Responsible Business

• Corporate Governance
• Risk Management
• Compliance
• Responsible Banking Services

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 and The Stock Exchange of Hong Kong Limited. More details can be found in the 'Corporate Governance and Other Information' section of our 2009 Annual Report.

Board of Directors
As at 1 March 2010, our Board had 13 Directors: two Executive Directors and 11 Non-executive Directors. Of the 11 Non-executive Directors, six are Independent Non-executive Directors. The Board held seven meetings in 2009.

The roles of Chairman of the Board and Chief Executive of the Bank are segregated, with a clear division of responsibilities. The Chairman is an Independent Non-executive Director who is responsible for the leadership and effective running of the Board. The Chief Executive is an Executive Director who exercises all the powers, authorities and discretions of the Executive Committee as may be delegated to her in respect of Hang Seng and its subsidiaries.

There is a strong independent element to the Board to ensure the independence and objectivity of the Board's decision-making process as well as the thoroughness and impartiality of the Board's oversight of Hang Seng's management.

All Directors have full and timely access to all relevant information about our operations, and each Director also has separate and independent access to our senior management. There are established procedures for Directors to seek independent professional advice on matters relating to Hang Seng, with all costs borne by the Bank.

Board Committees
The Board has established three committees: the Executive Committee, the Audit Committee and the Remuneration Committee, each of which has specific terms of reference that clearly set out their authorities and duties.

Hang Seng Board of Directors

13 Directors

• 2 Executive Directors
• 11 Non-executive Directors (6 Independent)
• 7 meetings in 2009

Executive Committee

7 members

Management and day-to-day running of the Bank

• 2 Executive Directors
• 1 General Manager
• 4 Deputy General Managers
• 12 meetings in 2009

Audit Committee

3 members

Bank's financial reporting, nature and scope of audit reviews and effectiveness of the systems of internal control and compliance

• 3 Independent Non-executive Directors
• 5 meetings in 2009

Remuneration Committee

2 members

Human resources issues and policy and structure for remuneration of Directors and senior management of the Bank

• 2 Independent Non-executive Directors
• 3 meetings in 2009

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 review, analyse, evaluate, recognise 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 (as at 1 March 2010)

• One Executive Director, who is also Chief Executive and Deputy Chairman of Hang Seng China
• Four Independent Non-executive Directors (two Independent Non-executive Directors joined the Board on 21 January 2010)
• Three Non-executive Directors, of whom one is Chairman of the Board

Board Meetings
The Board held five meetings in 2009

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 Transaction Control Committee, each with specific written terms of reference that clearly regulate their authority, duties and meeting rules.

Hang Seng China Board of Directors

8 Directors

• 1 Executive Director
• 7 Non-executive Directors (4 Independent)^*
• 5 meetings in 2009

* 2 Independent Non-executive Directors joined the Board in January 2010

Executive Committee

8 members

• Chief Executive (also Executive Director and Deputy Chairman of Board of Directors) as Chairman
• Shareholder-nominated representative
• 4 Deputy Chief Executives
• Chief Operating Officer
• Chief Financial Officer
• 10 meetings in 2009

Audit Committee

3 members

• 2 Independent Non-executive Directors
• 1 Non-executive Director
• 4 meetings in 2009

Connected Transaction Control Committee

3 members

• 1 Independent Non-executive Director
• 1 Non-executive Director
• Chief Credit Officer
• 1 meeting in 2009

Supervisor

• One supervisor, who is nominated by and reports to the shareholder
• Should attend all Board meetings (attended all Board meetings in 2009)

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 risks.

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 this broad spectrum of 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 '2009 Financial Statements' sections of our 2009 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 investment-related potential 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 - of 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. In any jurisdiction where local requirements are set at a lower standard than those established by our Group, our higher standards will apply where these do not contravene or conflict with local law.

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.

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 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 and enable suspicious transactions to be recognised and reported.

Responsible Banking Services

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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