Mitigating Risks in HSBC: A Study on Risk Management Strategies

The assignment content discusses the importance of risk management in a banking institution, specifically focusing on HSBC. It highlights that effective risk management is crucial for banks to overcome risks and achieve results. The study also emphasizes the role of technology, merger, and acquisition in improving bank operations and satisfying consumer needs.

Enterprise Risk
Management

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
RISK MANAGEMENT PRACTICES IN HSBC...........................................................................1
ACCEPTABLE RISK THRESHOLD.............................................................................................2
MITIGATION ACTIONS FOR RISK............................................................................................3
OPPORTUNITIES FOR HSBC......................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Enterprise risk management can be stated as the process of planning, organizing and
controlling the activities of business with the aim to minimize the effects of risk within firm.
However, a risk assessment is required to be carried out in order to assess the risks and
opportunities to improve HSBC strategic objectives to expand the operations of firm in market.
The current study, presents the analysis of current risk management practices implemented
within HSBC across its core business operations (Marchetti, 2011). Further, risks were ranked
and scored as per the COSO risk management framework. Also, the likelihood, impact and risk
mitigation responses were based on the extensive research undertaken.
RISK MANAGEMENT PRACTICES IN HSBC
It is essential for the directors and management to maintain and review the effectualness
of risk management and internal control systems and for determining the nature and extent of the
significant risks that helps them to attain strategic objectives. However, in order to meet the
requirement and obligations a proper procedure is used in order to maintain the record of firm
(Moeller, 2011). Furthermore, HSBC undertakes such procedures in order to provide reasonable
but not absolute assurance against errors, mis-statement of fraud. Following are the risk
management practices and internal control procedures which are as follows-
 Group standards- It involves functional, financial and operating reporting standards
therefore, it is essential for the management of HSBC to carry out effective risk
management procedure so that desired standards can be set (Olson and Wu, 2010).
 Delegation of authority within set limits by management- Here, the management of
HSBC is required to set certain limits in which the delegation of authority need to be
done so that best results can be attained. Therefore, a clear and appropriate
responsibilities should be provided so that board of directors can be satisfied.
 Identifying risk and monitoring- Here, the systems and procedures need to be
identified such as credit, liquidity, funding etc. so that risk related to that should be
assessed in advance and thus proper monitoring should be done with the aim to
overcome the issues (Berger, Hasan and Zhou, 2009).
 Strategic plans- Proper strategic plans need to be set by the management of HSBC so
that global functions of firm can be attained appropriately.
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 Risk management responsibility- HSBC is required to manage the risk and control so
that it helps in ensuring that weaknesses are overcome and thus best results can be
attained.
 Reputation risk- There are different policies to guide the firm at different levels in order
to conduct the business and safeguard the reputation of firm in market. However, such
risk need to be managed properly otherwise it causes variety of risks such as
environmental, social and governance issues as a consequence of operational risk within
firm (Duckert, 2010).
 Internal audit- Here, the management is required to ensure that proper suggestions need
to be given in order to carry out the internal audit function so that risk can be managed
within HSBC.
ACCEPTABLE RISK THRESHOLD
Likelihood Score Impact Score
1 Very unlikely 1 Negligible Impact
2 Unlikely 2 Low Impact
3 Likely 3 Moderate Impact
4 Very Likely 4 High Impact
5 Certain 5 Catastrophic Impact
Score of risk Classification Mitigation
x<1 opportunity No It can be assessed that the risk
below 15 will not be considered
high enough to incorporate the
mitigation plan. Hence, it can be
stated that the risk is not divising
and thus the happening of such risk
could not be controlled (Gordon,
Loeb and Tseng, 2009).
1<= x <5 Negligible risk No
5<=x <10 Low risk No
2

10<=x <15 Moderate risk Yes
Here, the risk scoring is more than
15 and thus it has high impact on
the operations of firm. However, if
the risk could not be controlled
may create unwanted results for
the firm (Hoyt and Liebenberg,
2011).
15 <= x <=20 High risk Yes
MITIGATION ACTIONS FOR RISK
R
i
s
k
N
o
.
Risk
Descriptio
n
Existing controls
Li
ke
li
h
oo
d
(1
-
5)
I
m
pa
ct
(1
-
5)
Ris
k
Rat
ing
(Li
kel
iho
od
x
Im
pac
t)
Score
abov
e
accep
table
level
Mitigation
3

1
Change in
demands
It can be assessed that
change in demands of
clients are the major
changes that HSBC
need to follow with
the aim to bale loyal
client base. However,
it is crucial for firm to
formulate new
schemes and policies
that helps in attracting
the minds of
consumers in order to
enhance the
investment within
firm (Pagach and
Warr, 2010).
4 4 16 Yes
HSBC is required to
assess the requirements
of clients and then
customize their services
in order to satisfy the
requirements of
customers. Thus, it
helps in improving the
operations of bank in
global market. Along
with this, firm will be
able to enhance the
brand image in market
and increase loyal
consumers (Banks,
2013).
2
Lack of
talented
employees
Business involves
multi-tasking and
talented workers in
order to carry out
business operations.
However, within
banking sector
employees are
required to meet the
needs of consumers
so that satisfaction
can be attained
(Chitakornkijsil,
2010).
2 4 8 No
4

3
Meeting
quality
requiremen
t
In order to overcome
the marketing
sensitivity, HSBC is
required to set major
goals and objectives.
Therefore, bank is
required to follow
proper rules and
regulations so that it
helps in carrying out
proper functioning
and deliver the best
quality products and
services as per the
needs of consumers
(Banking regulation.
2015).
3 4 12 Yes
HSBC is required to bring
innovative ideas to attract
consumers as there are
wide range of competitors
available in market. Also,
business is required to
implement proper quality
requirement through
conducting feedback from
clients and thus make
possible changes within
banking sector as per the
customization of clients.
With the help of this
clients gain trust within
bank and carry out their
investment (The banking
industry's biggest problem
isn't bonuses or market
share. 2015). Also,
business welcomes'
employee suggestions so
that customer
requirements can be
fulfilled effectively.
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4
Competitor
s
HSBC has varied
competitors and thus
it faces tough
competition from
several banks which
are as follows-
 Baclays Bank
 Royal Bank of
Scotland
 Standard
Chartered
Bank
 Wells Fargo
 UBS AG
 Morgan
Stanley
 BNP Paribas
 Goldman
Sachs Group
3 5 15 Yes
It can be evaluated that
competitors for business
are increasing day by day
and thus it gives tough
competition to HSBC in
order to serve the clients.
However, in order to
attract investors banks are
required to introduce new
policies so that they can
help their clients to get
attracted towards firm
(Marchetti, 2011).
OPPORTUNITIES FOR HSBC
Risk
No. Risk
Description
Risk Information sources
(i.e. references from
research)
Likelih
ood (1-
5)
Impact
(1-5)
Risk Rating
(Likelihood
x Impact)
Score
above
accept
able
level
6

1
Removing
international
trade
barriers
Through, removing the
trade barriers within HSBC
it helps in starting the
functions with either small
or no restrictions from
government. Further, the
investment made by clients
and investment groups are
highly returned annually
and thus build the brand
image of firm in market
(Olson and Wu, 2010).
4 4 16 Yes
2
Introducing
innovative
technologies
Further, business operates
in global market therefore,
it is essential for them to
develop new technology so
that they can develop its
productivity and satisfy
consumer needs. For
instance, different
technology like access of
data in any of the bank of
HSBC provides relaxation
to clients (Moeller, 2011).
3 5 15 Yes
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3
Growing up
of Forex
market
The growth of Forex
market states that HSBC is
required trade its securities
at an affordable price.
Further, rise in price
provides more money to
investor. Therefore, if the
growth of Forex market is
increasing then it is a
positive sign for investor to
invest in bank and attain
results (Duckert, 2010).
3 4 12 Yes
4
Merger and
acquisition
However, with the helps of
merger, two distinct firms
will be working together in
order to carry out the
banking operations in the
country.
1 3 3 No
CONCLUSION
From the current study it can be conferred that it is essential for firm to manage the risk
identified and thus overcome the same in order to attain results. HSBC is required to carry out
effectual operation so that it does not impact the growth of bank. Further, the risk assessment of
bank is efficient and assists business to develop and grow in competitive market. At the end, it
has been assessed that the identified risk can be overcome through analyzing its mitigation level.
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REFERENCES
Books and Journals
Banks, E., 2013. Enterprise Risk Management. Alternative Risk Transfer: Integrated Risk
Management through Insurance, Reinsurance, and the Capital Markets, 171-192.
Berger, A. N., Hasan, I. and Zhou, M., 2009. Bank ownership and efficiency in China: What will
happen in the world’s largest nation?. Journal of Banking & Finance. 33(1). pp. 113-130.
Chitakornkijsil, P., 2010. Enterprise risk management. International Journal of Organizational
Innovation (Online). 3(2). pp. 309.
Duckert, H. G., 2010. Practical Enterprise Risk Management: A Business Process Approach.
John Wiley & Sons
Gordon, L. A., Loeb, M. P. and Tseng, C. Y., 2009. Enterprise risk management and firm
performance: A contingency perspective. Journal of Accounting and Public
Policy. 28(4). pp. 301-327.
Hoyt, R. E. and Liebenberg, A. P., 2011. The value of enterprise risk management. Journal of
Risk and Insurance, 78(4). pp. 795-822.
Marchetti, M. A., 2011. Enterprise Risk Management Best Practices: From Assessment to
Ongoing Compliance. John Wiley & Sons.
Moeller, R. R., 2011. COSO Enterprise Risk Management: Establishing Effective Governance,
Risk, and Compliance (GRC) Processes. John Wiley & Sons.
Olson, L.D. and Wu, D., 2010. Enterprise Risk Management Models. Springer Science &
Business Media.
Pagach, D. P. and Warr, R. S., 2010. The effects of enterprise risk management on firm
performance. Sage.
Online
Banking regulation. 2015. [Online]. Available through:
<http://www.economicsonline.co.uk/Business_economics/Banking+regulation.html>.
[Accessed on 3rd December 2015].
The banking industry's biggest problem isn't bonuses or market share. 2015. [Online]. Available
through: < http://www.theguardian.com/commentisfree/2014/jan/22/city-of-london-
problem-is-not-bonuses-or-market-share >. [Accessed on 3rd December 2015].
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