	Our Commitment
Performance Corporate Governance Customers Suppliers Staff Environment Community

Corporate Governance

Our credibility as a leading financial institution in Hong Kong relies on our operational integrity and the transparency of the information we provide to stakeholders. Upholding strong corporate governance, adhering to the highest ethical standards and effectively managing risk are essential to being an accountable, transparent and well-managed company.

Compliance issues are discussed and reviewed by the Board of Directors and various Management Committees. The Board has collective responsibility for promoting the long-term sustainability and success of the Bank by providing entrepreneurial leadership within a framework of prudent and effective controls.

In doing so, the Board commits to high standards of integrity and ethics. Matters relating to internal control and risk management governance as well as policies and practices on compliance with legal and regulatory requirements are considered at Board meetings.

Our staff are on the frontlines in ensuring we always operate ethically, honestly and with full accountability, and in maintaining the strength of our corporate reputation. We provide employee training covering issues including banking regulations and codes of practice; illegal activities such as bribery and corruption, money laundering and insider trading; and on equal opportunities and data privacy.

We have comprehensive systems to ensure the appropriate use and protection of all data, particularly in relation to customer information. We also have robust 'know your customer' and assessment processes designed to minimise our exposure to the risk of establishing relationships with individuals or organisations engaged in activities such as money laundering, terrorism and irresponsible environmental practices, and/or in operations that may involve forced or child labour or violate indigenous or other human rights.

We are committed to high standards of corporate governance to safeguard the interests of shareholders, customers, staff and other stakeholders. We follow the module on Corporate Governance of Locally Incorporated Authorised Institutions under the Supervisory Policy Manual (SPM) issued by the Hong Kong Monetary Authority and comply with all the code provisions and most of the recommended best practices as set out in the Corporate Governance Code in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (Listing Rules). We regularly review and enhance our corporate governance framework using international and local best practices as our reference benchmarks.^{Note A}

Board of Directors

Our Board consists of 17 Directors - three Executive Directors and 14 Non-executive Directors (NEDs). Of the 14 NEDs, 10 are Independent Non-executive Directors (INEDs). Four of our 17 Directors are women.

The high number of INEDs on our Board helps 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.

Members of the Board have a diverse range of business, banking and professional expertise. Both as individual Directors and collectively, the Members of the Board possess appropriate experience, competencies and personal qualities including professionalism and integrity to fully discharge their responsibilities and to ensure the effective governance and oversight of our business activities and operations.

The Nomination Committee has responsibility for leading the process for Board appointments and for identifying and nominating, for Board approval, candidates for appointment to the Board. Before recommending a Board appointment, the Nomination Committee will evaluate the existing balance of skills, knowledge and experience on the Board. The Nomination Committee will also consider the structure, size and composition of the Board, the independence of INEDs, the term of appointment of and time required from NEDs and appointments to Board Committees.

A diverse Board of Directors is a valuable asset to our business. In May 2013, the Board adopted a Board Diversity Policy, a copy of which is available on our website (www.hangseng.com) to promote transparency and good governance. Board appointments are based on merit and candidates are considered against a range of objective criteria, such as gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. We are committed to promoting a meritocratic Boardroom that provides a diverse and inclusive culture where Directors believe that their views are heard and their concerns are attended to, and in which bias, discrimination and harassment are not tolerated.

Board Committees

The Board has set up five committees: the Executive Committee, the Audit Committee, the Risk Committee, the Remuneration Committee and the Nomination Committee. Each committee has specific written terms of reference that set out its authorities and responsibilities.^{Note C}

Hang Seng's Board of Directors

17 Directors^{Note B}
- 3 Executive Directors - 14 Non-executive Directors (10 Independent)
6 meetings in 2013

Executive Committee
8 Members^{Note B}
Responsible for the management and day-to-day running of the Bank.
Vice-Chairman and Chief Executive Executive Director and Head of Global Banking and Markets Executive Director and Head of Retail Banking and Wealth Management Chief Financial Officer Chief Operating Officer Head of Commercial Banking Chief Risk Officer Head of Human Resources 13 meetings in 2013

Audit Committee
3 Members^{Note B}
Responsible for financial reporting, the nature and scope of audit reviews, the effectiveness of systems of internal control and compliance relating to financial reporting, and making recommendations to the Board on the appointment, re-appointment, removal and remuneration of the Bank's external auditor.
3 Independent Non-executive Directors 6 meetings in 2013

Remuneration Committee
3 Members^{Note B}
Responsible for making recommendations to the Board on the remuneration policy and structure in order to attract, motivate and retain quality personnel and determining the remuneration policy, and the specific remuneration packages of all Executive Directors, senior management and key personnel.
3 Independent Non-executive Directors 2 meetings in 2013

Risk Committee
4 Members^{Note B}
Responsible for high level risk related matters, risk appetite and tolerance, risks associated with proposed strategic acquisitions or disposals, risk management reports from the Management, effectiveness of the Bank's risk management framework and systems of internal control and compliance (other than internal control over financial reporting), and appointment and removal of the Bank's Chief Risk Officer.
4 Independent Non-executive Directors 4 meetings in 2013

Nomination Committee
5 Members^{Note B}
Responsible for leading the process for Board appointments, and identifying and nominating for the approval of the Board, candidates for appointment to the Board.
3 Independent Non-executive Directors 1 Executive Director 1 Non-executive Director 2 meetings in 2013

Hang Seng Bank (China) Limited - Corporate Governance Structure^{Note D}

Hang Seng Bank (China) Limited (Hang Seng China) was established in 2007 and complies with all rules and regulations governing the set up and operation of mainland China subsidiaries of foreign banks.

Board of Directors

There are eight Directors on the Hang Seng China Board: the Chairman, one Executive Director (who is also Chief Executive and Vice-Chairman of Hang Seng China) and six Non-executive Directors (NEDs). Among the six NEDs, five are Independent Non-executive Directors.^{Note B}

Board Meetings

The Board held four meetings in 2013.

Board Reporting Structure

Sole shareholder, Hang Seng Bank Limited.

Board Committees

The Board has established five committees: the Audit Committee, the Risk Committee, the Connected Transactions Control Committee,the Remuneration Committee and the Executive Committee. Each committee has specific written terms of reference that clearly regulate its authority, duties and meeting rules.

Hang Seng China's Board of Directors

8 Directors^{Note B}
- Chairman - 1 Executive Director - 6 Non-executive Directors (5 Independent)
4 meetings in 2013

Audit Committee
3 Members^{Note B}
Responsible for financial reporting, internal audit, the effectiveness of systems of financial-related internal control and compliance oversight
3 Independent Non-executive Directors 4 meetings in 2013

Risk Committee
3 Members^{Note B}
Responsible for high-level risk issues and risk management oversight
3 Independent Non-executive Directors 4 meetings in 2013

Connected Transactions Control Committee
3 Members^{Note B}
Responsible for the implementation of the connected transactions policy, inspection of connected transactions, and the approval of substantial connected transactions
3 Independent Non-executive Directors 2 meetings in 2013

Remuneration Committee
3 Members^{Note B}
Responsible for making recommendations to the Board on the policy and structure for all remuneration and fees of Directors and senior management
2 Independent Non-executive Directors 1 Non-executive Director (Remuneration Committee was set up in Feb 2014)

Executive Committee
13 Members^{Note B}
Responsible for the management and day-to-day running of Hang Seng China
Chief Executive Shareholder-designated Director 5 Deputy Chief Executives Chief Risk Officer Chief Financial Officer Chief Operating Officer Head of Global Markets Head of Retail Banking and Wealth Management Head of Human Resources 12 meetings in 2013


Note A:	More details on our actions and practices in this area can be found in the 'Corporate Governance and Other Information' section of our 2013 Annual Report.
Note B:	As at 26 May 2014.
Note C:	The details of Board Committees can be found on Hang Seng's website.
Note D:	All information provided on Hang Seng Bank (China) Limited is to be considered supplementary information for the purposes of this Report.

Risk Management

The effectiveness of our risk management policies and strategies is a key factor in our success.

The internal audit function provides independent, objective assurance to the Management and the Risk and Audit Committees over the risk management and controls framework, to add value and to improve operations. It helps the Management accomplish its objectives by bringing a systematic and disciplined approach in the evaluation and improvement of the effectiveness of risk management, control, and governance processes. It also assesses the design and effectiveness of the primary and secondary controls and it places a degree of reliance on the effectiveness of the work completed by the internal control teams. The outcome is a holistic and timely view of how effectively the material risks within the Bank are being managed.

The Risk Management Committee (RMC), which reports directly to the Executive Committee, oversees the risk management framework for the Bank and its subsidiaries. Its main functions are to review all existing and potential risks on a systematic basis to ensure mechanisms exist for early identification of risks, adequate controls exist to mitigate risks, related returns consider risks and that capital is appropriately allocated to manage risks. The Committee is also responsible for reviewing, recommending and approving policies and methodologies for the management of risk, and overseeing the risk management of its sub-committees. More details on our management of risk can be found in the 'Corporate Governance and Other Information', 'Financial Review' and '2013 Financial Statements' sections of our 2013 Annual Report.

Establishing an appropriate risk appetite limit is a key element in our management of risk. The Group's Risk Appetite Statement for 2013, which was approved by the Board as advised by the Risk Committee, describes the types and amount of risk that we are prepared to accept in executing our business strategy and applies at Bank-wide, business group and individual risk levels. Our risk appetite framework is underpinned by the following core principles:

We must maintain our strong balance sheet and brand
We must maintain a healthy capital position
We must be accountable in how we use shareholders' funds
We must adopt conservative liquidity management policies and processes
Our tolerance for any risk must be commensurate with and considered in light of potential returns
We must always uphold the principle of sustainable long-term growth

The RMC undertakes regular reviews and monitors the Bank's risk profile against the limits set out in the Statement and determines appropriate management action in instances of material deviation from approved limits. Reports that detail the profile of the Statement - including material deviations from the same and, where required, suggestions for appropriate management action - are submitted to the Risk Committee and the Board by the Chief Risk Officer on a quarterly basis.

Product development and sign-off procedures are in place to ensure that the design of all new products and services are reviewed to ensure they meet market requirements and customer needs. All new products and material product variations must be approved by the Product Oversight Committee as a sub-committee of the RMC.

We maintain documented Business Continuity Plans for critical operations and significant risks, including arrangements for back-up site operations and a clearing and settlement services contingency plan to ensure that critical operations remain functional in emergency situations.

We support international responsible financing principles and sector-specific guidelines to help manage environment-related sustainability risks (see 'Responsible Banking Services' section below). We also 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 values include a solid commitment to quality, professionalism and integrity throughout our business. We have structures in place to ensure that our staff comply with both the letter and spirit of all relevant laws, codes, rules, regulations and guidelines and codes of conduct. In any jurisdiction where local compliance requirements are set at a lower standard than those established by our Group policies, our higher standards will apply where these do not contravene or conflict with local law.

Matters relating to internal control and risk management governance as well as policies and practices on compliance with legal and regulatory requirements are considered at Board meetings. Regular Business Governance Reports on financial crime compliance and regulatory compliance are submitted to the Executive Committee.

Among other things, the Audit Committee reviews our financial reporting, the nature and scope of audit reviews, the effectiveness of our systems of internal control, and compliance relating to financial reporting.

Staff Code of Conduct

To ensure the Bank operates according to the highest standards of ethical conduct and professional competence, all staff are required to strictly follow the Code of Conduct contained in our Staff Handbook. With reference to the applicable regulatory guidelines and other industry best practices, the Code sets out the ethical standards and values to which all Bank staff are required to adhere and information on various relevant legal and regulatory issues. Topics covered include the prevention of bribery, use of information, insider dealing and personal investment dealing, personal benefits, outside directorships/employment and equal opportunities policy.

Staff Awareness

A key factor in 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. All employees must complete e-Learning programme that covers anti-money laundering, sanctions and anti-bribery and corruption issues to ensure that they are familiar with the relevant laws and regulatory requirements. Other compliance training programmes include those covering equal opportunities, data privacy, occupational health and safety, and code of banking practice. All management employees have completed this training. Line managers with members of staff on leave are responsible for reminding such staff to complete the training when they return to work.

Insider Information and Conflicts of Interest

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

Whistle-blowing

We encourage the reporting of suspected internal business irregularities and provide clear channels specifically for this purpose.

Anti-money Laundering, Counter-terrorist Financing and Sanctions

We comply with high standards of anti-money laundering, counter-terrorist financing and sanctions practice. We have stringent internal guidelines and procedure manuals that detail regulations, guidelines and Group policies with respect to customer due diligence, ongoing monitoring, financial sanctions and terrorist financing, and reporting of suspicious transactions, as well as related staff training and record-keeping. All Bank staff are required to observe such policies and practices.

Price-sensitive Information

We have established a robust framework for the disclosure of price-sensitive information in compliance with the Listing Rules and other regulatory requirements. The framework sets out the procedures and internal controls for the handling and dissemination of price-sensitive information in a timely manner to help shareholders, customers, staff and other stakeholders understand the latest position of the Bank and its subsidiaries. The framework and its effectiveness are subject to review on a regular basis according to established procedures.

Data Privacy

Ensuring the privacy of customer information and other data is among our most important responsibilities in maintaining our reputation for good governance and in establishing the trust that underpins lasting business relationships. We comply with all data privacy regulations and have formulated a set of 'Privacy Principles' to guide staff in protecting the data and privacy of customers. Specific processes for the handling and protection of customer data are set out in the relevant internal procedure manual. Data privacy matters are overseen by the Head of Financial Crime Compliance & Regulatory Compliance and the Data Protection Officer. Data Controlling Officers have been appointed at a functional or business unit level to promote data protection and disseminate information on related new guidelines or developments. We also produce a quarterly bulletin on personal data privacy to further ensure staff awareness of the latest internal and external requirements.

Equal Opportunities, Anti-discrimination and Human Rights

We fully comply with Hong Kong labour law. We also take steps to assess potential new client and supplier relationships with the aim of minimising the risk of indirectly facilitating the violation of any individual's labour or human rights.

We provide a wide range of staff training on the equal opportunities, diversity and human rights-related issues that are relevant to our operations and to creating a positive working environment. We follow the Board Diversity Policy, which was implemented in May 2013. More details on our equal opportunities policies and training can be found in the 'Our Commitment: Staff' section of this Report.

Responsible Banking Services

Lending and Investment Policies

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

Our credit evaluation process includes assessment of any potential environmental or socially sensitive-related risks. Measures to enable us to monitor the implementation of and compliance with environmental and social requirements by our clients are included in our financing agreement credit assessment process. In cases of material deviation from the required standards, we will work with the customer to establish a target date for compliance. Where no progress is made or in instances of a serious breach, we will exit the relationship.

For environmental risk-related matters, we follow the sustainability risk requirements laid down by the HSBC Group, which include specific guidelines on lending to businesses operating in sectors such as chemicals, energy, forestry, freshwater infrastructure, and mining and minerals. We have adopted the Equator Principles, a set of voluntary guidelines which define a process to implement common sustainability standards in project finance lending. We also have a defence equipment policy which clarifies our stance on lending to companies involved with weapons (see box: Responsible Financing).

Responsible Financing

Our belief in promoting sustainable business practices means that we carefully assess potential environmental and social risks when deciding to make a loan or investment. The Bank has specific sustainability risk policies that deal with sensitive sectors such as forestry, agriculture, mining, energy, property and infrastructure development, and mechanisms to ensure our customers remain in compliance with these policies.
Forest Land and Forestry Products Sector
Outlines how we will work with our customers to promote sustainable forestry practices.

Agricultural Commodities Sector
Requires us to undertake special assessments of customers involved with soy, cattle ranching or rubberwood in certain high-risk countries.

Freshwater Infrastructure Sector
Aims to ensure the consistency of our involvement in freshwater infrastructure projects, particularly from the standpoint of sustainable development.

Chemical Industry Sector
Highlights the international, regional and national standards we conform to in lending to the chemical industry and outlines how we will work with our customers towards sustainable chemical manufacture.

Energy Sector
Establishes sustainability standards for our involvement in this sector and for providing financial services to energy sector projects.

Mining and Metals Sector
Sets out the principles and standards that govern our involvement in all areas of this sector, including exploration, extraction, mine closure and reclamation, and primary processing.

Defence Equipment Sector
Establishes our position with regard to companies involved in the manufacture and sale of weapons.

World Heritages Sites and Ramsar Wetlands
Aims to ensure we avoid supporting projects that may damage these sensitive areas.
Training programmes for environmental and social policies are in place, including as part of our New Joiners Programme, to improve staff competency in implementing these policies and procedures as applied to our various business lines.