Responsible Business

• Corporate Governance
• Risk Management
• Compliance
• Responsible Financing

Corporate Governance

Hang Seng is committed to high standards of corporate governance. We follow the corporate governance requirements of various codes and modules issued by regulatory bodies such as the Hong Kong Monetary Authority (HKMA) and The Stock Exchange of Hong Kong Limited. More details can be found in the ‘Corporate Governance and Other Information’ section of our 2008 Annual Report.

Board of Directors
As at 1 April 2009, our Board had 17 members: three executive Directors and 14 non-executive Directors. Of the 14 non-executive Directors, nine are independent non-executive Directors. The Board held seven meetings in 2008.

All Directors have full and timely access to all relevant information about Hang Seng so that they can discharge their duties and responsibilities as Directors. Each Director also has individual access to our senior management. In addition, there are established procedures for Directors to seek independent professional advice on matters relating to Hang Seng, with all costs borne by Hang Seng.

The roles of Chairman of the Board (who is an independent non-executive Director) and Chief Executive of the Bank are segregated, with a clear division of responsibilities. While the Board of Directors is led by the Chairman, the Chief Executive exercises all the powers, authorities and discretions of the Executive Committee as may be delegated to him in respect of Hang Seng and its subsidiaries.

The Board has set up three committees – the Executive Committee, the Audit Committee and the Remuneration Committee – each of these commitees has specific written terms of reference which deal clearly with their authority and duties.

To further enhance our risk management framework and in line with best practice, in July 2008 we set up a Risk Management Committee to centralise the oversight of risk management. Reporting directly to the Executive Committee, the Risk Management Committee’s main functions are to recognise, analyse, review and manage the various risks of the Bank. The Committee is also responsible for approving all risk management-related policies.

Hang Seng Bank (China) Limited – Corporate Governance Structure
Hang Seng Bank (China) Limited was established on 28 May 2007 and complies with all rules and regulations governing the set up and operation of Mainland subsidiaries of foreign banks.

Board of Directors:   
One executive Director, who is also Chief Executive of Hang Seng Bank (China)
Two independent non-executive Directors
Four non-executive Directors, of whom one is Chairman of the Board and one is deputy chairman.

Board Meetings:
The Board met four times in 2008

Board Reports to:
Sole shareholder, Hang Seng Bank Limited

Board Committees:
The Board has established three committees: the Executive Committee, the Audit Committee and the Connected Transactions Control Committee, each with specific written terms of reference that clearly regulate their authority, duties and meeting rules.

Supervisor:

• One supervisor, who is nominated by reports to the shareholder
• Attends all Board meetings

Risk Management

The effectiveness of our risk management policies and strategies is a central factor in our success. As part of the financial services industry, we are exposed to several types of risk, including credit, liquidity, market, insurance underwriting, operational and reputational risk.

In July 2008, we established a Risk Management Committee that reports to the Executive Committee (for more details, please see ‘Corporate Governance’ section). We have systems to identify and analyse risks and to set appropriate risk limits to control these risks. Risk management policies and major control limits are approved by the Board of Directors. (More details on our management of risk can be found in the ‘Corporate Governance and Other Information’, ‘Financial Review’ and ‘Financial Statements’ sections of our 2008 Annual Report.)

We have an Investment Products Oversight Committee to oversee the sale and distribution of investment products to our retail customers, approve new products and handle customer complaints with the aim of mitigating potential investment-related reputational risks.

Environmental risk covers the risks of causing pollution or destruction to the natural environment through accidental or deliberate actions. Depending on the nature and physical location of our business customers’ operations, our lending decisions may have an indirect impact on the natural environment. We therefore require that our credit assessment executives conduct a ‘Sustainability Risk Assessment’ of all credit applications – both new applications and annual reviews – by our business customers.

Compliance

Our key business values include a solid commitment to truthful and fair business dealings, to acting with due skill, care and diligence in the conduct of our business, and to ensuring that our staff comply with both the letter and the spirit of all relevant rules, regulations, guidelines and codes of conduct.

Staff Awareness
The most effective way of ensuring legal and regulatory compliance, as well as guarding against illegal activities such as fraud and money laundering, is to maintain a high level of staff awareness through training. To this end, various compliance training programmes are provided to staff, including those dealing with equal opportunities, data privacy, office health and safety, and anti-money laundering. In addition to instructor-led training, regular updates on compliance messages are communicated with bank staff through newsletter, videos, and in-branch briefings.

Insider Information
We have comprehensive systems and procedures in place to keep information confidential and manage potential or actual conflicts of interest. Stringent internal structures operate to prevent the misuse of insider information. Staff working in sensitive or high-risk areas are required to undergo additional job-specific training.

Whistle-blowing
We require all staff to report suspected business irregularities or fraud and we provide clear channels specifically for this purpose.

Anti-money Laundering
We comply with high standards of anti-money laundering practice and corruption and bribery prevention in all markets and jurisdictions in which we operate. We have stringent internal guidelines and procedure manuals as well as staff training to ensure proper internal controls are maintained and suspicious transactions are recognised and reported.

Responsible Financing

Lending and Investment Policies
Our financing decisions reflect our business principles, risk assessment processes and the needs of our customers.

Our objective is to promote sustainable development through our investment and lending policies. In addition to economic considerations, social and environmental issues play an important role in lending policies and environmental risks are included in credit assessments.

We support the Equator Principles, a voluntary code of conduct which is used to review and manage environmental and social risks in project financing. We also have sector-specific guidelines for lending to businesses operating in environmentally sensitive sectors (see box: ‘Responsible Financing’).

There are some types of business that we will not engage in, including working with companies that manufacture and/or sell weapons, dealing with countries that are subject to international sanctions, or transactions that could be used to foster racism, launder criminal earnings or evade tax.

Supporting Positive Change
As part of our commitment to encouraging customers to improve their environmental performance, we operate a Green Financing Scheme for Hong Kong-owned factories operating in the Pearl River Delta region. The scheme offers financing to acquire plant equipment that will enhance a factory’s energy efficiency and/or help reduce pollution.

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