Group’s whistleblowing arrangements. The


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Group Head of Compliance 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.~~cases and the associated management actions. 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~~continued to meet regularly throughout 2022 with the Group Head of Conduct, Policy and Whistleblowing, receiving briefings on material whistleblowing cases and the ongoing effectiveness of the whistleblowing arrangements. The Committee also received reports on actions being taken to further align our whistleblowing arrangements to actively support our purpose and values, and conduct approach. During 2023, the Committee will continue to be briefed on these actions, as well as the ongoing effectiveness of the HSBC Confidential channel.

Audit tender

Following the conclusion of a formal competitive audit tender process, the Board has approved the re-appointment of PwC as external auditor of the statutory audits of HSBC Holdings for 2025 to 2034, at which point we are required to rotate auditors in accordance with UK requirements. The audit tender process considered both large and challenger audit firms and was led by the GAC.

Scope

As a UK public interest entity, we are required to tender our audit every 10 years and rotate our auditor every 20 years. We disclosed in our Annual Report and Accounts 2021 the intention to commence an audit tender, given PwC were initially appointed for the audit of the Annual Report and Accounts 2015.

Pursuant to the tender, interested and qualified parties were invited to submit proposals for the right to provide statutory audit services to HSBC Holdings and its subsidiaries for a period of 10 years commencing from the financial year ending 31 December 2025.

HSBC’s primary objective was to ensure a fair and transparent tender process and appoint the audit firm that will provide the highest quality in the most effective and efficient manner. Firms were assessed against detailed criteria which considered audit quality, capacity and capability, understanding of HSBC and future audit vision. Input was sought from principal subsidiaries’ audit committee chairs as part of the GAC evaluation. Management views were advisory only to the GAC.

In accordance with best practice corporate governance requirements, the audit tender process described below was designed and led by the GAC, with direct involvement of the GAC Chair at every stage.

Pre-qualification

HSBC undertook a series of pre-qualification activities to identify vendors that satisfy our minimum requirements relating to credibility, capacity and independence. These activities were overseen by the GAC. The pre-qualification phase considered both large and challenger audit firms and explored the possibility of adopting a managed, shared audit using challenger firms.

During the pre-qualification phase, we were informed by two of the large audit firms that they were not able to participate in the tender as they believed they had insufficient capacity to perform a quality audit.

Three shortlisted audit firms were invited to respond to the formal tender, including PwC and one challenger audit firm.

Process and assessment

The shortlisted firms were invited to submit capability proposals (including written and data modelling exercises) to demonstrate their understanding of HSBC, audit quality, capabilities and their future vision of audit. Group and principal subsidiaries’ audit committee chair and management meetings took place during October 2022, enabling both the audit firms and HSBC management to articulate and discuss critical success factors for the audit. Lead audit partner referrals and audit quality reports from regulators supplemented these assessments and contributed to the final evaluation of the audit firms. The capability proposals were submitted on a fee blind basis, with the fee proposal submitted directly to the GAC Chair.

The Committee considered the following during the evaluation of audit firms:

•a tender proposal, a formal document in response to the tender requirements;

•management meetings between the firms and HSBC (major legal entity audit committee chairs and senior management);

•data exercises covering audit planning and risk assessment, ECL modelling, firms’ broader assurance offering and a shared audit exercise;

•public regulator audit reports for independent assessment on audit quality;

•external referees to provide a third-party opinion on the audit lead partner to support the evaluation process; and

•final presentations to the GAC.

As part of the tender process, the GAC Chair also met with Chief Executive and Head of Standards of the Financial Reporting Council to explain our audit tender process, understand views on shared audits and seek input into our evaluation of individual firm’s audit quality track record.

Evaluation

The key evaluation criteria and their respective weightings used to assess the successful audit firm were proposed by management and reviewed by the Group Audit Committee. The criteria were assessed through formal capability proposals, presentations and certain supplementary evidence:

•Audit quality (30%) – regulatory evaluation, methodology, risk assessment, technology.

•Capacity and capability (30%) – footprint, partner quality and rotation, diversity, independence.

•Future audit vision (20%) – future audit developments, audit reform and innovation.

•Understanding of HSBC (20%) – knowledge of HSBC, shareholder concerns and the financial services landscape.

Final decision

The GAC considered various data points from the assessments outlined above, adopting a scorecard approach to supplement the final presentations made by the audit firms at the end of the tender process. The Committee considered the merits of appointing a challenger audit firm in a managed shared audit capacity, in line with recent UK government proposals. However, it did not have sufficient confidence that the desired audit quality outcomes could be assured in a such a large, complex, integrated and global organisation to pursue such an arrangement.

The GAC presented two audit firms to the Board for consideration of awarding the tender, recommending the re-appointment of PwC given their strong performance against our evaluation criteria and the benefits of continuity in this period of strategic change and uncertainty in the external environment.

The Board made a final decision to award the audit tender to PwC on 19 January 2023. PwC will continue to be subject to annual performance reviews (including annual effectiveness surveys and analysis of relevant audit regulator findings) in the period up to 2025 to support the annual AGM auditor re-appointment requirement.


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~~throughout the year for briefings on material whistleblowing cases and assessments~~Report of the ~~whistleblowing arrangements.~~Directors | Corporate governance report | Board committees

The Committee has requested updates on a number of key areas during 2021, including: enhancements made to the Group’s whistleblowing arrangements following an external benchmarking assessment in December 2020; completion of actions arising from

Global Internal Audit reviews; and details of key emerging conduct themes across the arrangements. During 2022, the Committee will be provided with updates on how whistleblowing arrangements are actively supporting our purpose and values, and conduct approach.

Principal activities and significant issues considered during ~~2021~~2022

Areas of focus

Key issues

Conclusions and actions

Financial and regulatory reporting

Key financial metrics and strategic priorities

The GAC considered the key judgements in relation to external reporting to track the key financial metrics and strategic priorities and to review the forecast performance and outlook.

In exercising its oversight, the Committee assessed ~~management's~~management’s assurance and preparation of external financial reporting ~~disclosures. The Committee was particularly focused on the ongoing Covid-19-related uncertainty and how management addressed and reflected the impact of the pandemic in external reporting and~~ disclosures. The Committee reviewed the draft external 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 and governance (‘ESG’) reporting

The Committee considered ~~management's~~management’s efforts to enhance ESG disclosures and associated verification and assurance activities. The GAC reviewed the ~~2021~~2022 ESG disclosure approach in line with our external commitments.

In relation to our climate change resolution, particular attention was given to the disclosure of the financed ~~emissions.~~and facilitated emissions, and thermal coal exposures. The Committee considered the key limitations and challenges relating to governance, processes, controls and data underpinning climate reporting. The Committee also discussed the nature and root cause of issues identified through the increased assurance work and ongoing enhancements to the governance, processes, controls and data underpinning climate reporting, which resulted in the deferral of disclosures on facilitated emissions and thermal coal. The Committee reviewed the ESG reporting strategy, including the broadening of ESG coverage in the Annual Report and Accounts and management’s approach on integrated reporting, which will be further informed by feedback from external stakeholders.

Regulatory reporting assurance programme

The GAC monitored the progress of the regulatory reporting assurance programme to enhance the Group’s regulatory reporting, impact on the control environment and oversee regulatory reviews and engagement.

The Committee reflected on the continued focus on the quality and reliability of regulatory reporting by the PRA and other regulators globally. The GAC reviewed management’s efforts to strengthen and simplify the end-to-end operating model, including commissioning further independent external reviews of various aspects of regulatory reporting. The Committee discussed and provided feedback on management’s engagement plans with the Group’s regulators, including any potential impacts on some of our regulatory ~~ratios such as CET1 and LCR.~~ratios. We continue to keep the PRA and other relevant regulators informed of our progress.

Significant accounting judgements

Expected credit losses

The measurement of expected credit losses involves significant judgements, particularly under current economic conditions. Despite a general recovery in economic conditions in ~~2021,~~2022, there remains an elevated degree of uncertainty over ECL estimation under current conditions, due to macroeconomic ~~political~~ and ~~epidemiological~~political uncertainties.

The measurement of expected credit losses involves significant judgements, particularly under current economic conditions. There remains an elevated degree of uncertainty over ECL estimation under current conditions, due to macroeconomic, and political uncertainties.
The GAC reviewed the economic scenarios for the key countries in which the Group operates, and challenged ~~management's~~management’s judgements as to the weightings assigned to these scenarios. The GAC also challenged ~~management's~~management’s approach to making management adjustments to account for the uncertainty in outcomes arising from ~~Covid-19 and~~the Russia-Ukraine war, inflation, supply chain disruption risks, China commercial real estate, and Covid-19, including the rationale for such adjustments, the controls underpinning the adjustment processes, and under what conditions such adjustments could be reduced or removed. The GAC also challenged management on the overall levels of ECL across portfolios, including looking at historical performances of portfolios and peer group comparisons.

Goodwill, other non-financial assets and investment in subsidiaries impairment

During the year, management tested for impairment goodwill, other non-financial assets and investments in subsidiaries. Key judgements in this area relate to long-term growth rates, discount factors and what cash flows to include for each cash-generating unit tested, both in terms of compliance with the accounting standards and reasonableness of the forecast. ~~During the year, the Group recognised $0.6bn impairment in relation to goodwill and an impairment reversal of $3.1bn in investments in subsidiaries.~~

The GAC received reports on ~~management's~~management’s approach to goodwill, other non-financial assets and investments in subsidiaries impairment testing and challenged the approach and methodologies used,with a key focus on the ~~cashflows~~cash flows included within the forecasts and the discount rates used. The GAC also challenged ~~management's~~management’s key judgements and considered the reasonableness of the outcomes as a sense check against the business forecasts and strategic objectives of HSBC.

Associates (Bank of Communications Co., Limited)

During the year, management performed the impairment review of HSBC’s investment in Bank of Communications Co., Ltd (‘BoCom’). The impairment reviews are complex and require significant judgements, such as projected future cash flows, discount rate, and regulatory capital assumptions.

The GAC reviewed the judgements in relation to the impairment review of HSBC’s investment in BoCom, including the sensitivity of the results to estimates and key assumptions such as projected future cash flows and regulatory capital assumptions. Additionally, the GAC reviewed the model’s sensitivity to long-term assumptions including the continued appropriateness of the discount rates. The GAC also challenged management to review all aspects of its approach to accounting for BoCom to ensure the approach remains the most appropriate in terms of accounting judgements including compliance with the relevant accounting requirements.

Investments in subsidiaries

Management has reviewed investments in subsidiaries for indicators of impairment and conducted impairment reviews where relevant. These involve exercising significant judgement to assess the recoverable amounts of subsidiaries, by reference to projected future cash flows, discount rates and regulatory capital assumptions.

The GAC reviewed the judgements in relation to the impairment review of HSBC Overseas Holdings (UK) Limited, and the key inputs underpinning the recoverable amounts of its subsidiaries.


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Principal activities and significant issues considered during 2022 (continued)

Areas of focus

Key issues

Conclusions and actions

Significant accounting judgements

Legal proceedings and regulatory matters

Management has used judgement in relation to the recognition and measurement of provisions, as well as the existence of contingent liabilities for legal and regulatory ~~matters, including, for 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.~~matters.

The GAC received reports from management on the legal proceedings and regulatory matters that highlight the accounting judgements for matters where these are required. The matters requiring significant judgements were highlighted. The GAC has reviewed these reports and agrees with the conclusions reached by management.


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~~Principal activities and significant issues considered during 2021 (continued)~~

~~Areas of focus~~

~~Key issues~~

~~Conclusions and actions~~

~~Significant accounting judgements~~

Valuation of defined benefit pension obligations

The valuation of defined benefit pension obligations involves highly judgemental inputs and assumptions, of which the most sensitive are the discount rate, pension payments and deferred pensions, inflation rate and changes in mortality.

The GAC has considered the effect of changes in key assumptions on the HSBC UK Bank plc section of the HSBC Bank (UK) Pensions Scheme, which is the principal plan of HSBC Group. The GAC also considered the impact of changes in key assumptions on other schemes.

Valuation of financial instruments

Due to the ongoing volatile market conditions in ~~2021,~~2022, management continuously refined its approach to valuing the Group’s investment portfolio. In addition, as losses were incurred 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 IFRSs.

The GAC considered the key valuation metrics and judgements involved in the determination of the fair value of financial instruments. The GAC considered the valuation control framework, valuation metrics, significant year-end judgements and emerging valuation topics and agrees with the judgements applied by management.

Long-term viability and going concern statement

The GAC has considered a wide range of information relating to present and future projections of profitability, cash flows, capital requirements and capital resources. These considerations include stressed scenarios that reflect the ~~increasing uncertainty that~~implications of the ~~global Covid-19 pandemic continues to have on HSBC’s operations,~~Russia-Ukraine war, disrupted supply chains globally and slower Chinese economic activity, as well as considering potential impacts from other top and emerging risks, and the related impact on profitability, capital and liquidity.

In accordance with the UK and Hong Kong Corporate Governance Codes, the Directors carried out a robust assessment of the principal risks of the Group and parent company. The GAC considered the statement to be made by the Directors and concluded that the Group and parent company will be able to continue in operation and meet liabilities as they fall due, and that it is appropriate that the long-term viability statement covers a period of three years.

Tax-related judgements

HSBC has recognised deferred tax assets to the extent that they are recoverable through expected future taxable profits. Significant judgement continues to be exercised in assessing the probability and sufficiency of future taxable profits, future reversals of existing taxable temporary differences and ~~ongoing~~expected outcomes relating to uncertain tax ~~planning strategies.~~treatments.

The GAC considered the recoverability of deferred tax assets, in particular in the US, France and the UK. The GAC also considered management’s judgements relating to tax positions in respect of which the appropriate tax treatment is uncertain, open to interpretation or has been challenged by the tax authority.

Impact of acquisitions and disposals

In ~~2021,~~2022, HSBC engaged in a number of business acquisition and disposal activities, notably in ~~the US,~~Canada, France, Singapore and India. There are a number of accounting impacts that need to be considered, including the timing of recognition of assets held-for-sale, gains or losses, and the measurement of assets and liabilities on acquisition or disposal.

The GAC considered the impacts of the planned exits of the Canadian and French ~~and US~~ retail ~~banking~~ businesses, management's judgements in relation to classification as held for sale, and the timing of the accounting recognition of these transactions. The GAC also considered the financial and accounting impacts of other acquisitions and disposals.


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Principal activities and significant issues considered during ~~2021~~2022 (continued)

Areas of focus

Key issues

Conclusions and actions

Group transformation

Transformation and sustainable control environment

The GAC will oversee the impact on the risk and control environment from the Group transformation programme.

The Committee received regular updates on the Group transformation programme – and the broader change framework, – to review the impact on the risk and control environment, ~~and~~ to oversee progress of the transformation ~~programme.~~ programme and the continued embedding of the broader change framework.

In these updates the Committee monitored the progress of the programme, ~~and~~ focused on the continued implementation of the ~~new~~ change framework and the progress in the management of the entire change portfolio. This oversight helped the Committee to understand the ~~key improvements~~progress being made toin the management of the change portfolio, ~~and~~through the implementation of the change framework. The committee noted the progress on simplifying our change inventory, greater rigour on tracking progress against committed business cases, and strengthening of the ~~implementation.~~lessons learnt process.

Management’s updates were supplemented by ~~significant~~further 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 reviewed the proposals for the Global Finance organisational design, the migration to Cloud and the impact on financial controls.

The Committee has oversight for the adequacy of resources and expertise, as well as succession planning for the Global Finance function. During ~~2021,~~2022, the Committee dedicated significant time to the review and progress of the multi-year Global Finance transformation programme, particularly Finance on the Cloud, with the overall objectives being to improve the control environment and customer outcomes and to make use of 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 has received regular status updates on the progress of the Global Finance transformation, the outcomes achieved to date and challenges encountered. The Committee has continued to dedicate significant time to the review of the progress of the programme.

A key objective of the programme is to improve the Group’s control environment and a particular focus of the Committee has been the interaction of the Global Finance transformation programme and the programmes to enhance the Group’s regulatory reporting control environment. The Committee has also considered the dependencies that key regulatory change programmes, such as the Basel III Reform programme, have on the Global Finance transformation. In addition, the Committee has specifically sought to understand the impact of new requirements and programme re-planning on the delivery and timing of programme outcomes. Sessions have been held with individual Committee members to support a more detailed understanding of the programme risks and challenges.

The results of Global Internal Audit reviews of the programme have been considered by the Committee and there have been frequent discussions with Global Internal Audit on its assessment of the progress and risks of the programme.

The Group Chief Financial Officer had private sessions with the Committee to share his perspectives on the progress of the Global Finance transformation and where additional focus was required.

Regulatory change

IFRS 17 ~~'Insurance Contracts'~~’Insurance Contracts’

The Committee will oversee the transition to IFRS 17 and consider the wider strategic implications of the change on the insurance business.

~~Earlier in 2021,~~

During 2022 management provided ~~an update~~updates to the Committee on preparations for the ~~potential impact~~implementation of IFRS 17, which is effective from 1 January 2023 with one year of comparative restatements required. The Committee was updated on ~~HSBC’s reported numbers in~~the production of the transition balance sheet and considered the financial ~~statements, and conducted~~impacts (for which a ~~walk-through~~summary is provided within the Future Accounting Developments section of the relevant disclosure requirements applicable to HSBC, including an introduction to GAAP and potential non-GAAP metrics to support investor communications during and after the transitional period. In response to questions from GAC members, including from the Chair, relating to the overall financial managementBasis of ~~the insurance business, a separate session was organised with the Chair of the GAC~~Preparation on 16 June 2021. The meeting covered different aspects of insurance financial management, with a particular focus on interest rate management and business strategy. Since then, HSBC released further information on the impact of IFRS 17 on HSBC’s reported numbers, as part of the third quarter 2021 earnings release statement,page 360), as well as ~~providing~~the generation of comparative income statement estimated impacts (for which a ~~briefing to analysts on IFRS 17. Feedback from analysts so far has been positive, particularly given HSBC was the first to provide high-level indicative impact~~high level summary based on ~~planning assumptions. In December 2021, management~~estimated 1H22 results is provided ~~an update~~ on page 99). The Committee also received updates with respect to progress on implementing the supporting operational infrastructure, internal controls over financial reporting, key judgements considered including transition approaches selected, as well as plans for disclosure of related non-GAAP measures and key performance ~~metrics~~metrics.

The first publication of results on ~~adoption of~~an IFRS 17 ~~including its current intention~~basis will be at the 1Q23 Earnings Release, and the Committee noted that management intends to ~~continue to provide Value of New Business and embedded value metrics for comparability.~~publish an IFRS 17 Transition statement together with that announcement.

Basel III Reform

The GAC considered the implementation of the Basel III Reform and the impact on the capital requirements and RWA assurance. This was considered in the context of the strategy and structure of the balance sheet.

The Committee received an update on the progress and impact of the Basel III ~~Reform~~ programme on the Group. Management discussed the uncertainty over the final definition of the rules and the actions taken to ensure sufficient flexibility to make changes and mitigate risks from legislation being finalised at a later ~~date.~~date and also on a staggered basis across each jurisdiction. The discussion highlighted 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, risk model development and the impact on data delivery and storage.

The Committee noted the completion of the programme restructure, reviewed the ongoing management of risks, issues and dependencies and challenged management onto prioritise deliverables across each jurisdiction in line with regulatory timelines, in each case, to ensure that solutions delivered to the ~~findings from an audit on~~minimum required standards. The Committee noted the overall improved status of the programme ~~structure, governance~~ and requested an update post the ~~significant cost increase year on year. Management explained~~Office of the ~~actions being taken in response to the audit findings and the reasons for the increase in costs, which included delays to~~Superintendent of Financial Institutions Canada implementation ~~dates caused by the Covid-19 pandemic.~~date of 1 April 2023.


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~~Principal activities and significant issues considered during 2021 (continued)~~

~~Areas of focus~~

~~Key issues~~

~~Conclusions and actions~~

~~Regulatory change~~

~~Interest rate benchmark replacement~~

The financial reporting risks of interest rate benchmark transition include the potential for volatility arising from financial instruments valuation, contract modification and hedge accounting. The transitions involve significant operational complexity for financial institutions, and industry approaches to transition continue to develop.

The GAC noted management’s early adoption of ‘Interest Rate Benchmark Reform – Phase 2’ amendments to IFRSs in relation to benchmark reform, including the disclosures necessary to support adoption of the reliefs.

The Committee considered the risks and financial reporting impacts arising from the Ibor transition. Management discussed actions being taken to mitigate the risks, which included new product development and a client outreach programme, to ensure we were ready to migrate and able to explain the changes and outcomes arising from the transition to clients. Management 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 ~~2021. Led~~2022, led by the Group Company Secretary and Chief Governance ~~Officer,~~Officer. Overall, the review concluded that the GAC continued to operate effectively. ~~Management~~The Chair’s management of meetings and ~~reporting to~~leadership of the ~~Board on discussions,~~audit tender process, in particular, were rated highly.

The review also made certain recommendations for ~~continual~~continuous improvement. ~~The GAC was recommended to review~~These included a need for continued focus on the ~~composition~~quality of ~~the GAC to broaden the skillset, ensure clarity in roles~~reporting, oversight of prioritisation of key programmes, and ~~improve the~~continued coordination between the GAC and other Board committees ~~and working groups relating to technology and ESG. Succession planning~~on topics of mutual interest. It was also ~~highlighted as a priority.~~suggested that the Committee should dedicate more time to the oversight of capacity and succession planning in the Finance and Internal Audit functions. The Committee considered the outcomes of the evaluation and accepts the findings. The evaluation outcomes were reported to the Board, and the Committee will track progress against the recommendations during ~~2022.~~2023.

Focus of future activities

~~At the beginning of each year, the Committee discusses its key priorities for the year ahead.~~ In ~~2022,~~2023, the Committee will ~~continue to focus strongly on the~~prioritise control remediation and enhancements, particularly of controls ~~particularly those~~ supporting regulatory reporting. ~~The Committee~~This will ~~continue to monitor the execution~~include developing a deeper understanding of the ~~Group's~~prioritisation and interdependencies in the delivery of key transformation ~~programme~~ and ~~its impact on~~regulatory programmes to strengthen the risk and control environment. It will also monitor domestic and worldwide tax policy developments and examine the interdependencies between the transformation programme and the implementation of large-scale regulatory change programmes, such as the Basel III reforms, the Ibor transition and IFRS 17 'Insurance Contracts'.potential impact on accounting judgements. A key priority will be to further embed ESG and climate-related disclosures to meet increasing expectations of stakeholders, in particular the implementation of robust processes and controls to support these disclosures. ~~The~~Along with other committees of the Board, the Committee will ~~focus on~~continue to ensure root cause themes related to understanding and accountability for data capture, data quality and the ~~audit tender strategy in preparation for the next re-tender,~~implementation and ~~will consider the impact~~embedding of ~~potential changes to the UK external audit market on HSBC's approach to audit and assurance.~~data policies are addressed by management.


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Group Risk Committee



"The GRC ~~provided oversight on~~closely monitored heightened geopolitical and macroeconomic headwinds throughout the ~~management of Covid-19-related financial risks, including the Group's release of expected credit loss reserves in response~~year to anticipate potential impacts to the ~~improving macroeconomic conditions.~~Group‘s revenue, capital base and continuing ability to support customers."

Dear Shareholder

I am pleased to present the Group Risk Committee (‘GRC’) report.

~~The~~Geopolitical risks and the macroeconomic outlook deteriorated rapidly at the start of the year ~~commenced with a challenging risk outlook~~ due to ~~increasing Covid-19 infections~~the Russia-Ukraine war. The GRC closely monitored heightened geopolitical and ~~lockdowns across markets. The outlook began~~macroeconomic headwinds throughout the year to ~~stabilise by the second quarter, with the roll-out of global vaccine programmes, and the GRC monitored the impact of new strains, including the Omicron variant.~~

~~Against this backdrop, the GRC provided oversight on the management of Covid-19-related financial risks, including~~anticipate potential impacts to the Group’s ~~release~~revenue, capital base and continuing ability to support its customers. Measures included monitoring the Group’s preparedness for an expected recession in key markets from rising inflation and interest rates. The Committee embraced management’s development of ~~expected credit loss reserves in response~~forward-looking sensitivity analysis to assess the ~~improving macroeconomic conditions.~~ potential impacts on HSBC’s prudential position, franchise resilience and ability to support customers.

The ~~Committee~~GRC worked closely with the Group Chief Risk and Compliance Officer ~~in strengthening~~to strengthen the Group’s risk management framework, and to ~~be even~~promote the development of more ~~forward looking,~~dynamic and granular ~~and~~ risk ~~connected. The GRC continued its oversight of people and operational challenges presented by the pandemic and market conditions.~~appetite statements to manage HSBC’s risk profile.

Throughout the year, the GRC ~~played a central role in reviewing~~reviewed and ~~challenging~~challenged management on the Group’s regulatory submissions, ~~and programmes,~~ including the Bank of ~~England's~~England’s requirements for the ~~resolvability~~Resolvability Assessment Framework, internal capital adequacy assessment ~~framework.~~process (‘ICAAP’) and internal liquidity adequacy assessment process (‘ILAAP’). The GRC had primary non-executive responsibility for reviewing the outcomes of regulatory stress tests, including the Bank of ~~England's~~England’s climate biennial exploratory scenario, ~~on the financial risk from climate risk,~~ and the ~~2021 solvency stress test.~~ 2022 annual cyclical scenario exercise.

The GRC carefully considered the Group’s regulatory remediation and change programmes, and helped direct management to better prioritise and understand where there are interdependencies. In particular, the GRC reviewed and challenged the Group’s ~~thermal coal phase-out policy~~data management plans and ~~approach~~interest rate risk in the banking book strategy. The GRC also provided oversight and support to ~~climate-aligned finance in a joint meeting with~~risk transformation activities to develop stronger risk management capabilities and outcomes across the ~~GAC. The Committee continued its oversight of the Group’s preparations to meet the PRA’s requirements on operational resilience.~~Group.

The GRC continued to ~~strengthen~~review its committee composition, skills and ~~experience to ensure that it remains well positioned to promote proactive risk governance. On 1 September 2021,~~experience. In June, we welcomed ~~Dame Carolyn Fairbairn, a seasoned macroeconomic~~Geraldine Buckingham and ~~political environment expert. Heidi Miller~~James Forese as new members, and ~~Pauline van der Meer Mohr left the GRC on 28 May 2021. I extended our~~we expressed sincere gratitude to ~~each for their valued commitments~~José Antonio Meade Kuribreña and ~~support~~Eileen Murray, who stepped down to ~~the GRC.~~

~~The GRC convened 11 formal meetings, two of which were joint meetings with the GAC, and 13 education and special meetings to review and challenge some of our most important~~assume new Board governance responsibilities.

Jackson Tai

Chair

Pauline van der Meer Mohr

Pauline van der Meer Mohr retired from the Board on 29 April 2022

Ewen Stevenson

Ewen Stevenson resigned from the Board on 31 December 2022

Board committee membership key

C. Committee Chair

1.Group Audit Committee

2.Group Risk Committee

~~22 February 2022~~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-and-governance.


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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, 54 Group Chief Human Resources Officer

Elaine joined HSBC as Group Chief Human Resources Officer in June 2017. Prior to joining HSBC, she was Group Human Resources Director at Royal Bank of Scotland Group for six years. She has held a number of human resources and employee relations roles throughout her career in financial services, including with Clydesdale Bank and Direct Line Group. Elaine is a member of the Chartered Institute of Personnel and Development, and a Fellow of the Chartered Institute of Banking in Scotland.


Colin Bell, 55 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 in February 2021. He previously held the role of Group Chief Compliance Officer. Before HSBC, Colin worked at UBS as Global Head of Compliance and Operational Risk Control. He served for 16 years in the British Army, where he held a variety of command and staff positions, including within operational tours of Iraq and Northern Ireland, and roles in the Ministry of Defence and NATO.


Jonathan Calvert-Davies, 54 Group Head of Internal Audit

Jonathan is a standing attendee of the Group Executive Committee, having joined HSBC as Group Head of Internal Audit in October 2019. 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. Jonathan’s previous roles included leading KPMG UK’s financial services internal audit services practice and PwC’s UK internal audit services practice. He also previously served as interim Group Head of Internal Audit at the Royal Bank of Scotland Group.


Greg Guyett,59 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, before assuming sole responsibility in October 2022. Before 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 for Asia-Pacific.


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Dr Celine Herweijer, 45 Group Chief Sustainability Officer

Celine joined HSBC as Group Chief Sustainability Officer in July 2021, and is responsible for the Group’s execution of its sustainability strategy. She is also co-chair of the Group's ESG Committee. She was previously a partner at PwC for over a decade, where she held global leadership roles including acting as its global innovation and sustainability leader. Before joining PwC in 2009, Celine worked as Director of Climate Change and Consulting for Risk Management Solutions. She is a World Economic Forum Young Global Leader, a co-chair of the We Mean Business Coalition, a PhD climate scientist and NASA Fellow.


John Hinshaw,52 Group Chief Operating Officer

John became Group Chief Operating Officer in February 2020, having joined HSBC in December 2019. He has extensive background in transforming and digitising organisations across a range of industries. John was previously Executive Vice President of Technology and Operations and Chief Customer Officer at Hewlett Packard and Hewlett Packard Enterprise, and has held senior executive positions at Verizon and Boeing. John serves on the boards of Sysco Corporation and Illumio, Inc., and has previously served on the boards of BNY Mellon, DocuSign and the National Academy Foundation.


Bob Hoyt, 58 Group Chief Legal Officer

Bob joined HSBC as Group Chief Legal Officer in January 2021. He was previously Group General Counsel at Barclays from 2013 to 2020. Prior to that, he was General Counsel and Chief Regulatory Affairs Officer for PNC Financial Services Group. Bob has served as General Counsel and Senior Policy Adviser to the US Department of the Treasury under Secretary Henry M. Paulson Jr, and as Special Assistant and Associate Counsel to the White House under President George W. Bush.


Steve John, 49 Group Chief Communications and Brand Officer

Steve joined HSBC in December 2019 and was appointed to the Group Executive Committee in April 2021. He has a wealth of senior communications, public policy and leadership experience acquired across a number of multinational and charitable organisations. Steve was previously a partner and Global Director of Communications at McKinsey & Company from 2014 to 2019. He has also held roles with Bupa as Global Director of Corporate Affairs and PepsiCo as Director of Corporate Affairs for their UK and Ireland franchises.


Pam Kaur, 59 Group Chief Risk and Compliance Officer

Pam was appointed Group Chief Risk and Compliance Officer in 2021, having held the position of Group Chief Risk Officer since 2020. Since joining HSBC in 2013, her roles included Group Head of Internal Audit and Head of Wholesale Market and Credit Risk. Pam has also held a variety of audit, compliance, finance and operations roles in the banking industry, including with Deutsche Bank, Royal Bank of Scotland Group, Lloyds TSB and Citigroup. She serves as a non-executive Director of abrdn plc, and was previously a non-executive Director of Centrica plc.


David Liao, 50 Co-Chief Executive Officer, Asia-Pacific – The Hongkong and Shanghai Banking Corporation Limited

David was appointed co-Chief Executive Officer of the Asia-Pacific region in 2021. He is a Director of the Hongkong and Shanghai Banking Corporation Limited, Bank of Communications Co., Limited, and Hang Seng Bank Limited. David joined HSBC in 1997, with previous roles including: Head of Global Banking Coverage for Asia-Pacific; President and Chief Executive of HSBC China; Head of Global Banking and Markets, HSBC China; and Treasurer and Head of Global Markets, HSBC China.


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Nuno Matos, 55 Chief Executive Officer, Wealth and Personal Banking

Nuno was appointed Chief Executive Officer of Wealth and Personal Banking in 2021. Since joining HSBC in 2015 from Santander Group, he has held various roles, most recently as Chief Executive Officer of HSBC Bank plc and HSBC Europe. He has also held the positions of Chief Executive Officer of HSBC Mexico and Regional Head of Retail Banking and Wealth Management for Latin America. He is currently a Director of HSBC Global Asset Management Limited.


Stephen Moss, 56 Regional Chief Executive Officer – Middle East, North Africa and Türkiye

Stephen was appointed Regional Chief Executive Officer for the Middle East, North Africa and Türkiye in 2021. He has held a series of roles in Asia, the UK and the Middle East since joining HSBC in 1992, including as Chief of Staff to the Group Chief Executive and overseeing the Group’s mergers and acquisitions, and strategy and planning activities. Stephen is a Director of HSBC Bank Middle East Limited, HSBC Middle East Holdings B.V, HSBC Bank Egypt S.A.E., HSBC Saudi Arabia and The Saudi British Bank.


Barry O'Byrne,47 Chief Executive Officer, Global Commercial Banking

Barry was appointed Chief Executive of Global Commercial Banking in 2020, having served in the role on an interim basis since August 2019. He joined HSBC in 2017 as Chief Operating Officer for Commercial Banking. Before joining HSBC, Barry worked at GE Capital for 19 years where he held a number of senior leadership roles, including Chief Executive Officer and Chief Operating Officer for GE Capital International.


Michael Roberts, 62 Chief Executive Officer, HSBC USA and Americas

Michael was appointed Chief Executive Officer of HSBC USA when he joined HSBC in 2019. He became Chief Executive Officer of the Americas with oversight responsibility for Canada and Latin America in 2021. He is a Director of HSBC Bank Canada; Director, President and Chief Executive Officer of HSBC North America Holdings Inc.; and Chairman of HSBC Bank USA, N.A., HSBC USA Inc and HSBC Latin America Holdings (UK) Limited. Previously, Michael spent over 30 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.


Surendra Rosha,54 Co-Chief Executive Officer, Asia-Pacific – The Hongkong and Shanghai Banking Corporation Limited

Surendra was appointed co-Chief Executive Officer of the Asia-Pacific region in 2021. He is a Director of The Hongkong and Shanghai Banking Corporation Limited, HSBC Global Asset Management Limited and HSBC Bank Malaysia Berhad. Surendra joined HSBC in 1991 and has held several senior positions within Global Banking and Markets, including Head of Global Markets in Indonesia and Head of Institutional Sales, Asia-Pacific. He previously held the position of Chief Executive for HSBC India and Head of HSBC’s financial institutions group for Asia-Pacific.


John David Stuart (known as Ian Stuart),59 Chief Executive Officer, HSBC UK Bank plc

Ian has been Chief Executive Officer of HSBC UK Bank plc since 2017 and has worked in financial services for over four decades. He joined HSBC as Head of Commercial Banking in the UK and Europe in 2014, having previously led the corporate and business banking businesses at Barclays. He has also held various roles at the Royal Bank of Scotland Group, and started his career at Bank of Scotland. Ian is a business ambassador for Meningitis Now, and a member of the Economic Crime Strategic Board and UK Finance Board.

Additional members of the Group Executive Committee

Noel Quinn

Georges Elhedery

Aileen Taylor

Biographies are provided on pages 272 and 275.


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Board and senior management diversity

We value difference

Gender and ethnic diversity

Gender

Board Executive management


	Board members			Executive management2
	Number	%	Number of senior positions1	Number	%
Male	8	67	4	17	81
Female	4	33	0	4	19
Other	—	—	—	—	—
Not specified/prefer not to say	—	—	—	—	—

BoardExecutive management

Ethnic diversity


	Board members			Executive management2
	Number	%	Number of senior positions1	Number	%
White British or other White (including minority-White groups)	9	75	4	14	66
Mixed/multiple ethnic groups	—	—	—	1	5
Asian/Asian British	2	17	—	4	19
Black/African/Caribbean/Black British	—		—	—	—
Other ethnic groups, including Arab	1	8	—	1	5
Not specified/prefer not to say	—		—	1	5

1 Senior positions on the Board comprise the Group Chairman, Group Chief Executive, Group Chief Financial Officer and Senior Independent non-executive Director.

2 Executive management comprises the Group Chief Executive, his direct reports, and the Group Company Secretary and Chief Governance Officer.

Board composition, tenure and age

2 Executive Directors 10 Non-executive Directors

Tenure on the Board

Age

Skills and experience


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How we are governed

Board’s role, Directors’ responsibilities and meeting 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 financial resource plans for achieving strategic objectives, including material transactions;

•considering and approving the Group’s technology and environmental, social and governance strategies;

•approving the appointment and remuneration of Directors, including Board roles; and

•reviewing the Group’s overall corporate governance arrangements.

The Board’s responsibilities are set out in a schedule of matters reserved within its terms of reference, which 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 strategy, oversee risk, hold management to account and ensure the executive Directors are discharging their responsibilities properly, while creating the right culture to encourage constructive challenge. Further details on the independence of the Board can be found in the Nomination & Corporate Governance Committee report on page 291. 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 majority of Board members are independent non-executive Directors. At 31 December 2022, the Board comprised the Group Chairman, nine non-executive Directors, and two executive Directors who are the Group Chief Executive and the Group Chief Financial Officer. One non-executive Director will not stand for re-election at the AGM in May 2023.

For further details of Board members' career backgrounds, skills, experience and external appointments, see their biographies on page 272, and for a breakdown of the diversity and skills of the Board and senior management, see page 279.

Operation of the Board

The Board is ordinarily scheduled to meet at least seven times a year. In 2022, the Board held 15 meetings. For further details on attendance at those meetings, see page 282. The Board agenda is agreed by the Group Chairman, working with both the Group Chief Executive and the Group Company Secretary and Chief Governance Officer. For further information, see ’Board activities during 2022’ on page 287.

In addition to formal Board meetings, the Board Oversight Sub-Group met in advance of each Board meeting during 2022. Such meetings were established following the appointment of Noel Quinn as Group Chief Executive and changes to the senior management team as an informal mechanism for a smaller group of Board members and management to discuss emerging issues and upcoming Board matters. Standing attendees comprise the Group Chairman, the Chair of the Group Audit Committee (who is also the Senior Independent Director), the Chair of the Group Risk Committee, the Chair of the Group Remuneration Committee, the Group Chief Executive, the Group Chief Financial Officer, the Group Chief Risk and Compliance Officer, and the Group Company Secretary and Chief Governance Officer. Other non-executive Directors and senior management are invited on an ad hoc basis, depending on the subject matter to be discussed. The forum is not decision making but provides regular opportunities for Board members to communicate with senior management to deepen their understanding of, and provide input into, key issues facing the Group. Following a review by the Group Chairman and Group Chief Executive of the role of the Board Oversight Sub-Group, it was agreed that it would only be used on an ad hoc basis where necessary going forward.

Relationship between the Board and senior management

The Directors are encouraged to have contact with management at all levels, and have full access to all relevant information. Non-executive Directors are encouraged to visit local business operations and meet local management when they attend Board meetings in different locations, and when travelling for other reasons. Board and senior management travel resumed in 2022, which allowed for more opportunities for Board members to meet together in person and with key stakeholders. As Covid-19 restrictions remained in place for some markets, and with the safety of colleagues and customers a priority, several virtual meetings with senior executives continued to take place, which included business meetings, induction meetings and subject matter ’deep dives’.


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Executive governance

The Group operating rhythm has the following three pillars:

•The GEC normally meets every week to discuss current and emerging issues.

•The GEC holds a strategy and governance meeting two weeks in advance of each Board meeting.

In addition, during the year, the Group Chief Executive independently conducts several business reviews on focus areas such as costs and the financial reporting plan.

Subsidiary governance

The designated principal subsidiaries are:


Principal subsidiary			Oversight responsibility
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 Holdings BV			Middle East, North Africa and Türkiye
HSBC North America Holdings Inc.			US
HSBC Latin America Holdings (UK) Limited			Mexico and Latin America
HSBC Bank Canada1			Canada

1 On 29 November 2022 HSBC announced it had entered into an agreement to sell HSBC Bank Canada, subject to regulatory and governmental approvals. The sale is expected to complete in late 2023.

Principal subsidiaries play a critical role in overseeing the implementation of the subsidiary accountability framework in the regions for which they are responsible. The subsidiary accountability

Since the revised framework was implemented in 2021, there has been a notable improvement in the diversity of subsidiary board composition.


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Board roles, responsibilities and meeting attendance


~~Membership~~The table below sets out the Board members’ respective roles, responsibilities and attendance at Board meetings and the AGM in 2022. For a full description of key Board members’ responsibilities, see www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.
Roles	~~Member since~~Board attendance in 2022	Responsibilities
Group Chairman Mark E Tucker1,2	15/15	~~Meeting attendance~~•Provides effective leadership of the Board and promotes the highest standards of corporate governance practices. •Leads the Board in ~~2021~~providing strong strategic oversight and setting the Board’s agenda, culture and values. •1Leads the Board in challenging management’s thinking and proposals, and fosters open and constructive debate among Directors. •Maintains internal and external relationships with key stakeholders, and communicates investors’ views to the Board. •Organises periodic monitoring and evaluation, including externally facilitated evaluation, of the performance of the Board, its committees and individual Directors. •Leads on succession planning for the Board and its committees, ensuring appointments reflect diverse cultures, skills and experiences.
Executive Director Group Chief Executive Noel Quinn2	15/15	•Leads and directs the implementation of the Group’s business strategy, embedding the organisation’s 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 internal and external stakeholders including the Group Chairman, the Board, customers, regulators, governments and investors. •Maintains responsibility and accountability for the Group’s and its employees’ compliance with applicable laws, codes, rules and regulations, good market practice and HSBC’s own standards.
Executive Director Group Chief Financial Officer Ewen Stevenson2,4,6	14/15	•Supports the Group Chief Executive in developing and implementing the Group strategy and recommends the annual budget and long-term strategic and financial resource 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 Director Senior Independent Director David Nish2,3	15/15	•Supports the Group Chairman, acting as intermediary for non-executive Directors when necessary. •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.
~~Jackson Tai (Chair)~~Non-executive Directors		~~Sep 2016~~•Develop and approve the Group strategy. •Challenge and oversee the performance of management. •Approve the Group’s risk appetite and review risk profile and performance. •Contribute to the assessment and monitoring of culture. •Maintain internal and external relationships with the Group’s key stakeholders.
Geraldine Buckingham3,5	9/9
~~11/11~~Rachel Duan2,3	15/15
Dame Carolyn Fairbairn2,3	15/15
James Forese2,3,6	14/15
Steven Guggenheimer2,3	14/15
Irene Lee2,4	6/6
Dr José Antonio Meade Kuribreña2,3	15/15
Eileen Murray2,3,6	14/15
Jackson Tai2,3	15/15
Pauline van der Meer Mohr2,3,4,6	4/6
Group Company Secretary and Chief Governance Officer Aileen Taylor		•Maintains strong and consistent governance practices at Board level and throughout the Group. •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 Attended the AGM on 29 April 2022.

4 Irene Lee and Pauline van der Meer Mohr retired from the Board on 29 April 2022. Ewen Stevenson retired from the Board on 31 December 2022.

5 Geraldine Buckingham joined the Board effective 1 May 2022.

6 Due to prior commitments Eileen Murray and Pauline van der Meer Mohr were not able to attend on 28 March 2022 and Steven Guggenheimer on 2 November 2022. Meetings held on 10 February 2022 and 25 November 2022 were ad hoc meetings called at short notice, and due to prior commitments, James Forese and Pauline van der Meer Mohr were unable to attend on 10 February 2022 and Ewen Stevenson was unable to attend on 25 November 2022.


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Board committees and working groups

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 the Group Chairman and the 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 291.

Board

Chair: Mark Tucker

Chairman’s Committee

Nomination & Corporate Governance Committee

Group Audit Committee

Group Risk Committee

Group Remuneration Committee

Informal governance

Board Oversight Sub-
Group

Chair: Mark Tucker

Chair: David Nish

Chair: Jackson Tai

Chair: Dame Carolyn Fairbairn

Chair: Mark Tucker

See page 291

See page 294

See page 303

See page 308

Technology
Governance Working
Group

Co-Chairs:
Eileen Murray and Steven Guggenheimer

Group Executive Committee

Chair: Noel Quinn

Acquisitions and Disposals Committee

Disclosure and Controls Committee

Environmental, Social and Governance Committee

Group People Committee

Group Risk Management Meeting

Holdings Asset and Liability Committee

Transformation Oversight Executive Committee

Chair: Noel Quinn

Chair: Ewen Stevenson1

Co-Chairs:
Celine Herweijer and Aileen Taylor

Chair: Elaine Arden

Chair: Pam Kaur

Chair: Ewen Stevenson1

1 Georges Elhedery took over as chair from 1 January 2023.


ESG governance
With ESG issues rising up the global agenda, including with the transition to a sustainable economy, we understood the need to embed ESG considerations more deeply into our governance processes. In February 2021, the Board approved the establishment of an executive level ESG committee to support senior management in the delivery of the Group’s ESG strategy and development of key policies. The ESG Committee also aims to track the Group's progress against material commitments by providing holistic oversight, coordination and management of ESG activities. The ESG Committee is jointly chaired by the Group Chief Sustainability Officer and the Group Company Secretary and Chief Governance Officer. The committee oversees all areas of environmental, social and governance issues, with support from accountable senior management in relation to their particular areas of responsibilities. Key representatives from the functions and global businesses attend to provide insights on the implementation of the ESG strategy across the Group, allowing the ESG Committee to make recommendations to the Board in respect of ESG matters.


Technology governance
The Technology Governance Working Group was established by the Board in early 2021 to enhance its oversight of technology strategy, governance and emerging risks, as well as to strengthen connectivity with the principal subsidiaries. The role of the working group is regularly reviewed by the Board. It was agreed in January 2022 that it should continue as an informal committee of the Board for the duration of 2022, and it was extended for a further 12 months in January 2023. The working group continues to be jointly chaired by two of the Board’s non-executive Directors, Eileen Murray and Steven Guggenheimer, and members include the Group Risk Committee chair and other non-executive Directors representing our US, UK, European and Asian principal subsidiaries. The working group met formally six times in 2022. These meetings included deep dives on key strategic business initiatives, as well as updates on technology strategy implementation and cybersecurity matters, with attendance from key technology and business stakeholders. There were a number of joint sessions between the working group, the Group Audit Committee and the Group Risk Committee. For further details of these sessions, see pages 294 and 303.


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Board induction and training

The Group Company Secretary and Chief Governance Officer works with the Group Chairman to ensure that all Board members receive appropriate training, both individually and collectively, throughout their time on the Board. On appointment, new Directors are provided with tailored and comprehensive induction programmes to fit with their individual experiences and needs, including the process for managing conflicts.

The induction programme is delivered through formal briefings and introductory sessions with other Board members, senior management, legal counsel, auditors, tax advisers and regulators, as appropriate. Topics covered in the induction programme include, but are not limited to: purpose and values; culture and leadership; governance and stakeholder management; Directors’ legal and regulatory duties; recovery and resolution planning; anti-money laundering and anti-bribery; technical and business briefings; and strategy.

Where possible, the induction process is initiated before appointment to allow each new Board member to contribute meaningfully from appointment. The structure of the induction supports good information flows within the Board and its committees, as well as between senior management and non-executive Directors, providing a clear understanding of our culture and way of operating.

For illustrations of typical induction modules, see the ’Directors’ induction and ongoing development in 2022’ table below.

Directors undertook routine training during 2022 in subject matters that included: the risk management framework; financial crime; and health, safety and well-being. They were provided training by external counsel on their obligations when handling confidential and sensitive information. The Directors also participated in ’deep dive’ sessions into specific areas of the Group’s strategic priorities, risk appetite, approach to managing certain risks, climate-aligned finance and market abuse regulations. These training sessions included external consultants who provided insights into geopolitical matters, macroeconomics and investor sentiments. Other topics of focus included: operations and technology strategy; the resolvability assessment framework; and climate change and sustainability.

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 receive training that is pertinent to circumstances and context relevant to those boards. Opportunities exist for the principal subsidiary committee chairs to share their understanding in specific areas with the Board Directors as part of the Chairman’s Forum.

Directors’ induction and ongoing development in 2022

Director

Induction1

Strategy and business briefings2

Risk and

~~Sep 2021~~control3

Corporate governance, ESG and other reporting matters4

Board global mandatory training5

Chair and subsidiary non-executive Director forums6

Geraldine Buckingham

~~3/3~~l

Rachel Duan

Dame Carolyn Fairbairn

James Forese

Steven Guggenheimer

~~May 2020~~ô

~~11/11~~l

José Antonio Meade Kuribreña

~~May 2019~~ô

~~11/11~~l

~~Heidi Miller~~3

~~Sep 2014~~Eileen Murray

~~6/6~~ô

~~Eileen Murray~~4

~~Jul 2020~~David Nish

~~9/11~~ô

~~David Nish~~5

~~Feb 2020~~Noel Quinn

~~10/11~~ô

~~Pauline van der Meer Mohr~~6

~~Apr 2018~~Ewen Stevenson

~~5/6~~ô

Jackson Tai

Mark Tucker


l			Matter considered			ô			Matter not considered

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 2022 included: ’Sustainability operating model’, ’Implications from the Russia-Ukraine conflict’ and ’Strategy execution of Asia wealth’.

3 Directors received risk and control training and briefings. Examples of specific sessions held in 2022 included: ’Interest rate risk of the banking book strategy’ and ’ICAAP/ILAAP’.

4 All Directors received training on topics such as: ’Resolvability assessment framework’, ’Climate-aligned finance’, ’Data literacy’ and ’Cyber ransomware’.

5 Global mandatory training, issued to all Directors, mirrored training undertaken by all employees, including senior management. This included: management of risk under the risk management framework; cybersecurity risk; health, safety and well-being; sustainability; financial crime, including understanding money laundering, terrorist financing, tax, sanctions, fraud and bribery and corruption risks; our values, including workplace harassment; and data privacy and the protection of data of our customers and colleagues.

6 These included ~~two joint meetings~~the Chairman’s Forum, Remuneration Committee Chairs’ Forum and the Non-Executive Director Summits.


284			HSBC Holdings plc

Board stakeholder engagement during 2022

The Board is committed to engaging with key stakeholders, including colleagues, and welcomed the increased focus on bringing the employee voice into the boardroom, as envisaged by the revisions made to the UK Corporate Governance Code in 2018.

The Board had previously decided that, given HSBC’s size, scale and geographical spread, the ’alternative arrangements’ approach for workforce engagement under the UK Corporate Governance Code was the suitable option. The Board reviews this annually, and in light of the challenges facing the organisation and colleagues from factors outside of HSBC’s control, including the Covid-19 pandemic, decided to strengthen its practices through the introduction of a non-executive Director with designated responsibility for workforce engagement. It was agreed by the Board’s Nomination & Corporate Governance Committee in May 2022 to appoint José Meade to the new role of dedicated workforce engagement non-executive Director. This approach assists with the employee voice being heard in Board discussions and helps inform decision making.

~~2 Dame Carolyn Fairbairn joined~~Chief Executive’s Board report and the ~~GRC~~Group Chief Human Resources Officer's report on ~~1 September 2021.~~

~~3 Heidi Miller stepped down~~employee views and sentiment, particularly around employee Snapshot surveys. The Chairman’s Forum meetings also discussed employee feedback from the ~~GRC on 28 May 2021.~~Group's subsidiaries and received workforce engagement updates from each of the principal subsidiary chairs.

~~4 Eileen Murray was unable to attend two meetings due to personal circumstances.~~

~~5 David Nish was unable to attend one meeting due to a prior commitment.~~

~~6 Pauline van der Meer Mohr was unable to attend one meeting due to personal circumstances, and stepped down from~~Engagement activity between the ~~GRC on 28 May 2021.~~

~~Key responsibilities~~

~~The GRC has overall non-executive responsibility for the oversight of risk-related matters~~Board and the ~~risks impacting~~wider workforce included meetings and events between representatives of the ~~Group. The GRC’s key responsibilities are:~~eight employee resource groups and the non-executive Directors who have been designated to support them. These included:

•~~overseeing~~a virtual Nurture event with working parents and ~~advising~~carers, which reflected on the ~~Board on all risk-related matters, including financial risks, non-financial risks~~HSBC colleague survey and ~~the effectiveness of the Group’s conduct framework;~~how more relevant data could be captured and actioned;

•~~advising~~two Pride events with our LGBTQ+ colleagues, during which participants shared their thoughts, explored what Pride had achieved, discussed future opportunities and considered how Directors could advocate and support the ~~Board on risk appetite-related matters, and key regulatory submissions;~~

•~~reviewing the effectiveness~~work of ~~the Group’s enterprise risk management framework and internal controls systems (other than internal financial controls overseen by the GAC);~~Pride; and

•~~reviewing~~an in-person event with employee resource group leaders based in Hong Kong to discuss what motivates them to be employee resource group leaders, share achievements and ~~challenging~~discuss opportunities to align outcomes across the ~~Group's stress testing exercises.~~Group.

~~Committee governance~~

~~The Group Chief Risk~~

Workforce engagement non-executive Director

“I was pleased when the Board took the decision to create this role and ~~Compliance Officer, Group Chief Financial Officer, Group Chief Operating Officer, Group Company Secretary~~asked me to assume the position of workforce engagement non-executive Director. Our colleagues, and ~~Chief Governance Officer, Group Chief Legal Officer, Group Head~~the culture we promote, are key to our success in achieving our purpose of ~~Internal Audit, Group Head~~opening up a world of ~~Finance~~opportunity.

My role and ~~Group Head of Risk Strategy~~responsibilities, summarised in the chart below, are ~~standing attendees and regularly attend GRC meetings to contribute their subject matter expertise and insight. The Chair and members of~~clear, but I appreciate that given the ~~GRC also hold private meetings with the Group Chief Risk and Compliance Officer, the Group Head of Internal Audit and external auditor, PwC, following scheduled GRC meetings.~~

~~The participation~~scale of our ~~senior business leaders, including~~organisation, and the ~~Group Chief Executive who attended 9 GRC~~newness of this responsibility, it is critical that I execute this role with focus and intent to understand the employee voice, and communicate this to the Board. Notwithstanding the challenges, I am dedicated to do what I can to meet and speak with a broad spectrum of our people, across global businesses, regions and functions.

With the easing of Covid-19 restrictions in 2022, and as the Board resumed travel for meetings, ~~in 2021, reaffirmed~~I used these opportunities to connect with employees on a number of topics. Each experience has been enlightening and I am encouraged to see how common themes and reflections are being addressed.

While I cannot represent and hear every employee voice, I will endeavour to listen to what our colleagues are saying around the ~~ownership~~world. With a dedicated plan of action for 2023, I see this role evolving such that I will be able to add value to – and ~~accountability of risks~~help drive more in-depth Board discussions on – topics that affect our people.

I look forward to reporting in the ~~first line of defence and strengthened our holistic three lines of defence review of our most pressing risks.~~future on the progress made.”

~~The Chair meets regularly~~

Dr José Antonio Meade Kuribreña

Workforce engagement non-executive Director

Lunch with the Group Chief Risk and Compliance Officer to discuss priorities, track progress on key actions and plan GRC meeting agendas. 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 meets regularly with the GRC Secretary and other members of the Corporate Governance and Secretariat to ensure the GRC meets its governance responsibilities, and to consider input from stakeholders when finalising meeting agendas, tracking progress on actions and GRC priorities. A summary of coverage is set out in the 'Matters considered during 2021' table on page 286.graduates

Mexico City, HSBC Tower

July 2022


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Role of the workforce engagement non-executive Director at a glance

Headline responsibilities:

•Engages, understands, represents colleagues globally.

•Receives employee perspectives through formal and informal engagement.

•Represents the employee voice at Board meetings for consideration during decision making.

Holdings Board

Feedback given and considered

↑

Workforce engagement
non-executive Director

↑

Data

Direct engagement

Means of engagement

Surveys/Snapshot

Employee jams

Audits

Chairs of principal subsidiaries

Virtual 'field' trips

Geographical visits

Reach

Global

Sample

Regional

Specific interest groups

Direct engagement

↑

Likely issues/topics

Purpose, culture values

Strategy and growth

Pay

Performance management

Working conditions/ future of work

Diversity and inclusion

Change and transformation

Climate/ESG

Activities during 2022

Since his appointment, José has undertaken a variety of engagements in his role including:


Employee views – Mexico, US, India, UK, Hong Kong, Argentina, Brazil, Chile and Uruguay
In the weeks immediately following his appointment, José had 25 meetings with colleagues in nine countries, in person and virtually, across most areas of the Group. Topics discussed included: the need for continued focus on areas such as well-being, and diversity and inclusion; and enhancement of technology. Following such discussions, several suggestions were made, including strengthening employee retention strategies, increasing career ownership within teams and improving information gathering analysis and dissemination following exit interviews to relevant colleagues in the Group.


Graduates – Mexico, US
During the year, José met with Mexican graduates in person and US graduates virtually to share experiences of HSBC’s graduate programme.


GBM – UK
José participated in an in-person meeting with a diverse group of Global Banking colleagues in London to share experiences and views on people matters, women in finance, diversity and inclusion, and career development.


Global Service Centre – Mexico
José joined colleagues for a meeting with Global Service Centre employees to understand their perspective on working life.


Employee resource groups – Global
José participated in the virtual annual employee resource group summit and heard about the groups' leaders' successes and challenges. He connected with representatives in the UK, Mexico, India, Dubai, Hong Kong, Singapore and the US.


Employee resource groups – Dubai
José joined an in-person meeting with the chapter leads of the five employee resource groups active in MENA (Ability, Balance, Embrace, Generations and Nurture).

Visit to Global Service Centre, Mexico City, Tecnoparque

October 2022

Engagement highlights


65			1,500+
Sessions attended by executive and/or non-executive Directors			Number of employees engaged

38			600+
Sessions attended by workforce engagement non-executive Director			Number of employees engaged by workforce engagement non-executive Director

12+			73%
Countries of engagement			Highest employee engagement survey response

Priorities for 2023

•Review opportunities with Human Resources to ensure the right insight is being gained from employees to support and better inform the Board when taking decisions.

•Attend six larger-scale employee engagement events aligned to Board meeting agenda items to foster debate and discussion.

•Plan further international employee engagement opportunities in addition to the Board travel plans.


286			HSBC Holdings plc


Board activities during 2022

During 2022, the Board remained focused on HSBC’s strategic direction, 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 2022 are set out by theme below.

Strategy and business performance

The Group’s strategy remains focused on increasing returns for investors, creating capacity for future investment and building a sustainable platform for growth. In 2022, each Board meeting featured the Group's strategic performance on its agenda, facilitating opportunities to track its delivery throughout the year, and providing opportunity to shape how it was developed. The Board reviewed progress within the Group’s global businesses and regions, as well as against its four strategic pillars of: focus on our strengths, digitise at scale, energise for growth and transition to net zero.

Environmental, social and governance

In 2020, the Group announced a climate ambition to align its financed emissions to net zero by 2050, and to become net zero in its own operations and supply chain by 2030. The Group aims to achieve this by supporting clients’ transition to a net zero carbon economy and focusing on sustainable finance opportunities, as well as by reducing the carbon emissions in its own operations.

The Board takes overall responsibility for ESG strategy, overseeing executive management in developing the approach, execution and associated reporting. The Board considered whether to establish a Board committee dedicated to ESG issues, but instead decided that the best way to support the oversight and delivery of the Group’s climate ambition and ESG strategy was to retain governance at Board level. The Group Executive Committee enhanced its governance model of ESG matters with the introduction of a dedicated ESG Committee and supporting forums. These support senior management in the delivery of the Group’s ESG strategy, key policies and material commitments by providing oversight over – and management and coordination of – ESG commitments and initiatives.

Financial decisions

The Board and its dedicated committees approved key financial decisions throughout the year, including the Annual Report and Accounts 2021, the Interim Report 2022 and the first quarter and the third quarter Earnings Releases.

At the end of 2021, the Board approved the 2022 financial resourcing plan. The Board monitored the Group’s performance against the approved plan, as well as the plans of each of the global businesses. The Board also approved the renewal of the debt issuance programme. In December 2022, the Board approved the financial resourcing plan for 2023.

The Board adopted a dividend policy designed to provide sustainable cash dividends, while retaining the flexibility to invest and grow the business in the future, supplemented by additional shareholder distributions, if appropriate. For the financial year 2022, we achieved a

dividend payout ratio within our 2022 target range of between 40% and 55% of reported earnings per ordinary share (’EPS’). As previously communicated, given our current returns trajectory, we are establishing a dividend payout ratio of 50% of reported earnings per share for 2023 and 2024, excluding material significant items (including the planned sale of our retail banking operations in France and the planned sale of our banking business in Canada).

On 22 February 2022, we announced an interim dividend of $0.18 per share for the 2021 full-year, and on 1 August 2022 we announced an interim dividend of $0.09 per share for the 2022 half-year. For further details of dividend payments, see page 443.

Risk, regulatory and legal considerations

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 by the Board and/or its relevant committees. 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 and Human Trafficking 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

•the Group's revised delegation of authority policy.

The Board also reviewed and monitored the implications of geopolitical and macroeconomic developments during the year.

Technology

Throughout the year, the Board received regular updates on technology from the Group Chief Operating Officer, including on the implementation of the technology strategy and key strategic business initiatives. As technology is crucial to help deliver the Group’s strategic objectives, including the strategic pillar ’Digitise at scale’, strategy papers covered technology issues throughout the year. In December, the Board discussed a digital technology map, a new tool that could help simplify, prioritise and drive change in the Group’s technology estate. For further details, see ’Principal decisions’ on page 22.

The Technology Governance Working Group continued to oversee and enhance the Group's governance of technology. For further details of this working group, see page 283.

People and culture

The Board continued to dedicate time in its meetings to discuss people-related and culture-related topics, to help raise its awareness of employee and other stakeholder perspectives. The Board is committed to setting the right cultural tone, with each Board meeting beginning with a ’culture moment’, which includes observations of behaviours within the Group aligned to its purpose and values.

Group subsidiary directors’ approaches to workforce engagement were presented by each of the chairs from the principal subsidiaries to the Chairman's Forum, where they discussed their respective board engagement activities with the workforce, as well as what they learned as part of such engagements and other cultural insights. The


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Board also receives insights from the all-employee Snapshot survey, which measures employee sentiment. A culture insights report, developed in 2021, provides the Board with key data indicators, such as behaviours, sentiment, business outcomes and people to allow it to monitor culture across the Group.

Board engagement with management and the wider workforce continued to remain a strong area of attention, particularly with the appointment of a dedicated workforce engagement non-executive Director. For further details of the work of the workforce engagement non-executive Director, see page 285.

Governance

The Board continued to oversee the governance, smooth operation and oversight of the Group and its principal and material subsidiaries.

The Board and senior management supported improvements to governance initiatives to encourage simplification and promote effective decision making in the business. Such improvements included making refinements to Board and committee paper templates, and reducing unnecessary committee meetings to free management time and encourage individual accountability and decision taking.

During the year, Pauline van der Meer Mohr and Irene Lee retired as independent non-executive Directors, and Ewen Stevenson resigned as Group Chief Financial Officer. The Board appointed Geraldine Buckingham as an independent non-executive Director in May 2022, and Georges Elhedery as Group Chief Financial Officer from 1 January 2023. The Board, supported by the Nomination & Corporate Governance Committee, reviews the skills and experience of the Board on an ongoing basis. This ensures that the Board and its committees comprise the necessary skills, diversity, experience and

competencies to discharge their responsibilities effectively. For further details of the review and changes to the Board, see the Nomination & Corporate Governance report on page 291. For further details of diversity of the Board, see page 279.

The Board monitored its compliance with the UK Corporate Governance Code, the Hong Kong Corporate Governance Code and the Companies Act 2006 throughout the year.

Board engagements with shareholders

In 2022, Board members remained responsive to shareholder requests to engage, and certain of the Board met with key investors including Ping An Asset Management Co. Ltd. The Group Chairman and the Senior Independent Director, often with the Group Company Secretary and Chief Governance Officer, engaged with a number of our large institutional investors in 19 meetings. The Group Chief Executive and the Group Chief Financial Officer, together and separately, attended over 100 meetings with investors. Key topics included our financial performance, updates on strategy and market presence, geopolitical risks and the macroeconomic outlook in key geographies.

The Group Remuneration Committee Chair also met with key investors and proxy advisory firms during the fourth quarter of 2022. These sessions provided useful insight into investor views on key areas of decision making for the Group Remuneration Committee, including our approach to the 2022 pay review for executive Directors and the wider workforce. For further details of the Group Remuneration Committee report, see page 308.

~~Matters considered during 2021~~

Board activities in 2022

Main topic

Sub-topic

Meetings at which topics were discussed1

Jan

Feb

Mar

Apr

May

Jun

Jul

Sep

Nov

Dec

~~Financial risk~~Strategy

Group strategy

lô

~~Credit risk~~Regional strategy/global business strategy

~~Climate 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~~Environmental, social, governance

~~Legal risk~~Business and financial performance

Region/global business

Financial performance

Financial

Results and accounts

Dividends

Group financial resource planning

Risk

Risk function

Risk appetite

Capital and liquidity adequacy

Regulatory

Regulatory and legal matters2

Regulatory matters with regulators in attendance3

External

External insights

Technology

Strategic and operational

People and culture

Purpose, values and engagement

Governance

Subsidiary governance framework

Policies and terms of reference

Board/committee effectiveness

Appointment and succession

AGM and resolutions

lô

~~How the Committee discharged its responsibilities~~

~~Activities outside formal meetings~~

The GRC held a number of meetings outside its regular schedule to facilitate more effective oversight of the risks impacting the Group. In particular, Directors’ education meetings and GRC Chair’s preview meetings strengthened the understanding of more technical topics and promoted constructive challenge. Areas covered included stress testing, ICAAP and ILAAP preparations, as well as recovery and resolution planning. Further details on these sessions are included in the 'Principal activities and significant issues considered during 2021' table starting on page 287.

~~Connectivity with principal subsidiary risk committees~~

During 2021 the GRC continued to actively engage with principal subsidiary risk committees through the scheduled participation of principal subsidiary risk committee chairs at GRC meetings, and through two connectivity meetings with the principal subsidiary risk committee chairs. This participation and connectivity promoted the sharing of information and best practices between the GRC and principal subsidiary risk committees.

The GRC also received reports on the key risks facing particular principal subsidiaries at its regular meetings and continued to review certifications from the principal subsidiary risk committees. The 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 and that the risk management and internal control systems have been operating effectively.

The principal subsidiary risk committee chairs have attended regular GRC meetings, education meetings and special review meetings. The engagement facilitated the GRC’s holistic review of regulatory submissions including stress tests, the Group recovery plan and the resolution self-assessment. The interactions furthered the GRC’s understanding of the risk profile of the principal subsidiaries, leading to more comprehensive review and challenge by the GRC.

~~Collaborative oversight by the GRC and the GAC~~

The GRC collaborated with the GAC to address any areas of significant overlap and to oversee risk more comprehensively, through inter-committee communication and joint meetings. The GRC and GAC Chairs are members of both committees to strengthen connectivity and the flow of information between the committees.

~~Joint meetings with the GAC~~

The GRC and the GAC convened a meeting on data strategy and data management in April 2021, with the attendance and support of the Group Chief Executive and the chief executive officers of the three global businesses. The committees reviewed the Group’s data strategy and the work required to embed its data policies, define its technology landscape and build a data-led culture. The committees challenged the first and second lines of defence on

how they are pursuing a data-driven strategy across four key areas for the Group. In the process the committees reviewed the regulatory landscape in relation to the Group's use of data, and the roles of the first and second lines of defence as co-owners of the management of data risk. The committees also reviewed the Group's approach to harnessing and using data to better unlock value for our customers.

The GRC and the GAC convened a joint meeting in November 2021 to review HSBC's thermal coal phase-out policy and the Group's approach to climate-aligned finance. The committees reviewed the progress made to deliver on the commitment to publish a policy to phase out the financing of coal-fired power and thermal coal mining by 2030 in EU/OECD markets, and by 2040 in other markets. The committees recommended the thermal coal phase-out policy and the approach to climate-aligned finance to the Board for approval.

~~Sustainable control environment~~

The GRC continued to review and challenge the Group’s internal controls to improve the control environment. The GRC reviewed entity level controls, which form the basis of HSBC’s control environment, as well as the results and remediation plans of a self-assessment performed by entity level control owners. At the request of the GRC Chair, with support of the GAC Chair, the GRC received an update on the thematic analysis and remediation plans for any overdue very high risk and high risk issues identified by Global Internal Audit.

~~Financial risk~~

During 2021, the GRC and the GAC reviewed and challenged the Group’s risk appetite and risk management framework relating to financial risk. In the process the committees discussed risk tolerance for financial reporting risk and financial reporting and tax risk, as well as improvement and remediation plans to enhance the broad regulatory reporting control environment.

~~Collaborative oversight by the GRC and the Technology Governance Working Group~~

The GRC worked closely with the Technology Governance Working Group to ensure appropriate alignment in the review, discussion, challenge and conclusions on technology risk-related matters. The GRC organised a technology-specific session with the working group in advance of the broader discussion at the joint GRC and GAC meeting on data strategy and data management. This ensured that the GRC benefited from the working group’s expertise and challenge in advance of the GRC and GAC discussion. The GRC also arranged for the Technology Governance Working Group Co-Chairs to lead discussions on data, models and infrastructure at the GRC climate biennial exploratory scenario pre-meetings.

Coordination and collaboration between the GRC and the Technology Working Group is supported by cross-membership. The GRC Chair is a member of the Technology Working Group and the Co-Chairs of the Technology Working Group are members of the GRC.


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~~Principal activities and significant issues considered during 2021~~

~~Areas of focus~~

~~Key issues~~

~~Conclusions and actions~~

~~Risk appetite~~

The Group risk appetite statement defines the Group’s risk appetite and tolerance thresholds and forms the basis of the first and second lines of defence’s management of risks, the Group's capacity and capabilities to support customers, and the pursuit of strategic goals.

The GRC maintained oversight of changes to the Group’s risk appetite statements, which in turn provided the basis for the Committee’s regular interactive review of financial and non-financial management information at each GRC meeting. The GRC continued to promote the development of more granular risk appetite statements that are more forward looking and risk responsive. The Committee continued to strengthen the linkage between risk appetite statements with the Group’s corporate strategy, stress testing, annual operating plan, as well as the Group's move towards stronger, sustainably higher returns for stakeholders, so that it may serve customers well. In January 2021, the GRC recommended the Group’s climate risk appetite statement to the Board for approval. It also recommended significant changes to the Group’s risk appetite statement, including in the areas of liquidity risk, wholesale credit risk metrics, climate risk, model risk, resilience risk, financial crime risk and regulatory compliance.

~~Geopolitical developments and risks~~l

Matter considered

~~Geopolitical developments and risks continue to present significant challenges for the Group’s customer franchise and for the resilience of our operations.~~ô

The GRC continued to monitor global geopolitical risks that could impact the Group’s strategy, business performance or operations, including trade tensions between the US and China and the related regulatory and reputational risks for operations globally.

~~Managing through the Covid-19 pandemic~~

~~Managing operational risk and counterparty credit risk to enable the Group’s support of our customers, communities and the local economy throughout the Covid-19 pandemic.~~

The GRC continued to review the economic uncertainty stemming from the Covid-19 pandemic and the impact to the Group’s own risk management and exposures, including those related to credit risk and models. The Committee received updates on the progress of economic recovery and how the Group continued to support customers and sustain operational resilience during the pandemic. The GRC closely monitored Covid-19-related lending and financial support packages, including forbearance and other support to customers following the closure of government lending schemes.

~~Operational resilience~~

Management’s operational resilience programme defines the Group’s policies and practices to strengthen its ability to protect customers. The programme identifies priority business services and their readiness to serve customers in the event of unforeseen disruptions in key markets.

The GRC continued its oversight of the Group’s operational resilience programme with a focus on 2021 and 2022 regulatory commitments to the PRA. The GRC reviewed and challenged the remediation plans for identified gaps, relevant controls, and the business ownership model and its supporting infrastructure. The GRC worked with management, including the Group Chief Control Officer to ensure ownership and the delivery of resilience outcomes is embedded with business and function leaders in the first line of defence. The Committee encouraged early adoption of operational resilience learnings across key markets and business, as well as the effective management of third-party risk.

~~Technology resilience including cybersecurity and Cloud strategy~~

~~Technology resilience is the risk of unmanaged disruption to any IT system within HSBC, as a result of malicious acts, accidental actions or poor IT practice or IT system failure.~~

The GRC reviewed reports on the state of the Group’s technology risk profile, as well as reports on cybersecurity. The GRC also maintained a strong focus on understanding the Group’s data risk landscape and its data strategy and data management programme.

The GRC convened a joint meeting with the Group Audit Committee in April to review and challenge the data strategy and data management programme, which had the strong support of the Group Chief Executive and the chief executives of the global businesses. The committees agreed that the Group’s data strategy and data management programme should be elevated to the highest level of prominence within the Group. Further details on the joint meeting are included in the 'Joint meetings with the GAC' section on page 286.

~~People, conduct and culture~~

~~The Group promotes a culture that is effective in managing risk and leads to fair conduct outcomes. It seeks to actively manage the risk of~~Matter not ~~having the right people with the right skills doing the right thing, including risks associated with employment practices and relations.~~

~~The GRC monitored people risk and employee conduct, with support from the Group Chief Human Resources Officer and Group Chief Risk and Compliance Officer. The Committee~~ considered people risk issues, including those arising from the impact of Covid-19, the link between remuneration and talent retention and acquisition, and reviewed workplace harassment data and insights. The GRC reviewed and challenged the alignment of risk and reward, and the impact of risk and compliance objectives on the Group’s variable pay pool.

The GRC reviewed the Group’s new conduct approach, which was refreshed in 2021, to reflect prevailing regulatory and industry standards and to align with the Group’s new purpose and values. The GRC monitored progress in remediating the market conduct issues underlying the 2017 Federal Reserve Bank Consent Order (which remains in force) arising from its investigation into HSBC’s historical foreign exchange activities, and to ensure the reforms are effective and sustainable in the long term.

~~Financial crime risk~~

The Group is committed to closely monitoring and managing the risk of knowingly or unknowingly helping parties to commit or to further potentially illegal activity, including both internal and external fraud

The GRC continued to review the Group’s approach to managing its financial crime risk across a number of important areas. These included the Group’s progress in enhancing its transaction monitoring framework, the use of next generation technology, the fraud landscape (particularly against heightened Covid-19 conditions), the Group’s fraud risk profile and the nature and scale of insider risk and the strategies for managing such 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.

1 No Board meetings were held during August and October 2022.


~~HSBC Holdings plc~~			~~287~~

2 Includes resolvability assessment framework, modern slavery and human trafficking, statement of business principles and code of conduct, regional updates and listing renewals.

~~Report~~3 Meeting attended by members of the ~~Directors~~ ~~| Corporate governance report~~

~~Principal activities and significant issues considered during 2021 (continued)~~

~~Areas of focus~~

~~Key issues~~

~~Conclusions and actions~~

Capital and liquidity risk
including ICAAP and ILAAP

~~The GRC oversees the Group’s management of its financial risk.~~

~~The GRC reviewed the Group’s ongoing capital and liquidity management activities, including early warning indicators, scenario stress testing and the Group’s capital and liquidity adequacy.~~

The GRC conducted its annual review, challenge and recommendation of the Group ICAAP and ILAAP to the Board for approval. GRC members received both an education session and previewed the ICAAP and ILAAP submissions in depth, with input from the principal subsidiary risk committee chairs. In the process the Committee evaluated the Group’s capital and liquidity strategies, capabilities including progress on the Group liquidity remediation programme and internal liquidity metric.

~~Credit risk~~

~~HSBC faces risk from the possibility of losses resulting from the failure of a counterparty to meet its agreed obligations to pay the Group~~

The Committee reviewed updates from management on the strategy and approach to manage credit risk and credit risk capabilities. The Committee reviewed forward economic scenarios and received quarterly updates on the Group’s expected credit losses and provisions, loan impairment charges and the credit risk arising from the wholesale portfolio and mortgage books. The GRC also reviewed the potential impact for the Group from external and secondary market events and recommended a management-led comprehensive review of the learnings and actions to be taken to drive a stronger credit risk culture.

~~Climate risk~~

~~Successful delivery of our climate ambition will be determined by our ability to measure and manage all components of climate risk.~~

The GRC remained focused on climate risk, reviewed quarterly reports on climate risk management, and maintained oversight over delivery plans to ensure the Group develops robust climate risk management capabilities. The GRC reviewed the Group's approach to climate risk appetite.

The GRC approved the Group’s climate biennial exploratory scenario stress test submission to the PRA. In preparation, the GRC reviewed the scenario and convened an education session. The GRC challenged management on the results of the submission during three preparatory meetings on the key risks of climate change. During the sessions the GRC reviewed the engagement with clients, their transition plans and the importance of advancing risk appetite and management actions; the challenges in relation to data, modelling and infrastructure support; and the impact of climate change on our physical risks including through our residential and corporate real estate mortgage books. The GRC also reviewed new business and lending opportunities for our Wealth and Personal Banking business to support customers.

The GRC and the GAC convened a joint meeting in November to review HSBC's thermal coal phase-out policy and the Group's approach to climate-aligned finance and recommended the thermal coal phase-out policy and approach to climate-aligned finance to the Board for approval. Further details on the joint meeting are included in the 'Joint meetings with the GAC' section on page 286.

~~Model risk~~

HSBC faces risk from the inappropriate or incorrect business decisions arising from the use of models that have been inadequately designed, implemented or used, or from models that do not perform in line with expectations and predictions.

The GRC continued to receive ongoing updates on the Group’s progress in managing model risk through the Group Chief Risk and Compliance Officer’s Group risk profile report and from the second line of defence. In January 2021, the Committee received an update on a number of material post-model adjustments to the Group’s wholesale portfolio, and on alternative modelling concepts being considered to recalibrate the idiosyncratic economic effects of the pandemic not captured by models. The update to the Committee in May 2021 reported on model risk deliverables against external review findings, improvements to enhance first line of defence engagement in the model lifecycle, and progress made to transform the model risk management function and implementation of new global model risk policy and standards.

~~Stress testing~~

~~HSBC performs internal and regulatory stress tests to measure the Group’s resilience and performance against stress.~~

The GRC reviewed and approved the outcomes of the initial submission of the impairments and RWA impact to the Bank of England's solvency stress test in April 2021 and subsequently the final outcomes of the 2021 solvency stress test scenarios in May 2021. In advance of the review, the Committee convened a preview meeting with the principal subsidiary risk committee chairs to review the solvency stress test submissions and the key learnings for the principal subsidiaries, including early identification of adjustments that might strengthen resilience in advance of a stress event. The Committee also undertook significant review and challenge of the Group’s 2021 GRC climate biennial exploratory analysis and approved the submissions to the PRA.

The GRC undertook a technical review of the 2021 Group internal stress test outcomes at a GRC Chair’s preview meeting, which was followed by formal review and approval at the January 2021 GRC meeting. In the lead-up to the 2022 financial resource plan, the GRC reviewed and endorsed the economic scenarios underpinning the financial resource plan and Group internal stress test in July 2021. The GRC subsequently reviewed, challenged and approved the final Group internal stress test results in December 2021.

The GRC also reviewed the implications of the results of the Federal Reserve’s Comprehensive Capital Analysis and Review severely adverse scenario stress test resubmission in relation to HSBC North America Holdings, and considered action being progressed by management in response.

Prudential Regulation Authority.


288			HSBC Holdings plc


~~Principal activities~~Board and ~~significant issues considered during 2021 (continued)~~
~~Areas of focus~~	~~Key issues~~	~~Conclusions~~committee effectiveness, performance and ~~actions~~
~~Recovery and resolvability~~accountability	~~HSBC is required to show how its resolution strategy could be carried out in an orderly way, including identification of any risks to successful resolution.~~	The GRC continued its oversight of the Group’s progress in understanding its capabilities against the Bank of England’s requirements for recovery and resolvability. The GRC reviewed and challenged the governance pathway for the 2021 Group recovery plan, including review of the recovery indicator framework and a special session to consider the key messages, the recovery playbook and strategic management actions. In advance of review by the Committee the GRC Chair met with senior management to consider the Group recovery plan, including principal subsidiary risk committee components. The GRC was also heavily involved in the governance of the resolvability assessment framework, with updates on the valuation in resolution requirements, and the Group’s resolvability self-assessment and resolvability assessment framework testing approach. The GRC reviewed and recommended the resolvability assessment framework self-assessment to the Board for approval. The Board meeting was preceded by four Board sub-Group preview meetings jointly sponsored by the GRC and GAC Chairs to examine the Group’s submission.

The Board and its committees are committed to regular, independent evaluation of their effectiveness at least once every three years. The Board intends to conduct an independent evaluation in 2023.

For 2022, the Nomination & Corporate Governance Committee ~~evaluation~~

~~During 2021,~~agreed that the ~~GRC implemented the recommendations~~evaluation of the ~~internal committee evaluation~~Board and its committees would again be conducted internally. The process included the completion of a questionnaire, issued by Lintstock, an independent service provider with no other connection to the Group or any individual Director. The questions were designed by the Group Company Secretary and Chief Governance Officer, some based on themes from the 2021 evaluation findings. A summary of the effectiveness reviews of the Board and the Board committees can be found on page 290 and in ~~November 2020. This included strengthening~~ the ~~focus of meeting agendas, and further increasing the GRC’s engagement with the Risk and Compliance functions and principal subsidiary risk~~respective committee ~~chairs.~~reports from page 291.

~~Continuing the commitment to regular evaluation,~~To gather qualitative feedback, the Group Company Secretary and Chief Governance Officer, ~~performed an annual review~~together with the Deputy Group Secretary, conducted interviews with each questionnaire respondent, including all the Board Directors, regular attendees of the relevant meetings and key advisers. The Group Chairman and committee chairs also participated in additional discussions following the consolidation of feedback in respect of the individual committees.

Overall, the work of the Board was rated highly and it was viewed as operating effectively. In general, there were consistent findings across the Board and committee reviews. These included:

•a positive view of the effectiveness of the ~~GRC~~Chairs of the Board and committees and the participation of its members;

•a greater desire to be even more forward looking;

•a need for continued focus on the quality of meeting materials to ensure that content remains focused, clear and precise; and

•continued collaboration between the Board committees.

At its January 2023 meeting, the Group Chairman led a discussion with the Board and considered the findings. The following areas of focus were discussed and actions agreed: a revised approach to tracking strategy execution; continued development of the timeline of sustainability and technology deliverables; simplification and prioritisation of deliverables and interdependencies; and enhanced focus on customer stakeholder engagement.

Actions will be monitored and addressed on an ongoing basis. Similar discussions were led by each of the committee chairs in ~~December 2021. The evaluation concluded that~~their respective January meetings. Progress against these actions will be included in the ~~GRC continued to operate effectively~~Annual Report and ~~in line with regulatory requirements, and identified enhancements, including~~Accounts 2023.

During 2022, a review of ~~GRC composition, to help strengthen~~ the ~~GRC's ability to effectively review~~Group Chairman’s performance was led by the Senior Independent Director in consultation with the other independent non-executive Directors, management and ~~challenge~~key stakeholders. Non-executive Directors also undergo regular individual reviews with the ~~Group's risk profile. Other recommendations included: strengthening~~Group Chairman. These reviews confirmed that the focus of agendas with an ongoing emphasis on emerging risks; continued enhancement to papers and presentations; optimising the use of member time spent outside of formal governance; and even stronger coordinationperformance of the ~~roles~~Group Chairman and each Director was effective and that each had met their time commitments during the year.

The review of executive Directors’ performance, which helps determine their pay outcomes each year, is contained in the Directors’ remuneration report on page 308.

Board and Committee evaluation process

The Board made good progress against all of the ~~Board committees. As~~action points identified during the 2021 evaluation. In particular, the Board:

•enhanced its composition with the ~~GAC,~~appointment of Geraldine Buckingham, which brought significant Asia leadership experience;

•maintained a focus on succession planning, ~~will also remain~~with a ~~priority. The outcomes~~view to strengthening its expertise in banking and improving its representation from Asia;

•strengthened workforce engagement, with the appointment of ~~the evaluation have been reported to the Board, and the GRC will track the progress in implementing recommendations during 2022.~~

José Antonio Meade Kuribreña as designated non-executive Director for workforce engagement;

~~Focus of future activities~~

~~The GRC’s focus for 2022 will include the following activities. It will:~~

•~~oversee~~devoted time to the ~~continued strengthening~~consideration of ~~the Group's risk appetite~~key areas of focus, including digital opportunities and ~~risk management framework;~~threats, ESG and strategic risk;

•~~continue~~continued to ~~review~~monitor compliance with the ~~Group’s work to enhance its credit risk capabilities and culture;~~

•~~continue to oversee financial crime and fraud;~~

•~~oversee the delivery against climate change commitments and enhancing climate risk capabilities;~~

•~~continue the oversight of the delivery of technology-related programmes including the adoption of Cloud platforms, and enhancement of the Group’s IT systems/platform;~~subsidiary accountability framework; and

•~~oversee key regulatory actions, including the implementation~~enhanced coordination and collaboration between its committees, with combined meetings of the ~~Group’s operational resilience strategy on a global basis, recovery~~Group Audit Committee, Group Risk Committee and ~~resolution, and stress testing submissions and capabilities.~~Technology Governance Working Group held during the year.


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Report of the Directors | | Corporate governance report| Board committees

Summary of 2022 Board effectiveness findings and recommendations for action:

Findings from the evaluation

Recommendations for action

Strategy, execution and deliverables

•The Board’s strategic oversight was rated positively overall, although the consistency of management’s articulation, tracking and execution of progress against the Group’s strategy could be strengthened. It was recommended to increase the use of metrics to show comparable progress against key deliverables.

•The Board’s approach to the oversight of the Group’s sustainability strategy was rated positively, although the monitoring of sustainability-related key targets required greater clarity.

•The Board’s oversight of technology strategy was considered strong and it was suggested that the Board required a more detailed plan of digital deliverables to enable continuous monitoring and performance tracking.

•The Group Chief Executive should develop a revised set of metrics related to performance, execution and risk management, as well as other key value drivers, as appropriate.

•The Group Chief Executive and relevant accountable executives should develop a timeline of ESG and technology deliverables and milestones.

Simplification and prioritisation

•The importance of devoting sufficient time to challenging management’s progress on simplification and prioritisation was highlighted. It was suggested that the Board provide greater oversight of management prioritisation of key projects and strategic deliverables.

•A Board session should be held annually on organisational simplification and prioritisation of deliverables and interdependencies.

Stakeholder engagement

•Engagement with stakeholders was strong, including the focus on the employees, in the year. The Board asked that further enhancements be considered, in particular customers given the current macroeconomic headwinds.

•The Board’s stakeholder engagement plan should be reviewed to ensure that all members of the Board have sufficient opportunity to engage with, and understand the views, of the Group’s key stakeholders.

Meeting materials

•It was recognised that meeting materials had improved considerably over recent years, but it was emphasised there was opportunity for further improvement around consistency, comparability and ownership. Stakeholder considerations could be better incorporated in Board papers to support decision making.

•Training and/or guidance should be provided to all paper authors in 2023.


290			HSBC Holdings plc


Nomination & Corporate Governance Committee


~~Directors’ remuneration report~~
			~~Page~~
~~Committee Chair's statement~~			~~290~~
~~Directors' remuneration policy~~			~~293~~
~~Annual report on Directors' remuneration~~			~~304~~
~~Our approach to workforce remuneration~~			~~314~~

~~Additional regulatory remuneration disclosures~~"Developing our skills and experience, and diversity and inclusion ambitions remains a priority and the Committee will continue to oversee and enhance the succession pipeline at Board and senior leadership level.”			~~320~~

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 2021 reflect the improvement in the Group's financial performance, our strong cost controls and execution of our strategy at pace.'~~

Dear ~~shareholder~~Shareholder

I am pleased to present the Nomination & Corporate Governance Committee report, which provides an overview of the work of the Committee and its activities during the year.

During 2022, the Committee continued to review the Board’s composition, succession planning, skills, experience and diversity, to ensure that the Group operated in line with its ambition of world class governance.

On behalf of the Board, the Committee oversaw a number of changes to Board composition, including the retirements of Pauline van der Meer Mohr and Irene Lee, and the appointment of Geraldine Buckingham. The Committee also closely monitored executive succession planning, in particular the transition of the Group Chief Financial Officer, with Georges Elhedery succeeding Ewen Stevenson from 1 January 2023. Ewen leaves with our ~~2021 Directors’ remuneration report~~sincere thanks for the significant contribution that he has made to the Board and to the broader Group over the past four years.

On 1 March 2023, Kalpana Morparia will join the Board, strengthening both its collective Asia business and banking knowledge and experience, and diversity.

Developing our skills and experience, and diversity and inclusion ambitions of the Board and senior management, remains a priority and the Committee will continue to oversee and enhance the succession pipeline at Board and senior leadership level through 2023. This will build on the revised gender and ethnic representation targets introduced within the diversity and inclusion policy, and the work led by management on developing successors for senior leadership roles and under the Asia Talent programme. Our Board diversity and inclusion policy, which contains our revised targets, can be found on hsbc.com.

During 2022, we also took the decision to establish a new Board role designated with responsibility for ensuring that the employee voice is strengthened within the Board’s deliberations. The creation of the role was a natural evolution of the work already undertaken to enhance stakeholder engagement within Board decision making. In this role, José Meade will lead our workforce engagement on behalf of the ~~members~~Board, supported by the Corporate Governance and Secretariat and Human Resource functions. Further details on the role and initial areas of ~~the Group Remuneration Committee.~~

During 2021 the Group's financial performance improved against a backdrop of continuing challenging circumstances, including the emergence of new Covid-19 variants and ongoing low interest rates. We continued to execute our strategy at pace. The decisions the Committee has taken reflect the improvement in the Group's performance and progress towards its strategic targets. I have summarised our decisions in this statement.

~~At the 2022 Annual General Meeting ('AGM'), we will~~focus can be seeking shareholder approval for a renewed Directors' remuneration policy. Our current policy received 97% of votes cast in favour at our 2019 AGM and its implementation received strong support with more than 96% of votes cast in favour in both 2020 and 2021. The Committee reviewed the remuneration policy, considering carefully whether it provides a fair and competitive remuneration opportunity to incentivise long-term performance. We also noted that the UK regulatory requirements currently restrict us from using a structure with a greater focusfound on ~~variable pay and lower fixed pay.~~

Based on this review, engagement with our largest shareholders, and the premise that the policy, within our regulatory framework, supports the execution of our strategy, we have decided to roll forward our current policy with no changes to the fixed or variable pay structure and approach.

page 285.


Membership
	Member since	Meeting attendance in ~~2021~~2022
~~Pauline van der Meer Mohr~~Mark Tucker (Chair)	~~Jan 2016~~Oct 2017	7/7
Geraldine Buckingham1	May 2022	4/4
Rachel Duan2	Sep 2021	6/6
~~Rachel Duan~~	~~Sept 2021~~	~~2/2~~7
Dame Carolyn Fairbairn	~~Sept~~Sep 2021	~~2/2~~7/7
James Forese	May 2020	~~6/6~~7/7
~~José Antonio Meade Kuribreña~~Steven Guggenheimer	May ~~2021~~2020	~~4/4~~
~~Henri de Castries~~1	~~May 2017~~	~~2/3~~7/7
Irene Lee13	Apr 2018	3/3
José Antonio Meade Kuribreña	Apr 2019	7/7
Eileen Murray2	Jul 2020	5/7
David Nish	1Apr 2018	7/7
Jackson Tai	Apr 2018	7/7
Pauline van der Meer Mohr3	~~May 2017~~Apr 2016	~~2/2~~3/3

1 ~~David Nish~~Geraldine Buckingham was appointed to the Board and joined the Committee on 1 May 2022.

2 Rachel Duan was unable to attend the July committee meeting due to a pre-existing engagement. Eileen Murray was unable to attend the April and September meetings for personal health reasons.

3 Irene Lee and Pauline van der Meer Mohr stepped down from the ~~Committee on 23 February 2021; Henri de Castries~~Board and ~~Irene Lee stepped down from~~ the Committee following the conclusion of the AGM on ~~28 May 2021.~~

~~Performance in 2021~~

~~Financial performance~~29 April 2022.

The ~~Group's financial performance improved~~Committee’s role in ~~2021~~overseeing these changes is outlined on the following pages.

As we look ahead to 2023, the Committee will consider the changes to the UK audit, governance and ~~all regions were profitable. Reported profit before tax of $18.9bn was up $10.1bn from 2020. Adjusted profit before tax of $21.9bn was up $9.6bn,~~regulatory regimes, including updates to the UK Corporate Governance Code, and the steps needed to ensure the Group continues to operate in line with ~~net ECL releases more than offsetting~~best practice.

Mark E Tucker

Chair

Nomination & Corporate Governance Committee

21 February 2023

Key responsibilities

The Committee’s key responsibilities include:

•leading the ~~impact of lower revenue, which reflected continuing external pressures during 2021. We continued~~process for identifying and nominating candidates for appointment to ~~demonstrate strong cost control. Despite inflationary pressures~~the Board and ~~continued investment in technology, our adjusted costs were $32.1bn. Our return on tangible equity ('RoTE') improved from 3.1% in 2020 to 8.3%. We also achieved a $104bn RWA reduction in legacy assets~~its committees;

•overseeing succession planning and ~~low-return areas~~development for the Group Executive Committee and ~~we have now achieved 95%~~other senior executives; and

•overseeing and monitoring the corporate governance framework of the ~~$110bn reduction targeted by the end of 2022. We were able to restart our dividend payments to shareholders~~Group and ~~we remain well placed to fund growth and step up capital returns.~~ensuring that this is consistent with best practice.

~~Workforce pay~~

~~Support for our colleagues~~Committee governance

The well-being of our people remained a critical focus, specifically as the operating environment continued to be challenging for many colleagues and their families. The pandemic, which remains a presence in all of our lives, continued to impact our customers, colleagues and communities and we have continued to provide support to our colleagues.

While we have sustained our employee engagement scores, which remain above pre-pandemic levels, we are monitoring carefully the well-being of our people. Our survey results showed that overall well-being has remained stable with 82% of our colleagues reporting positive mental health. We are moving to a hybrid working model wherever possible, giving people the flexibility to work in a way that balances the needs of our customers, their teams and their personal preferences.

To help people to develop skills for the changing world around us, we launched Future Skills in September 2021, supporting colleagues to explore new personal, digital, data and sustainability skills through a series of learning activities and events.

Group ~~variable pay pool~~

2021 was characterised by a sharp economic rebound and an extraordinarily competitive labour market. Our financial performance was strong, and it is critical for our long-term performance that we continue to attract and retain the talent necessary to deliver our strategic priorities. As a Committee, we reflected on this throughout the year, and particularly when we reviewed and agreedChief Executive, the Group ~~variable pay pool of $3,495m, a year-on-year increase of 31%.~~

~~In deciding~~Chief Human Resources Officer, and the Group ~~variable pay pool, we reviewed performance against financial~~Head of Talent routinely and ~~non-financial metrics set out in~~selectively attended Committee meetings. The Group Company Secretary and Chief Governance Officer attends all Committee meetings and supports the Group ~~risk framework, including conduct. We took into account~~Chairman in ensuring that the ~~improvement in~~Committee has fulfilled its governance responsibilities.

Russell Reynolds Associates, which supported the ~~Group's financial performance with adjusted profit before tax up 79%, our strong capital position, the reinstatement of dividends~~Committee and the ~~capital return~~management team in relation to ~~shareholders through~~Board and senior management succession planning, regularly and selectively attended meetings during the ~~up to $2bn buy-back announced in October 2021. Subsequently,~~year. It has no other connection with the Group ~~has announced that it intends to initiate a further up to $1bn share buy-back, to commence after~~or members of the ~~existing~~Board.


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Report of the Directors | Corporate governance report | Board committees

Board composition and succession

The Committee continued its focus on ensuring that the Board and its members, both collectively and individually, possess the skills, knowledge and experience necessary to oversee, challenge and support management in the achievement of the Group’s strategic and business objectives.

In addition to the retirements of Irene Lee and Pauline van der Meer Mohr, the Board welcomed Geraldine Buckingham, who most recently held the position of Head of Asia-Pacific at BlackRock. She was appointed to the Board with effect from 1 May 2022.

In October, the Group announced the appointment of Georges Elhedery as an executive Director and Group Chief Financial Officer with effect from 1 January 2023. This decision followed a review by the Committee of the composition of the Group Executive Committee with a particular focus on long-term succession planning. It was concluded, based on the recommendation of the Group Chief Executive, that Georges, who was previously co-Chief Executive Officer of Global Banking and Markets, should replace Ewen, who stepped down from the Board at the end of 2022. Georges, who has a track record of driving growth and managing change and who brings a strong focus on execution, will help the Group to accelerate delivery of improved financial performance and shareholder returns.

The Committee expects that non-executive Directors serve two three-year terms, with any appointments beyond this to be determined on an annual basis with reference to the needs of the Board and the performance and contribution of the individual. In view of the importance of continuity for key roles on the Board, particularly given the current economic and geopolitical environment, the Committee agreed that David Nish’s appointment should be extended for a further year to the 2024 AGM, subject to his re-election by shareholders. In taking this decision, the Committee considered the need for an effective transition in relation to the Senior Independent Director and Chair of the Group Audit Committee roles, both of which David currently holds. It is the Board’s strong belief that this extension of David’s appointment, given his performance and contribution to the Board during 2022, is in the best interests of the Group and all of its stakeholders.

As referenced in our 2021 report, the Committee agreed to prioritise in future appointments significant previous executive experience in banking, as well as with deep business and cultural expertise across Hong Kong and mainland China, and south-east Asia. A number of potential candidates meeting the desired skills and experiences were identified, a shortlist of which were considered and discussed by the Committee. Following meetings between various members of the Committee and priority candidates to understand their respective interests and capacities, the Board accepted the Committee’s recommendations and approved the appointments of Geraldine Buckingham with effect from 1 May 2022 and Kalpana Morparia with effect from 1 March 2023.

Strengthening the Board’s collective experience in these areas remains a priority, and the Committee will continue to discuss broader succession planning for key roles on the Board and committees through 2023, and beyond. In addition, succession planning will have regard to diversity and inclusion targets and expectations. The Committee is focused on identifying candidates with the following skills and experience for future appointments to the Board:

•significant executive experience in banking;

•deep business and cultural expertise across Asia, in particular Hong Kong and mainland China, and the Middle East, given the geographical mix of the Group’s business and the importance of these regions to the strategy and future growth; and

•previous public company leadership experience.

The Committee will continue to monitor the market for potential candidates for appointment to the Board in both the short and medium term, to ensure that the Board has a pipeline of credible successors and continues to be equipped to effectively discharge its responsibilities.

Board diversity

The Board recognises the importance of gender, social and ethnic diversity, and the strengths diversity brings to Board effectiveness. Diversity is taken into account in its broadest sense when considering succession plans and appointments at both Board and senior management level, as well as more broadly across the Group.

Over the past 12 months, there has been significant focus on diversity at Board level, including as a result of the updated guidance and targets issued by the FTSE Women Leaders Review (formerly the Hampton-Alexander review) and the UK Listing Authority. The Board is supportive of the proposals and, in line with the Board diversity and inclusion policy, remains committed to increasing diversity at Board and senior levels to ensure we reflect the markets and societies we serve. This policy, which was updated in 2022 to incorporate new targets on female representation, details our approach to achieving our diversity ambitions, and ensures that diversity and inclusion factors are considered in succession planning. The revised Board diversity and inclusion policy is available at www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.

At the end of 2022, the Board had 33% female representation, with four female Board members out of 12. Following our recent announcement in relation to Kalpana Morparia and Jackson Tai, this leaves us on track to meet our aspirational target of at least 40% female representation on the Board by the end of 2023, ahead of the end of 2025 expectations set by the FTSE Women Leaders Review for gender representation on Boards.

The FTSE Women Leaders Review also published revised gender representation targets, specifically the expectation that a woman holds at least one of the senior Board positions of Chair, Chief Executive Officer, Senior Independent Director or Chief Financial Officer by the end of 2025. The Committee considers succession for these key Board roles on an ongoing basis and will take into account the need for greater diversity when considering candidates for appointment to these roles in future. At the end of 2022, all those holding these senior Board positions at the Group were male. The Board is committed to achieving this target by the review’s end of 2025 deadline.

The Board continued to exceed the Parker Review target of having at least one Director of diverse ethnic heritage, with three members of our Board self-identifying in line with the ethnicity/ethnic definition set by the Parker Review. Given the global and international nature of our business, including our strong presence and heritage in Asia, the Committee considers that the Board should comprise a greater proportion of diverse ethnic heritage Directors than anticipated by the Parker Review. The Board’s targets were revised to reflect this commitment and therefore to maintain or improve the current representation of directors from a diverse ethnic heritage.

Further details on activities to improve diversity across senior management and the wider workforce, together with representation statistics, can be found on page 341.


292			HSBC Holdings plc

~~buy-back~~Independence

Independence is a critical component of good corporate governance, and is a principle that is applied consistently at both Holdings and subsidiary level. The Committee has ~~concluded. We~~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.

In line with the requirements of the Hong Kong Corporate Governance Code, the Committee also ~~took into account~~reviewed and considered the ~~operating environment~~mechanisms in place to ensure independent views and input are available to the Board. These mechanisms include:

•having the appropriate Board and Committee structure in place, including rules on the appointment and tenure of non-executive Directors;

•ensuring non-executive Directors are entitled to obtain independent professional advice relating to their personal responsibilities as a Director at the Group’s expense;

•having terms of reference for each Committee and the ~~challenges created by a very competitive market for talent manifesting through higher than normal voluntary attrition rates.~~Board provide authority to engage independent professional advisers; and

•holding annual Board and Committee effectiveness reviews, with feedback sought from members on the quality of, and access to, independent external advice.

Senior executive succession and development

The ~~pool~~outputs from the annual capability review, including updated succession plans for the Group Executive Committee members, were considered and approved by the Committee in December 2022. These reflected continued efforts to support the development and progression of diverse talent and promote the long-term success of the Group, with the gender diversity and proportion of Asian heritage successors improving year on year. This included future internal and external succession options for the Group Chief Executive, to ensure that the Committee has a robust and actionable succession plan when required.

The Committee also continued to receive updates on the development of our talent programme within the Asia-Pacific region.

Committee evaluation

The annual review of the effectiveness of the Committee was ~~determined~~internally facilitated in 2022. The review concluded that, overall, the Committee continued to operate effectively and in line with ~~our countercyclical funding methodology, whereby variable pay as~~regulatory requirements. However, a ~~percentage~~number of ~~profits generally reduces as performance increase. In 2020,~~areas for enhancement were identified, including the ~~variable pay pool was reduced by 20% when~~need for a continued focus on succession planning for the ~~adjusted profit before tax was down 45%~~Group Chief Executive, the Committee Chair, the Senior Independent Director and future non-executive Directors, ensuring plans supporting the Board’s objectives in relation to ~~recognise~~diversity and stakeholder needs. Other areas of focus included the continued identification of both internal and external talent, training requirements and the retention strategy for high performing individuals. Certain priority areas of focus for the Committee across 2023 were suggested, including the continued monitoring of progress of governance within material and principal subsidiaries (as defined in the subsidiary accountability framework), and the need to ~~remain competitive~~review the external advisers supporting the Committee. The outcomes of the evaluation have been reported to the Board, and the Committee will track the progress in ~~retaining talent even in challenging circumstances.~~implementing recommendations during 2023. In ~~2021, our countercyclical approach meant that while~~line with the ~~adjusted profit before tax was up 79%,~~UK Corporate Governance Code, the ~~pool increased by 31%.~~2023 Board and Committee performance review will be externally facilitated.

The Committee was kept updated on progress on actions agreed following its 2021 evaluation, which were all completed.

Subsidiary governance

In line with the subsidiary accountability framework introduced in 2021, the Committee continued to oversee the corporate governance and succession arrangements across the principal and material subsidiary portfolio. Where appropriate and subject to strong rationale, the Committee approved exceptions from strict compliance with the framework, including to reflect local law and regulation, as well as market practice. The Committee has reinforced its expectations that subsidiaries take steps to achieve full compliance with the framework, with any exception requests subject to thorough review and consideration by the Group Company Secretary and Chief Governance Officer in advance of consideration by the Committee.

Matters considered during 2022

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

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


l			Matter considered			ô			Matter not considered


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Group Audit Committee



"The Committee reviewed management's arrangements for compliance and assurance over regulatory reporting processes, and progress of HSBC-specific reviews of regulatory reporting."

Dear Shareholder

I am pleased to introduce the Group Audit Committee (‘GAC’) report setting out the key matters and issues considered in 2022.

We welcomed Eileen Murray, who rejoined the GAC in 2022, and Rachel Duan, who was appointed to the Committee in April 2022. Pauline van der Meer Mohr stepped down from the Board and James Forese stepped down from the GAC to assume new Board responsibilities. I would like to thank them both for their support and insightful contributions to the work of the GAC.

The GAC continued to provide oversight of change and transformation programmes to enhance the Group’s internal controls over financial reporting. We challenged management on its forecasts and confidence in the delivery of externally communicated targets in an uncertain external environment. The Committee also reviewed management's arrangements for compliance and assurance over regulatory reporting processes, and progress of HSBC-specific reviews of regulatory reporting.

We continued to strengthen our relationships and understanding of issues at the local level through regular information sharing with the principal subsidiary audit committee chairs. This was supplemented with regular meetings with the principal subsidiary audit committee chairs to discuss key issues, and through their attendance at GAC meetings. I also joined a number of principal subsidiary audit committee meetings throughout the Group.

The Group’s whistleblowing arrangements continue to satisfy regulatory obligations and I regularly met the whistleblowing team to discuss material whistleblowing cases. Efforts were made in 2022 to drive continuous operational improvements and to provide deeper insights to support our purpose, values and conduct approach. Actions were also taken to make use of best practices across investigative functions and to enhance the experiences of colleagues when they report concerns at HSBC.

The Committee oversaw the retendering for statutory audit services for the 2025 year-end. This process included detailed qualification activities, thorough evaluation of firms, consideration of evolving UK legislation and guidelines, and engagement with regulators. The GAC recommended to the Board that PwC be reappointed for a further term of 10 years commencing 1 January 2025.

The Committee implemented all the actions from the 2022 evaluation and the 2023 review determined that the GAC continued to operate effectively.

David Nish

Chair

Group Audit Committee

21 February 2023


Membership
	Member since	Meeting attendance in 20221
David Nish (Chair)	May 2016	13/13

Rachel Duan2	Apr 2022	6/8
James Forese3	May 2020	5/5
Eileen Murray4	Jun 2022	6/8

Jackson Tai	Dec 2018	13/13
Pauline van der Meer Mohr5	Apr 2020	5/5

1 These included four joint meetings with the Group Risk Committee (‘GRC’) and the Technology Governance Working Group.

2 Rachel Duan was unable to join two meetings due to prior commitments made before becoming a GAC member.

3 James Forese stepped down from the GAC on 1 June 2022.

4 Eileen Murray rejoined the GAC on 1 June 2022, and was unable to attend two meetings due to personal circumstances.

5 Pauline van der Meer Mohr retired from the Board on 29 April 2022.

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 management’s arrangements for compliance with prudential regulatory financial reporting;

•reviewing and monitoring the relationship with the external auditor and overseeing its appointment, tenure, rotation, remuneration, independence and engagement for non-audit services;

•overseeing the Group’s policies, procedures and arrangements for capturing and responding to whistleblower concerns and ensuring they are operating effectively; 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.

Committee meetings usually take place a couple of days before Board meetings to allow the Committee to report its findings and recommendations in a timely and orderly manner. The Board also receives copies of the Committee agendas and minutes of meetings.


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Matters considered during 2022

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

ESG and climate reporting

Regulatory reporting-related matters

Certificates from principal subsidiary audit committees

Control environment

Control enhancement programmes

Group transformation

Review of deficiencies and effectiveness of internal financial controls

Internal audit

Reports from Global Internal Audit

Audit plan updates, independence and effectiveness

External audit

Reports from external audit, including external audit plan

Appointment, remuneration, non-audit services and effectiveness

Audit tender

Compliance

Accounting standards and critical accounting policies

Corporate governance codes and listing rules

Whistleblowing

Whistleblowing arrangements and effectiveness


l			Matter considered			ô			Matter not considered

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 ‘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 GAC Chair continued to engage with regulators, including the UK’s PRA and the Financial Reporting Council. These included trilateral meetings involving the Group’s external auditor, PwC.

The Committee assessed the adequacy of resources of the accounting, internal audit, financial reporting and ESG performance and reporting functions. It also monitored the legal and regulatory environment relevant to its responsibilities.

How the Committee discharged its responsibilities

Connectivity with principal subsidiary audit committees

The GAC strengthened its working relationship with the principal subsidiary audit committees through formal and informal channels. The GAC Chair regularly met the chairs of the principal subsidiary audit committees to enable close links and deeper understanding on judgements around key issues. The GAC Chair attended a number of the principal subsidiary audit committee meetings and certain chairs of the principal subsidiary audit committees also joined meetings of the GAC during the year.

On a half-year basis, principal subsidiary audit committees provided certifications to the GAC that regarded the preparation of their financial statements, adherence to Group policies and escalation of any issues that required the attention of the GAC. These certifications also included information regarding the governance, review and

assurance activities undertaken by principal subsidiary audit committees in relation to prudential regulatory reporting.

Internal controls

The Committee devoted significant time in understanding the effect on financial reporting risk from high-impact programmes aimed at enhancing and enabling the transformation of the control environment to support financial, prudential regulatory and other regulatory reporting. The GAC provided detailed feedback and challenge to management on a number of aspects, including requesting external assurance, replanning and mobilisation of programme workstreams, resourcing and engagement throughout the Group and with regulators. Common themes from these discussions included the need to improve understanding and accountability for data capture, improve data quality from the implementation and embedding of data policies while ensuring there was a stronger appreciation throughout the Group of the downstream impact on financial and regulatory reporting. The oversight and implementation of these programmes and their component parts will remain a key focus for the Committee in 2023.

The GAC 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 internal financial controls. These updates included the Group’s work on compliance with section 404 of the Sarbanes-Oxley Act. Based on this work, the GAC recommended that the Board support its assessment of the internal controls over financial reporting.

For further details on how the Board reviewed the effectiveness of key aspects of internal control, see page 339.

Financial reporting

The Committee is responsible for reviewing the Group’s financial reporting during the year, including the Annual Report and Accounts, Interim Report, quarterly earnings releases, analyst presentations and, where material, Pillar 3 disclosures and other items arising from the review of the Group Disclosure and Controls Committee. As part of ~~the year-end pay~~its review, the GAC:

•evaluated management’s application of critical accounting policies and material areas in which significant accounting judgements were applied;


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•focused on compliance with disclosure requirements to ensure these were consistent, appropriate and acceptable under the relevant financial and governance reporting requirements;

•provided advice to the Board on the form and basis underlying the long-term viability statement; and

In conjunction with the Group Risk Committee (‘GRC’), the GAC considered the ~~remuneration outcomes. Overall, total compensation across all our businesses was up relative to 2020. For our junior colleagues,~~current position of the increase is slightly lower, as their outcomes last year were broadly stable in order to protect their outcomes against material year-on-year volatility. Outcomes correlated well with performance and behaviours,Group, along with the ~~largest increase~~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. The GAC also undertook a detailed review before recommending to the Board that the Group continues to adopt the going concern basis in ~~variable pay for those who performed most strongly~~preparing the annual and ~~who acted~~interim financial statements. Further details can be found on page 42.

Fair, balanced and understandable

Following review and challenge of the disclosures, the Committee recommended to the Board that the financial statements, taken as ~~role models for our values. Fixed pay increases~~a whole, were ~~targeted towards junior colleagues~~fair, balanced and understandable. The financial statements provided the shareholders with the necessary information to ~~help address~~assess the Group’s position and performance, business model, strategy and risks facing the business, including in relation to the increasingly important ESG considerations.

The Committee reviewed the draft Annual Report and Accounts 2022 and results announcements to enable input and comment. It was supported by the work of the Group Disclosure and Controls Committee, which also reviewed and assessed the Annual Report and Accounts 2022 and investor communications.

This work enabled the GAC to provide positive assurance to the Board to assist them in making the statement required in compliance with the UK and Hong Kong Corporate Governance Codes.

Key financial metrics and strategic priorities

Further details can be found in ~~many~~the ‘Principal activities and significant issues considered during 2022‘ table on page 298.

ESG and climate reporting

The GAC, supported by the executive-level ESG Committee and Group Disclosure and Controls Committee, provided close oversight of ~~our locations.~~ the disclosure risks in relation to ESG and climate reporting, amid rising stakeholder expectations.

The ~~outcomes were~~GAC tracked and monitored developments from a number of prominent consultations and considered them when reviewing the strategy and scope of ESG and climate disclosures in 2022. In particular, the Committee asked management to provide further

details on the pipeline of mandatory regulatory and externally committed ESG and climate-related disclosures over the next 12 to 24 months, including the delivery status. This allowed the Committee to consider management’s development of methodologies, tools and data solutions holistically to fulfil external disclosure requirements and commitments.

ESG reporting is fast evolving with few globally consistent reporting standards and a high reliance on external data. The Committee focused on internal and external assurance in this area in line with wider market developments. Management updated the Committee on the verification and assurance framework to ensure that ESG and climate disclosures were materially accurate, consistent, fair and balanced. The GAC discussed the roles and work of the three lines of defence as part of this framework, discussed the nature and root cause of issues identified through the increased assurance work, as well as proposals for further limited third-party assurance to be performed over specific ESG-related metrics.

Regulatory reporting

The Committee continued to focus heavily on the quality and reliability of regulatory reporting and oversight of key programmes to strengthen the end-to-end processes to meet regulatory expectations.

Management provided updates on the status of ongoing HSBC-specific external reviews, and discussed the issues and themes identified from the increased assurance work and focus on regulatory reporting. They also discussed root cause themes, remediation of known issues and new issues identified through the increased assurance work and focus on regulatory reporting. The GAC was instrumental in the initiation of a global programme designed to deliver consistent control frameworks for our ~~pay principles~~regulatory reporting globally over the next few years. The Committee challenged management on remediation plans, to ensure there was a sustainable reduction in issues and that dependencies with other key programmes were well understood. The Committee Chair invited certain principal subsidiary audit committee chairs to GAC meetings to participate in discussions to ensure alignment and understanding of key issues and ongoing regulatory engagement.

UK audit reform

In May 2022, the UK government published its response to the consultation paper, ‘Restoring Trust in Audit and Corporate Governance’, on strengthening the UK’s audit, corporate reporting and corporate governance systems. This summarised the responses received to the consultation and set out the next steps towards implementation.

One of the key changes proposed is for large public interest entities, such as HSBC, to develop and publish an audit and assurance policy every three years, setting out the approach ~~decided by~~to assurance of information beyond the ~~Committee for 2021.~~

~~Key remuneration decisions for Directors~~

~~Executive Directors' annual performance assessment~~financial statements. The government will also introduce a new statutory resilience statement.

The ~~financial measures in~~Committee received updates on the executive Directors’ 2021 scorecards were growing revenue in Asia, meeting the Group's adjusted cost target and our strategic priority of reducing RWAs in legacy assets and low-return areas. Strategic performance measures were customer satisfaction, employee engagement and diversity and personal objectives aligned with delivery of our strategy.

Overall, the Committee considered the executive Directors delivered a strong performance. The adjusted cost performance was above the minimum set for the year. As noted earlier, strong performance in RWA reduction, with 95% of our end-2022 target already achieved, led to a maximum payout against the RWA performance metrics. We did not meet the target for revenue growth in Asia, primarily due to the impact of low interest rates on certain business lines.

We also made good progress on strategic measures, by improving customer satisfaction, maintaining the high level of employee engagement from 2020, exceeding our gender representation target in senior leadership roles and executing our strategy at pace (see page 304 for details).

~~Executive Directors' annual incentive scorecard outcome~~

~~This resulted in an overall annual incentive~~ outcome of ~~57.30%~~the consultation and reviewed management’s proposed actions to support the future requirement for ~~Noel Quinn~~disclosure of an audit and ~~60.43% for Ewen Stevenson (further details are provided on page 262). These are slightly~~assurance policy. This includes the work towards designing an integrated internal assurance approach across the three lines of defence, with the development during the year of an integrated assurance framework in support of the Group’s risk management framework.

While the legislation and expected guidance around the form and content of an audit and assurance policy is still being drafted, it is expected that the areas below the 2020 scorecard outcomes and results in an annual incentive award of £1.59m for Noel Quinn (2020: £1.60m before voluntarily waiver of cash bonus) and £0.98m for Ewen Stevenson (2020: £0.90m before voluntary waiver of cash bonus).

~~Long-term incentive ('LTI') for executive Directors~~

~~Noel Quinn and Ewen Stevenson~~ will ~~receive LTI awards of £4.13m and £2.41m respectively,~~be covered by any future disclosures. Current disclosures exist in respect of ~~their performance for 2021~~certain of these areas, although these will need to be enhanced and ~~subject~~expanded as guidance develops. The areas highlighted below are in addition to ~~a three-year forward-looking performance period from 1 January 2022 to 31 December 2024.~~ disclosures on the statutory audit and assurance work required by regulators.


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Area			Relevant current disclosure
Overview of risk and internal control framework			Risk review, pages 150 to 270
Assurance over internal controls			Risk review, pages 150 to 270, ’Global Internal Audit’, page 298, and ‘Internal controls’ page 339.
Specific information subject to assurance			Environmental, social and governance review, page 14
Resilience statement (currently viability statement)			Long-term viability and going concern statement, page 42
External auditor engagement			’External auditor’, page 297
Stakeholder engagement on audit and assurance policy			No existing disclosure.

The Committee ~~decided~~continues to ~~retain~~focus on ESG and regulatory reporting as areas for expanded assurance, in line with the ~~RoTE, relative total shareholder return ('TSR'), capital reallocation to Asia and transition to net zero measures~~risk assessment framework established in 2021. The specific external assurance over ESG disclosures is set out in the ~~LTI scorecard given their strong alignment~~ESG review section of the Annual Report and Accounts. The Committee continued to respond to various regulatory engagement requests and surveys, including the Financial Reporting Council’s Draft Minimum Standards for Audit Committees. The Committee will continue to monitor developments as legislation is drafted to enact the requirements and the associated guidance is developed.

External auditor

The GAC has the primary responsibility for overseeing the relationship with the Group’s ~~strategy. Details of~~external auditor, PwC.

PwC completed its eighth audit, providing robust challenge to management and sound independent advice to the ~~measures~~Committee on specific financial reporting judgements and ~~targets~~the control environment. 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 audit, including observations on the control environment. Critical audit matters discussed with PwC are set out in its report on page ~~307.~~346.

External audit plan

The GAC reviewed the PwC external audit approach, including the materiality, risk assessment and scope of the audit. PwC highlighted the changes being made to their approach to enhance the quality and effectiveness of the audit. Changes for the 2023 audit included more auditing being performed centrally across legal entities. The Committee also focused on PwC's increased use of technology solutions, and received detailed briefings on its approach to data and analytics.

Effectiveness of external audit process

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.

•findings from inspections across the Group and regulators on PwC as a firm;

•the hours of audit work delivered by senior PwC audit team members, the extent of specialist and expert involvement, delivery against agreed timetable and milestones and the use of technology;

•any new control deficiencies in Sarbanes-Oxley locations, proportion of management identified deficiencies and delivery of audit deliverables to agreed timelines; and

•outcomes and scores from annual audit surveys, independent senior partner reviews and prior period errors.

The GAC will continue to receive regular updates from PwC and management on the progress of the external audit plan and PwC performance across the audit quality indicators.

There were no breaches of the policy on hiring employees or former employees of the external auditor 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.

Independence and objectivity

The Committee confirms it has complied with the provisions of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 for the financial statements. The Committee acknowledges the provisions contained in the 2018 UK Corporate Governance Code in respect of audit tendering. In conformance with these requirements, the GAC oversaw the retendering of statutory audit services for the 2025 year-end, including considering the tendering and shared audit proposals from the UK government’s consultation. More details on the audit tender can be found on page 299.

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 2023 will be proposed to shareholders at the 2023 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. 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 73 engagements approved during the year where the fees were over $100,000 but less than $1m. Global Finance, as a delegate of the 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;

•other permitted services to advisory attestation reports on internal controls of a service organisation primarily prepared for and used by third-party end users.

Eleven 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, including the provision of services by PwC relating to the Section 166 Financial Services and Markets Act 2000 Skilled Person report.


	2022	2021
Auditors‘ remuneration	$m	$m
Total fees payable	148.1	129.4
Of which fees for non-audit services	50.5	41.3


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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. The Group Head of Internal Audit reports to, and meets frequently with, the Chair of the GAC. In addition, in 2022, there was more interaction between Global Internal Audit senior management and the members of the GAC, aimed at increasing knowledge and awareness of the audit universe and existing and emerging risks identified by Global Internal Audit. Global Internal Audit adheres to The Institute of Internal Auditors’ mandatory guidance.

Consistent with previous years, the 2023 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 annual plan. 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 2023 audit coverage remain as: strategy, governance and culture; financial crime, conduct and compliance; financial resilience; and operational resilience. A quarterly assessment of key risk themes will form the basis of thematic reporting and plan updates and will ultimately drive the 2024 planning process.

In 2023, Global Internal Audit will maintain significant focus on the Group transformation portfolio, increase coverage of treasury risks, financial forecasting processes and regulatory reporting, and include coverage of ESG risk, with focus on climate commitments, operationalisation and reporting. In addition, Global Internal Audit will continue its programme of culture audits to assess the extent that behaviours reflect HSBC’s purpose, ambition, values and strategy, and expand its coverage of franchise audits for locally significant countries, following the development of the approach in 2022. The annual audit plan and material plan updates made in response to changes in the Group’s structure and risk profile are approved by the GAC.

The 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, and the output from continuous monitoring. This includes business and regulatory developments and an independent view of emerging and horizon risk, together with details of audit coverage and any required changes to the annual audit plan. Based on regular internal audit reporting to the GAC, private sessions with the Group Head of Internal 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.

Executive ~~Directors' fixed pay~~management is responsible for ensuring that issues raised by Global Internal Audit 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.

Principal activities and significant issues considered during 2022

Collaborative oversight by GAC, GRC and Technology Governance Working Group

The GAC and GRC worked closely to ensure there were procedures to manage risk and oversee the internal control framework. 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.

Areas of joint focus for the GAC, GRC and the Technology Governance Working Group during 2022 were:

Finance on the Cloud

Finance on the Cloud is a key multi-year data and reporting transformation programme using Cloud technology to enable the transformation of the Global Finance operating model and re-engineering of core reporting processes.

The committees conducted a deep dive review of Finance on the Cloud and held multiple meetings throughout 2022 to challenge management on the programme’s overall objectives, scope and target end-state. As part of these discussions, the committees considered organisational realignment and programme leadership, and asked management to seek external assurance and validation of the Finance on the Cloud investment case and technology architecture. The committees also ensured that there was a greater understanding of the complexities and dependencies between Finance on the Cloud and other key programmes to ensure that deadlines for financial and regulatory reporting deliverables were met.

Digital Business Services

The committees held a joint meeting to develop a deeper understanding of the risk and internal controls issues across key components of Digital Business Services. The joint meeting discussed:

•the regulatory purpose of the service company structure, and management providing an update on initiatives to streamline, simplify and automate the services;

•actions taken by the Identity and Access Management sub-function to tackle access risks through automation and a new toolset;

•monitoring and governance activities carried out by the Global Operations and Payments teams, and its shift towards an automated control environment; and

Embedding data into our culture

The committees reviewed and challenged the Group’s data strategy and the work required for the Group to embed its data policies, define the data technology landscape, and build a data-led culture. The committees also reviewed the Group's approach to harnessing and using data to better unlock value for our customers.

Whistleblowing and speak-up culture

An important part of HSBC’s values is speaking up when something does not feel right. HSBC remains committed to ensuring colleagues have confidence to speak up and acting when they do. A wide variety of channels are provided for colleagues to raise concerns, including the Group’s whistleblowing channel, HSBC Confidential (see page 92 for further information). The GAC is responsible for the oversight of the effectiveness of the Group’s whistleblowing arrangements. The


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Group Head of Compliance 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 arising from whistleblowing cases and the associated management actions. 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 continued to meet regularly throughout 2022 with the Group Head of Conduct, Policy and Whistleblowing, receiving briefings on material whistleblowing cases and the ongoing effectiveness of the whistleblowing arrangements. The Committee also received reports on actions being taken to further align our whistleblowing arrangements to actively support our purpose and values, and conduct approach. During 2023, the Committee will continue to be briefed on these actions, as well as the ongoing effectiveness of the HSBC Confidential channel.

Audit tender

Scope

As a UK public interest entity, we are required to tender our audit every 10 years and rotate our auditor every 20 years. We ~~have increased~~disclosed in our Annual Report and Accounts 2021 the ~~base salary~~intention to commence an audit tender, given PwC were initially appointed for the audit of the Annual Report and Accounts 2015.

In accordance with best practice corporate governance requirements, the audit tender process described below was designed and led by the GAC, with direct involvement of the GAC Chair at every stage.

Pre-qualification

HSBC undertook a series of pre-qualification activities to identify vendors that satisfy our ~~executive Directors~~minimum requirements relating to credibility, capacity and independence. These activities were overseen by ~~3.5%, effective~~the GAC. The pre-qualification phase considered both large and challenger audit firms and explored the possibility of adopting a managed, shared audit using challenger firms.

Three shortlisted audit firms were invited to respond to the formal tender, including PwC and one challenger audit firm.

Process and assessment

The shortlisted firms were invited to submit capability proposals (including written and data modelling exercises) to demonstrate their understanding of HSBC, audit quality, capabilities and their future vision of audit. Group and principal subsidiaries’ audit committee chair and management meetings took place during October 2022, enabling both the audit firms and HSBC management to articulate and discuss critical success factors for the audit. Lead audit partner referrals and audit quality reports from ~~1 March 2022.~~ regulators supplemented these assessments and contributed to the final evaluation of the audit firms. The capability proposals were submitted on a fee blind basis, with the fee proposal submitted directly to the GAC Chair.

The Committee considered the ~~increase was necessary~~following during the evaluation of audit firms:

•a tender proposal, a formal document in response to ~~ensure that~~ the ~~total remuneration opportunity of our executive Directors does not fall further behind~~

tender requirements;

•management meetings between the firms and HSBC (major legal entity audit committee chairs and senior management);

•data exercises covering audit planning and risk assessment, ECL modelling, firms’ broader assurance offering and a shared audit exercise;

~~desired levels based~~•public regulator audit reports for independent assessment on audit quality;

•external referees to provide a third-party opinion on the ~~size, complexity~~audit lead partner to support the evaluation process; and ~~international peer group of~~

•final presentations to the ~~Group. This was discussed with shareholders during our engagement with them on the new Directors' remuneration policy. The increase is in line with the average salary increase for our wider workforce.~~

~~New Directors' remuneration policy~~

We are proposing to roll forward our current remuneration policy for shareholder approval at the 2022 AGM. During the year, we undertook a review of the policy based on the key principles that it should be easy to understand, align reward with stakeholder interests, incentivise long-term performance, be competitive and meet expectations of investors and regulators.GAC.

As part of the ~~review,~~tender process, the GAC Chair also met with Chief Executive and Head of Standards of the Financial Reporting Council to explain our audit tender process, understand views on shared audits and seek input into our evaluation of individual firm’s audit quality track record.

Evaluation

•Audit quality (30%) – regulatory evaluation, methodology, risk assessment, technology.

•Capacity and capability (30%) – footprint, partner quality and rotation, diversity, independence.

•Future audit vision (20%) – future audit developments, audit reform and innovation.

•Understanding of HSBC (20%) – knowledge of HSBC, shareholder concerns and the financial services landscape.

Final decision

The GAC considered various data points from the assessments outlined above, adopting a scorecard approach to supplement the final presentations made by the audit firms at the end of the tender process. The Committee considered ~~whether~~ the ~~current policy provides~~merits of appointing a ~~remuneration opportunity~~challenger audit firm in a managed shared audit capacity, in line with recent UK government proposals. However, it did not have sufficient confidence that ~~is appropriate~~the desired audit quality outcomes could be assured in a such a large, complex, integrated and global organisation to pursue such an arrangement.

The GAC presented two audit firms to the Board for consideration of awarding the tender, recommending the re-appointment of PwC given their strong performance against our evaluation criteria and the ~~size~~benefits of continuity in this period of strategic change and ~~complexity~~uncertainty in the external environment.


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Report of the Group's operations and is commensurate with its aim of fairly remunerating executives for delivering its strategic priorities. The review clearly demonstrated that over time, HSBC’s overall remuneration opportunity has fallen significantly behind desired levels to reflect the calibreDirectors | Corporate governance report | Board committees

Principal activities and significant issues considered during 2022

Areas of focus

Key issues

Conclusions and actions

Financial and regulatory reporting

Key financial metrics and strategic priorities

The GAC considered the key judgements in relation to external reporting to track the key financial metrics and strategic priorities and to review the forecast performance and outlook.

In exercising its oversight, the Committee assessed management’s assurance and preparation of external financial reporting disclosures. The Committee reviewed the draft external 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 and governance (‘ESG’) reporting

The Committee considered management’s efforts to enhance ESG disclosures and associated verification and assurance activities. The GAC reviewed the 2022 ESG disclosure approach in line with our external commitments.

In relation to our climate change resolution, particular attention was given to the disclosure of the financed and facilitated emissions, and thermal coal exposures. The Committee considered the key limitations and challenges relating to governance, processes, controls and data underpinning climate reporting. The Committee also discussed the nature and root cause of issues identified through the increased assurance work and ongoing enhancements to the governance, processes, controls and data underpinning climate reporting, which resulted in the deferral of disclosures on facilitated emissions and thermal coal. The Committee reviewed the ESG reporting strategy, including the broadening of ESG coverage in the Annual Report and Accounts and management’s approach on integrated reporting, which will be further informed by feedback from external stakeholders.

Regulatory reporting assurance programme

The Committee reflected on the continued focus on the quality and reliability of regulatory reporting by the PRA and other regulators globally. The GAC reviewed management’s efforts to strengthen and simplify the end-to-end operating model, including commissioning further independent external reviews of various aspects of regulatory reporting. The Committee discussed and provided feedback on management’s engagement plans with the Group’s regulators, including any potential impacts on some of our regulatory ratios. We continue to keep the PRA and other relevant regulators informed of our progress.

Significant accounting judgements

Expected credit losses

The measurement of expected credit losses involves significant judgements, particularly under current economic conditions. Despite a general recovery in economic conditions in 2022, there remains an elevated degree of uncertainty over ECL estimation under current conditions, due to macroeconomic and political uncertainties.

The measurement of expected credit losses involves significant judgements, particularly under current economic conditions. There remains an elevated degree of uncertainty over ECL estimation under current conditions, due to macroeconomic, and political uncertainties.
The GAC reviewed the economic scenarios for the key countries in which the Group operates, and challenged management’s judgements as to the weightings assigned to these scenarios. The GAC also challenged management’s approach to making management adjustments to account for the uncertainty in outcomes arising from the Russia-Ukraine war, inflation, supply chain disruption risks, China commercial real estate and Covid-19, including the rationale for such adjustments, the controls underpinning the adjustment processes, and under what conditions such adjustments could be reduced or removed. The GAC also challenged management on the overall levels of ECL across portfolios, including looking at historical performances of portfolios and peer group comparisons.

Goodwill, other non-financial assets and investment in subsidiaries impairment

The GAC received reports on management’s approach to goodwill, other non-financial assets and investments in subsidiaries impairment testing and challenged the approach and methodologies used, with a key focus on the cash flows included within the forecasts and the discount rates used. The GAC also challenged management’s key judgements and considered the reasonableness of the outcomes as a sense check against the business forecasts and strategic objectives of HSBC.

Associates (Bank of Communications Co., Limited)

Investments in subsidiaries

The GAC reviewed the judgements in relation to the impairment review of HSBC Overseas Holdings (UK) Limited, and the key inputs underpinning the recoverable amounts of its subsidiaries.


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Principal activities and significant issues considered during 2022 (continued)

Areas of focus

Key issues

Conclusions and actions

Significant accounting judgements

Legal proceedings and regulatory matters

Management has used judgement in relation to the recognition and measurement of provisions, as well as the existence of contingent liabilities for legal and regulatory matters.

Valuation of defined benefit pension obligations

Valuation of financial instruments

Due to the ongoing volatile market conditions in 2022, management continuously refined its approach to valuing the Group’s investment portfolio. In addition, as losses were incurred 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 IFRSs.

Long-term viability and going concern statement

The GAC has considered a wide range of information relating to present and future projections of profitability, cash flows, capital requirements and capital resources. These considerations include stressed scenarios that reflect the implications of the Russia-Ukraine war, disrupted supply chains globally and slower Chinese economic activity, as well as considering potential impacts from other top and emerging risks, and the related impact on profitability, capital and liquidity.

Tax-related judgements

HSBC has recognised deferred tax assets to the extent that they are recoverable through expected future taxable profits. Significant judgement continues to be exercised in assessing the probability and sufficiency of future taxable profits, future reversals of existing taxable temporary differences and expected outcomes relating to uncertain tax treatments.

Impact of acquisitions and disposals

In 2022, HSBC engaged in a number of business acquisition and disposal activities, notably in Canada, France, Singapore and India. There are a number of accounting impacts that need to be considered, including the timing of recognition of assets held-for-sale, gains or losses, and the measurement of assets and liabilities on acquisition or disposal.

The GAC considered the impacts of the planned exits of the Canadian and French retail businesses, management's judgements in relation to classification as held for sale, and the timing of the accounting recognition of these transactions. The GAC also considered the financial and accounting impacts of other acquisitions and disposals.


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Report of the executives and positioning against international peers. The Committee also noted that the UK regulatory requirements currently restrict us from using a remuneration structure with a greater focus on variable pay for performance, which is typically used by our international peers.Directors | Corporate governance report | Board committees

We engaged with our shareholders to take into account their views on our policy and remuneration structure. As ever, we found engagement with our shareholders to be very helpful and we were pleased with the level of feedback and support received. Noting the strong support from shareholders for our current policy and on the basis that it supports the execution of our strategy within our regulatory framework, we are proposing to roll forward our current policy for shareholders’ approval at the 2022 AGM. We will keep the issue on appropriate positioning of our executive Directors' total remuneration opportunity under review for the duration of the policy. Further details of the remuneration policy and how each element supports the Group’s strategy are set out on page 293.

~~On behalf of the Committee I would like to thank our shareholders for their engagement and feedback. The Committee looks forward to maintaining an open and transparent dialogue in 2022.~~

~~Our annual report on remuneration~~

~~The section on Directors' remuneration policy provides an overview of our remuneration policy for our Directors, for which we are seeking shareholder approval at the 2022 AGM.~~

In the annual report section, we provide details of decisions made for executive Directors in respect of their 2021 remuneration for which, along with this statement, we will seek shareholder approval with an advisory vote at the 2022 AGM.

~~We also provide details of our remuneration framework for our Group colleagues. In the additional remuneration disclosure section of this report, we provide other related disclosures.~~

~~As Chair of the Committee, I hope you will support our remuneration policy and the 2021 Directors' remuneration report.~~

~~Finally, as announced in January, I will step down as Chair of this Committee and from the Board at the conclusion of the 2022 AGM. An update on my successor will be announced in due course.~~

Principal activities and significant issues considered during 2022 (continued)

Areas of focus

Key issues

Conclusions and actions

Group transformation

Transformation and sustainable control environment

The GAC will oversee the impact on the risk and control environment from the Group transformation programme.

The Committee received regular updates on the Group transformation programme and the broader change framework, to review the impact on the risk and control environment, to oversee progress of the transformation programme and the continued embedding of the broader change framework.

In these updates the Committee monitored the progress of the programme, focused on the continued implementation of the change framework and the progress in the management of the entire change portfolio. This oversight helped the Committee to understand the progress being made in the management of the change portfolio, through the implementation of the change framework. The committee noted the progress on simplifying our change inventory, greater rigour on tracking progress against committed business cases, and strengthening of the lessons learnt process.

Management’s updates were supplemented by further focus and assurance work from Global Internal Audit where a dedicated team continuously monitored and reviewed the Group transformation programme. This included carrying out targeted audit reviews, in addition to audits of significant programmes.

Global Finance transformation

The Committee reviewed the proposals for the Global Finance organisational design, the migration to Cloud and the impact on financial controls.

The Committee has oversight for the adequacy of resources and expertise, as well as succession planning for the Global Finance function. During 2022, the Committee dedicated significant time to the review and progress of the multi-year Global Finance transformation programme, particularly Finance on the Cloud, with the overall objectives being to improve the control environment and customer outcomes and to make use of technology to increase overall efficiency.

The Group Chief Financial Officer had private sessions with the Committee to share his perspectives on the progress of the Global Finance transformation and where additional focus was required.

Regulatory change

IFRS 17 ’Insurance Contracts’

The Committee will oversee the transition to IFRS 17 and consider the wider strategic implications of the change on the insurance business.

During 2022 management provided updates to the Committee on preparations for the implementation of IFRS 17, which is effective from 1 January 2023 with one year of comparative restatements required. The Committee was updated on the production of the transition balance sheet and considered the financial impacts (for which a summary is provided within the Future Accounting Developments section of the Basis of Preparation on page 360), as well as the generation of comparative income statement estimated impacts (for which a high level summary based on estimated 1H22 results is provided on page 99). The Committee also received updates with respect to progress on implementing the supporting operational infrastructure, internal controls over financial reporting, key judgements considered including transition approaches selected, as well as plans for disclosure of related non-GAAP measures and key performance metrics.

The first publication of results on an IFRS 17 basis will be at the 1Q23 Earnings Release, and the Committee noted that management intends to publish an IFRS 17 Transition statement together with that announcement.

Basel III Reform

The Committee received an update on the progress and impact of the Basel III programme on the Group. Management discussed the uncertainty over the final definition of the rules and the actions taken to ensure sufficient flexibility to make changes and mitigate risks from legislation being finalised at a later date and also on a staggered basis across each jurisdiction. The discussion highlighted the dependencies of the Basel III programme with other Group transformation programmes, in particular the dependency on adoption of the Finance on the Cloud solution, risk model development and the impact on data delivery and storage.

The Committee noted the completion of the programme restructure, reviewed the ongoing management of risks, issues and dependencies and challenged management to prioritise deliverables across each jurisdiction in line with regulatory timelines, in each case, to ensure that solutions delivered to the minimum required standards. The Committee noted the overall improved status of the programme and requested an update post the Office of the Superintendent of Financial Institutions Canada implementation date of 1 April 2023.

Committee evaluation and effectiveness

The annual review of the effectiveness of the Board committees, including the GAC, was conducted internally in 2022, led by the Group Company Secretary and Chief Governance Officer. Overall, the review concluded that the GAC continued to operate effectively. The Chair’s management of meetings and leadership of the audit tender process, in particular, were rated highly. The review also made certain recommendations for continuous improvement. These included a need for continued focus on the quality of reporting, oversight of prioritisation of key programmes, and continued coordination between the GAC and other Board committees on topics of mutual interest. It was also suggested that the Committee should dedicate more time to the oversight of capacity and succession planning in the Finance and Internal Audit functions. The Committee considered the outcomes of the evaluation and accepts the findings. The evaluation outcomes were reported to the Board, and the Committee will track progress against the recommendations during 2023.

Focus of future activities

In 2023, the Committee will prioritise control remediation and enhancements, particularly of controls supporting regulatory reporting. This will include developing a deeper understanding of the prioritisation and interdependencies in the delivery of key transformation and regulatory programmes to strengthen the risk and control environment. It will also monitor domestic and worldwide tax policy developments and examine the potential impact on accounting judgements. A key priority will be to further embed ESG and climate-related disclosures to meet increasing expectations of stakeholders, in particular the implementation of robust processes and controls to support these disclosures. Along with other committees of the Board, the Committee will continue to ensure root cause themes related to understanding and accountability for data capture, data quality and the implementation and embedding of data policies are addressed by management.


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Group Risk Committee



"The GRC closely monitored heightened geopolitical and macroeconomic headwinds throughout the year to anticipate potential impacts to the Group‘s revenue, capital base and continuing ability to support customers."

Dear Shareholder

I am pleased to present the Group Risk Committee (‘GRC’) report.

Geopolitical risks and the macroeconomic outlook deteriorated rapidly at the start of the year due to the Russia-Ukraine war. The GRC closely monitored heightened geopolitical and macroeconomic headwinds throughout the year to anticipate potential impacts to the Group’s revenue, capital base and continuing ability to support its customers. Measures included monitoring the Group’s preparedness for an expected recession in key markets from rising inflation and interest rates. The Committee embraced management’s development of forward-looking sensitivity analysis to assess the potential impacts on HSBC’s prudential position, franchise resilience and ability to support customers.

The GRC worked closely with the Group Chief Risk and Compliance Officer to strengthen the Group’s risk management framework, and to promote the development of more dynamic and granular risk appetite statements to manage HSBC’s risk profile.

Throughout the year, the GRC reviewed and challenged management on the Group’s regulatory submissions, including the Bank of England’s requirements for the Resolvability Assessment Framework, internal capital adequacy assessment process (‘ICAAP’) and internal liquidity adequacy assessment process (‘ILAAP’). The GRC had primary non-executive responsibility for reviewing the outcomes of regulatory stress tests, including the Bank of England’s climate biennial exploratory scenario, and the 2022 annual cyclical scenario exercise.

The GRC continued to review its committee composition, skills and experience. In June, we welcomed Geraldine Buckingham and James Forese as new members, and we expressed sincere gratitude to José Antonio Meade Kuribreña and Eileen Murray, who stepped down to assume new Board governance responsibilities.

Jackson Tai

Chair

Pauline van der Meer Mohr

Pauline van der Meer Mohr retired from the Board on 29 April 2022

Ewen Stevenson

Ewen Stevenson resigned from the Board on 31 December 2022

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-and-governance.


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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, 54 Group Chief Human Resources Officer

Elaine joined HSBC as Group Chief Human Resources Officer in June 2017. Prior to joining HSBC, she was Group Human Resources Director at Royal Bank of Scotland Group for six years. She has held a number of human resources and employee relations roles throughout her career in financial services, including with Clydesdale Bank and Direct Line Group. Elaine is a member of the Chartered Institute of Personnel and Development, and a Fellow of the Chartered Institute of Banking in Scotland.


Colin Bell, 55 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 in February 2021. He previously held the role of Group Chief Compliance Officer. Before HSBC, Colin worked at UBS as Global Head of Compliance and Operational Risk Control. He served for 16 years in the British Army, where he held a variety of command and staff positions, including within operational tours of Iraq and Northern Ireland, and roles in the Ministry of Defence and NATO.


Jonathan Calvert-Davies, 54 Group Head of Internal Audit

Jonathan is a standing attendee of the Group Executive Committee, having joined HSBC as Group Head of Internal Audit in October 2019. 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. Jonathan’s previous roles included leading KPMG UK’s financial services internal audit services practice and PwC’s UK internal audit services practice. He also previously served as interim Group Head of Internal Audit at the Royal Bank of Scotland Group.


Greg Guyett,59 Chief Executive Officer, Global Banking and Markets


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Dr Celine Herweijer, 45 Group Chief Sustainability Officer


John Hinshaw,52 Group Chief Operating Officer


Bob Hoyt, 58 Group Chief Legal Officer


Steve John, 49 Group Chief Communications and Brand Officer


Pam Kaur, 59 Group Chief Risk and Compliance Officer


David Liao, 50 Co-Chief Executive Officer, Asia-Pacific – The Hongkong and Shanghai Banking Corporation Limited


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Nuno Matos, 55 Chief Executive Officer, Wealth and Personal Banking


Stephen Moss, 56 Regional Chief Executive Officer – Middle East, North Africa and Türkiye


Barry O'Byrne,47 Chief Executive Officer, Global Commercial Banking


Michael Roberts, 62 Chief Executive Officer, HSBC USA and Americas


Surendra Rosha,54 Co-Chief Executive Officer, Asia-Pacific – The Hongkong and Shanghai Banking Corporation Limited


John David Stuart (known as Ian Stuart),59 Chief Executive Officer, HSBC UK Bank plc

Additional members of the Group Executive Committee

Noel Quinn

Georges Elhedery

Aileen Taylor

Biographies are provided on pages 272 and 275.


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Board and senior management diversity

We value difference

Gender and ethnic diversity

Gender

Board Executive management


	Board members			Executive management2
	Number	%	Number of senior positions1	Number	%
Male	8	67	4	17	81
Female	4	33	0	4	19
Other	—	—	—	—	—
Not specified/prefer not to say	—	—	—	—	—

BoardExecutive management

Ethnic diversity


	Board members			Executive management2
	Number	%	Number of senior positions1	Number	%
White British or other White (including minority-White groups)	9	75	4	14	66
Mixed/multiple ethnic groups	—	—	—	1	5
Asian/Asian British	2	17	—	4	19
Black/African/Caribbean/Black British	—		—	—	—
Other ethnic groups, including Arab	1	8	—	1	5
Not specified/prefer not to say	—		—	1	5

1 Senior positions on the Board comprise the Group Chairman, Group Chief Executive, Group Chief Financial Officer and Senior Independent non-executive Director.

2 Executive management comprises the Group Chief Executive, his direct reports, and the Group Company Secretary and Chief Governance Officer.

Board composition, tenure and age

2 Executive Directors 10 Non-executive Directors

Tenure on the Board

Age

Skills and experience


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How we are governed