Report of the Directors | Corporate Governance

each year, as set out in the Directors' Remuneration Report contained in this Annual Report.

The Group Chairman's performance is evaluated by the non-executive Directors, led by the SID.

Chairman of the Nomination Committee

Skills and experience: Mark has extensive experience in the financial services industry in Asia and the UK. Most recently he was Group Chief Executive and President of AIA Group Limited ('AIA'). Before joining AIA, Mark was Group Chief Executive of Prudential plc and the founding Chief Executive of Prudential Corporation Asia Limited. Mark also previously served as a non-executive director of the Court of The Bank of England, as an independent non-executive director of the Goldman Sachs Group and as Group Finance Director of HBOS plc.

Current appointments include: Serves on the Asia Business Council and the Advisory Board of the Asia Global Institute.  

Skills and experience: Stuart has more than 37 years' international banking experience, having joined HSBC in 1980. He played a leading role in developing and expanding Global Banking and Markets, and has held key roles in the Group's operations worldwide, working in London, Hong Kong, Tokyo, Kuala Lumpur and the United Arab Emirates. Former appointments include Chairman of HSBC Bank plc, HSBC Bank Middle East Limited, HSBC Private Banking Holdings (Suisse) SA and HSBC France. He was also Deputy Chairman of HSBC Trinkaus & Burkhardt AG and a member of its supervisory board.

Current appointments include: Chairman of the Group Management Board, and The Hongkong and Shanghai Banking Corporation Limited.  

Skills and experience: Iain has extensive financial and international experience, having worked in London, Paris, the US, Africa and Asia. He joined HSBC in 2007 as Chief Financial Officer of HSBC North America Holdings Inc. Other former appointments include director of Hang Seng Bank Limited; Chief Financial Officer, HSBC Asia-Pacific. Before joining HSBC, Iain worked at General Electric ('GE'), serving as Controller of its Global

Consumer Finance Unit, Chief Financial Officer of GE Consumer Finance Americas, and Chief Financial Officer of GE Healthcare - Global Diagnostic Imaging. Iain is a member of the Institute of Chartered Accountants of Scotland.

Current appointments include: Member of the Board of Trustees of the British Heart Foundation and chairman of its audit and risk committee. Iain is also an Independent Member of the Court of the University of Aberdeen.  

Skills and experience: Marc joined HSBC in 2005 as Chief Financial and Risk Officer for Global Banking and Markets, and in December 2010 became Group Chief Risk Officer. He has extensive risk management and financial experience. Marc is a Fellow of the Institute of Chartered Accountants in England and Wales. He was European chief financial officer at J.P. Morgan and an audit partner at Price Waterhouse.  

Member of the Group Audit Committee.

Skills and experience: Phillip has extensive financial and accounting experience. He served as Vice President, Comptroller, and Principal Accounting Officer of General Electric. Prior to that, he was a partner of KPMG. He also served on the International Financial Reporting Interpretations Committee of the International Accounting Standards Board, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board Emerging Issues Task Force.

Current appointments include: A non-executive director of HSBC North America Holdings Inc., HSBC Bank USA N.A., HSBC Finance Corporation and HSBC USA Inc.  

Member of the Group Audit Committee and the Financial System Vulnerabilities Committee.

Skills and experience: Kathleen has extensive financial regulatory policy experience. She is a former Commissioner of the US Securities and Exchange Commission, and acted as its principal representative in multilateral and bilateral regulatory dialogues with the G-20 Financial Stability Board and the International Organisation of Securities Commissions. Other former appointments include Staff Director and Counsel to the United States Senate Committee on Banking, Housing, and Urban Affairs; Chair of the Alternative Investment Management

Association; and Legislative Director and Chief of Staff for a US Senator.

Current appointments include: Senior adviser to Patomak Global Partners and to a number of public bodies in the US, and a member of the Board of Trustees of the Financial Accounting Foundation.  

Chairman of the Philanthropic & Community Investment Oversight Committee and member of the Conduct & Values Committee and the Nomination Committee.

Skills and experience: Laura has extensive regulatory and policy making experience in the finance and securities sector in Hong Kong and mainland China. She is the former Vice Chairman of the China Securities Regulatory Commission. Other former appointments include serving as a non-executive director of Bank of Communications Co., Limited; and Tata Consultancy Services Limited. She also served as Deputy Chairman of the Securities and Futures Commission in Hong Kong.

Current appointments include: A non-executive Deputy Chairman of The Hongkong and Shanghai Banking Corporation Limited, Chairman of Hong Kong's Financial Services Development Council and a non-executive director of China Telecom Corporation Limited, Unilever PLC and Unilever N.V.  

Member of the Group Remuneration Committee

Skills and experience: Henri has more than 25 years' international experience in the financial services industry. He joined AXA in 1989 holding a number of senior roles, ultimately as Chairman and Chief Executive Officer of AXA SA until 1 September 2016.

Current appointments include: Chairman of Europe and Special Advisor of General Atlantic, Chairman of Institut Montaigne, a French think-tank; the lead independent director of Nestlé S.A. and a non-executive director of the French National Foundation for Political Science.

Chairman of the Financial System Vulnerabilities Committee, and member of the Conduct & Values Committee and the Philanthropic & Community Investment Oversight Committee.

Skills and experience: Jonathan has 30 years of experience in national security policy and operations. He was formerly Director General of the UK's Security Service (MI5) and had oversight of the Joint Terrorist Analysis Centre and the Centre for the

Protection of National Infrastructure, and attended the National Security Council.

Current appointments include: A non-executive director of Ark Data Centres and an adviser to various cybersecurity and technology companies.  

Skills and experience: Joachim has extensive international experience in banking and asset management. He is a former Chief Executive Officer of Allianz Global Investors AG and a former member of the management board of Allianz SE. He spent 14 years with Citicorp, holding positions in Trading and Project Finance, and as Head of Capital Markets for Europe, North America and Japan. He was also Chairman of various Allianz subsidiaries. He was previously a member of the supervisory board and Chairman of the audit and risk committee of OSRAM Licht AG. He was also a member of the German Council for Sustainable Development and a member of the advisory board of the Siemens Group Pension Board.

Current appointments include: Chairman of the supervisory board of Deutsche Börse AG and the Shareholder Committee of Joh. A. Benckiser SARL, and a director of Coty Inc.  

Skills and experience: Irene has more than 40 years' finance industry experience, having held senior investment banking and fund management positions in the UK, the US and Australia, including positions at Citibank and the Commonwealth Bank of Australia. Other former appointments include serving as a member of the Advisory Council of J.P. Morgan Australia and the Australian Takeovers Panel.

Current appointments include: Executive Chairman of Hysan Development Company Limited and a non-executive director of The Hongkong and Shanghai Banking Corporation Limited, Hang Seng Bank Limited, Cathay Pacific Airways Limited and CLP Holdings Limited.  

Member of the Group Risk Committee, the Nomination Committee and the Group Remuneration Committee.

Skills and experience: John worked for the International Monetary Fund (IMF) in Washington and Chile, for Salomon Brothers in New York and London, and for JP Morgan in New York. At JP Morgan, he was Vice Chair of the Investment Bank, and at the IMF he served as the First Deputy Managing Director - also serving pro tem as the Acting Managing Director. Other former appointments include Trustee of the Economic Club of New York, and Chairman of the World Economic Forum's Global Agenda

Report of the Directors | Corporate Governance

Report of the Directors | Corporate Governance

Shareholder engagement

Communication with shareholders is given high priority by the Board. Extensive information about HSBC and its activities is provided to shareholders in its Annual Report and Accounts, the Strategic Report and the Interim Report as well as at www.hsbc.com.

To complement these publications, there is regular dialogue with institutional investors. Enquiries from individuals on matters relating to their shareholdings and HSBC's business are welcomed.

Directors are encouraged to develop an understanding of the views of major shareholders.

As SID, Jonathan Symonds is available to shareholders if they have concerns that cannot be resolved or for which the normal channels would be inappropriate. He may be contacted via the Group Company Secretary at 8 Canada Square, London E14 5HQ.

The AGM and other general meetings

The 2018 AGM will be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on Friday 20 April at 11.00am and a live webcast will be available on www.hsbc.com. A recording of the proceedings will be available on www.hsbc.com shortly after the conclusion of the AGM until 20 May 2018. Shareholders are encouraged to attend the meeting. Shareholders may send enquiries to the Board in writing via the Group Company Secretary, HSBC Holdings plc, 8 Canada Square, London E14 5HQ or by sending an email to [email protected].

Shareholders may require the Directors to call a general meeting other than an AGM as provided by the UK Companies Act 2006. Requests to call a general meeting may be made by members representing at least 5% of the paid-up capital of HSBC Holdings that carries the right of voting at its general meetings (excluding any paid-up capital held as treasury shares). A request must state the general nature of the business to be dealt with at the meeting and may include the text of a resolution that may properly be moved and is intended to be moved at the meeting. A request may be in hard copy form or in electronic form and must be authenticated by the person or persons making it. A request may be made in writing to HSBC Holdings at its UK address, referred to in the paragraph above or by sending an email to [email protected]. At any general meeting convened on such request, no business shall be transacted except that stated by the requisition or proposed by the Board.

The Board has seven standing committees and a Chairman's Committee. In the case of the FSVC and the Philanthropic & Community Investment Oversight Committee, membership includes co-opted non-Director members as well as non-executive Directors.

The Chairs of each Committee report matters of significance to the Board after each meeting and the minutes of the meetings are made available to all Board members.

The detailed roles and responsibilities of each Committee are set out in its terms of reference, which can be found on the website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.

Interaction with principal subsidiaries

The Board manages relationships with the regions through seven principal subsidiary companies. There are close interactions between the subsidiary boards and the Group Board and their respective committees, including the sharing of minutes and a requirement for certain appointments to subsidiary boards to be approved by the Group Board.

As explained in more detail in the reports of the GAC and the GRC on pages 128 and 130, this interaction is reinforced through an Audit and Risk Committee Chairs' Forum. The Chairs of the subsidiary audit and risk committees globally are invited to attend the forum to raise and discuss current and future global risk and audit issues.

Board members are encouraged to, and do, make visits to the regions and attend principal subsidiary meetings as guests. Similarly, directors from the regions regularly are invited to attend committee meetings at a Group level.

The GAC and GRC make a number of recommendations to the Board in relation to the preparation of the financial statements which are supported by certificates from the principal subsidiaries.

Whistleblowing

The GAC and the CVC are responsible for reviewing the Group's whistleblowing procedures and receive regular updates on relevant concerns raised under these procedures, together with management actions taken in response.

Committee effectiveness

The effectiveness of the Committees is evaluated as part of the overall performance evaluation of the Board and through annual effectiveness reviews at a Committee level. In addition, the Committees review the papers and the effectiveness of each meeting as a standing agenda item to ensure that they continue to be effective, challenging and well-managed, and review a rolling planner of proposed committee business.

Report of the Directors | Corporate Governance

Members

Jonathan Symonds (Chairman)

Phillip Ameen

Kathleen Casey

David Nish

Role and responsibilities

The GAC has non-executive responsibility for reviewing matters relating to financial reporting, including Pillar 3 disclosures, and the effectiveness of internal financial control systems. The Committee also safeguards the independence of the Group Internal Audit function and oversees its performance.

Governance

The Group Finance Director, Group Chief Accounting Officer, Group Head of Internal Audit, Group Financial Controller and other members of senior management routinely attend meetings of the GAC. The external auditor also attended all meetings. The Chairman of the GAC had regular meetings with management to discuss agenda planning and specific issues as they arose during the year.

How the Committee discharges its responsibilities

Financial reporting

The GAC reviews HSBC's financial and reporting judgements and their application to the Group's financial reporting, including Pillar 3 disclosures, Costs to Achieve and significant items. It also

reviews presentations to external analysts including the key financial metrics relating to HSBC's strategic actions.

The GAC assesses the adequacy of resources of the accounting and financial reporting function. It also monitors the legal and regulatory environment relevant to its responsibilities.

Linkages with principal subsidiary audit committees

The GAC maintains links with the audit committees of The Hong Kong and Shanghai Banking Corporation, HSBC North America Holdings Inc., HSBC Bank Canada, HSBC Bank plc, HSBC Latin America Holdings (UK) Limited, HSBC Bank Middle East Limited and HSBC Private Banking Holdings (Suisse) SA ('the Principal Subsidiaries').

During the year, in addition to the annual Audit and Risk Committee Chairs' Forum, the Chairman attended an audit committee meeting of The Hongkong and Shanghai Banking Corporation to discuss key judgements made in the Bank of Communications impairment assessment.

Any new appointments to the audit committees of the Principal Subsidiaries are also reviewed by the GAC. The GAC Chairman meets with any proposed new chairs of the Principal Subsidiary audit committees.

Internal controls

The GAC assesses the effectiveness of the internal control system for financial reporting and any developments affecting it in support of the Board's assessment of internal control over financial reporting in accordance with section 404 of the Sarbanes-Oxley Act.

The GAC has received confirmation that executive management has taken or is taking the necessary actions to remedy any failings or weaknesses identified through the operation of the Group's framework of controls.

Further detail of how the Board reviews the effectiveness of key aspects of internal control can be found on page 133.

External audit

The GAC reviews the external auditor's approach, strategy for the annual audit and audit findings.

All non-audit services provided by the external auditor are pre-approved by the GAC in accordance with the auditor independence policy to ensure that services do not create a conflict. Details of the significant engagements for non-audit services are contained in Note 6.

A policy is in place and monitored by the GAC on hiring employees or former employees of the external auditor.

The GAC regularly meets privately with the external auditor and the GAC Chairman maintains regular contact with the audit partner throughout the year.

The GAC reviewed the findings of the Financial Reporting Council's audit quality review carried out on the 2016 audit and endorsed PwC's proposed action plan in response.

Internal Audit

The GAC approves Internal Audit's annual plan, resource and budget, and reviews the performance and effectiveness of the Group Head of Internal Audit. The Group Head of Internal Audit reports to the Chairman of the GAC and administratively to the Group Chief Executive. The Committee regularly meets with the Group Head of Internal Audit without other management present.

Compliance with Regulatory Requirements

The Board is satisfied that each member of the GAC is independent according to SEC criteria, may be regarded as audit committee financial experts for the purposes of section 407 of the Sarbanes-Oxley Act and has recent and relevant financial experience for the purposes of the UK and Hong Kong Corporate Governance Codes.

The Committee has complied with the relevant parts of the Competition and Markets Authority Final Order on the statutory audit market for the year ended 31 December 2017.

Principal activities and significant issues considered during 2017

Internal control framework

IFRS 9 implementation

Bank of Communications ('BoCom')

Resolution planning

Establishment of the ring-fenced bank

Progress on the establishment of HSBC UK, the ring-fenced bank, was monitored by the GAC during 2017. The GAC considered the accounting judgements in relation to the creation of HSBC UK.

Internal Audit

External auditor

Changing regulatory landscape

Report of the Directors | Corporate Governance

Page 63 provides further information on the top and emerging risks, the risk map and the risk appetite for the Group. The GRC receives presentations on a range of topics, including stress testing and briefings on developments in its principal markets. In addition, the GRC requests reports and updates from management on risk-related issues for in-depth consideration and receives regular reports on matters discussed at the Risk Management Meeting of the Group Management Board.

Report of the Directors | Corporate Governance

Principal activities and significant issues considered during 2017

Financial crime

Anti-bribery and corruption

Engaging with the Monitor

The information security environment and cybersecurity risk

Members

Pauline van der Meer Mohr (Chair)

Laura Cha

Lord Evans of Weardale

Rachel Lomax (resigned on 28 April 2017)

Jonathan Symonds

Role and responsibilities

The Committee has non-executive responsibility for oversight of culture and conduct risk. It is responsible for the Group's policies, procedures and standards and ensuring that the Group conducts business responsibly and consistently adheres to the HSBC Values. The CVC is also responsible for Group policies and procedures for capturing and responding to whistleblowing reports. The CVC reports to the GAC where necessary in relation to allegations relating to accounting, internal controls over financial reporting or audit matters.

Principal activities and significant issues considered during 2017

Conduct

Sustainability

Diversity

Members

Pauline van der Meer Mohr (Chair)

Henri de Castries (appointed on 26 May 2017)

Sam Laidlaw (resigned on 28 April 2017)

John Lipsky

David Nish (appointed on 26 May 2017)

Paul Walsh (resigned on 21 April 2017)

Role and responsibilities

The Committee is responsible for setting the overarching principles, parameters and governance framework of the Group's remuneration policy, and the remuneration of executive Directors and other senior Group employees. The Committee regularly reviews the Group's remuneration policy in the context of consistent and effective risk management, and the regulatory requirements of multiple jurisdictions. No Directors are involved in deciding their own remuneration.

A full report on the role and activities of the Committee is set out on pages 141 to 164.

Members

Mark Tucker (Chairman - appointed on 1 September 2017)

Laura Cha

Sam Laidlaw (resigned on 28 April 2017)

John Lipsky

Rachel Lomax (resigned on 28 April 2017)

Pauline van der Meer Mohr

Jonathan Symonds (appointed as interim Chair from 28 April 2017 to 1 September 2017)

Paul Walsh (resigned on 21 April 2017)

Role and responsibilities

The Committee leads the Board appointment process, agrees the criteria for any appointments and engages independent external search consultants, as required. At the conclusion of this process, the Committee will nominate potential candidates for appointment to the Board. It is also responsible for succession planning for both senior executive roles, as well as executive and non-executive Directors, and for determining the membership of Board committees.

In the exercise of its responsibilities, the Committee regularly reviews the Board's structure, size and composition, including skills, knowledge, experience, independence and diversity.

Principal activities and significant issues considered during 2017

Succession planning

Diversity

Members

Laura Cha (Chair)

Lord Evans of Weardale

Sir Malcolm Grant (non-Director member)

Stephen Moss (non-Director member)

Lord Janvrin (non-Director member)

Role and responsibilities

The Committee has non-executive responsibility for HSBC's philanthropic and community investment activities in support of the Group's corporate sustainability objectives. The Committee oversees activity including both the Group's monetary contributions and employee volunteering.

Principal activities and significant issues considered during 2017

Charitable giving

Community investment

The Chairman's Committee acts on behalf of the Board between scheduled Board meetings to facilitate ad hoc and other business requiring Board approval. It meets when necessary, with the required number of attendees determined by the nature of the proposed business to be discussed, as set out in its terms of reference.

The Board is responsible for maintaining and reviewing the effectiveness of risk management and internal control systems, and for determining the aggregate level and types of risks the Group is willing to take in achieving its strategic objectives.

To meet this requirement and to discharge its obligations under the FCA Handbook and the PRA Handbook, procedures have been designed for safeguarding assets against unauthorised use or disposal; for maintaining proper accounting records; and for ensuring the reliability and usefulness of financial information used within the business or for publication.

These procedures can only provide reasonable assurance against material mis-statement, errors, losses or fraud. They are designed to provide effective internal control within the Group and accord

with the Financial Reporting Council's guidance for directors issued in 2014, internal control and related financial and business reporting. The procedures have been in place throughout the year and up to 20 February 2018, the date of approval of this Annual Report and Accounts 2017.

In 2014, the GAC endorsed the adoption of the COSO 2013 framework for the monitoring of risk management and internal control systems to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

The key risk management and internal control procedures include the following:

•

Delegation of authority within limits set by the Board: subject to certain matters reserved for the Board, the Group Chief Executive has been delegated authority limits and powers within which to manage the day-to-day affairs of the Group, including the right to sub-delegate those limits and powers. Each relevant group managing director or executive Director has delegated authority within which to manage the day-to-day affairs of the business or function for which he or she is accountable. Delegation of authority from the Board requires those individuals to maintain a clear and appropriate apportionment of significant responsibilities and to oversee the establishment and maintenance of systems of control that are appropriate to their business or function. Authorities to enter into credit and market risk exposures are delegated with limits to line management of Group companies. The concurrence of the appropriate global function is required, however, to credit proposals with specified higher risk characteristics. Credit and market risks are measured and reported at subsidiary company level and aggregated for risk concentration analysis on a Group-wide basis.

•

Risk identification and monitoring: systems and procedures are in place to identify, assess, control and monitor the material risk types facing HSBC. The Group's risk measurement and reporting systems are designed to help ensure that risks are comprehensively captured with all the attributes necessary to support well-founded decisions, that those attributes are accurately assessed and that information is delivered in a timely manner for those risks to be successfully managed and mitigated.

•

Changes in market conditions/practices: processes are in place to identify new risks arising from changes in market conditions/practices or customer behaviours, which could expose the Group to heightened risk of loss or reputational damage. The Group employs a top and emerging risks framework at all levels of the organisation, which enables it to identify current and forward-looking risks and to take action which either prevents them materialising or limits their impact.

•

Responsibility for risk management: all employees are responsible for identifying and managing risk within the scope of their role as part of the three lines of defence model, which is an activity-based model to delineate management accountabilities and responsibilities for risk management and the control environment. The second line of defence sets the policy and guidelines for managing specific risk areas, provides advice and guidance in relation to the risk, and challenges the first line of defence (the risk owners) on effective risk management.

•	Strategic plans: strategic plans are prepared for global businesses, global functions and geographical regions within the framework of the Group's overall strategy. Annual Operating Plans, informed by detailed analysis of risk appetite describing the types and quantum of risk that the Group is prepared to take in executing its strategy, are prepared and

Report of the Directors | Corporate Governance

adopted by all major Group operating companies and set out the key business initiatives and the likely financial effects of those initiatives.

•

Subsidiary certifications to the GRC: half-yearly confirmations are provided to the GRC from the risk committees of principal subsidiary companies confirming that the committees have challenged management on the quality of the information provided, reviewed the actions proposed by management to address any emerging issues or trends indicating material divergence from the Group's risk appetite and that the risk management and internal control systems in place are operating effectively.

The key risk management and internal control procedures over financial reporting include the following:

•

Financial reporting: the Group's financial reporting process is controlled using documented accounting policies and reporting formats, supported by detailed instructions and guidance on reporting requirements, issued to all reporting entities within the Group in advance of each reporting period end. The submission of financial information from each reporting entity is subject to certification by the responsible financial officer, and analytical review procedures at reporting entity and Group levels.

•	Subsidiary certifications to the GAC: half-yearly confirmations are provided to the GAC from the audit committees of principal subsidiary companies regarding whether their financial statements have been prepared in accordance with Group policies, present fairly the state of affairs of the relevant principal subsidiary and are prepared on a going concern basis.

The internal control responsibilities of the GRC and GAC were complemented by the activities of the CVC and the FSVC which, respectively, oversaw conduct-related risk matters and financial crime compliance. Collectively, these controls are designed to provide effective internal control within the Group.

The GRC and the GAC have received confirmation that executive management has taken or is taking the necessary actions to remedy any failings or weaknesses identified through the operation of the Group's framework of controls. In 2017, deficiencies in the design and operational effectiveness of a number of controls were identified. Significant improvement in the control environment has been observed as a result of management's progress on the execution of the remediation programme.

The Directors, through the GRC and the GAC, have conducted an annual review of the effectiveness of the Group's system of risk management and internal control covering all material controls, including financial, operational and compliance controls, risk management systems, the adequacy of resources, qualifications and experience of staff of the accounting and financial reporting function and the Global Risk function, and their training

programmes and budget. The annual review of the effectiveness of the Group's system of risk management and internal control over financial reporting was conducted with reference to the COSO framework. The annual review of other controls was undertaken using the Group's risk management framework, further details of which can be found on pages 66 to 69. Based on the assessment performed, the Directors concluded that for the year ended 31 December 2017, the Group's internal controls were effective.

The Global Internal Audit function, which is centrally controlled, provides independent and objective assurance of the design and operating effectiveness of the Group's framework of risk management, control and governance processes, focusing on the areas of greatest risk. As mentioned previously, the Group Head of Internal Audit reports to the Chairman of the GAC and frequent meetings are held between them during the year. 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.

The Directors considered it appropriate to prepare the financial statements on the going concern basis.

Under the UK Corporate Governance Code, the Directors must also provide a viability statement. They must state whether the Group will be able to continue in operation and meet its liabilities, taking into account its current position and the principal risks it faces. They must also specify the period covered by, and the appropriateness of, this statement.

The Directors have specified a period of three years to 31 December 2020. They are satisfied that a forward-looking assessment of the Group for this period is sufficient to enable a reasonable statement of viability. In addition, this period is covered by the Group's stress testing programmes, and its internal projections for profitability, key capital ratios and leverage ratios. Notwithstanding this, our stress testing programmes also cover scenarios out to five years and our assessment of risks are beyond three years where appropriate.

Based upon their assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet liabilities as they fall due over the next three years.

In making their going concern and viability assessments, the Directors have considered a wide range of detailed information relating to present and potential conditions, including projections for profitability, cash flows, capital requirements and capital resources.

In carrying out their assessment of the principal risks, the Directors considered a wide range of information including:

•	Details of the Group's approach to managing risk and allocating capital.

•	A summary of the Group's financial performance, and its capital position and annual operating plan.

•	Enterprise risk reports, including the Group's risk appetite profile see page 63, top and emerging risks see page 63 and risk map see page 69.

•

Reports and updates regarding regulatory and internal stress testing exercises see page 69. In 2017, the published Bank of England ('BoE') stress test results for HSBC showed that our capital ratios after taking account of CRD IV restrictions and strategic management actions exceeded the BoE's requirements. The results for HSBC assumed no dividend payments in the first two years of the severe stress projection period.

•	Reports and updates from management on risk-related issues selected for in-depth consideration.

•	Reports and updates on the Group's compliance-related initiatives connected to the resolution of the investigations by US and UK regulatory and law enforcement authorities in December 2012.

•	Legal reports.

Share buy-back programme

On 22 February 2017, HSBC Holdings commenced a share buy-back programme to purchase its ordinary shares of $0.50 each
up to a maximum consideration of $1.0bn. This programme concluded on 12 April 2017. 122,599,324 ordinary shares were purchased and cancelled. On 1 August 2017, HSBC Holdings announced a further share buy-back programme for the purchase of up to a maximum of $2.0bn of its ordinary shares of $0.50. This programme concluded on 20 November 2017 and 205,624,077 ordinary shares were purchased and cancelled. The purpose of both buy-back programmes was to reduce HSBC's number of outstanding ordinary shares.

The nominal value of shares purchased during 2017 was $164,111,701 and the aggregate consideration paid by HSBC was £2,326,610,093.

The table that follows outlines details of the shares purchased on a monthly basis during 2017. At 31 December 2017, the total number of shares purchased was 328,223,401, representing 1.62% of the shares in issue and 1.64% of the shares in issue excluding treasury shares.

Dividends

Dividends for 2017

First, second and third interim dividends for 2017, each of $0.10 per ordinary share, were paid on 5 July 2017, 20 September 2017 and 22 November 2017, respectively. Note 8 on the Financial Statements gives more information on the dividends declared in 2017. On 20 February 2018, the Directors declared a fourth interim dividend for 2017 of $0.21 per ordinary share in lieu of a final dividend, which will be payable on 6 April 2018 in cash in US dollars, or in sterling or Hong Kong dollars at exchange rates to be determined on 26 March 2018, with a scrip dividend alternative. As the fourth interim dividend for 2017 was declared after
31 December 2017 it has not been included in the balance sheet of HSBC as a liability. The reserves available for distribution at
31 December 2017 were $38.0bn.

A quarterly dividend of $15.50 per 6.20% non-cumulative US dollar preference share, Series A ('Series A dollar preference share'), (equivalent to a dividend of $0.3875 per Series A American Depositary Share ('ADS'), each of which represents one-fortieth of a Series A dollar preference share), and £0.01 per Series A sterling preference share was paid on 15 March, 15 June, 15 September and 15 December 2017.

Dividends for 2018

Quarterly dividends of $15.50 per Series A dollar preference share (equivalent to a dividend of $0.3875 per Series A American Depositary Share, each of which represents one-fortieth of a Series A dollar preference share) and £0.01 per Series A sterling

preference share was declared on 6 February 2018 for payment on 15 March 2018.

Share capital

Issued share capital

Rights, obligations and restrictions attaching to shares

The rights and obligations attaching to each class of ordinary and non-cumulative preference shares in our share capital are set out in full in our Articles of Association. The Articles of Association may be amended by special resolution of the shareholders and can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-responsibilities.

Ordinary shares

HSBC Holdings has one class of ordinary share, which carries no right to fixed income. There are no voting restrictions on the issued ordinary shares, all of which are fully paid. On a show of hands, each member present has the right to one vote at general meetings. On a poll, each member present or voting by proxy is entitled to one vote for every $0.50 nominal value

Report of the Directors | Corporate Governance

of share capital held. There are no specific restrictions on transfers of ordinary shares, which are governed by the general provisions of the Articles of Association and prevailing legislation.

At the 2016 AGM, shareholders gave authority to the Directors to offer a scrip dividend alternative on any dividend (including interim dividends) declared up to the conclusion of the AGM in 2019.

Information on the policy adopted by the Board for paying interim dividends on the ordinary shares may be found on page 262, under the heading 'Shareholder Information'.

Dividend waivers

Preference shares

The preference shares, which have preferential rights to income and capital, do not, in general, confer a right to attend and vote at general meetings.

There are three classes of preference shares in the share capital of HSBC Holdings: non-cumulative preference shares of $0.01 each ('dollar preference shares'); non-cumulative preference shares of £0.01 each ('sterling preference shares'); and non-cumulative preference shares of €0.01 ('euro preference shares'). The dollar preference shares in issue are Series A dollar preference shares and the sterling preference share in issue is a Series A sterling preference share. There are no euro preference shares in issue.

Information on dividends declared for 2017 and 2018 may be found on page 206, under the heading 'Dividends' and in Note 8 on the Financial Statements.

Further details of the rights and obligations attaching to the HSBC Holdings' issued share capital may be found in Note 31 on the Financial Statements.

Compliance with Hong Kong Listing Rule 13.25A(2)

HSBC Holdings has been granted a waiver from strict compliance with Rule 13.25A(2) of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong.

Under this waiver, HSBC's obligation to file a Next Day Return following the issue of new shares pursuant to the vesting of share awards granted under its share plans to persons who are not Directors, would only be triggered where it falls within one of the circumstances set out under Rule 13.25A(3).

Authorities to allot and to purchase shares and
pre-emption rights

At the AGM in 2017, shareholders renewed the general authority for the Directors to allot new shares up to 13,244,610,940 ordinary shares, 15,000,000 non-cumulative preference shares of £0.01 each, 15,000,000 non-cumulative preference shares of $0.01 each and 15,000,000 non-cumulative preference shares of €0.01 each.

Shareholders also renewed the authority for the Directors to make market purchases of up to 1,986,691,641 ordinary shares. The Directors exercised this authority during the year and purchased 328,223,401 ordinary shares.

In addition, shareholders gave authority for the Directors to grant rights to subscribe for, or to convert any security into, no more than 3,973,383,282 ordinary shares in relation to any issue by HSBC Holdings or any member of the Group of contingent convertible securities that automatically convert into or are exchanged for ordinary shares in HSBC Holdings in prescribed circumstances. Further details about the issue of contingent convertible securities may be found in Note 31 on the Financial Statements.

Other than as disclosed in the tables above headed 'Share capital changes in 2017', the Directors did not allot any shares during 2017.

Debt securities

Treasury shares

In accordance with the terms of a waiver granted by the Hong Kong Stock Exchange on 19 December 2005, HSBC Holdings will comply with the applicable law and regulation in the UK in relation to the holding of any shares in treasury and with the conditions of the waiver in connection with any shares it may hold in treasury. Pursuant to Chapter 6 of the UK Companies Act 2006, 325,273,407 ordinary shares are currently held in treasury. This was the maximum number of shares held at any time during 2017; representing 1.60% of the shares in issue. The nominal value of shares held in treasury is $162,636,704.

Notifiable interests in share capital

At 31 December 2017, HSBC Holdings had received the following notification of major holdings of voting rights pursuant to the requirements of Rule 5 of the Disclosure, Guidance and Transparency Rules:

•	Ping An Asset Management Co., Ltd. gave notice on 6 December 2017 that on 4 December 2017 it had an indirect interest in HSBC Holdings ordinary shares of 1,007,946,172, representing 5.04% of the total voting rights at that date.

At 31 December 2017, according to the register maintained by HSBC Holdings pursuant to section 336 of the Securities and Futures Ordinance of Hong Kong:

Sufficiency of float

In compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited at least 25% of the total issued share capital has been held by the public at all times during 2017 and up to the date of this report.

Dealings in HSBC Holdings listed securities

HSBC Group has policies and procedures that, except where permitted by statute and regulation, prohibit specified transactions in respect of its securities listed on The Stock Exchange of Hong Kong Limited. Except for dealings as intermediaries or as trustees by subsidiaries of HSBC Holdings, neither HSBC Holdings nor any of its subsidiaries has purchased, sold or redeemed any of its securities listed on The Stock Exchange of Hong Kong Limited during the year ended 31 December 2017.

Directors' interests

Pursuant to the requirements of the UK Listing Rules and according to the register of Directors' interests maintained by HSBC Holdings pursuant to section 352 of the Securities and Futures Ordinance of Hong Kong, the Directors of HSBC Holdings at 31 December 2017 had certain interests, all beneficial unless otherwise stated, in the shares or debentures of HSBC Holdings and its associated corporations. Save as stated in the below table, no further interests were held by Directors, and no Directors or their connected persons were awarded or exercised any right to subscribe for any shares or debentures in any HSBC corporation during the year.

No Directors held any short position as defined in the Securities and Futures Ordinance of Hong Kong in the shares or debentures of HSBC Holdings and its associated corporations.

Report of the Directors | Corporate Governance