Annual Financial Report - 6 of 8

RNS Number : 0809S

HSBC Holdings PLC

06 March 2019

 

Corporate governance report
	Page
The Board	152
Operation of the Board	152
Director and Group Managing Director biographies	153
Board of Directors	157
Board committees	158
Internal control	165
Internal audit	166
Going concern and viability	166
Share capital and other disclosures	167
Employees	172
Statement of compliance	174

The Board

The Board aims to promote the Group's long-term success, deliver sustainable value to shareholders and promote a culture of openness and debate.

Led by the Group Chairman, the Board sets the Group's strategy and risk appetite. It also approves capital and operating plans for achieving strategic objectives on the recommendation of management.

Group Chairman

Mark Tucker was appointed to the Board as an independent non-executive Director on 1 September 2017 and became non-executive Group Chairman on 1 October 2017.

Executive Directors

The Group Chief Executive, the Group Chief Financial Officer and the Group Chief Risk Officer are HSBC employees.

Independent non-executive Directors

The majority of the Board comprises independent non-executive Directors. Their role is to challenge and scrutinise the performance of management and to help develop proposals on strategy. They also review the performance of management in meeting agreed goals and objectives and monitor the Group's risk profile.

All of the non-executive Directors are considered to be independent of HSBC. There are no relationships or circumstances that are likely to affect any individual non-executive Director's judgement. To satisfy the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ('HKEx'), all non-executive Directors have confirmed their independence during the year. The non-executive Group Chairman was considered to be independent on appointment.

Board and executive responsibilities

The roles of Group Chairman and Group Chief Executive are separate, with a clear division of responsibilities between the running of the Board and executive responsibility for running HSBC's business.

Jonathan Symonds, who has been Senior Independent Director ('SID') since April 2017, was appointed as Deputy Group Chairman in August 2018.

The roles of the Group Chairman, Deputy Group Chairman and Senior Independent Director, and Group Chief Executive are set out in writing and are available on the website at www.hsbc.com/our-approach/corporate-governance/board-responsibilities.

Responsibility for the day-to-day management of the business and implementation of strategy is delegated by the Board to the Group Chief Executive, who is supported by the Group Management Board ('GMB'), an executive forum which he chairs.

There are special meetings of the GMB that provide oversight of risk matters, known as the Risk Management Meeting ('RMM'), which is chaired by the Group Chief Risk Officer. There are also special meetings of the GMB that provide oversight of financial crime risk, known as the Financial Crime Risk Management Meeting, which is chaired by the Group Chief Compliance Officer.

Powers of the Board

The Board is responsible for overseeing the management of HSBC globally and, in so doing, exercises its powers, subject to any relevant laws, regulations and HSBC Holdings' Articles of Association (the 'Articles of Association').

Certain matters are reserved for the Board for its approval. These include: the review and approval of annual operating plans; risk appetite; performance targets; credit or market risk limits; acquisitions; disposals; investments; capital expenditure or realisation or creation of a new venture that exceed certain thresholds; specified senior appointments; and any substantial change in balance sheet management policy.

Operation of the Board

Phillip Ameen, Joachim Faber and John Lipsky retired from the Board following the conclusion of the 2018 Annual General Meeting. Their departures led to a reduction in the size of the Board, as part of its ongoing work to simplify, clarify and strengthen governance arrangements. The number of Board Committees was also reduced from seven to five and subsidiary governance was simplified.

These changes created clearer and stronger lines of authority and accountability, which enables the Board to devote more time to priority areas.

The Board regularly reviews reports on performance against financial and other strategic objectives, key business challenges, risk, business developments, investor relations and the Group's relationships with its key stakeholders. During 2018, the Board reviewed the Group's strategy with the newly-appointed Group Chief Executive and his management team and approved a number of strategic priorities targeted for delivery by the end of 2020. Following their approval, further details were announced to investors in an update in June 2018. The Board routinely tracks progress with respect to each strategic priority, together with the Group Chief Executive and members of his management team.

All of HSBC's activities involve the measurement, evaluation, acceptance and management of risk or combinations of risks. The Board, advised by the Group Risk Committee ('GRC') and the Financial System Vulnerabilities Committee ('FSVC'), promotes a strong risk governance culture that shapes the Group's approach to risk. The Board and these committees support the maintenance of a strong risk management framework.

Under the direction of the Group Chairman, the Group Company Secretary is responsible for ensuring good information flows within the Board and its committees and between senior management and non-executive Directors, as well as facilitating induction and assisting with professional development of non-executive Directors, as required.

The Group Chairman meets with the independent non-executive Directors without the executive Directors in attendance after each Board meeting and otherwise, as necessary.

The Directors are encouraged to have free and open contact with management at all levels and full access to all relevant information. When attending off-site Board meetings and when travelling for other reasons, non-executive Directors are able to visit local business operations and meet local management.

Directors may take independent professional advice, if necessary, at HSBC Holdings' expense.

Board performance evaluation

The Board is committed to regular, independent evaluation of its own effectiveness and that of its committees. During 2018, the Board implemented a governance simplification initiative,  changing the size, structure and composition of the Board and its committees. Given that these changes were relatively recent and that a period of time is required for their impact to be fully assessed, the Board agreed that it would be premature to conduct an evaluation of its effectiveness during 2018. Instead, a review of the Board's effectiveness, and that of its committees, will be conducted in 2019 by an independent external service provider and the results presented to the Board during this year. Details of the process followed and actions arising from that evaluation will be included in the Annual Report and Accounts 2019.

Director performance evaluation

The Group Chairman has routinely met with each of the non-executive Directors during 2018 to discuss individual performance, Board and committee governance, time commitment and business priorities.

Executive Directors' individual performance evaluations are undertaken as part of the performance management process, which applies for all employees. In respect of the Group Chief Executive, this review process was led by the Group Chairman and discussed with the Nomination & Corporate Governance Committee. The Group Remuneration Committee considers the result of the review by the Group Chairman of the Group Chief Executive, as well as his assessments of the performance of the Group Chief Financial Officer and Group Chief Risk Officer, when determining variable pay each year, as set out in the Directors' remuneration report contained in this Annual Report and Accounts.

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

Non-executive Group Chairman

Mark E Tucker, 61 Non-executive Group Chairman Appointed to the Board: September 2017 Group Chairman since October 2017

Chairman of the Nomination & Corporate Governance 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. Mark is also a Director of the Peterson Institute for International Economics.

Executive Directors

John Flint, 50 Group Chief Executive Appointed to the Board: February 2018

Skills and experience: John joined HSBC in 1989 and helped to establish and expand the HSBC Global Markets business in Asia. He has held various roles across the Group, including Group Treasurer; Deputy Head of Global Markets and Head of Global Markets, Europe, Middle East and Africa; Chief Executive of HSBC Global Asset Management; Chief of Staff to the Group Chief Executive and Group Head of Strategy and Planning. In 2013, John was appointed Group Managing Director and Chief Executive of Retail Banking and Wealth Management.

Current appointments include: Chairman of the Group Management Board and The Hongkong and Shanghai Banking Corporation Limited. John is a member of the Monetary Authority of Singapore International Advisory Panel and the International Business Council of the World Economic Forum. He is also a member of the Climate Finance Leadership Initiative.

Marc Moses, 61 Group Chief Risk Officer Appointed to the Board: January 2014

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 Chase & Co., and an audit partner at Price Waterhouse.

Ewen Stevenson, 52 Group Chief Financial Officer Appointed to the Board: 1 January 2019

Skills and experience: Ewen has over 25 years of experience in the banking industry, both as an adviser to major banks and as an executive. Ewen was most recently executive Director and Chief Financial Officer at Royal Bank of Scotland Group. Prior to this, he was at Credit Suisse where his last role was co-Head of the EMEA Investment Banking Division and co-Head of the Global Financial Institutions Group.

Independent non-executive Directors

Kathleen Casey, 52 Independent non-executive Director Appointed to the Board: March 2014

Member of the Group Audit Committee and the Nomination & Corporate Governance 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, member of the Board of Trustees of the Financial Accounting Foundation and a number of public and non-profit bodies.

Laura Cha, GBM, 69 Independent non-executive Director Appointed to the Board: March 2011

Member of the Financial System Vulnerabilities Committee and the Nomination & Corporate Governance 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 International Advisory Council of the China Securities Regulatory Commission. Other former appointments include non-executive Director of China Telecom Corporation Limited; Bank of Communications Co., Ltd; and Tata Consultancy Services Limited. She also served as Chair of Hong Kong Special Administrative Region's Financial Services Development Council and Deputy Chair of the Securities and Futures Commission in Hong Kong.

Current appointments include: Chair of Hong Kong Exchanges and Clearing Limited and non-executive Deputy Chair of The Hongkong and Shanghai Banking Corporation Limited. She is also a non-executive Director of The London Metal Exchange, Unilever PLC and Unilever N.V.

Henri de Castries, 64 Independent non-executive Director Appointed to the Board: March 2016

Member of the Group Remuneration Committee and the Nomination & Corporate Governance Committee

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

Current appointments include: Special Adviser to General Atlantic, Chairman of Institut Montaigne, lead independent Director of Nestlé S.A. and a non-executive Director of the French National Foundation for Political Science. Henri is also a member of the Global Advisory Council at LeapFrog Investments.

Lord Evans of Weardale, 61 Independent non-executive Director Appointed to the Board: August 2013

Chairman of the Financial System Vulnerabilities Committee and member of the Nomination & Corporate Governance 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), 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: Chairman of the UK Committee on Standards in Public Life and the Advisory Board of Blackdot Solutions Ltd, non-executive Director of Ark Data Centres, and an adviser to various cybersecurity and technology companies.

Irene Lee, 65 Independent non-executive Director Appointed to the Board: July 2015

Member of the Group Remuneration Committee and the Nomination & Corporate Governance Committee

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 Government Takeovers Panel.

Current appointments include: Executive Chair of Hysan Development Company Limited and a non-executive Director of The Hongkong and Shanghai Banking Corporation Limited, Hang Seng Bank Limited and Cathay Pacific Airways Limited. She is also a member of the Exchange Fund Advisory Committee of the Hong Kong Monetary Authority.

Heidi Miller, 65 Independent non-executive Director Appointed to the Board: September 2014

Member of the Group Risk Committee and the Nomination & Corporate Governance Committee

Skills and experience: Heidi is a former President of International at J.P. Morgan Chase & Co., and was responsible for leading the global expansion and the international business strategy across its investment bank, asset management, and treasury and securities services divisions. She was also a non-executive Director of Merck & Co., Inc. and Progressive Corp.; Executive Vice President and Chief Financial Officer of Bank One Corporation; and Executive Vice President and Chief Financial Officer of Citigroup Inc.

Current appointments include: Chair of HSBC North America Holdings Inc. and a non-executive Director of First Data Corporation and General Mills Inc.

David Nish, 58 Independent non-executive Director Appointed to the Board: May 2016

Member of the Group Audit Committee, the Group Remuneration Committee and the Nomination & Corporate Governance Committee

Skills and experience: David served as Chief Executive Officer of Standard Life plc between 2010 and 2015, having joined as Finance Director in 2006. Other former appointments include Group Finance Director of Scottish Power plc; non-executive Director of the UK Green Investment Bank plc, HDFC Life (India), and London Stock Exchange Group plc; and partner of Price Waterhouse. He is a qualified chartered accountant.

Current appointments include: A non-executive Director of Vodafone Group plc and Zurich Insurance Group.

Jonathan Symonds, CBE, 59 Independent non-executive Director Appointed to the Board: April 2014 Senior Independent Director since April 2017 Deputy Group Chairman since August 2018

Chairman of the Group Audit Committee and member of the Group Risk Committee and the Nomination & Corporate Governance Committee

Skills and experience: Jonathan is a former Chief Financial Officer of Novartis AG and AstraZeneca plc. He was also a partner and managing director of Goldman Sachs, a partner of KPMG, and a non-executive Director and Chairman of the Audit Committee of Diageo plc. He is a fellow of the Institute of Chartered Accountants in England and Wales.

Current appointments include: Chairman of Proteus Digital Health Inc. and Genomics England Limited and a non-executive Director of Rubius Therapeutics, Inc.

Jackson Tai, 68 Independent non-executive Director Appointed to the Board: September 2016

Chairman of the Group Risk Committee and member of the Group Audit Committee, Financial System Vulnerabilities Committee and the Nomination & Corporate Governance Committee

Skills and experience: Jackson Tai is a skilled international non-executive Director with experience in senior operating and governance roles across Asia and China, as well as North America and Europe. Jackson was formerly Vice Chairman and Chief Executive Officer of DBS Group and DBS Bank Ltd, having served the group as Chief Financial Officer and then as President and Chief Operating Officer. He previously worked at J.P. Morgan & Co. Incorporated as an investment banker in New York, Tokyo and San Francisco. Other former appointments include non-executive Director of Bank of China Limited, Singapore Airlines, NYSE Euronext, ING Groep N.V., CapitaLand Ltd, SingTel Ltd. and Jones Lang LaSalle Inc. Jackson also served as Vice Chairman of Islamic Bank of Asia.

Current appointments include: Non-executive Director of Eli Lilly and Company, Koninklijke Philips N.V., Mastercard Incorporated and the Canada Pension Plan Investment Board.

Pauline van der Meer Mohr, 58 Independent non-executive Director Appointed to the Board: September 2015

Chairman of the Group Remuneration Committee and a member of the Group Risk Committee and the Nomination & Corporate Governance Committee

Skills and experience: Pauline has extensive legal and human resources experience across a number of different sectors, and contributed to the Dutch Banking Code Monitoring Commission. Former appointments include President of Erasmus University Rotterdam; senior executive Vice President and Head of Group Human Resources at ABN AMRO Bank N.V.; Group Human Resources Director at TNT N.V.; HR Director, Information Technology, Royal Dutch Shell Group; Senior Legal Counsel, Shell International; and member of the supervisory board of ASML Holding N.V.

Current appointments include: Chair of the Dutch Corporate Governance Code Monitoring Committee, Chair of the supervisory board of EY Netherlands, Deputy Chair of the supervisory board of Royal DSM N.V., non-executive Director of Mylan N.V., member of the Selection and Nomination Committee of the Supreme Court of the Netherlands and member of the Capital Markets Committee of the Dutch Authority for the Financial Markets.

Group Company Secretary

Ben Mathews, 51 Group Company Secretary

Ben joined HSBC in June 2013 and became Group Company Secretary in July 2013. He is a fellow of the Institute of Chartered Secretaries and Administrators. Former appointments include Group Company Secretary of Rio Tinto plc and of BG Group plc.

Group Managing Directors

Elaine Arden, 50 Group Chief Human Resources Officer

Elaine joined HSBC in June 2017 as Group Chief Human Resources Officer. She has previously held senior human resources and employee relations roles in a number of other financial institutions. Elaine is a fellow of the Chartered Institute of Banking in Scotland and a member of the Chartered Institute of Personnel & Development.

Samir Assaf, 58 Chief Executive Officer, Global Banking and Markets

Samir joined HSBC in 1994 and became a Group Managing Director in 2011. He is Chairman and a non-executive Director of HSBC France; a Director of HSBC Trinkaus & Burkhardt AG and The Saudi British Bank. Former appointments include: a Director of HSBC Bank plc, HSBC Global Asset Management Limited and HSBC Bank Egypt S.A.E.; and Head of Global Markets for Europe, Middle East and Africa.

Colin Bell, 51 Group Chief Compliance Officer

Colin Bell joined HSBC in July 2016 and was appointed a Group Managing Director in March 2017. Colin previously worked at UBS, where he was Head of Compliance and Operational Risk Control. He has 10 years of experience in managing risk and financial crime, following 16 years in the British Army.

Patrick Burke, 57 President and Chief Executive Officer, HSBC USA

Patrick joined HSBC in 1989 and became a Group Managing Director in 2015. He is also an executive Director, President and CEO of HSBC North America Holdings Inc. and Chairman of HSBC Bank USA, N.A., HSBC Finance Corporation, HSBC USA Inc. and HSBC Global Asset Management (USA) Inc.

Pierre Goad, 57 Chief Communications Officer

Pierre first joined HSBC in 2001. In 2010, he left to join Zurich Insurance Group as Head of Communications. He rejoined HSBC in 2011 and became a Group Managing Director in 2015. Former appointments include: Director of HSBC Bank Canada; Global Co-Head of Communications; and Head of Corporate Development, Europe, Middle East and Global Businesses.

Pam Kaur, 55 Group Head of Internal Audit

Pam joined HSBC and became a Group Managing Director in 2013. She is a non-executive Director of Centrica plc, a co-opted Council member of The Institute of Chartered Accountants in England and Wales, and Chair of the Financial Services Faculty Board. Former appointments include: Global Head of Group Audit for Deutsche Bank AG; Chief Financial Officer and Chief Operating Officer of the Restructuring and Risk Division, Royal Bank of Scotland Group plc; Group Head of Compliance and AML, Lloyds TSB; and Global Director of Compliance, Global Consumer Group, Citigroup.

Stuart Levey, 55 Chief Legal Officer

Stuart joined HSBC and became a Group Managing Director in 2012. Former appointments include: Under Secretary for Terrorism and Financial Intelligence in the US Department of the Treasury; senior fellow for National Security and Financial Integrity at the Council on Foreign Relations; Principal Associate Deputy Attorney General at the US Department of Justice; and a partner at Miller, Cassidy, Larroca & Lewin LLP and at Baker Botts LLP.

Andy Maguire, 52 Group Chief Operating Officer

Andy joined HSBC in 2014 as Group Chief Operating Officer and became a Group Managing Director in 2015. He is Chairman of HSBC Global Services Limited, HSBC Global Services (UK) Limited and HSBC Group Management Services Limited. He is formerly a Managing Partner (UK and Ireland) of the Boston Consulting Group.

Paulo Maia, 60 Chief Executive Officer, Latin America

Paulo joined HSBC in 1993 and became a Group Managing Director on 1 February 2016. He is Chairman of Grupo Financiero HSBC Mexico S.A. de C.V., Chairman of HSBC Argentina Holdings S.A. and a Director of HSBC North America Holdings Inc. Former appointments include: Chief Executive Officer of HSBC Bank Canada and HSBC Bank Australia Limited.

Stephen Moss, 52 Group Chief of Staff

Stephen, who has been with HSBC for 27 years, became a Group Managing Director in 2018. As Chief of Staff to the Group Chief Executive, Stephen leads Group Strategy and Planning, Group Mergers and Acquisitions, Global Communications, Global Events, Group Public Affairs and Group Corporate Sustainability. Stephen is a Director of the Saudi British Bank, HSBC Middle East Holdings B.V. and HSBC Global Asset Management Limited. He is a qualified chartered accountant and member of the Institute of Chartered Accountants in England and Wales.

Charlie Nunn, 47 Chief Executive Officer, Retail Banking and Wealth Management

Charlie joined HSBC in 2011 and became a Group Managing Director and CEO, Retail Banking and Wealth Management in January 2018. Charlie was previously Head of Group Retail Banking and Wealth Management, leading the teams supporting HSBC's Retail and Wealth businesses globally. Prior to this, he was Group Head of Wealth Management and before that Global Chief Operating Officer for Retail Banking and Wealth Management. Charlie has extensive financial services experience and was formerly a partner at Accenture and a Senior Partner at McKinsey & Co.

Noel Quinn, 57 Chief Executive Officer, Global Commercial Banking

Noel joined HSBC in 1992 when the Group acquired Midland Bank and became a Group Managing Director on 1 September 2016. Former appointments include: Head of Specialised and Equity Finance, Director of Strategy and Development for Commercial Banking, Head of Commercial Finance Europe, Head of Commercial Banking UK, and Head of Commercial Banking Asia.

António Simões, 43 Chief Executive Officer, Global Private Banking

António joined HSBC in 2007 and became a Group Managing Director on 1 February 2016. On 1 January 2019, he was appointed Chief Executive Officer of Global Private Banking. António was previously Chief Executive Officer of UK and Europe (HSBC Bank plc), and served as Chief of Staff to the Group Chief Executive Officer and Group Head of Strategy and Planning. António was also formerly the Chairman of the Practitioner Panel of the FCA, a partner of McKinsey & Company, and an associate at Goldman Sachs.

Ian Stuart, 55 Chief Executive Officer, HSBC UK Bank plc

Ian joined HSBC in 2014 and became a Group Managing Director of HSBC Holdings plc on 1 July 2018. In April 2017 he was appointed Chief Executive Officer of HSBC UK Bank plc. He is a Board member of the financial services industry association UK Finance. He has more than 38 years' experience in the banking industry. Before joining HSBC, Ian led the corporate banking business at Barclays for six years and held a variety of roles in business banking during his 22 years at NatWest.

Peter Wong, 67 Deputy Chairman and Chief Executive Officer, The Hongkong and Shanghai Banking Corporation Limited

Peter joined HSBC in 2005 and became a Group Managing Director in 2010. He is Chairman and non-executive Director of HSBC Bank (China) Company Limited and a non-executive Director of Hang Seng Bank Limited. He is also non-executive Vice Chairman of Bank of Communications Co., Limited. Other appointments include Deputy Chairman of the Hong Kong General Chamber of Commerce; Council Member of Hong Kong Trade Development Council and a member of its Belt and Road Committee; and a Member of the Chongqing Mayor's International Economic Advisory Council.

Board of Directors

Appointment, retirement and re-election of Directors

Appointments to the Board are made on merit, and candidates are considered against objective criteria, having due regard to the benefits of the diversity of the Board. A rigorous selection process is followed in relation to the appointment of Directors and certain specified senior appointments.

The number of Directors must not be fewer than five nor exceed 25. The Board may at any time appoint any person as a Director, either to fill a vacancy or as an addition to the existing Board. The Board may appoint any Director to hold any employment or executive office, and may revoke or terminate any such appointment.

Newly appointed Directors retire at the Annual General Meeting ('AGM') following appointment and are eligible for election.  Directors are nominated for annual re-election by shareholders subject to continued satisfactory performance based upon an assessment by the Group Chairman and the Nomination & Corporate Governance Committee.

Non-executive Directors are appointed for an initial three-year term and, subject to re-election by shareholders at each AGM, are typically expected to serve two three-year terms. The Board may invite a Director to serve additional periods. Any term beyond six years is subject to particularly rigorous review by the Nomination & Corporate Governance Committee.

The terms and conditions of appointment of non-executive Directors are set out in a letter of appointment, which includes the expectations of them and the estimated time required to perform their role. The current anticipated time commitment, which is subject to periodic review, is 75 days per year. Non-executive Directors who chair a Board committee are expected to devote up to 100 days per year to the Group. The Chairman of the GRC is expected to commit up to 150 days per year reflecting the complexity of the role and responsibilities of this Committee. All non-executive Directors have confirmed they can meet this requirement, taking into account any other commitments they have at the time of appointment, and, in practice, most devote considerably more time.

During their term of appointment, non-executive Directors are expected to consult the Group Chairman or the Group Company Secretary if they are considering whether to accept or vary any commitments outside the Group. The agreement of the Group Chairman is required if any additional or changed commitment might affect the time that a Director is able to devote to his or her role with the Group.

Letters setting out the terms of appointment of each non-executive Director are available for inspection at the registered office of HSBC Holdings.

Induction

Formal induction programmes are arranged for newly appointed Directors based on the individual's needs, skills and experience. Typically, these consist of a series of meetings with other Directors and senior executives, as well as local site visits to provide familiarity with the business. Directors also receive comprehensive guidance from the Group Company Secretary on the Group's corporate governance framework and associated policies, as well as their duties as Directors on the Board.

Conflicts of interest, indemnification of Directors and contracts of significance

The Board has established a policy and a set of procedures relating to Directors' conflicts of interest. Where conflicts of interest arise, the Board has the power to authorise them. A review of those conflicts that have been authorised, and the terms of those authorisations, is routinely undertaken by the Board.

The Articles of Association contain a qualifying third-party indemnity provision, which entitles Directors and other Officers to be indemnified out of the assets of HSBC Holdings against claims from third parties in respect of certain liabilities. Additionally, all Directors have the benefit of directors' and officers' liability insurance.

None of the Directors had, during the year, a material interest, directly or indirectly, in any contract of significance with any HSBC company. During the year, all Directors were reminded of their obligations in respect of transacting in HSBC Group securities and, save as disclosed on page 168, all Directors have confirmed that they have complied with their obligations.

Training and development

Following a period of induction, training and development is provided for each Director with the support of the Group Company Secretary. Non-executive Directors develop and refresh their skills and knowledge through periodic interactions and briefings with senior management of the Group's businesses and functions. During the year, Directors and the Group Company Secretary undertook mandatory training on a range of issues, including: anti-money laundering; anti-bribery and corruption; embedding good conduct; cybersecurity, and sanctions.

Subsidiary governance

The Group Chairman hosted two governance forums during 2018 for the Chairs of the Group's principal subsidiaries. Awareness and discussion sessions were conducted by senior executives and subject matter experts. These covered capital management, investor demands, conduct, UK regulatory matters, IT resilience, cybersecurity, data, and financial crime risk management. Initiatives were agreed on enhancements to the accountability of the principal subsidiaries for governance oversight across their respective regions, and the improvement of information flows between the Group and the principal subsidiary boards. Additionally, discussions took place concerning the strategic planning cycle, reducing organisational complexity, interactions with regulators and board succession planning.

Jonathan Symonds, Chair of the Group Audit Committee ('GAC'), and Jackson Tai, Chair of the GRC, hosted regional forums during 2018 with the Chairs of the Group's subsidiary audit and risk committees.

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 on 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 2019 AGM will be held at the International Convention Centre, 8 Centenary Square at 11.00am on Friday, 12 April 2019 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. 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 [e-mail].

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 [e-mail]. At any general meeting convened on such request, no business may be transacted except that stated by the requisition or proposed by the Board.

Board committees

 During 2018, the Board reduced the number of Board committees from seven to five. Responsibilities previously delegated to its Conduct & Values Committee and Philanthropic & Community Investment Oversight Committee were reassigned to other, more appropriate governance forums within the Group. Specific responsibility for cyber-crime and information security risk was transferred from the FSVC to the GRC. Responsibility for the development of the firm's culture was assumed by the Group Chairman. In 2018, the Nomination Committee was also renamed the Nomination & Corporate Governance Committee, reflecting its broader corporate governance remit.

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/our-approach/corporate-governance/board-committees.

Interaction with principal subsidiaries

The Board manages relationships with the regions through principal subsidiaries. There are close interactions between the Group Board and the principal subsidiaries and their respective committees. Minutes are shared and certain appointments to principal subsidiary boards, as well as other senior roles, are required to be approved by the Nomination & Corporate Governance Committee of the Group Board.

As explained in more detail in the reports of the GAC and the GRC on pages 159 and 161, this interaction is reinforced through the Audit and Risk Committee Chairs' forums. The Chairs of the subsidiary audit and risk committees within the respective regions attend a regional forum to exchange subject matter expertise and to review and discuss forward-looking risk and audit issues.

Board members are encouraged to, and do, make visits to the regions and attend principal subsidiary board and board committee meetings as guests. Similarly, regional Directors are invited regularly 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 is responsible for reviewing the Group's whistleblowing procedures. It receives 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. They also review a rolling planner of proposed committee business. In 2019, the feedback from this review process will be taken into account in informing the results of the Board's effectiveness review being undertaken by an independent external provider.

Board and Committee attendance in 2018
	AGM	Board*	Group Audit Committee	Group Risk Committee	Group Remuneration Committee	Nomination & Corporate Governance Committee	Financial System Vulnerabilities Committee	Conduct & Values Committee1	Philanthropic & Community Investment Oversight Committee2
Number of meetings held*	1	9	13	11	8	5	6	2	2
Group Chairman
Mark Tucker	1	9/9	-	-	-	5/5	-	-	-
Executive Directors
John Flint3	1	6/6	-	-	-	-	-	-	-
Stuart Gulliver 4	-	3/3	-	-	-	-	-	-	-
Iain Mackay 5	1	9/9	-	-	-	-	-	-	-
Marc Moses	1	9/9	-	-	-	-	-	-	-
Non-executive Directors
Phillip Ameen 6	1	5/5	5/5	-	-	-	-	-	-
Kathleen Casey 7	1	9/9	13/13	-	-	3/3	2/2	-	-
Henri de Castries 7	1	9/9	-	-	8/8	3/3	-	-	-
Laura Cha 8, 9	1	8/9	-	-	-	5/5	3/4	1/2	2/2
Joachim Faber 6	1	5/5	-	-	-	-	-	-	-
Irene Lee 7, 9, 10	1	8/9	-	-	6/6	3/3	-	-	-
John Lipsky 6	1	4/5	-	4/5	2/2	2/2	-	-	-
Pauline van der Meer Mohr 7	1	9/9	-	6/6	8/8	5/5	-	2/2	-
Heidi Miller 7	1	8/9	-	10/11	-	3/3	-	-	-
David Nish 7, 9	1	7/9	13/13	-	6/8	3/3	-	-	-
Jonathan Symonds 7, 11	1	9/9	13/13	6/6	-	5/5	-	2/2	-
Jackson Tai 7, 12	1	9/9	1/1	11/11	-	3/3	6/6	-	-
Lord Evans of Weardale 7	1	9/9	-	-	-	3/3	6/6	1/2	2/2

*Board meetings in 2018 were held in London, Shanghai and Seattle. In addition to the Board meetings listed, Chairman's Committee meetings were also held in 2018.

1     The Conduct & Values Committee was demised in 2018.

2     The Philanthropic & Community Investment Oversight Committee was demised in 2018.

3     Appointed to the Board 21 February 2018.

4     Retired from the Board 20 February 2018.

5     Retired from the Board 31 December 2018.

6     Retired from the Board 20 April 2018.

7     Appointed to the Nomination & Corporate Governance Committee 20 April 2018.

8     Appointed to the Financial System Vulnerabilities Committee 20 April 2018.

9     Unable to attend an ad-hoc meeting of the Board called at short notice.

10   Appointed to the Group Remuneration Committee 20 April 2018.

11   Appointed to the Group Risk Committee 20 April 2018 and as Deputy Group Chairman 6 August 2018.

12   Appointed to the Group Audit Committee 1 December 2018.

Group Audit Committee

Members

Jonathan Symonds (Chair)

Phillip Ameen (resigned 20 April 2018)

Kathleen Casey

David Nish

Jackson Tai (appointed 1 December 2018)

Role and responsibilities

The GAC has responsibility, delegated to it from the Board, for overseeing all matters relating to external financial reporting. 
This responsibility encompasses the Annual Report and Accounts, quarterly reporting, analyst presentations and Pillar 3 disclosures. In discharging their responsibility the GAC oversees:

•     preparation of financial statements, compliance with accounting standards and accounting judgements;

•     the effectiveness of internal financial control functions;

•     the independence and performance of Internal Audit;

•     the relationships with external auditors, including their independence, performance and approval of proposed services outside of the scope of the Group audit; and

•     whistleblowing (with effect from the conclusion of the 2018 AGM).

Governance

The Group Chief Financial Officer, 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 Chair and other members of the GAC had regular meetings with management to discuss agenda planning and specific issues as they arose during the year. Each meeting includes in camera sessions with the internal and external auditors. The Chair of the GAC, who is also the Deputy Group Chairman and Senior Independent Director, oversaw the Group Chief Financial Officer succession process and selection.

Compliance with regulatory requirements

The Board has confirmed 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 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.

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

Linkages with principal subsidiary audit committees

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

In 2018, the GAC and GRC hosted three joint regional forums with the Chairs of subsidiaries' audit and risk committees, together with senior management from the relevant subsidiaries. The purpose of these forums was to discuss mutual priorities; improvement and remediation programmes; risk profiles and forward-looking issues. They also provided an opportunity to deliver targeted training and conduct a review of committee effectiveness. These meetings are supplemented throughout the year by formal and informal communication between the committee chairs and GAC members.

Appointments to the audit committees of the principal subsidiaries are reviewed by the GAC. The GAC Chair meets with 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 164.

External audit

The GAC reviews the external auditor's approach, strategy for the annual audit and its findings. In 2018, the Committee reviewed auditor independence, audit quality and the use of technology and analytics. GAC members routinely met audit partners in key parts of the world and were involved in auditor conferences. Principal matters discussed with PwC are set out in their report on page 209.

The GAC is also involved in audit partner rotation and succession for the Group and its principal subsidiaries.

A policy is in place and monitored by the GAC on hiring employees or former employees of the external auditor, including in relation to any breaches of the policy.

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

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 7.

	2018		2017
Auditors' remuneration	$m		$m
Total fees payable	119.50		129.70
Fees for non-audit services	32.90		44.90

A further breakdown of the fees paid to the auditors for each of the last three financial years can be found in Note 7 on the Financial Statements.

During the year, the GAC assessed the effectiveness of PwC as the Group's external auditor, using a questionnaire that focuses on the overall audit process, its effectiveness and the quality of output. The GAC also assessed any potential threats to independence that were self-identified or reported by PwC. The GAC considered PwC to be independent and PwC, in accordance with professional ethical standards, provided the GAC with written confirmation of its independence for the duration of 2018.

The GAC has therefore recommended to the Board that PwC be reappointed as auditor. Resolutions concerning the reappointment of PwC and their audit fee for 2019 will be proposed to shareholders at the 2019 AGM.

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 Chair of the GAC and administratively to the Group Chief Executive. The Committee meets regularly with the Group Head of Internal Audit without other management present. Committee members also meet with critical audit teams around the world. In 2018, the GAC additionally considered audit quality and the use of technology and analytics. The GAC concluded that the Internal Audit function remained effective. The GAC also reviewed succession planning in the Internal Audit function.

Principal activities and significant issues considered during 2018

Internal control framework

The GAC continued to monitor the progress being made to upgrade entity level controls. During 2018, the GAC undertook a series of deep dives to monitor the remediation of identified control deficiencies, noting that good progress was made during the year. The GAC continued to monitor the remediation of controls over access management in IT. Where critical entity level controls overlapped with the activities of the GRC, joint sessions were held.

IFRS 9 implementation

Throughout 2018, the GAC received detailed presentations and updates from management on the Group's readiness for the implementation of IFRS 9. Particular emphasis was given in 2018 to the forward-looking projections, required for IFRS 9 and its relationship to regulatory stress testing. Detailed discussions were held in situations where impairment risk could not be easily modelled, for example, the significant uncertainty regarding the economic outlook for the UK, and US-China trade in conjunction with the relevant subsidiary audit committee.

Bank of Communications Co., Limited ('BoCom')

The GAC received regular updates on the assumptions underpinning the valuation of BoCom. It monitored indicators 
of impairment, both macro-economic and BoCom specific, and reviewed the results of the impairment assessments carried out by management. Much of this work was carried out in conjunction with The Hongkong and Shanghai Banking Corporation audit committee.

Resolution planning

The Group is required to have in place a recovery plan that sets out recovery options to be initiated in the event of the Group coming under severe financial stress. During 2018, the GAC received updates on the structure of the Group recovery plan. The GAC considered the Group recovery plan and its integration with the Group's risk management framework.

Establishment of the ring-fenced bank

During 2018, the GAC considered the accounting judgements in relation to the creation of HSBC UK, the ring-fenced bank, and the creation of the internal service companies that supplies services to banks.

Ibor

The GAC received presentations on the risks relating to Ibors discontinuation.

Whistleblowing

The GAC reviewed the independence, autonomy and effectiveness of the firm's policies and procedures on whistleblowing, including the procedures for the protection of staff who raise concerns of detrimental treatment.

Significant accounting judgements considered during 2018 included:
Expected credit loss ('ECL') impairment	The GAC considered loan impairment allowances for personal and wholesale lending. Particular judgements included the effect of UK economic uncertainty and the risk of escalation of trade wars between the US and China on the measurement of ECL impairment. The GAC also considered disclosures relating to ECL in the year-end accounts.
Bank of Communications Co., Limited ('BoCom') impairment testing	During the year, the GAC considered the regular impairment reviews of HSBC's investment in BoCom. The GAC review included the sensitivity of the result of the impairment review to estimates and assumptions of projected future cash flows, regulatory capital assumptions and the model's sensitivity to long-term assumptions including the continued appropriateness of the discount rate.
Appropriateness of provisioning for legal proceedings and regulatory matters	The GAC received reports from management on the recognition and amounts of provisions, as well as the existence of contingent liabilities for legal proceedings and regulatory matters. Specific matters addressed included accounting judgements in relation to provisions and contingent liabilities arising out of: (a) investigations by regulators and competition and law enforcement authorities around the world into trading on the foreign exchange markets; (b) investigations of HSBC's Swiss Private Bank by a number of tax administration, regulatory and law enforcement authorities; and (c) investigations into historical sales of US mortgage securitisations by The United States Attorney for the District of Colorado for potential violations of The Financial Industry Reform, Recovery and Enforcement Act of 1989, 12 U.S.C. § 1833a, which was settled during the year.
Interest rate benchmark replacement	The GAC considered the accounting implications of benchmark interest rate replacement for hedge accounting relationships as at 31 December 2018, and longer-term broader accounting implications for financial instruments. The GAC considered management's judgement that no change to hedge accounting is appropriate as at 31 December 2018, and that this position will be kept under review in the context of future market developments in the transition of interest rate benchmarks to new risk-free rates.
Quarterly and annual reporting	The GAC considered key judgements in relation to quarterly and annual reporting. It reviewed draft presentations to external analysts and key financial metrics included in HSBC's strategic actions.
Valuation of financial instruments	The GAC considered the key valuation metrics and judgements involved in the determination of the fair value of financial instruments. The GAC considered the valuation control framework, valuation metrics, significant year-end judgements and emerging valuation topics.
Viability statement	In accordance with the provisions contained in the UK Corporate Governance Code, the Directors carried out a robust assessment of the principal risks for the Group and parent company. The GAC considered the Directors' judgement in concluding that the Group and parent company will be able to continue in operation and meet liabilities as they fall due, and that it is appropriate that the viability statement covers a period of three years.
Tax-related judgements	The GAC considered the recoverability of deferred tax assets, in particular in the US. The GAC also considered management's judgements relating to the tax indemnity agreed to by HSBC as part of the sale of operations in Brazil in 2016. This includes consideration of the key inputs and assumptions used to estimate any obligation under the indemnity.
UK customer remediation	The GAC considered the provisions for redress for mis-selling of payment protection insurance ('PPI') policies in the UK and the associated redress on PPI commissions earned under certain criteria, including management's judgements regarding the effect of the time-bar for claims ending August 2019.  In addition, the GAC monitored progress on the remediation of operational processes and associated customer redress.
Defined benefit pension accounting	The GAC considered the UK defined benefit pension scheme accounting where, after the Court of Appeal ruling on 26 October 2018 against Lloyds Banking Group in respect of guaranteed minimum pension equalisation, HSBC has recognised past service costs through the income statement.
IFRS 16 'Leases'	The GAC considered the estimated impact of adoption of IFRS 16 'Leases', which applies from 1 January 2019, and the related disclosures.
Adjusted profit measures	Throughout the year, the GAC considered management's non-GAAP measures for adjusted profits. They have also reviewed a revised policy for such measures as it was aligned to the Group's strategy.

Group Risk Committee

Members

Jackson Tai (Chair)

John Lipsky (resigned 20 April 2018)

Heidi Miller

Pauline van der Meer Mohr (appointed 20 April 2018)

Jonathan Symonds (appointed 20 April 2018)

Independent Adviser

Andrew France (appointed 1 July 2018)

The Independent Adviser supports the Committee's work and has deep experience working with governments and private companies across the world to keep information, technology and critical national infrastructures safe.

Role and responsibilities

The GRC has non-executive responsibility for the oversight of enterprise risk management, risk governance and internal control systems (other than internal financial controls overseen by the GAC). In its holistic view of risk, the GRC is supported by the FSVC, which is the Board committee responsible for overseeing risks relating to financial crime, anti-bribery and corruption. The FSVC reports second order risks to the GRC. Appropriate linkages and information flows between these committees are further enhanced by cross-membership and close engagement of the

members and the committee attendees. In April 2018, the GRC assumed responsibility for the oversight of cyber-crime risk and information security risk from the FSVC and people risk and employee conduct from the Conduct & Values Committee.

Governance

In carrying out its responsibilities, the GRC is closely supported by the Group Chief Risk Officer, Group Chief Financial Officer, Group Head of Internal Audit, Group Financial Controller, Global Head of Compliance and Global Head of Risk Strategy, all of whom regularly attend GRC meetings to contribute their subject matter expertise and insight. They together with the first line business, functional and regional leaders, second line risk stewards and third line internal auditors, facilitate Committee members' review and challenge of current and forward-looking risk issues.

The GRC works closely with the GAC to ensure there are no gaps, that any areas of significant overlap are appropriately addressed and to improve inter-committee communication. The Chairs of both these committees engage on the agendas of each other's committee meetings. Furthermore, the Chair of the GAC is a member of the GRC and the Chair of the GRC is a member of the GAC. This further enhances the linkages, coordination and the flows of information between the GRC and GAC.

The GRC programmes its meeting agenda and capitalises on the overseas location of the Holdings Board (and GRC) meetings, as well as the GRC Chair's annual visits to principal subsidiary risk committees to proactively encourage in person participation of principal subsidiary risk committee Chairs in GRC meetings, reviews, stress testing and capital and liquidity management sessions throughout the year.

The GRC Chair and the GRC members regularly meet with the Group Chief Risk Officer, the Group Head of Internal Audit and external auditors without management present.

How the Committee discharges its responsibilities

At each meeting, the GRC reviews the Group risk profile report, which identifies the key issues and common themes arising from the Group's enterprise risk reports. This report includes a synthesised view of the Group's risk appetite statement ('RAS'), top and emerging risks, and the Group risk map. It clearly sets out which Board committee has accountability for the monitoring and oversight of each risk, and identifies any areas where management is required to assess vulnerabilities via stress testing.

Page 69 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.

The GRC reviews any revisions to the Group RAS biannually and any proposed changes are recommended to the Board. It reviews management's assessment of risk and provides scrutiny of management's proposed mitigating actions.

The GRC programmes forward-looking and thematic agendas, which are supported by input from all three lines of defence within the global businesses and regions. The Committee also conducts deep dives on the risk implications of strategic matters, risks specific to regions, significant projects and key topical risks that are identified during the GRC's deliberations and discussion. By proactively including Chairs of principal subsidiary risk committees to participate in GRC meetings and thematic reviews, scheduling regional updates in the GRC agenda, conducting holistic deep dives and sharing GRC learnings and insight with subsidiaries, the GRC has further enhanced its connectivity, linkages and two-way flow of information with the principal subsidiary risk committees, and among the risk committees themselves.

Any new appointments to the risk committees of the principal subsidiaries are also reviewed by the GRC. The GRC Chair also meets with any proposed new Chair of the principal subsidiary risk committees.

During 2018, the GRC provided informed review and challenge to the Group's regulatory submissions relating to capital management and liquidity adequacy assessments. It proactively reviewed progress of the Group's liquidity risk management improvement plan. It continued to maintain oversight of the Group's regulatory and internal stress testing programmes with specific review and challenge of the design, key assumptions and outcomes of the principal tests conducted.

The GRC exercised its governance oversight for people risk and employee conduct through reviews, including with the Group Chief Human Resources Officer and Group business heads and at the audit and risk committee chairs forums, that the right behaviours are being promoted to support fair customer outcomes and to protect the integrity of markets. The GRC continued to oversee and challenge the effective delivery of the Global Markets conduct enhancement programme, and considered the emerging opportunities, ethical issues and risks as digital capabilities evolve.  Internal Audit's independent assessments on conduct were reported regularly with specific themes highlighted from audit activity.

The GRC has overseen progress with delivering against the remediation plan addressing the allegations set out in the 2018 FX DPA with the US Department of Justice and the 2017 Consent Order with the Federal Reserve Board.

The GRC reviewed HSBC's progress towards improving the Group's cybersecurity and the actions being taken to mitigate exposure to cyber-risk. It also conducted a review and challenge to the Group's continued progress in improving its operational resilience to presumed disruptions, especially in its key infrastructure functions and prioritised business services.

Principal activities and significant issues considered during 2018
The Group RAS and monitoring of the Group risk profile against the RAS	Following its biannual reviews, the GRC did not recommend any material changes to the overall level of risk appetite in 2018. The GRC expanded its focus through the introduction of new risk appetite metrics for model risk and systems and data integrity risk, related to the Group's most critical models and IT services.
Capital and liquidity	The GRC has fully engaged with management in evaluating and challenging the Group's liquidity and funding risk appetite and the effectiveness of the liquidity and funding risk framework. The GRC continued to review the Group's approach to capital planning to ensure it is comprehensive, rigorous and forward looking. The GRC reviewed and challenged both the Group individual liquidity adequacy assessment process and internal capital adequacy assessment process. The GRC also encouraged a strengthening of the principal subsidiary risk committee's review and challenge of their respective capital and liquidity programmes.
Stress testing	The GRC conducted a comprehensive review and challenge of the scenarios and approach to the PRA stress test and reviewed the results of the annual cyclical scenario. The GRC continued to review and oversee the regulatory and internal global stress testing programmes throughout the year.
Execution risk	Regular reports were received from the Group Chief Operating Officer, who updated the GRC on the progress and status of the Group's highest-priority change and transformation programmes and mitigating measures being introduced to manage the identified risks appropriately.
Internal control and risk management	The GRC reviewed the Group's risk management framework and system of internal control (other than internal financial controls covered by the GAC) and the developments affecting them over the course of 2018, as part of the Board's assessment of internal control. The GRC has reviewed and challenged the effectiveness of non-financial risk management with particular focus on data management, information and cyber risk, people risk and conduct, model risk management, IT and operational resilience and third-party risk management.
Deep dive reviews	The GRC conducted in-depth reviews of risk governance and implications relating to the Group's approach to credit risk appetite, data management and strategy, model risk management, information and cybersecurity, non-financial risk management, liquidity and capital management, people risk and employee conduct, and IT and operational resilience.
Connectivity between the GRC and subsidiary risk committees	The GRC continued to enhance the connectivity and flow of information both to and from the subsidiary risk committees during 2018. There has been ongoing active participation by the principal subsidiary risk committee Chairs at GRC meetings. In addition, the GRC Chair attended principal subsidiary risk committee meetings in Asia, UK, Europe, US, Latin America, Canada and the Middle East. In 2018, the GRC and GAC jointly strengthened its previously annual audit and risk committee chairs' conference into three intensive regional audit and risk workshops and meetings for subsidiary committee leadership in Asia Pacific, Europe and the Middle East and the Americas.

Financial System Vulnerabilities Committee

Members

Lord Evans of Weardale (Chair)

Kathleen Casey (resigned 20 April 2018)

Jackson Tai

Laura Cha (appointed 20 April 2018)

Nick Fishwick, CMG (non-Director member)

Dave Hartnett, CB (non-Director member)

Lord Hogan-Howe (non-Director member)

David Irvine, AO (non-Director member)

Clovis Meath Baker, GMG (non-Director member) (resigned 16 April 2018)

Nehchal Sandhu (non-Director member) (resigned 16 April 2018)

John Raine, CMG (non-Director member)

The Honourable Juan Zarate (non-Director member)

The six non-Director members support the Committee's work and among them have extensive experience in geopolitical risk, financial crime risk, international security and law enforcement matters.

Role and responsibilities

The Committee has non-executive responsibility for the oversight of matters related to financial crime and system abuse, in particular anti-money laundering, sanctions, terrorist financing, proliferation financing, anti-bribery and corruption. It is also responsible for monitoring, reviewing and advising the Board on the effectiveness of the policies and procedures established by management to ensure that HSBC meets its obligations to regulatory and law enforcement agencies.

Principal activities and significant issues considered during 2018

Financial crime

The Committee monitored the Group's progress on the implementation of its Global Standards programme and considered the effectiveness of the Group's financial crime risk controls.

Anti-bribery and corruption

The Committee reviewed the activities underway to address key bribery and corruption risks and management's progress with the implementation of a more robust anti-bribery and corruption compliance framework.

Engaging with the Skilled Person

The Committee was responsible for liaising with the Skilled Person to ensure his recommendations were acted on.

Group Remuneration Committee

Members

Pauline van der Meer Mohr (Chair)

Henri de Castries

John Lipsky (resigned 20 April 2018)

David Nish

Irene Lee (appointed 20 April 2018)

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 172 to 202.

Nomination & Corporate Governance Committee

Members

Mark Tucker (Chairman)

Laura Cha

John Lipsky (resigned 20 April 2018)

Pauline van der Meer Mohr

Jonathan Symonds

Kathleen Casey (appointed 20 April 2018)

Henri de Castries (appointed 20 April 2018)

Lord Evans of Weardale (appointed 20 April 2018)

Irene Lee (appointed 20 April 2018)

Heidi Miller (appointed 20 April 2018)

David Nish (appointed 20 April 2018)

Jackson Tai (appointed 20 April 2018)

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. In discharging its responsibilities, the Committee regularly reviews the Board's structure, size and composition, including skills, knowledge, independence and diversity represented on the Board so as to ensure it is aligned with the Group's strategic priorities. The Committee determines the membership of Board committees and reviews appointments to the boards of a number of the Group's most significant operating subsidiaries.

The Committee is also responsible for overseeing succession planning for the top 20 roles across the Group and the succession pool for those roles, including progress against the development plans for individuals identified within that pool.

As a result of an expansion of its scope of activities during 2018, the Committee now oversees the Group's corporate governance framework, providing recommendations to the Board to ensure the framework remains robust and reflects best practice.

Principal activities and significant issues considered during 2018

Succession planning

In 2018, the Committee led the process for the succession of the Group Chief Financial Officer. This involved consideration of both internal and external candidates, based on objective criteria and taking into account the benefits of diversity, including gender. An independent external consultant was engaged to advise and support the Committee in its search. Following an initial interview process, a sub-committee was appointed, comprising the Group Chairman, the Deputy Group Chairman and Senior Independent Director, the Group Chief Executive and the Group Chief Human Resources Officer, with responsibility for determining a shortlist of preferred candidates. The Committee discussed the shortlist and made its recommendation to the Board. On 25 June 2018, the Board announced that Ewen Stevenson was to succeed Iain Mackay as Group Chief Financial Officer with effect from 
1 January 2019.

Corporate governance

During the year, the remit of the Committee was expanded to include a responsibility to oversee and monitor the Group's corporate governance framework. The Committee's recommendations are made to the Board, where required, to ensure the framework is consistent with best corporate governance standards and practices while remaining appropriate to the size, complexity and strategy of the Group. The Committee is also responsible for monitoring compliance with applicable corporate governance codes and recommending disclosures on corporate governance to the Board for approval, including the statement on corporate governance, which appears in the Annual Report and Accounts 2018, on pages 152 and 171.

Diversity

In 2018, the Board's diversity and inclusion policy was updated to ensure that HSBC and its various stakeholders continue to benefit from a Board that includes Directors from a range of different backgrounds and whose ethnicity, experience, age, geographical provenance and gender more closely reflect the diversity of our customers and the communities that we serve. The Board diversity policy is available at www.hsbc.com/our-approach/corporate-governance/board-responsibilities.

In the implementation of its policy, the Board has committed itself to meeting the diversity targets recommended by the Hampton- Alexander Review and Parker Review, most notably that the Board should have 33% female share of representation by 2020 and a minimum of one Board Director from an ethnic minority background by 2021. The Committee will monitor these targets and report performance on a periodic basis in the Annual Report and Accounts.

At the date of publication 36% of the Board of Directors were female and three were from an ethnic minority background.

Chairman's Committee

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.

Internal control

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 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 19 February 2019, the date of approval of this Annual Report and Accounts 2018.

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

•     Adherence to the Group's Global Standards Manual: The Group's Global Standards Manual ('GSM') outlines the core principles within which the Group must operate wherever we conduct business. The GSM overlays all other policies and procedures throughout the Group. The requirements of the GSM are mandatory, apply to and must be observed by all businesses within the Group, regardless of the nature or location of their activities. In 2019, the GSM will be replaced by a set of Global Principles.

•     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 as set out in the enterprise-wide risk framework. The Group's risk measurement and reporting systems are designed to help ensure that material risks are 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, which contains an aggregate of all current and forward-looking risks and enables it to take action that 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 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: The risk committees of principal subsidiary companies provide half-year confirmations to the GRC. These confirm 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 effectiveness of the Group's system of risk management and internal control is reviewed regularly by the Board, the GRC and the GAC.

In 2018, the acceleration of operational resilience and investment in technology controls were particular areas of focus for HSBC. The Group continued to embed the operational risk management framework and invest in the non-financial risk infrastructure.  Work also continued to enhance the risk appetite framework for non-financial risks and improve the consistency of adoption of the end-to-end risk and control assessment process. While there remains more to do, progress has been made to strengthen HSBC's control environment and it will continue to be a priority in 2019.

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.

Internal control over financial reporting

HSBC is required to comply with section 404 of the US Sarbanes-Oxley Act of 2002 and assess the effectiveness of internal control over financial reporting as at 31 December 2018. 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 over financial reporting include the following:

•      Entity level controls: The primary mechanism through which comfort over risk management and internal control systems is achieved, is through assessments of the effectiveness of entity level controls ('ELC'), and the reporting of risk and control issues on a regular basis through the various risk management and risk governance forums. ELCs are internal controls that have a pervasive influence over the entity as a whole. They include controls related to the control environment, for example the Company's values and ethics, the promotion of effective risk management and the overarching governance exercised by the Board and its non-executive committees. The design and operational effectiveness of ELCs are assessed annually as part of the assessment of the effectiveness of internal controls over financial reporting. If issues are significant to the Group they are escalated to the GAC (for financial reporting issues) and/or GRC (for all other risk types).

•      Operational risk management framework: Key process level controls that mitigate the risk of financial misstatement are recorded in the Operational Risk system and monitored in accordance with the ORMF. Further details on the framework can be found on page 73.

•     Disclosure Committee: Chaired by the Group Company Secretary, this Committee supports the discharge of the Group's obligations under relevant legislation and regulation including the UK and Hong Kong listing rules, the Market Abuse Regulation and US Securities and Exchange Commission rules. In so doing, the Committee is empowered to determine whether a new event or circumstance should be disclosed, including the form and timing of such disclosure, and review all material disclosures made or to be made by the Group. The membership of the Disclosure Committee includes the Group Chief Financial Officer, Group Chief Risk Officer, Chief Legal Officer, Group Chief Accounting Officer, Chief Communications Officer, Global Head of Investor Relations, Group Chief of Staff and Group Financial Controller. The Company's brokers and its external legal counsel also attend as required. The integrity of disclosures is underpinned by structures and processes within the Global Finance and Global Risk functions that support rigorous analytical review of financial reporting and the maintenance of proper accounting records. As required by the Sarbanes-Oxley Act, the Group Chief Executive and the Group Chief Financial Officer have certified that the Group's disclosure controls and procedures were effective as of the end of the period covered by this annual report.

•     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 supported by a certification by the responsible financial officer and analytical review procedures at reporting entity and Group levels.

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

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 2013 framework. Based on the assessment performed, the Directors concluded that for the year ended 31 December 2018, the Group's internal control over financial reporting was effective.

PwC has audited the effectiveness of HSBC's internal control over financial reporting and has given an unqualified opinion.

Internal audit

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.

Going concern and viability

The Directors considered it appropriate to prepare the financial statements on a 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 2021. 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.

The Directors carried out a robust assessment of each risk facing the Group to determine the principal risks to its long-term viability, including those that would threaten its solvency and liquidity. They determined that the principal risks are the Group's top and emerging risks, as set out on pages 69 to 72.

The Directors assessed that all of the top and emerging risks identified are considered to be material and, therefore, appropriate to be classified as the principal risks to be considered in the assessment of viability. They also appraised the impact that these principal risks could have on the Group's risk profile, taking account of mitigating actions planned or taken for each, and compared this with the Group's risk appetite as approved by the Board. At 31 December 2018, there were four heightened top and emerging risks: economic outlook and capital flows, geopolitical risk, cyber-threat and unauthorised access to systems, and data management.

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

•     details of the Group's business and operating models, and strategy;

•     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 69), top and emerging risks (see page 69) and risk map (see page 76);

•     reports and updates regarding regulatory and internal stress testing exercises (see page 76). In 2018, the published Bank of England ('BoE') stress test results for HSBC showed that 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 in its Global Markets business as required under the January 2018 deferred prosecution agreement with the US Department of Justice;

•     reports and updates on regulatory developments; and

•     legal reports.

Share capital and other disclosures

Share buy-back programme

On 9 May 2018, HSBC Holdings commenced a share buy-back to purchase its ordinary shares of $0.50 each up to a maximum consideration of $2.0bn. This programme concluded on 16 August 2018, after the purchase and cancellation of 210,466,091 ordinary shares. The purpose of the buy-back programme was to reduce HSBC's number of outstanding ordinary shares.

The nominal value of shares purchased during 2018 was                   $105,233,046 and the aggregate consideration paid by HSBC was £1,512,898,101.

The table that follows outlines details of the shares purchased on a monthly basis during 2018. The total number of shares purchased during the year was 210,466,091, representing 1.03% of the shares in issue and 1.05% of the shares in issue, excluding treasury shares.

	Number of shares		Highest price paid per share	Lowest price paid per share	Average price paid per share	Aggregate price paid
Month			£	£	£	£
Share buy-back of 2018
May-18	43,843,281		7.4990	7.1340	7.3027	320,172,904
Jun-18	65,164,512		7.3910	7.0030	7.2110	469,898,070
Jul-18	65,467,508		7.3600	6.9360	7.1134	465,698,679
Aug-18	35,990,790		7.2790	6.9860	7.1443	257,128,448
	210,466,091					1,512,898,101

Dividends

Dividends for 2018

First, second and third interim dividends for 2018, each of $0.10 per ordinary share, were paid on 5 July 2018, 
27 September 2018 and 21 November 2018, respectively. Note 9 on the Financial Statements gives more information on the dividends declared in 2018. On 19 February 2019, the Directors declared a fourth interim dividend for 2018 of $0.21 per ordinary share in lieu of a final dividend, which will be payable on 8 April 2019 in cash in US dollars, or in sterling or Hong Kong dollars at exchange rates to be determined on 25 March 2019, with a scrip dividend alternative. As the fourth interim dividend for 2018 was declared after 31 December 2018, it has not been included in the balance sheet of HSBC as a liability. The reserves available for distribution at 31 December 2018 were $30.7bn.

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 2018.

Dividends for 2019

Quarterly dividends of $15.50 per Series A dollar preference share (equivalent to a dividend of $0.3875 per Series A ADS, each of which represents one-fortieth of a Series A dollar preference share) and £0.01 per Series A sterling preference share were declared on 6 February 2019 for payment on 15 March 2019.

Share capital

Issued share capital

The nominal value of HSBC Holdings' issued share capital paid up at 31 December 2018 was $10,180,420,748 divided into 20,360,841,496 ordinary shares of $0.50 each, 1,450,000 non-cumulative preference shares of $0.01 each and one non-cumulative preference share of £0.01, representing approximately 99.9999%, 0.0001%, and 0% respectively of the nominal value of HSBC Holdings' total issued share capital paid up at 
31 December 2018.

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 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 2018 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 310, under the heading 'Shareholder information'.

Dividend waivers

HSBC Holdings employee benefit trusts, which holds shares in HSBC Holdings in connection with the operation of its share plans, have lodged standing instructions to waive dividends on shares held by them that have not been allocated to employees. The total amount of dividends waived during 2018 was $3.4m.

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: 6.20% non-cumulative US dollar preference shares, Series A 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 2018 and 2019 may be found on page 249, under the heading 'Dividends' and in Note 9 on the Financial Statements.

Further details of the rights and obligations attaching to the HSBC Holdings' issued share capital may be found in Note 32 on the Financial Statements.

Share capital changes in 2018

The following events occurred during the year in relation to the ordinary share capital of HSBC Holdings:

Scrip dividends
	HSBC Holdings ordinary shares issued			Aggregate nominal value		Market value per share
	on	number		$		$	£
Issued in lieu of
Fourth interim dividend for 2017	6 Apr 2018	39,256,458		19,628,229		10.0177	7.2184
First interim dividend for 2018	5 Jul 2018	21,593,550		10,796,775		9.8461	7.3734
Second interim dividend for 2018	27 Sep 2018	20,239,883		10,119,942		8.9716	6.9574
Third interim dividend for 2018	21 Nov 2018	85,760,978		42,880,489		8.2430	6.2718

All-employee share plans
	Number		Aggregate nominal value			Exercise price
						from		to
			$
HSBC Holdings savings-related share option plans
HSBC ordinary shares issued in £	23,219,600		11,609,800		£	4.0472		5.9640
HSBC ordinary shares issued in HK$	20,631		10,316		HK$	55.4701		-
HSBC ordinary shares issued in $	11,064		5,532		$	7.1456		-
HSBC ordinary shares issued in €	8,486		4,243		€	5.3532		-
Options over HSBC ordinary shares lapsed	4,845,695		2,422,848
Options over HSBC ordinary shares granted in response to approximately 17,528 applications from HSBC employees in the UK on 21 Sep 2018	20,501,336
HSBC International Employee Share Purchase Plan	810,042		405,021		£	6.2400		7.9300

HSBC share plans
	HSBC Holdings ordinary shares issued		Aggregate nominal value		Market value per share
					from		to
			$		£		£
Vesting of awards under the HSBC Share Plan and HSBC Share Plan 2011	59,670,637		29,835,319		6.3380		7.3280

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 2018, shareholders renewed the general authority for the Directors to allot new shares up to 13,330,736,120 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 1,999,610,418 ordinary shares. The Directors exercised this authority during the year and purchased 210,466,091 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 3,999,220,836 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 32 on the Financial Statements.

Other than as disclosed in the tables above headed 'Share capital changes in 2018', the Directors did not allot any shares during 2018.

Debt securities

In 2018, following its capital plan, HSBC Holdings issued the equivalent of $25.6bn of debt securities in the public capital markets in a range of currencies and maturities, including $6bn of contingent convertible and $19.6bn of senior securities to ensure it meets the current and proposed regulatory rules, including those relating to the availability of adequate total loss-absorbing capacity. For additional information on capital instruments and bail-inable debt, refer to Notes 28 and 32 on pages 277 and 286.

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 2018; representing 1.60% of the shares in issue as at 31 December 2018. The nominal value of shares held in treasury is $162,636,704.

Notifiable interests in share capital

At 31 December 2018, 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:

•      BlackRock, Inc. gave notice on 15 February 2019 that on 
14 February 2019 it had the following: an indirect interest in HSBC Holdings ordinary shares of 996,000,424; qualifying financial instruments with 240,796,561 voting rights that may be acquired if the instruments are exercised or converted; and financial instruments with a similar economic effect to qualifying financial instruments which refer to 9,275,682 voting rights, representing 4.97%, 1.20% and 0.04%, respectively, of the total voting rights at that date.

At 31 December 2018, according to the register maintained by HSBC Holdings pursuant to section 336 of the Securities and Futures Ordinance of Hong Kong:

•     BlackRock, Inc. gave notice on 17 October 2018 that on 
12 October 2018 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,335,245,703 shares and a short position of 6,355,666 shares, representing 6.59% and 0.03%, respectively, of the ordinary shares in issue at that date.

•     Ping An Asset Management Co., Ltd. gave notice on 
2 November 2018 that on 1 November 2018 it had a long position of 1,418,925,452 in HSBC Holdings ordinary shares, representing 7.01% of the ordinary shares in issue at that date.

•     The Bank of New York Mellon Corporation gave notice on 
18 September 2018 that on 14 September 2018 it had the following interests in HSBC Holdings ordinary shares: a long position of 1,123,775,445 shares and a short position of 812,085,965 shares, representing 5.55% and 4.01% respectively, of the ordinary shares in issue at that date. The notification includes the shares held in custody under the HSBC Holdings plc American Depository Receipt Programme.

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 2018 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 2018.

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 2018 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 following 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.

Directors' interests - shares and debentures
				At 31 Dec 2018
	Footnotes	At 1 Jan 2018, or date of appointment, if later		Beneficial owner		Child under 18 or spouse		Jointly with another person		Trustee	Total interests
HSBC Holdings ordinary shares
Kathleen Casey	1	9,125		9,635							9,635
Laura Cha	5	18,200		10,200							10,200
Henri de Castries		17,116		18,064							18,064
Lord Evans of Weardale		12,892		12,892							12,892
John Flint (appointed on 21 February 2018)	2, 4	533,118		822,252				5,439			827,691
Irene Lee		10,588		11,172							11,172
Iain Mackay (ceased employment on 31 December 2018)	2	442,118		718,532							718,532
Heidi Miller	1	4,200		4,420							4,420
Marc Moses	2	1,207,068		1,533,039							1,533,039
David Nish		50,000				50,000					50,000
Jonathan Symonds		42,821		38,823		4,998					43,821
Jackson Tai	1, 3	44,825		22,970		11,430		21,675			56,075
Mark Tucker		276,000		288,381							288,381
Pauline van der Meer Mohr		15,000		15,000							15,000

1     Kathleen Casey has an interest in 1,927, Heidi Miller has an interest in 884 and Jackson Tai has an interest in 11,215 listed ADS, which are categorised as equity derivatives under Part XV of the Securities and Futures Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

2     Executive Directors' other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings savings-related share option plans and the HSBC Share Plan 2011 are set out in the Scheme interests in the Directors' remuneration report on page 172. At 31 December 2018, the aggregate interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee share plans and the interests above were: John Flint -1,408,565; Iain Mackay - 2,513,553; and Marc Moses - 3,321,777. Each Director's total interests represents less than 0.02% of the shares in issue and 0.02% of the shares in issue excluding treasury shares.

3     Jackson Tai has a non-beneficial interest in 11,430 shares of which he is custodian.

4     On 8 January 2019, John Flint reported to HSBC that, as part of a discretionary portfolio structure whereby investment decisions are made entirely by the investment manager, he and his spouse had jointly acquired 4,836 shares on 6 June 2018 and 603 shares on 30 August 2018. Prior clearance was not obtained as required pursuant to the standards set out in the Hong Kong Model Code for Securities Transactions by Directors of Listed Issuers. Arrangements have now been put in place to prevent further transactions in HSBC Group securities within the portfolio structure.

5     Laura Cha advised HSBC Holdings plc on 20 January 2019 that her spouse had sold 8,000 shares on 23 August 2018.

There have been no changes in the shares or debentures of the Directors from 31 December 2018 to the date of this report.

Listing Rule 9.8.4

The information to be disclosed in the Annual Report and Accounts pursuant to UK Listing Rule 9.8.4 is contained within the Corporate Governance Report.

Political donations

HSBC does not make any political donations or incur political expenditure within the ordinary meaning of those words. We have no intention of altering this policy. However, the definitions of political donations, political parties, political organisations and political expenditure used in the UK Companies Act 2006 (the 'Act') are very wide. As a result, they may cover routine activities that form part of the normal business activities of the Group and are an accepted part of engaging with stakeholders. To ensure that neither the Company nor any of its subsidiaries inadvertently breaches the Act, authority is sought from shareholders at the Annual General Meeting to make political donations.

HSBC provides administrative support to two political action committees ('PACs') in the US funded by voluntary political contributions by eligible employees. We do not control the PACs, and all decisions regarding the amounts and recipients of contributions are directed by the respective steering committee of each PAC, which are comprised of eligible employees. The PACs recorded combined political donations of $179,200 during 2018 (2017: $131,300).

Employees

At 31 December 2018, HSBC had a total workforce of 235,000 full- and part-time employees compared with 229,000 at the end of 2017 and 241,000 at the end of 2016. Our main centres of employment were the UK with approximately 39,000 employees, India 38,000, Hong Kong 31,000, mainland China 26,000, Mexico 15,000, the US 10,000 and France 7,000.

People at HSBC span many cultures, communities and continents. We want to build trust-based relationships with our people, where they feel empowered in their roles and inspired to grow. We help our leaders to set the tone by listening, not just talking, and valuing the behaviours that get a job done as much as the outcome.

Employee relations

We consult with and, where appropriate, negotiate with employee representative bodies. It is our policy to maintain well-developed communications and consultation programmes with all employee representative bodies. There have been no material disruptions to our operations from labour disputes during the past five years.

Diversity and inclusion

We are committed to a thriving environment where people are valued, respected and supported to fulfil their potential. By building upon the extraordinary range of ideas, backgrounds, styles and perspectives of our employees, we can drive better outcomes for our stakeholders, including customers, communities, suppliers and shareholders.

We focus on enhancing the diversity of our workforce so that it is more reflective of the communities in which we operate and the customers we serve.

We expect our people to treat each other with dignity and respect, creating an inclusive culture to support equal opportunities. We do not tolerate discrimination, bullying, harassment and victimisation on any grounds. We encourage our employees to build positive and lasting relationships among the variety of people with whom they interact.

Diversity and inclusion is championed by our Group Chief Executive and his executive team and is governed by the Group People Committee.

More information about our diversity and inclusion activity and our UK Gender Pay Gap Report is available at www.hsbc.com/our-approach/measuring-our-impact.

Gender diversity statistics

Male

Female

*Combined executive committee and direct reports includes HSBC's executive

Directors, Group Managing Directors and their direct reports (excluding

administrative staff) plus the Group Company Secretary.

**Senior leadership refers to employees performing roles classified as 0, 1, 2 or 3 in

our global career band structure.

Employment of people with a disability

We believe in providing equal opportunities for all employees. 
The employment of people with a disability is included in this commitment. The recruitment, training, career development and promotion of people with a disability are based on the aptitudes and abilities of the individual. Should employees become disabled during their employment with us, efforts are made to continue their employment and, if necessary, appropriate training and reasonable equipment and facilities are provided.

Employee development

The opportunity to develop is one of the most important factors affecting how people feel about HSBC. We celebrated the first anniversary of our home of learning, HSBC University, in November 2018. HSBC University strengthens how we learn and lead, through new programmes, resources and premises. We have launched HSBC University regional hubs at our offices in Dubai and in the new HSBC UK Headquarters in Birmingham, providing opportunities for our colleagues, clients and community groups to come together to learn, develop and connect.

We have expanded our management and leadership development with new programmes, including 'Leading with Impact', for senior leaders, and 'Leading Myself', for individual contributors. We have further developed our 'Essentials' programme to support people managers strengthen their coaching and hiring skills. Across the organisation our employees have completed 6.2 million hours of formal learning, which equates to 2.8 days of learning per employee.

Health and safety

The Group is committed to providing a healthy and safe working environment for our employees, contractors, customers and visitors on HSBC premises, and where impacted by our operations. We aim to be compliant with all applicable health and safety legal requirements, and to ensure that best practice health and safety management standards are implemented and maintained across the HSBC Group.

Everyone at HSBC has a responsibility for helping to create a healthy and safe working environment. Employees are expected to take ownership of their safety, and are encouraged and empowered to report any concerns.

Chief Operating Officers have overall responsibility for ensuring that the correct policies, procedures and safeguards are put into practice. This includes making sure that everyone in HSBC has access to appropriate information, instruction, training and supervision.

Putting our commitment into practice, in 2018 we delivered a health and safety education and information training programme to every one of our employees. We also carried out a range of programmes to help us understand and effectively manage the risks we face and improve the buildings in which we operate:

•     We developed and implemented a health and safety continuous improvement programme, focusing on education, engineering and enforcement/reward.

•     We developed and implemented an improved health and safety training and awareness programme for all employees globally.   This was to ensure roles and responsibilities were clear and understood; and processes for identifying and reporting hazards and incidents were clearly defined and communicated.

•     We implemented, through our global facilities management service provider, an electronic permit-to-work system to provide effective controls for all high-risk work that is undertaken.

•     We developed and implemented a global earthquake risk management programme to ensure all HSBC properties in earthquake zones were risk assessed and controls implemented to manage the risk.

•     We ensured all our properties had been assessed for fire and asbestos risk, with over 40,000 individual actions taken to improve standards.

Employee health and safety
	Footnotes	2018		2017		2016
Number of workplace fatalities	1	1		2		1
Number of major injuries to employees	2	27		33		44
All injury rate per 100,000 employees		184		209		246

1     Contractor fatality relating to use of work equipment.

2     Fractures, dislocation, concussion.

Remuneration policy

The quality and commitment of our employees is fundamental to our success and, accordingly, the Board aims to attract, retain and motivate the very best people. As trust and relationships are vital in our business, our goal is to recruit those who are committed to making a long-term career with the Group.

HSBC's reward strategy supports this objective through balancing both short-term and sustainable performance. Our remuneration strategy is designed to reward competitively the achievement of long-term sustainable performance and attract and motivate the very best people who are committed to maintaining a long-term career with the Group while performing their role in the long-term interests of our stakeholders.

In order to ensure alignment between remuneration and our business strategy, individual remuneration is determined through assessment of performance delivered against both annual and long-term objectives summarised in performance scorecards, and adherence to the HSBC Values of being 'open, connected and dependable' and acting with 'courageous integrity'. Altogether, performance is judged, not only on what is achieved over the short and long term, but also on how it is achieved, as the latter contributes to the sustainability of the Group.

The financial and non-financial measures incorporated in the annual and long-term scorecards are carefully considered to ensure alignment with the long-term strategy of the Group.

Further information on the Group's approach to remuneration is given on page 172.

Employee share plans

Share options and discretionary awards of shares granted under HSBC share plans align the interests of employees with the creation of shareholder value. The following table sets out the particulars of outstanding options, including those held by employees working under employment contracts that are regarded as 'continuous contracts' for the purposes of the Hong Kong Employment Ordinance. The options were granted at nil consideration. No options have been granted to substantial shareholders and suppliers of goods or services, nor in excess of the individual limit for each share plan. No options were cancelled by HSBC during the year.

A summary for each plan of the total number of the options which were granted, exercised or lapsed during 2018 is shown in the following table. Further details required to be disclosed pursuant to Chapter 17 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited are available on our website at https://www.hsbc.com/our-approach/corporate-governance/remuneration and on the website of The Stock Exchange of Hong Kong Limited at www.hkex.com.hk, or can be obtained upon request from the Group Company Secretary, 
8 Canada Square, London E14 5HQ.

Particulars of options held by Directors of HSBC Holdings are set out on 
page 191.

Note 6 on the Financial Statements gives details of share-based payments, including discretionary awards of shares granted under HSBC share plans.

All-employee share plans

HSBC operates all-employee share option plans under which options are granted over HSBC ordinary shares. Subject to leaver provisions, options are normally exercisable after three or five years. During 2018, options were granted by reference to the average market value of HSBC Holdings ordinary shares on the five business days immediately preceding the invitation date, then applying a discount of 20%. The mid-market closing price for HSBC Holdings ordinary shares quoted on the London Stock Exchange which, as derived from the Daily Official List on 20 September 2018, the day before the options were granted was £6.6570.

The UK HSBC Holdings Savings-Related Share Option Plan will expire on 23 May 2025 (at which time the plan may be extended with approval from Shareholders) unless the Directors resolve to terminate the plans at an earlier date. There have been no further grants under the HSBC Holdings Savings-Related Share Option Plan: International.

The HSBC International Employee Share Purchase Plan was introduced in 2013 and now includes employees based in 27 jurisdictions.

HSBC Holdings Share Option Plans

HSBC Holdings ordinary shares

Dates of awards

Exercise price

Exercisable

At

Granted

Exercised

Lapsed

At

from

to

from

to

from

to

Footnotes

1 Jan 2018

during year

during year

during year

31 Dec 2018

Savings-Related Share Option Plan

1

24 Apr 2012

21 Sep 2018

(£)

(£)

1 Aug 2017

30 Apr 2024

4.0472

5.9640

64,566,103

20,501,336

23,194,305 [•]

4,807,621

57,065,513

Savings-Related Share Option Plan: International

2

24 Apr 2012

_

(£)

(£)

1 Aug 2017

31 Jan 2018

4.4621

_

38,829

_

25,295

13,534

_

24 Apr 2012

_

($)

($)

1 Aug 2017

31 Jan 2018

_

7.1456

_

17,873

_

11,064

6,809

_

24 Apr 2012

_

(€)

(€)

1 Aug 2017

31 Jan 2018

5.3532

_

10,539

_

8,486

2,053

_

24 Apr 2012

_

(HK$)

(HK$)

1 Aug 2017

31 Jan 2018

55.4701

_

36,309

_

20,631

15,678

_

1     The weighted average closing price of the shares immediately before the dates on which options were exercised was £6.5220.

2     The weighted average closing price of the shares immediately before the dates on which options were exercised was £7.7119.

Statement of compliance

The statement of corporate governance practices set out on pages 152 to 213 and the information referred to therein constitutes the Corporate governance report of HSBC Holdings. The websites referred to do not form part of this Report.

Relevant corporate governance codes, role profiles and policies
UK Corporate Governance Code	www.frc.org.uk
Hong Kong Corporate Governance Code (set out in Appendix 14 to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited)	www.hkex.com.hk
Descriptions of the roles and responsibilities of the: -  Group Chairman -  Group Chief Executive -  Deputy Group Chairman and Senior Independent Director -  Board	www.hsbc.com/our-approach/corporate-governance/board-responsibilities
Board and senior management	www.hsbc.com/who-we-are/leadership
Roles and responsibilities of the Board's committees	www.hsbc.com/our-approach/corporate-governance/board-committees
Board's policies on: -  Diversity and inclusion -  Shareholder communication -  Human rights -  Remuneration practices and                governance	www.hsbc.com/our-approach/corporate-governance/board-responsibilities
Global Internal Audit Charter	https://www.hsbc.com/our-approach/corporate-governance/corporate-governance-codes/internal-control

HSBC is subject to corporate governance requirements in both the UK and Hong Kong. During 2018, and with the following exceptions, HSBC applied the principles and complied with the applicable provisions of the UK Corporate Governance Code, and also the requirements of the Hong Kong Corporate Governance Code. 

Under the UK Corporate Governance Code, the Board is required to undertake an annual evaluation of its own performance and that of its committees. For the reasons described on page 152, this evaluation did not take place in 2018.

Under the Hong Kong Code, the audit committee should be responsible for the oversight of all risk management and internal control systems. HSBC's Group Risk Committee is responsible for oversight of internal control, other than internal control over financial reporting, and risk management systems. This is permitted under the UK Corporate Governance Code.

The Company has codified obligations for transactions in HSBC Group securities in accordance with the requirements of the Market Abuse Regulation and the rules governing the listing of securities on HKEx, save that the HKEx has granted waivers from strict compliance with the rules that take into account accepted practices in the UK, particularly in respect of employee share plans. During the year, all Directors were reminded of their obligations in respect of transacting in HSBC Group securities and, except as disclosed on page 168, all Directors have confirmed that they have complied with their obligations.

On behalf of the Board

Mark E Tucker

Group Chairman

HSBC Holdings plc

Registered number 617987

19 February 2019

Directors' remuneration report
	Page
Annual statement from the Group Remuneration Committee Chair	175
Directors' remuneration policy	178
Annual report on remuneration	188
Additional remuneration disclosures	204
Pillar 3 remuneration disclosures	205

All disclosures in the Directors' remuneration report are unaudited unless otherwise stated.

Disclosures marked as audited should be considered audited in the context of financial statements taken as a whole.

Annual statement from the Group Remuneration Committee Chair

Dear Shareholder,

I am delighted to present our 2018 Directors' remuneration report. I have set out below a summary of our 2018 performance, and the key decisions made during the year.

Our current remuneration policy entered its third and final year in 2018. Therefore, we will be seeking shareholders' approval for our proposed Directors' remuneration policy for the following three years at the 2019 Annual General Meeting ('AGM').

Our current policy and the implementation of the policy received strong support with more than 96% of the votes cast in favour of the policy and its implementation for 2016 and 2017. Therefore, we intend to make only minor changes to simplify our policy and ensure alignment of executive remuneration with our strategic priorities in line with shareholder feedback. I have explained the key changes in this statement and the remuneration policy section provides further details.

Performance achieved during 2018

During 2018, we announced our strategic priorities to return HSBC to growth and create value for our shareholders. We aim to do this by increasing returns from the Group's areas of strength, particularly in Asia and across our network, turning around low-return businesses of high strategic importance, particularly the US, investing to build a bank for the future with the customer at its centre, and making it easier for our employees to do their jobs.

Our 2018 results demonstrate that our strategy is working. Reported profit before tax was $19.9bn, up 16% from $17.2bn in 2017. On an adjusted basis, profit before tax was $21.7bn, up 3% from $21.1bn in 2017.

Reported revenue rose by 5% to $53.8bn. On an adjusted basis, revenue rose by 4% to $53.9bn, reflecting revenue growth in all of our global businesses. Progress is being made on growing our Asian franchise and international client revenue. We missed our target to achieve positive adjusted jaws, as growth in adjusted operating expenses exceeded our adjusted revenue growth.

Our return on tangible equity ('RoTE') improved to 8.6% in 2018 from 6.8% in 2017, demonstrating our commitment to generating value for shareholders.

Details of performance against each of the strategic priorities are set out on page 13 of the Strategic Report. The scorecards of our executive Directors include measures that are aligned to the delivery of these strategic priorities, as set out on page 186.

The Group announced a dividend of $0.51 per ordinary share and in 2018, we returned a total of $2bn to shareholders through share buy-backs. We remain a well-funded business with a strong capital base and a diversified balance sheet. We received the 'World's Best Bank for Transaction Services', 'World's Best Bank for Corporates' and the 'World's Best Bank for public-sector clients' awards at the 2018 Euromoney Awards for Excellence, a significant endorsement of our investment in innovation and digital solutions, and making transaction banking simpler, better and faster.

Group variable pay pool and risk adjustments

The Group Remuneration Committee reviewed and agreed the Group variable pay pool, taking into account performance against financial and non-financial metrics set out in the Group risk appetite statement and targets set out in our annual operating plan.

Based on this assessment, the Committee considered that a total variable pay pool for 2018 of $3,473m was appropriate. This represents a 5.1% increase on the 2017 variable pay pool reflecting the improvement in financial performance during 2018.

In setting the pool, the Committee used its discretion to apply:

•     a reduction of $208m for the fines, penalties and cost of customer redress faced by the Group; and

•     a reduction of $793m for:

-     negative adjusted jaws achieved during 2018;

-     certain financial and non-financial risk metrics, where performance was outside our risk appetite;

-     conduct assessments and continued work required to address conduct issues; and

-     counter-cyclical adjustments to recognise the positive impact that interest rate increases have had on the financial performances of Retail Banking and Wealth Management, and Commercial Banking.

At HSBC we assess individual performance based on what is achieved but also how it is achieved, as we believe the latter contributes to the long-term sustainability of the business. We reward employees who exemplify our values through:

•     the use of behaviour and performance ratings for all employees, which directly influence pay outcomes;

•     variable pay adjustments:

-     during 2018, we made positive adjustments to variable pay awards totalling $13.4m for individuals who have exhibited exemplary conduct and who went the extra mile to courageously do the right thing; and

-     we reduced variable pay awards to certain individuals by $3.7m in aggregate to reflect individual conduct and behaviours; and

•     our global recognition programme, where our employees can recognise peers and reward positive behaviours in a real-time, visible way.

Fixed pay for executive Directors

We are proposing to increase the base salary of our executive Directors by 3.3%, which is in line with the average base salary increase made for our UK employees. This is the first base salary increase we will have made for any executive Directors since 2011.

Executive Directors' 2018 variable pay awards

The 2018 annual incentive scorecard outcome was 76% for John Flint, 73% for Iain Mackay and 89% for Marc Moses, reflecting the performance of the Group and performance achieved against their individual scorecards. Details of the annual incentive scorecard outcome are provided on page 186.

For John Flint and Marc Moses, the Committee determined to grant 50% of the annual incentive in shares subject to a one-year retention period and the remaining 50% in cash. This is in line with the structure applied for other employees and permissible under the remuneration rules of the UK's Prudential Regulation Authority ('PRA'). The Committee noted that more than 80% of John Flint's and Marc Moses' combined variable pay and fixed pay allowance for 2018 will continue to be delivered in shares that will be released over a period of eight years, ensuring long-term alignment with share price performance and shareholder experience.

Stuart Gulliver stepped down as Group Chief Executive on 
20 February 2018. As set out in our 2017 Directors' remuneration report, Stuart Gulliver was eligible to be considered for a 2018 annual incentive award based on the 2018 annual incentive scorecard outcome, pro-rated for time spent by him in the Group Chief Executive role. Based on this approach, Stuart Gulliver's annual incentive award has been determined to be £282,000 (see details on page 186).

John Flint and Marc Moses will be awarded a long-term incentive ('LTI') award in respect of 2018 performance. In granting these awards, the Committee took into consideration the good progress made during 2018 towards achieving our strategic priorities. These awards will also be subject to a three-year forward-looking performance period ending on 31 December 2021. We have simplified our LTI scorecard through the use of fewer measures with a higher weighting attached to financial measures. Details of the performance measures are set out on page 189.

Executive Director changes

Iain Mackay stepped down as Group Finance Director on 
31 December 2018. He received payment in lieu of his salary, fixed pay allowance and cash in lieu of pension for the period from 1 January 2019 to 13 January 2019. In accordance with our approved remuneration policy and contractual terms agreed, Iain Mackay has been designated as a good leaver in respect of his unvested awards that were granted between 2014 and 2018, and was eligible to be considered for an annual incentive award in respect of 2018 as set out on page 186.

Ewen Stevenson was appointed as an executive Director and Group Chief Financial Officer of the Company on 1 January 2019, having joined the Group on 1 December 2018 as Group Chief Financial Officer designate.

For the 2018 performance year, Ewen Stevenson will receive an award in lieu of any variable pay award he would have otherwise received from The Royal Bank of Scotland Group plc ('RBS'). This will be based on his maximum opportunity of £1.6m under RBS's policy and the outcome of the 2018 scorecard, as disclosed in its 2018 annual report and accounts.

In 2019, Ewen Stevenson will be granted share awards to replace unvested RBS awards, which were forfeited as a result of him joining HSBC. The awards granted will, in general, match the performance, vesting and retention periods attached to the awards forfeited, and will be subject to any performance adjustments that would otherwise have been applied by RBS. Further details can be found on page 190.

New remuneration policy

As the term of the current remuneration policy for Directors comes to an end at the 2019 AGM, the Committee is seeking shareholder approval for a new policy.

The Committee undertook an extensive review of the policy based on the following key principles:

•     the policy should be simple and transparent;

•     there should be a strong alignment between rewards and the interest of our stakeholders, including shareholders, customers and employees;

•     the policy should maintain a focus on long-term performance;

•     the total compensation package should be competitive to ensure we can retain and attract talent; and

•     the structure should meet the expectations of investors and our regulators.

As part of the review, the Committee considered alternatives to our current policy, including the use of restricted share awards or a single incentive scorecard. The Committee was of the view that while these alternative structures had some merits, on balance, our current policy approach provided a more suitable and appropriate framework that was aligned with our key principles.

The Committee also considered that our current policy structure was broadly in line with the structure used by our global peers and other listed peers on the FTSE 100 of a similar size and had received strong support from our shareholders. Therefore, the Committee is proposing only minor changes to the policy being put forward to shareholders for approval, including:

•     simplifying our LTI scorecard through the use of fewer measures and a substantial proportion of the scorecard weighted towards value creation financial measures, such as RoTE to reflect feedback received from our shareholders. Assigning a substantial proportion of the overall scorecard weighting to a value creation measure such as RoTE will incentivise executive Directors to improve financial performance and generate a return that delivers value for our shareholders; and

•     increasing the fees for non-executive Directors to reflect the increase in time that they are required to commit to their roles, as the Board supports HSBC through its ambitious agenda of governance reform, growth and organisational development in an environment of increasing regulatory, political and organisational complexity. Details of the change in fees and our rationale for changes are set out on page 182.

Within the context of the review, the Committee was also mindful of the changes within the UK Corporate Governance Code (the 'Code'), namely:

•     Pension provision: The current executive Director remuneration policy allows for 30% of salary to be paid in lieu of a pension entitlement (reduced from 50% of salary paid under our previous policy in operation before 2016). This is equivalent to 16% of salary after UK income tax and national insurance deductions, which aligns with the maximum contribution rate (as a percentage of salary) that HSBC makes for employees who are defined contribution members of the HSBC Bank (UK) Pension Scheme. For the majority of such employees, HSBC makes a contribution of 9% of salary (10% on the first £21,200 of salary) and, where the employee also makes a contribution to the plan, an additional matching contribution of up to 7% of salary. As the current cash in lieu of pension allowance of our executive Directors is in line with pension contributions available to the majority of our UK workforce, we have not proposed any change. The Committee will continue to monitor the cash in lieu of pension to ensure this remains aligned with the benefit available for the majority of the workforce.

•     Post-employment shareholding policy: Under our remuneration policy, executive Directors will realise their pay over a period of up to eight years which is not accelerated on departure. We believe this achieves the objective of ensuring ongoing alignment of executive Directors' interests with shareholder experience post-cessation of their employment. Further details are available on page 175.

•     Time horizons for awards: During the policy review, we also reviewed the combined vesting and retention period for our LTI awards, and are comfortable that they meet the five-year holding period as the weighted average holding period for each award is six years from the date of grant.

We also discussed the approach we will use under the current policy and the new policy for making any salary increases for executive Directors and delivering our annual incentive award with a number of our large shareholders and institutional shareholder bodies. We informed them that our approach going forwards will involve:

•     considering salary increases for executive Directors, provided they are in line with increases made for our employees and within the limits approved by shareholders; and

•       paying a portion of the annual incentive awards of our executive Directors in cash, as permitted by our current and new policy. Currently the executive Directors receive their annual incentive awards entirely in shares subject to a retention period. Under this approach, executives will be eligible to receive a portion, not more than 50% of the total annual incentive awards, in cash. This is to bring the variable pay structure of our executive Directors in line with the structure used for our employees and that used by our international peers, while meeting the requirements of the remuneration rules of the PRA. Even with this change, more than 80% of the executive Directors' combined variable pay and fixed pay allowance for each year will be delivered in shares and released over a period of eight years.

They have been supportive of the proposed changes and the simplification of the LTI scorecard was well received. In light of the feedback received from shareholders, we have included an environmental, social and governance ('ESG') measure in the LTI scorecard.

Employee remuneration

During 2018, we introduced a simpler and more transparent framework for determining variable pay awards for our junior employees in global functions and HSBC Operations, Services and Technology, based on feedback we received from our employees.  The new framework provides a clear and transparent link between performance and behaviour ratings, and the variable pay awards.

The Code issued by the Financial Reporting Council, effective from 1 January 2019, requires remuneration committees to review workforce remuneration to ensure these policies are aligned with our culture and executive Director remuneration. The Committee has been undertaking these reviews as part of the oversight role it performs in respect of the Group's remuneration policy. The framework for this review, was developed after taking into account the industry reforms introduced since the financial crisis, expectations of regulators for the financial service sector and the prescribed responsibility assigned under the PRA's Senior Managers Regime.

Under the PRA's Senior Managers Regime, I have been assigned, as the Chair of the Committee, the responsibility for setting the Group's remuneration policy for all employees. In carrying out this responsibility, the Committee regularly reviews the effectiveness of the remuneration policy for all employees, through feedback received from employee survey results and the information and updates we receive on employee remuneration matters throughout the year. The Committee also reviews the year-end pay review outcomes for the wider group of employees to ensure the outcomes are in line with our remuneration principles. The results of such reviews also inform the decisions the Committee makes on executive remuneration matters. We will include details of the review undertaken by the Committee during 2019 in the next year's report in line with the requirements of the Code.

An overview of our remuneration principles and the wider employee remuneration policy is set out on page 199.

Diversity and inclusion

Our definition of diversity is broader than inherent characteristics and includes other differences that make individuals unique. Our pay strategy is designed to attract and motivate the very best people, regardless of gender, ethnicity, age, disability or any other factor unrelated to performance or experience.

We also encourage diversity of thought from our leaders and our people so we can deliver on our purpose.

Our reported UK gender pay gap is driven by the gender profile of our businesses and functions. There are fewer women in senior leadership roles, meaning that we have more men earning higher salaries. There is a gender imbalance in our more junior roles and a higher proportion of female employees working part-time hours. Collectively, this means that we have a gender pay gap in the UK.

We are committed to improving our gender balance and are taking a number of specific steps, which we expect will positively impact our gender pay gap in the UK over time, including:

•    driving better gender balance at all levels in the organisation;

•    developing female talent to strengthen the leadership pipeline; and

•    supporting families, flexible working; and

•    retaining female talent.

We are confident in our approach to pay, and if we identify any pay differences that cannot be explained, we make appropriate adjustments.

Pay ratio of Group Chief Executive and UK employees

We have disclosed the ratio between the remuneration of our Group Chief Executive and UK employees on page 194.

Additional fee for the Chair of the Group Risk Committee ('GRC')

The Committee noted that there has been an increase in the demands and expectations of the role of the GRC Chair, including from regulators and the expanding remit of the GRC also being involved in improving connectivity between the GRC and our regulated subsidiaries. In total, Jackson Tai currently devotes around 150 days per year to the Group. Taking these circumstances into consideration, the Committee exercised its discretion to increase the GRC Chair fee from £60,000 to £120,000 per annum with effect from 1 December 2018. Further details are provided on page 182.

Our annual report on remuneration

The next section provides an overview of our remuneration policy for executive Directors, for which we are seeking shareholder approval.

In the annual report section, we provide details of remuneration decisions made for executive Directors in 2018 for which we will seek shareholder approval with an advisory vote at the 2019 AGM. In the additional remuneration disclosure section of this report, we provide additional remuneration-related disclosures, including an overview of the policy that applies to our employees.

As Chair of the Committee, I hope you will support our remuneration policy and the 2018 annual report on remuneration.

Pauline van der Meer Mohr

Chair

Group Remuneration Committee

19 February 2019

Directors' remuneration policy

In the following tables we have set out our remuneration policy for our executive Directors and non-executive Directors. We will seek shareholders' approval at the AGM on 12 April 2019, and if approved, the policy is intended to apply immediately for three years to the end of the AGM in 2022.

Remuneration policy - key principles

HSBC is one of the world's largest banking and financial services organisations. We are a global company serving more than 39 million customers in both established and emerging markets. Our aim is to attract, retain and motivate the very best people in a competitive environment, and our remuneration strategy is designed to reward the achievement of long-term sustainable performance. The key guiding principles that form the basis of our review of the remuneration policy for Directors are as follows:

Key guiding principles
•    The policy should be simple and the outcomes from the application of the policy should be transparent.		The policy should: •    align the interests of Directors with the interests of shareholders and other stakeholders; and •    maintain a focus on long-term performance and reward achievement of our strategic priorities.
•    Total compensation under the policy should be competitive and provide us the ability to attract and retain talent.		•    The policy should meet the regulatory requirements and also be aligned with investor expectations.

Key changes to our policy for executive Directors

From our discussions with investors on the implementation of our current policy, it was clear there is a considerable desire for companies to simplify remuneration structures and for the total remuneration outcome to be transparent and aligned to shareholder experience.

Equally, our current policy and its implementation have received strong support from investors. We are therefore proposing to continue with our current remuneration policy structure for executive Directors, but with a simplified approach for assessing performance for variable pay awards.

No changes have been made to fixed pay components and benefits for our executive Directors. We are also not proposing any increase in the variable pay opportunity as a percentage of salary.

Key changes to the policy are:

•    Using simpler scorecards: Our LTI awards will have fewer performance measures and will be aligned with the financial targets set out in our strategic priorities. The financial measures will carry a significant weighting in the scorecard, with capital and risk and compliance measures being used as an underpin. The objective of this approach is to create a strong alignment between the LTI awards that pay out and the value generated for our shareholders as measured by financial metrics such as RoTE. The targets for the financial metrics used in the LTI scorecard will result in 50% of the total awards vesting if the performance achieved over a three-year performance period is in line with expectations at the start of the performance period. The awards will only vest at 100% if a stretch performance target has been achieved over the performance period.

•    Delivering annual incentive awards in cash and shares: Up to a maximum of 50% of any annual incentive award will be paid in cash. The balance will be paid in shares subject to a one-year retention period. This is to bring the variable pay structure of our executive Directors in line with the structure used for our employees and that used by our international peers, while meeting the requirements of the remuneration rules of the PRA. We believe there will continue to be a strong alignment between the interest of our executive Directors and shareholders, as the LTI awards will be granted entirely over shares and deferred over a period of seven years with a one-year retention period applied to each tranche on vesting. In addition, the fixed pay allowance ('FPA') will continue to be delivered entirely in shares, subject to a five-year retention period, and released equally over a five-year period. Therefore, more than 80% of the combined variable pay and FPA will continue to be delivered in shares and released over a period of eight years. 

As part of the policy review, the Committee also considered a number of alternative structures, including the use of restricted

stock awards or a single incentive scorecard. The Committee concluded that while these alternative pay structures had some merits, our proposed policy presented an appropriate framework that was aligned to our guiding principles.

As part of our review, we also considered whether a post-employment shareholding policy should be introduced. For this purpose, the Committee took into consideration the following features of our policy:

•    Shares delivered to executive Directors as part of the FPA have a five-year retention period, which continues to apply following a departure of an executive Director.

•    Shares delivered as part of an annual incentive award are subject to a one-year retention period, which continues to apply following a departure of an executive Director.

•    LTI awards have a seven-year vesting period with a one-year post-vesting retention period, which is not accelerated on departure. Therefore, when an executive Director ceases employment as a good leaver under our policy, any LTI awards granted will continue to be released over a period of up to eight years, subject to the outcome of performance conditions.

Executive Directors have a five-year period to meet the shareholding requirement under our policy. On cessation of employment as a good leaver after this period, they will hold shares not subject to further performance conditions equivalent in value to more than 400% of salary, assuming they receive a target payout of 50% for LTI awards. These shares will be released over a period of up to eight years.

We believe our existing policy structure achieves the objective of ensuring there is ongoing alignment of executive Directors' interests with shareholder experience post-cessation of their employment.

We also considered whether the combined vesting and retention period for our LTI awards meets the five-year holding period (aggregate of vesting and retention period) that is expected by investors. We believe the seven-year vesting period and the one-year post-vesting retention period applied to shares granted under the LTI aligns with investor expectations as the share awards will be released over a period of eight years with a weighted-average holding period of six years.

Shareholder views

The proposed policy was discussed with a number of our large shareholders and proxy advisory bodies. They have been supportive of the policy and the simplification of our approach was well received.

The engagement with shareholders and proxy advisory bodies has been valuable, and our aim is to continue this dialogue as we implement the proposed policy over the following years.

Directors' remuneration policy

The following tables set out our remuneration policy for executive Directors.

Remuneration policy - executive Directors

Fixed pay
Base salary	To attract and retain key talent by being market competitive and rewarding ongoing contribution to role.
Operation	Base salary reflects the individual's role, experience and responsibility. Base salaries are benchmarked on an annual basis against relevant comparator groups and may be reviewed more frequently at the discretion of the Committee. The Committee reviews and approves changes, taking into consideration local requirements, employee increases and market competitiveness.
Maximum opportunity	Other than in exceptional circumstances, the base salary for the current executive Directors will not increase by more than 15% above the level at the start of the policy period, as set out on page 197, in total for the duration of this policy.
Fixed pay allowance ('FPA')	To deliver a level of fixed pay required to reflect the role, skills and experience of the Directors and to maintain a competitive total remuneration package for retention of key talent.
Operation	Fixed pay allowances ('FPAs') are non-pensionable and will be granted in four instalments of immediately vested shares per year, or at any other frequency that the Committee deems appropriate. On vesting, shares equivalent to the net number of shares delivered (after those sold to cover any income tax and social security) will be subject to a retention period and released annually on a pro-rata basis over five years, starting from the March immediately following the end of the financial year in respect of which the shares are granted. Dividends will be paid on the vested shares held during the retention period. The Committee retains the discretion to amend the retention period and/or pay the FPA in cash if required to do so to meet any regulatory requirements.
Maximum opportunity	FPAs are determined based on the role, skills and responsibility of each individual and taking into account market competitiveness of the total remuneration opportunity and other elements of remuneration set in this policy. Other than in exceptional circumstances, the FPA for the duration of this policy will be capped at 150% of base salary levels at the start of this policy.
Cash in lieu of pension	To attract and retain key talent by being market competitive.
Operation	Directors receive a cash allowance in lieu of a pension entitlement.
Maximum opportunity	30% of base salary. This is equivalent to 16% of salary after income tax and social security and aligned with the aggregate of contributions that HSBC can make to the defined contribution plan for the majority of our UK employees (currently employer contribution of 10% on the first £21,200 of salary, 9% on salary above £21,200 and additional matching contribution of up to 7%). The Committee retains the discretion to reduce the maximum opportunity to ensure it remains aligned with the pension contribution percentage available for the majority of the UK workforce.

Benefits and all employee share plans
Benefits	To provide benefits in accordance with local market practice.
Operation	Benefits take account of local market practice and include, but are not restricted to: •      all taxable benefits (gross value before payment of tax) including provision of medical insurance, accommodation, car, club membership, independent legal advice in relation to a matter arising out of the performance of employment duties for HSBC, tax return assistance or preparation and travel assistance (including any associated tax due, where applicable); and •      non-taxable benefits including the provision of health assessment, life assurance and other insurance coverage. The Group Chief Executive is also eligible to be provided with accommodation and car benefit in Hong Kong. Any tax and/or social security due on this benefit will be paid by HSBC. Additional benefits may also be provided when an executive is relocated or spends a substantial proportion of his/her time in more than one jurisdiction for business needs or in such other circumstances as the Committee may determine in its discretion. Such benefits could include, but are not restricted to, airfare, accommodation, shipment, storage, utilities, and any tax and social security that may be due in respect of such benefits.
Maximum opportunity	The maximum opportunity is determined by the nature of the benefit provided. The benefit amount will be disclosed in the single figure of remuneration table for the relevant year.
All employee share plans	To promote share ownership by all employees.
Operation	Executive Directors are entitled to participate in all employee share plans, such as the HSBC Sharesave, on the same basis as all other employees. Under the Sharesave, executive Directors can make monthly savings over a period of three or five years towards the grant of an option over HSBC shares. The option price can be at a discount, currently up to 20%, on the share price at the time that the option is granted.
Maximum opportunity	The maximum number of options is determined by the maximum savings limit set by HM Revenue and Customs. This is currently £500 per month.

Variable pay  Adhering to the HSBC Values is a prerequisite to be considered for any variable pay. Executive Directors receive a performance and behaviour rating that is considered by the Committee in determining the variable pay awards.
Annual incentive	To drive and reward performance against annual financial and non-financial objectives that are consistent with the strategy and align to shareholder interests.
Operation	Awards are discretionary and can be delivered in any combination of cash and shares under the HSBC Share Plan 2011 ('HSBC Share Plan'). Shares will not represent less than 50% of any award and are normally immediately vested. On vesting, shares equivalent to the net number of shares that vested (after those sold to cover any income tax and social security payable) must be held for a retention period up to one year, or such other period as required by regulators. The awards will be subject to clawback (i.e. repayment or recoupment of paid/vested awards) on or after vesting for a period of seven years from the date of award. This may be extended to 10 years in the event of an ongoing internal/regulatory investigation at the end of the seven-year period. Details of the clawback provision are set out in the following section on LTI awards. The Committee retains the discretion to: •    apply a longer retention period; •    increase the proportion of the award to be delivered in shares; and •    defer the vesting of a portion of the awards, which will be subject to malus (i.e. reduction and/or cancellation of unvested awards) provisions during any applicable deferral period. Any deferred shares may be entitled to dividend equivalents during the vesting period, which will be paid on vesting. Where awards do not receive dividend equivalents during the vesting period (to meet regulatory requirements), the number of shares to be awarded will be determined using a share price discounted for the expected dividend yield. Any deferred cash award may be entitled to notional return during the deferral period as determined by the Committee.
Maximum opportunity	The maximum opportunity for the annual incentive award, in respect of a financial year, is up to 215% of base salary.
Performance metrics	Performance is measured against an annual scorecard, based on targets set for financial and non-financial measures. The scorecards vary by individual. Measures with financial targets will generally have a weighting of 60% for the Group Chief Executive, 50% for the Group Chief Financial Officer and 25% for the Group Chief Risk Officer. The Committee will assess performance against the targets set to determine the level of achievement. The overall payout of the annual incentive could be between 0% (for below threshold performance) and 100% of the maximum. At threshold level of performance set in the scorecard for each measure, 25% of the award opportunity for that measure will pay out, whereas 100% of the award opportunity will pay out for achieving maximum performance set in the scorecard. Payout will be determined on a straight-line basis between threshold and maximum performance. The Committee can reduce (to zero if appropriate) the annual incentive payout based on the outcome of the performance measures, if it considers that the payout determined does not appropriately reflect the overall position and performance of the Company during the performance period. The Committee has the discretion to: •    change the overall weighting of the measures with financial targets and non-financial measures; •    vary the measures and their respective weightings within each category. The specific performance measures will be disclosed in the 'annual report on remuneration' for the relevant year; and •    make adjustments to performance targets to reflect significant one-off items or exceptional events that occur during the measurement period. Full and clear disclosure of any such adjustments will be made within the annual report on remuneration at the end of the performance year, subject to commercial confidentiality.

Long-term incentives ('LTI')	To incentivise sustainable long-term performance and alignment with shareholder interests.
Operation	Awards are discretionary and are granted if the Committee considers that there has been satisfactory performance over the prior year. The awards are granted as rights to receive shares under the HSBC Share Plan, subject to a forward-looking three-year performance period from the start of the financial year in which the awards are granted. At the end of the performance period, the performance outcome will be used to assess the percentage of the awards that will vest. These shares will then normally vest in five equal instalments, with the first vesting on or around the third anniversary of the grant date and the last instalment vesting on or around the seventh anniversary of the grant date, in accordance with the PRA remuneration rules. On each vesting, shares equivalent to the net number of shares that vested (after those sold to cover any income tax and social security payable) must be held for a retention period up to one year or such other period as required by regulators. Awards are subject to malus provisions prior to vesting. The awards will also be subject to clawback on or after vesting for a period of seven years from the date of award. This may be extended to 10 years in the event of an ongoing internal/regulatory investigation at the end of the seven-year period. Details of the malus and clawback provisions are set out in the bottom section of this table. Awards may be entitled to dividend equivalents during the vesting period, which will be paid on vesting. Where awards do not receive dividend equivalents during the vesting period (to meet regulatory requirements), the number of shares to be awarded will be determined using a share price discounted for the expected dividend yield. The Committee may adjust or amend awards in accordance with the rules of the HSBC Share Plan.
Maximum opportunity	The maximum opportunity for the LTI award, in respect of a financial year, is up to 320% of base salary.
Performance metrics	The Committee will take into consideration prior performance when assessing the value of the LTI grant. Forward-looking performance is measured against a long-term scorecard. Financial measures will generally have a weighting of 60% or more. The Committee will assess performance against the targets set to determine the level of achievement and the overall payout level could be between 0% (for below threshold performance) and 100% of the maximum. At threshold level of performance set in the scorecard for each measure, 25% of the award opportunity for that measure will vest. Up to 50% will vest for achieving the target level of performance set for each measure, while 100% of the award will vest for achieving the maximum level of performance set for each measure. Where performance achieved is between the threshold, target and maximum level of performance set in the scorecard, the number of awards that will vest will be determined on a straight-line basis. The Committee can reduce (to zero if appropriate) the LTI payout based on the outcome of the performance measures, if it considers that the payout determined does not appropriately reflect the overall position and performance of the Company during the performance period. The scorecard outcome may also be subject to a risk and compliance and/or a capital underpin under which the Committee will have the discretion to adjust down the overall scorecard outcome, taking into account performance against those factors. Performance targets will normally be set annually for each three-year cycle. The Committee has the discretion to: •    change the overall weighting of the financial and non-financial measures; •    vary the measures and their respective weightings within each category. The specific performance measures will be disclosed in the 'annual report on remuneration' for the relevant year; •    vary the underpin measures; and •    make adjustments to performance targets, measures, weighting and/or outcomes in exceptional circumstances. This may be to reflect significant one-off items that occur during the measurement period and/or if events happen that cause it to determine that original targets or conditions are no longer appropriate and that amendment is required so that the targets or conditions achieve their original purpose. Revised targets/measures will be, in the opinion of the Committee, no less difficult to satisfy than the original conditions. Full and clear disclosure of any such adjustments will be made within the 'annual report on remuneration', subject to commercial confidentiality.
Malus and clawback (applicable to both annual incentive and long-term incentive)	The Committee has the discretion to operate malus and clawback provisions. Malus can be applied to unvested awards in circumstances including: •    detrimental conduct, including conduct that brings the business into disrepute; •    past performance being materially worse than originally reported; •    restatement, correction or amendment of any financial statements; and •    improper or inadequate risk management. Clawback can be applied to vested or paid awards for a period of seven years from the grant date. This may be extended to 10 years in the event of ongoing internal/regulatory investigation at the end of the seven-year period. Clawback may be applied in circumstances including: •    participation in, or responsibility for, conduct that results in significant losses; •    failing to meet appropriate standards and propriety; •    reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract of employment; •    a material failure of risk management suffered by HSBC or a business unit in the context of Group risk management standards, policies and procedures; and •    any other circumstances required by local regulatory obligations to which any member of the HSBC Group or its subsidiary is subject.

Other
Shareholding guidelines	To ensure appropriate alignment with the interest of our shareholders.
Operation	Executive Directors are expected to satisfy the following shareholding requirement as a percentage of base salary within five years from the date of their appointment: •    Group Chief Executive: 400% •    Group Chief Financial Officer: 300% •    Group Chief Risk Officer: 300% HSBC operates an anti-hedging policy under which individuals are not permitted to enter into any personal hedging strategies in relation to HSBC shares subject to a vesting and/or retention period.
Maximum opportunity	Not applicable.
Provisions of previous policy that will continue to apply
2013-2015 Group Performance Share Plan ('GPSP'), LTI awards, deferred cash and share awards.
Operation	Vesting of outstanding deferred cash and share-based awards granted in prior years will continue to form part of the remuneration policy until vesting. The awards normally vest over a period of up to seven years from the date of grant. On vesting, shares equivalent to the net number of shares that vested (after those sold to cover income tax and social security payable) will be subject to the applicable retention period set out at the time of the award. The awards will also be entitled to dividend equivalents and notional returns (for deferred cash awards), in accordance with their terms as set at the time of grant of the awards.
Maximum opportunity	The maximum opportunity is based on the award levels determined in the relevant prior year and as disclosed in the relevant Directors' remuneration report.
Performance metrics	The vesting of these awards is subject to a service condition and performance conditions as set out in the terms of the awards at the time of grant.

The Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not in line with the policy set out above, where the terms of the payment were agreed:

•     before the policy set out above or any previous policy came into effect;

•     at a time where a previous policy, approved by shareholders, was in place provided the payment is in line with the terms of that policy; or

•     at a time when the relevant individual was not a Director of the Company and the payment was not in consideration for the individual becoming a Director of the Company.

In addition to the specific discretions expressly set out in the policy, the incentive plans include a number of operational discretions available to the Committee, including:

•     the right to grant awards in the form of conditional share awards or options (including nil-cost options);

•     the right to amend a performance condition in accordance with its terms, or if anything happens that causes the Committee to consider it appropriate to do so;

•     the right to settle the award in cash, based on the relevant share price, or shares as appropriate; and

•     the right to adjust the award on a variation of share capital or other corporate event that affects the current or future value of the award, or alternatively, the right to vest the award early in such circumstances.

Choice of performance measures and targets

The performance measures selected for the annual incentive and LTI awards will be set on an annual basis by the Committee, taking into account the Group's strategic priorities and any feedback received from our shareholders. The following table sets out the performance measures we currently consider for inclusion in our scorecards. The Committee retains the discretion to choose other measures that are considered to be appropriate for achieving our strategic priorities and meeting any regulatory expectation.

The targets for the performance measures will be set taking into account a number of factors, including the targets set in our annual operating plan, our strategic priorities, the economic environment, market conditions and expectations, and risk appetite.

Performance measures
Financial measures	•   Profit before tax •   Return on tangible equity ('RoTE') •   Revenue growth to exceed growth in operating expenses ('positive jaws') •   Revenue growth •   Tier 1/common equity tier 1 ('CET1') metrics	•   RoTE •   Total shareholder return •   Underpin to maintain a minimum CET1 ratio	Measures are selected to incentivise the achievement of our financial targets as set out in our strategic priorities and annual operating plan.
Strategic measures	•   Increase returns from areas of strength •   Turn around low return businesses •   Improve customer service •   Strengthen external relationships •   Succession planning and diversity	•   Improve environment, social and governance scores •   Improve employer advocacy	Measures are selected to support the delivery of our strategic priorities.
Risk and compliance measures and/or underpin	•   Achieve sustained delivery of global conduct outcomes and effective financial crime risk management •   Effectively manage material operational risks in support of strategic priorities •   Comply with 2018 FX DPA, the three-year deferred prosecution agreement with the US Department of Justice ('DoJ'), regarding fraudulent conduct in connection with two particular transactions in 2010 and 2011.	Underpin linked to risk and compliance performance	Measures are chosen to ensure a high level of accountability of risk and conduct, to promote an effective risk management environment and to embed a robust governance system.

Remuneration arrangement for Group employees

Our wider employee remuneration policy is driven by the Group reward strategy, which the Committee reviewed to ensure it continues to support HSBC's overall employment proposition to attract, retain and motivate the best people, who are aligned to HSBC's values and committed to maintaining a long-term career within the Group. Full details of our remuneration policy for employees are disclosed on page 199.

The Committee considers the following factors in designing the remuneration policy and determining the remuneration of executive Directors:

•       Results of employee surveys on the effectiveness of our remuneration framework: This informs the Committee's decisions on remuneration of executive Directors.

•       Group employees' base salary increases: The base salary increases for executive Directors take into consideration base salary increases of employees, taking into account relevant market conditions.

•       Group employees' pension plans design and contribution levels: The net value of the cash in lieu of pension allowance for executive Directors will not exceed the maximum contribution (as a percentage of salary) that can be made for the majority of UK employees.

•       Annual incentive eligibility and quantum for Group employees: All employees are eligible to be considered for an annual incentive award based on their performance and behavioural ratings. The variable pay for all employees, including executive Directors, is funded from a Group variable pay pool that is determined by reference to Group performance. Employees who receive an annual incentive above a certain level have a portion of their award deferred over a period of three to seven years.

•       LTI awards: This is generally considered for senior management within the Group, given their proximity and ability to influence long-term performance.

Approach to recruitment remuneration - executive Directors

On the recruitment or appointment of a new executive Director, the Committee would adhere to the following principles:

•       Remuneration packages should be in line with the approved policy for executive Directors.

•       Remuneration packages must meet any applicable local regulatory requirements.

•       Where necessary, compensation may be provided in respect of forfeiture of awards from an existing employer (buy-out awards).

Outlined in the following table are all components that would be considered for inclusion in the remuneration package of a new executive Director and, for each, the approach that would be adopted.

In the case of an internal appointment, any existing commitments will be honoured and any variable element awarded in respect of the prior role may be allowed to be paid out according to its existing terms.

Components of remuneration package of a new executive Director
Fixed pay	The base salary and FPA will reflect the individual's role, experience and responsibility, and will be set in the context of market practice. The pension will be determined in line with policy as set out in the remuneration policy table and equivalent contributions (as a percentage of salary) made for the majority of UK employees at the time of recruitment. The Committee reserves the right to offer a pension level that may be lower than the current maximum level permitted under the policy.
Benefits	Benefits to be provided will be dependent on circumstances while in line with Group policy and the remuneration policy table, including the global mobility policy (where applicable) and local regulations.
Variable pay awards	New joiners will be eligible to be considered for variable pay awards consisting of an annual incentive and/or LTI award (or any combination of variable pay). For the year in which the individual commences providing services as an executive Director, the Committee retains the discretion to determine the proportion of variable pay to be deferred, the deferral and retention period, whether any performance conditions should be applied, and the period over which such performance should be assessed. In exercising this discretion, the Committee will take into account the circumstances in which the individual is appointed (for example, if it is promotion of an internal candidate or an external appointment), expectation of shareholders and any regulatory requirements. Total variable pay awarded for the year of joining HSBC will be limited to 535% of base salary. This limit excludes buy-out awards and is in line with the aggregate maximum variable pay opportunity set out in the remuneration policy table. Guaranteed bonuses are only permitted by exception and must be limited to the first year of service, subject to the Group deferral policy and performance requirements.
Buy-out	A buy-out may be offered if the individual holds any outstanding unvested awards that are forfeited on resignation from the previous employer. The Group buy-out policy is in line with the PRA remuneration rules, which state that both the terms and amount of any replacement awards will not be more generous than the award forfeited on departure from the former employer. A buy-out award is delivered as HSBC deferred shares with vesting and retention periods to match the terms of forfeited awards with the previous employer as closely as possible, subject to proof of forfeiture and other relevant documentation. Where the vesting time is fewer than 90 days, cash or deferred cash may be awarded for administrative purposes. Where appropriate, the Committee retains the discretion to utilise the provisions provided in the Listing Rules for the purpose of making buy-out awards.

Policy on payments for loss of office - executive Directors

The following table sets out the basis on which payments on loss of office may be made. Other than as set out in the table, there are no further obligations that could give rise to remuneration payments or payments for loss of office:

Payments on loss of office
Fixed pay and benefits	Executive Directors may be entitled to payments in lieu of: •    notice, which may consist of base salary, FPA, pension entitlements and other contractual benefits, or an amount in lieu of; and/or •    accrued but untaken holiday entitlement. Payments may be made in instalments or a lump sum, and may be subject to mitigation, and subject to applicable tax and social security deductions.
Annual incentive and LTI	In exceptional circumstances, as determined by the Committee, an executive Director may be eligible for the grant of annual and/or long-term incentives under the HSBC Share Plan based on the time worked in the performance year and on the individual's contribution.
Unvested awards	All unvested awards will be forfeited when an executive Director ceases employment voluntarily and is not deemed a good leaver. An executive Director may be considered a good leaver, under the HSBC Share Plan, if their employment ceases in specified circumstances which includes: •    ill heath, injury or disability, as established to the satisfaction of the Committee; •    retirement with the agreement and approval of the Committee; •    the employee's employer ceasing to be a member of the Group; •    redundancy with the agreement and approval of the Committee; or •    any other reason at the discretion of the Committee. If an executive Director is considered a good leaver, unvested awards will normally continue to vest in line with the applicable vesting dates, subject to performance conditions, the share plan rules, and malus and clawback provisions. In the event of death, unvested awards will vest and will be released to the executive Director's estate as soon as practicable. In respect of outstanding unvested awards, the Committee may determine that good leaver status is contingent upon the Committee being satisfied that the executive has no current or future intention at the date of leaving HSBC of being employed by any competitor financial services firm. The Committee determines the list of competitor firms from time to time, and the length of time for which this restriction applies. If the Committee becomes aware of any evidence to the contrary before vesting, the award will lapse.
Post-departure benefits	Executive Directors can be provided certain benefits for up to a maximum of seven years from date of departure for those who depart under good leaver provisions under the HSBC Share Plan, in accordance with the terms of the policy. Benefits may include, but are not limited to, medical coverage, tax return preparation assistance and legal expenses. The Committee also has the discretion to extend the post-departure benefit of medical coverage to former executive Directors, up to a maximum of seven years from their date of departure.
Other	Where an executive Director has been relocated as part of their employment, the Committee retains the discretion to pay the repatriation costs. This may include, but is not restricted to, airfare, accommodation, shipment, storage, utilities, and any tax and social security that may be due in respect of such benefits. Except in the case of gross misconduct or resignation, an executive Director may also receive retirement gifts.
Legal claims	The Committee retains the discretion to make payments (including professional and outplacement fees) to mitigate against legal claims, subject to any such payments being made in accordance with the terms of an appropriate settlement agreement waiving all claims against the Group.
Change of control	In the event of a change of control, outstanding awards will be treated in line with the provisions set out in the respective plan rules.

Other directorships

Executive Directors may accept appointments as non-executive Directors of companies that are not part of HSBC if so authorised by either the Board or the Nomination & Corporate Governance Committee.

When considering a request to accept a non-executive appointment, the Board or the Nomination & Corporate Governance Committee will take into account, among other things, the expected time commitment associated with the proposed appointment. The time commitment for external appointments is also routinely reviewed to ensure that they will not compromise the Directors' commitment to HSBC.

Any remuneration receivable in respect of an external appointment of an executive Director is normally paid to the Group unless otherwise approved by the Nomination & Corporate Governance Committee or the Board.

Remuneration scenarios

The following charts show how the total value of remuneration (excluding benefits) and its composition would vary under different performance scenarios for executive Directors under the proposed policy, which will be effective from the date of the 2019 AGM, subject to shareholders' approval.

The charts set out:

•       the minimum level of remuneration receivable under the policy for each performance year;

•       the remuneration level for achieving target level of performance (which assumes 50% of maximum variable pay opportunity is realised); and

•       the maximum level of remuneration (which assumes 100% of the variable pay opportunity is realised), as well as the maximum value assuming a 50% increase in share price for LTI awards.

The charts have been prepared using 2019 salaries and, therefore, the annual incentive and LTI opportunities have been computed as percentages of 2019 salaries.

Group Chief Executive (£000)

Group Chief Financial Officer / Group Chief Risk Officer (£000)

Remuneration policy - non-executive Directors

The Nomination & Corporate Governance Committee has reviewed and revised the time commitments required for all non-executive Directors as the Board supports HSBC through its ambitious agenda of governance reform, growth and organisational development in an environment of increasing regulatory, political and organisational complexity.

In 2018, the Board appointed Jonathan Symonds to the role of Deputy Group Chairman, following his retirement as non-executive Chairman of HSBC Bank plc. In this role, Jonathan formally deputises for the Group Chairman, takes a leadership role in relation to external high level regulatory and political relationships,

and leads the Board in relation to specific projects. He performs this new role in addition to his existing roles as Senior Independent Director and Chair of the GAC. The fee for the Deputy Group Chairman reflects Jonathan's experience and the additional time he devotes to the Group in relation to this important role.

Additionally, as set out on page 172, the demands and expectations of the GRC Chair have increased significantly, leading to the Group Remuneration Committee approving an increase to Jackson Tai's fee for this position in 2018.

The following table sets out the framework that will be used to determine the fees for non-executive Directors during the term of this policy.

Fees To reflect the time commitment and responsibilities of a non-executive Director of HSBC Holdings.	The policy for non-executive Directors is to pay: •    base fees; •    further fees for additional Board duties, including but not limited to chairmanship, membership of a committee, or acting as the Senior Independent Director and/or Deputy Chairman; and •    travel allowances. Fees are paid in cash. The Board retains the discretion to pay in shares rather than cash where appropriate. The non-executive Group Chairman will be paid a fixed annual fee for all Board responsibilities based on their experience and the time commitments expected for the role, together with such other benefits as the Group Remuneration Committee may in its absolute discretion determine. A newly appointed non-executive Director would be paid in line with the policy on a time-apportioned basis in the first year as necessary. No sign-on payments are offered to non-executive Directors. The Board (excluding the non-executive Directors) has discretion to approve changes to the fees. The Board may also introduce any new component of fees for non-executive Directors, subject to the principles, parameters and other requirements set out in this remuneration policy. Certain non-executive Directors may be entitled to receive fees for their services as directors of subsidiary companies of HSBC Holdings plc. Such additional remuneration is determined by the Board of Directors of each relevant subsidiary within a framework set by the Committee.	The Board will review the amount of each component of fees periodically to assess whether, individually and in aggregate, they remain competitive and appropriate in light of changes in roles, responsibilities and/or time commitment of the non-executive Directors, and to ensure that individuals of the appropriate calibre are retained or appointed. Other than in exceptional circumstances, during the term of this policy, fees will not increase by more than 20% above the 2019 levels. Travel allowances are set at an appropriate level, taking into account the time requirement for non-executive Directors to travel to overseas meetings. Any new fees, allowance or component part (for example, for a new committee) would be set and then subject to a maximum of 20% increase for the duration of the policy.
Expenses	Any taxable or other expenses incurred in performing their role are reimbursed, as well as any related tax cost on such reimbursement.	Not applicable
Shareholding guidelines To ensure appropriate alignment with the interests of our shareholders.	Non-executive Directors, individually or with their connected persons, are expected to satisfy a shareholding guideline of 15,000 shares within five years from their appointment. The Committee reviews compliance with the guidelines annually. The Committee has full discretion in determining any consequences in cases of non-compliance.	Not applicable

The following table sets out the fees payable in 2019, subject to shareholder approval of the Directors' remuneration policy at the AGM.

		2019 fees
Position		£
Non-executive Group Chairman		1,500,000
Non-executive Director (base fee)		127,000
Deputy Group Chairman and Senior Independent Director		375,000
Senior Independent Director		-
Group Risk Committee	Chair	150,000
	Member	40,000
Group Audit, Group Remuneration and Financial System Vulnerabilities Committee	Chair	75,000
	Member	40,000
Nomination & Corporate Governance Committee	Chair	-
	Member	33,000

Travel allowances are also currently provided. The Committee intends to review such travel allowances during 2019, in light of the increased travel expectations for non-executive Directors to attend Board meetings. Details on any changes will be set out in the Annual Report and Accounts 2019.

Policy on payments on loss of office - non-executive Directors

Other than as set out above, there are no obligations in the non-executive Directors' letters of appointment that could give rise to remuneration payments or payments for loss of office. Non-executive Directors are entitled to notice under their letter of appointment.

Service contracts

Executive Directors

The length of service and notice periods of executive Directors are set at the discretion of the Committee, taking into account market practice, governance considerations, and the skills and experience of the particular candidate at that time.

	Contract date (rolling)	Notice period (Director and HSBC)
John Flint1	21 February 2018	12 months
Stuart Gulliver2	10 February 2011	12 months
Ewen Stevenson3	1 December 2018	12 months
Iain Mackay4	4 February 2011	12 months
Marc Moses	27 Nov 2014	12 months

1     John Flint was appointed as Group Chief Executive with effect from 21 February 2018.

2     Stuart Gulliver stepped down from the Board on 20 February 2018 and retired from the Group on 11 October 2018.

3     Ewen Stevenson was appointed as executive Director and Group Chief Financial Officer of the Company on 1 January 2019, having joined the Group on 1 December 2018.

4     Iain Mackay stepped down as executive Director and Group Finance Director on 31 December 2018.

Service agreements for each executive Director are available for inspection at HSBC Holdings' registered office. Consistent with the best interests of the Group, the Committee will seek to minimise termination payments. Directors may be eligible for a payment in relation to statutory rights.

The Directors' biographies are set out on pages 153 to 155, and include those directorships provided for under Capital Requirement Directive IV ('CRD IV').

Non-executive Directors

Non-executive Directors are appointed for fixed terms not exceeding three years, which may be renewed subject to their re-election by shareholders at AGMs. Non-executive Directors do not have service contracts, but are bound by letters of appointment issued for and on behalf of HSBC Holdings, which are available for inspection at HSBC Holdings' registered office. There are no obligations in the non-executive Directors' letters of appointment that could give rise to remuneration payments or payments for loss of office.

Non-executive Directors' current terms of appointment will expire as follows:

2019 AGM	2020 AGM	2021 AGM
Henri de Castries	Kathleen Casey	Mark Tucker
Irene Lee	Laura Cha	Heidi Miller
Pauline van der Meer Mohr	David Nish
	Jonathan Symonds
	Jackson Tai
	Lord Evans of Weardale

Annual report on remuneration

Remuneration Committee

Details of the roles, responsibilities and membership of the Committee are set out on page 163. During 2018, members of the Committee included Pauline van der Meer Mohr (Committee Chair), John Lipsky (until 20 April 2018), David Nish, Irene Lee (appointed on 20 April 2018) and Henri de Castries.

Activities

The Committee met six times during 2018. The following is a summary of the Committee's key activities during 2018. A copy of the Committee's terms of reference can be found on our website at www.hsbc.com/about-hsbc/corporate-governance/board-committees.

Details of the Committee's key activities
•     Approved Directors' remuneration report •     Considered executive Director remuneration policy matters, including key principles for remuneration policy review, Directors' remuneration policy design alternatives and structure •     Consulted with key shareholders and proxy advisory bodies on executive Director remuneration matters, including policy design and structure •     Reviewed and approved executive Director remuneration matters •     Reviewed and approved executive Directors' scorecards and pay proposals	• Approved 2017/2018 performance year pay review matters • Reviewed remuneration policy effectiveness • Received updates on notable events and regulatory and corporate governance matters • Reviewed and approved 2018 Material Risk Taker ('MRT') identification approach, outcomes of MRT review and remuneration matters for MRTs • Approved 2018 regulatory submissions • Reviewed attrition data and plans to address area of concerns

Advisers

The Committee received input and advice from different advisers on specific topics during 2018. Deloitte LLP ('Deloitte') was appointed by the Committee in 2015 as an objective, independent adviser to support the Committee on specific remuneration matters for executive Directors. The Committee made the appointment in 2015 after considering invited proposals from a number of consultancy firms. In 2018, the Committee agreed to extend Deloitte's appointment for a further period of one year. Deloitte provided benchmarking data on remuneration policy matters and independent advice to the Committee. The Committee may request ad-hoc assistance from Deloitte.

The Committee also received advice from Willis Towers Watson on market data and remuneration trends for senior management.

Deloitte also provided tax compliance and other advisory services to the Group. Willis Towers Watson also provides benchmarking data and services related to benefits administration for our Group employees. To ensure the advice from Deloitte and Willis Towers Watson was objective, the Committee required the advice to be independent and distinct from any internal review and analysis on remuneration policy matters. The Committee was satisfied the advice provided by Deloitte and Willis Towers Watson was objective and independent in 2018. Deloitte is a founding member of the Remuneration Consultants Group and voluntarily operates under the code of conduct in relation to executive remuneration consulting in the UK.

For 2018, total fees of £155,750 and £59,400 were incurred in relation to remuneration advice provided by Deloitte and Willis Towers Watson, respectively. This was based on pre-agreed fees and a time-and-materials basis.

During the year, John Flint, the Group Chief Executive, provided regular briefings to the Committee. In addition, the Committee engaged with and received updates from the following employees:

•     Iain Mackay, Group Finance Director;

•     Marc Moses, Group Chief Risk Officer;

•     Stuart Levey, Chief Legal Officer;

•     Charlie Nunn, Chief Executive Officer, Retail Banking and Wealth Management;

•     Elaine Arden, Group Chief Human Resources Officer;

•     Alexander Lowen, Group Head of Performance and Reward;

•     Colin Bell, Group Chief Compliance Officer;

•     Pam Kaur, Group Head of Internal Audit;

•     Ralph Nash, Global Head of Financial Crime Compliance and Group Money Laundering Reporting Officer;

•     Ruth Horgan, Global Head of Regulatory Compliance; and

•     Ben Mathews, Group Company Secretary.

The Committee also received feedback and input from the Group Risk Committee and the Financial System Vulnerabilities Committee ('FSVC') on risk, conduct and compliance-related matters relevant to remuneration. No executive Directors are involved in deciding their own remuneration.

Single figure of remuneration

(Audited)

The following table shows the single figure total remuneration of each executive Director for 2018, together with comparative figures 
for 2017.

Single figure of remuneration
		Base salary		Fixed pay allowance		Cash in lieu of pension		Annual incentive		AML DPA award1		LTI2		Sub-total		Taxable benefits		Non-taxable benefits		Notional returns		Total
		(£000)		(£000)		(£000)		(£000)		(£000)		(£000)		(£000)		(£000)		(£000)		(£000)		(£000)
John Flint3	2018	1,028		1,459		308		1,665		-		-		4,460		40		28		54		4,582
	2017	-		-		-		-		-		-		-		-		-		-		-
Stuart Gulliver4, 6	2018	171		241		51		282		1,530		-		2,275		65		6		41		2,387
	2017	1,250		1,700		375		2,127		-		-		5,452		500		71		63		6,086
Iain Mackay5, 6	2018	700		950		210		1,088		1,057		-		4,005		80		44		33		4,162
	2017	700		950		210		1,334		-		-		3,194		64		37		42		3,337
Marc Moses	2018	700		950		210		1,324		695		-		3,879		13		38		33		3,963
	2017	700		950		210		1,358		-		-		3,218		16		38		42		3,314

1     60% of the 2012 annual incentive for Stuart Gulliver and Iain Mackay disclosed in the 2012 Directors' remuneration report was deferred for five years. The vesting of these awards was subject to a service condition and satisfactory completion of the five-year deferred prosecution agreement ('AML DPA') with the US Department of Justice ('DoJ'). The AML DPA condition was satisfied in March 2018 and the awards were released to the executive Directors. For Marc Moses, the value of the award attributable to services provided as an executive Director between 1 January 2014 and the vesting date has been included in the table.

2     The first LTI award was made in February 2017, with a performance period ending in 2019. Vesting of the first LTI award will be included in the single figure table for the financial year ending on 31 December 2019.

3     John Flint succeeded Stuart Gulliver as Group Chief Executive with effect from 21 February 2018 and his remuneration in the single figure table of remuneration is in respect of services provided as an executive Director. For services rendered between 1 January 2018 and 20 February 2018, he received a salary of £97,139, fixed pay allowance of £130,236, cash in lieu of pension of £28,000 and an annual incentive award of £271,000.

4     Stuart Gulliver stepped down from the Board on 20 February 2018 and retired from the Group on 11 October 2018. His remuneration in the single figure table of remuneration is in respect of services provided as an executive Director. Further details can be found on page 190.

5     Iain Mackay stepped down as executive Director and Group Finance Director on 31 December 2018.

6     To meet regulatory deferral requirements for 2018, 60% of the annual incentive award of Stuart Gulliver and Iain Mackay will be deferred in awards linked to HSBC's shares and will vest in five equal instalments between the third and seventh anniversary of the grant date. On vesting the awards will be subject to a one-year retention period. The deferred awards are subject to the executive Director maintaining a good leaver status during the deferral period.

Illustration of release profile

The following chart provides an illustrative release profile for executive Directors.

Illustration of release profile

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

u

Fixed pay allowance

•     Released in five equal annual instalments starting from March 2019.

u

u

u

u

u

Annual incentive

•     Paid 50% in cash and 50% in immediately vested shares subject to a retention period of one year. •     Subject to clawback provisions for seven years from grant, which may be extended to 10 years in the event of an ongoing internal/regulatory investigation.

Perform-ance period

Shares

u

u

u

u

Clawback

u

Long-term incentive

•     Award subject to a three-year forward-looking performance period. •     Subject to performance outcome, awards will vest in five equal annual instalments starting from the third anniversary of the grant date. •     On vesting, shares are subject to a retention period of one year. •     Unvested awards subject to malus provisions. •     Subject to clawback provisions for seven years from grant, which may be extended to 10 years in the event of an ongoing internal/regulatory investigation.

Performance period

Vesting period

u

u

u

u

u

u

u

Retention period

u

u

u

u

u

Malus

u

Clawback

u

Notes to the single figure of remuneration

(Audited)

Benefits

In the single figure of remuneration table, 'benefits'
refers to all taxable benefits (gross value before payment of tax), including the provision of medical insurance, accommodation and car, club membership, as well as any tax gross-up. It also includes non-taxable benefits, including the provision of life assurance and other insurance coverage.

The values of the significant benefits in the single figure table are set out in the following table.

(Audited)
		Car benefit (UK and Hong Kong)1		Hong Kong bank-owned accommodation1,2		Tax expense on car benefit and Hong Kong bank-owned accommodation1		Insurance benefit (non-taxable)1
		(£000)		(£000)		(£000)		(£000)
Stuart Gulliver	2018	-		-		-		-
	2017	-		282		164		63

1     The car benefit, Hong Kong bank-owned accommodation, tax on benefits and insurance benefits for 2018 for all executive Directors are not included in the above table as they were not significant. Taxable benefits during 2018 for Stuart Gulliver as an executive Director includes £41,711 in respect of Hong Kong bank-owned accommodation and £17,117 in respect of tax expense on car benefit and Hong Kong bank-owned accommodation. Further details regarding Stuart Gulliver's benefits between 21 February 2018 and 11 October 2018 are available on page 190.

2     Taxable value determined based on the current market rental value of the bank-owned property in Hong Kong, as estimated by an external lease service provider, plus utility costs, rates, the taxable value of furniture and taking into account the business use of the property.

Notional returns

In the single figure of remuneration table above, 'notional returns' refers to the notional return on deferred cash for awards made prior to 2017.

The deferred cash portion of the annual incentive granted prior to 2017 includes a right to receive notional returns for the period between grant date and vesting date, which is determined by reference to the dividend yield on HSBC shares, calculated annually.

A payment of notional return is made annually in the same proportion as the vesting of the deferred awards on each vesting date. The amount is disclosed on a paid basis in the year in which the payment is made. No deferred cash awards have been made to executive Directors under the current policy that has been operated from the 2016 financial year.

Determining executive Directors' annual performance

(Audited)

Awards made to executive Directors reflected the Committee's assessment of each of the executive Director's performance against the objectives in their scorecards, which were agreed at the start of the year and reflect the Group's strategic priorities and risk appetite. The Committee also consulted the Group Risk Committee and took into consideration its feedback on risk and compliance matters.

In order for any annual incentive award to be made, each executive Director must achieve a required behaviour rating, 
which is assessed by reference to the HSBC Values. For 2018, 
all executive Directors achieved the required behaviour rating.

The performance achieved by executive Directors in the year is shown in the table below. For John Flint and Stuart Gulliver, the scorecard outcome, as determined below, has been applied to the maximum annual incentive opportunity on a pro-rata basis, taking into account the time spent by them in the Group Chief Executive role.

Annual assessment
	Group Chief Executive						Group Finance Director						Group Chief Risk Officer
	Weighting (%)		Assessment (%)		Outcome (%)		Weighting (%)		Assessment (%)		Outcome (%)		Weighting (%)		Assessment (%)		Outcome (%)
Profit before tax1	20.00		100.00		20.00		10.00		100.00		10.00		15.00		100.00		15.00
Positive jaws	10.00		-		-		15.00		-		-		-		-		-
Revenue growth	10.00		70.00		7.00		-		-		-		-		-		-
Capital management (RoTE)	10.00		58.75		5.88		25.00		58.75		14.69		10.00		58.75		5.88
Strategic priorities
- Financials	7.50		78.53		5.89		2.50		100.00		2.50		2.50		100.00		2.50
- Other targets	17.50		96.46		16.88		22.50		98.62		22.19		12.50		94.88		11.86
Risk and compliance	25.00		80.00		20.00		25.00		95.00		23.75		60.00		89.58		53.75
Total	100.00				75.65		100.00				73.13		100.00				88.99
Maximum annual incentive opportunity (£000)											£1,488						£1,488
- John Flint					£2,560						-						-
- Stuart Gulliver					£2,660						-						-
Annual incentive (£000)											£1,088						£1,324
- John Flint (86%)					£1,665						-						-
- Stuart Gulliver (14%)					£282						-						-

Financial performance

Annual assessment
	Minimum (25% payout)		Maximum (100% payout)		Performance		Assessment
Measure
Profit before tax ($bn)1	US$19.7		US$22.7		US$23.3		100.00
Positive jaws (%)	Positive		1.5		(1.2	)	-
Revenue growth (%)	2.0		6.0		4.4		70.00
Capital management (RoTE%)2	9.3		11.3		10.2		58.75
Strategic priorities3	Various				Various

1     Profit before tax, as defined for Group annual bonus pool calculation. This definition excludes business disposal gains and losses, debt valuation adjustments and variable pay expense. It does however, take into account fines, penalties and costs of customer redress, which are excluded from the adjusted profit before tax. The adjusted profit before tax as per adjusted results is found on page 2.

2     RoTE excluding significant items and bank levy.

3     Strategic priorities measures include: accelerate revenue growth from our Asian franchise, grow international revenue, turn around the US business, improve customer service, strengthen external relationships, employee engagement, talent development and diversity.

Non-financial performance

The table below provides an overview of the non-financial performance achieved by each executive Director.

Group Chief Executive
Strategic priorities •     Deliver HSBC's strategy •     Turn around the US business •     Accelerate revenue growth from our Asian franchise •     Deliver revenue growth from our international network •     Improve customer satisfaction •     Strengthen the Group's external relationships •     Improve employee engagement •     Strengthen HSBC's leadership cadre •     Improve diversity in senior leadership	•      Set out strategic priorities to return HSBC to growth and create value for our shareholders. The strategy was communicated in the Strategy Update in June 2018 to investors, shareholders and employees. Execution of the strategy is underway. •      RoTE in the US business at 2.7% exceeded target of 2.2%, supported by favourable expected credit losses and significant capital reductions. Commercial Banking revenue grew by 7% and transaction banking revenue in Global Banking and Markets rose 9%. •      Revenue growth of 11.4% in Asia was driven by Commercial Banking as well as Retail Banking and Wealth Management, reflecting wider spreads and balance sheet growth, with double-digit revenue growth in Hong Kong, Pearl River Delta and mainland China. •      Revenue growth from international clients was strong at 7.2%; transaction banking revenue grew 14%, driven by double-digit growth across Global Liquidity and Cash Management, Foreign Exchange and Securities Services. •      Customer satisfaction rankings improved in key Retail Banking and Wealth Management markets (first in Mexico, Singapore and Hong Kong and second in UAE). Rankings in Commercial Banking largely remained unchanged, but required improvement with the exception of the UK (third) and Singapore (third). Customer engagement score ('CES') in Global Banking and Markets at 85 was at par with the CES of our competitors. In Global Private Banking, customer satisfaction declined by 0.8 points from a mean of 8.4/10 in 2017 to 7.6/10 in the client engagement programme survey. Action is being taken in all global businesses to drive customer service improvements, especially through investment in digital capability. •      Positive feedback was received on interactions with investors and regulators, which found that they were conducted with high professional competence and embodying trust, respect and transparency. •      Employer advocacy, as a measure of employee engagement, at the end of 2018 was 66% (2017: 64%), which represents the number of employees who would recommend HSBC as a great place to work. •      Succession plans are in place for all critical leadership roles. •      Exceeded diversity target with female representation in the senior leadership at 28.2%, and on track towards our 2020 aspirational target of 30% senior leadership positions to be held by women. •      HSBC was recognised as the 'Most Innovative Investment Bank' by The Banker; the 'World's Best Bank for Transaction Services', the 'World's Best Bank for Corporates' and 'Asia's Best Bank for Sustainable Finance' by Euromoney, and 'Best Overall Global RMB Products/Services' by Asiamoney.
Risk and compliance •     Successfully embed financial crime risk governance and management information through the completion of the Global Standards programme •     Effectively manage material operational risks •     Achieve and deliver sustainable global conduct outcomes •     Comply with the 2018 FX DPA	•      Significant progress was made to strengthen financial crime risk management across the Group, specifically, towards achieving operational effectiveness in global businesses and regions. A strong tone from the top included an aspiration to deliver industry-leading financial crime standards as part of the Group's strategy. Demonstrated excellent awareness and understanding of key financial crime risks and issues. Actively engaged at senior governance forums to strengthen risk management practices and controls. Continued focus is required to complete the transition to business-as-usual financial crime risk management, and further enhance the effectiveness of financial crime governance in some countries, in order to achieve sustainable operating maturity. •      Implementation of the operational risk management framework was achieved with strong ownership and proactive prioritisation of management of key risks across the Group. However further work is required to embed the framework and associated tools and strengthen the control environment. •      Showed strong commitment to continue embedding the conduct pillars and outcomes, and underpinning controls across the Group. •      Additional steps were taken that were consistent with the requirements of the 2018 FX DPA with the US Department of Justice to enhance the Global Markets compliance programme and related internal controls.  Areas of focus have included a strong tone from the top, updated policies and procedures to prevent violations of US law (such as fraud and market manipulation) and comprehensive risk assessment. Further enhancements and steps to comply with the DPA are ongoing.

Group Finance Director
Strategic priorities •      Deploy cloud technologies and enhance Finance operating efficiency •      Streamline and embed IFRS 9 and RWA production •      Deliver ring-fenced bank ('RFB') in the UK and Global Service Company ('ServCo') structures and processes •      Deliver cost savings •      Strengthen the Group's external relationships •      Improve employee engagement •      Strengthen HSBC's leadership cadre •      Improve diversity in senior management	•      Deployed cloud technologies for regulatory reporting of liquidity coverage ratio and net stable funding ratio in Canada and France. Implementation plans to deploy the technology in other locations are on track. The innovative capabilities of Finance are being further developed with eight key laboratories set up to deliver a real-time vision for Finance, utilising cloud technology, advanced analytics, artificial intelligence and machine learning. •      Completed 2018 IFRS 9 plan with few milestones remaining and daily performance maturing, with no major downstream impact on processing time. All key activities integrated within routine processes. •      Successfully established the Group's RFB - HSBC UK Bank plc ('HSBC UK') - with a separate information technology and operations infrastructure and financial, pensions and legal structures. Transfer of Retail Banking and Wealth Management and Commercial Banking customers and employees to HSBC UK was also completed. Successfully established the Group's ServCo structure in the UK in support of ring-fencing and the Recovery and Resolution Plan. •      Strengthened Group's relationships and reputation with key stakeholders as evidenced by a high level of investor relations engagement and robust regulatory interactions. •      Employer advocacy, as a measure of employee engagement, at the end of 2018 improved to 68% (2017: 66%). The Finance function's structure was further simplified through the global consolidation of the finance operational processes into a single Finance operations team. The function is driving forward the focus on digital leadership and capabilities across all levels. •      Confirmed four key Finance 'enterprise critical roles' and ensured that the succession plans are actionable, resulting in a successor gender profile of 38% female. Development plans and support in place for all successors. •      Met aspirational gender diversity target, with 28% female representation at senior management levels in Finance. Finance leadership initiatives, sponsorship of diverse networks, parental transition coaching and career development support have all helped improve gender diversity. Difference and inclusion is being addressed more broadly within Finance with an aim to increase the representation of lesbian, gay, bisexual and transgender and differently abled employees.
Risk and compliance • Effectively manage material operational risks • Achieve and deliver sustainable global conduct outcomes • Deliver commitments to regulators • Successful delivery of PRA and European Banking Authority ('EBA') stress tests and Comprehensive Capital Analysis and Review ('CCAR') capital plan	•      Completed the implementation of the operational risk framework in Finance, which is actively used to monitor the effectiveness of key controls against significant accounting risks, including for Sarbanes-Oxley compliance. Made significant progress embedding the understanding of relevant roles and responsibilities through improved governance and reporting. •      Improved processes for monitoring and reporting conduct outcomes for Finance, including strengthened governance meetings with an increased focus on metrics. No significant conduct issues, breaches or reportable events were identified. Internal review of conduct governance and control for Finance were rated as effective. •      Delivered all regulatory updates on time and to the required standard, with queries addressed on a timely basis. PRA and EBA stress tests in 2018 were successfully submitted on time. HSBC North America Holdings Inc received a non-objection to its CCAR 2018 capital plan submitted to the Federal Reserve Board on both a qualitative and quantitative basis.

Group Chief Risk Officer
Strategic priorities •      Improve customer satisfaction •      Strengthen the Group's external relationships •      Turn around the US business •      Improve employee engagement, strengthen HSBC's leadership cadre and improve diversity in senior management •      Support innovation •      Deliver cost savings	•      Improved customer service satisfaction with measured progress being made across markets. Global businesses are showing delivery successes, with improvements identified for action. •      Interacted regularly and successfully with regulators. The strength, quality and independence of financial risk management was recognised. An increased focus on non-financial risk management and model risk management is key to these ongoing interactions. •      Supported the turnaround of the US business through active risk management oversight, focusing on a credit risk and risk remediation programme; strong forward-looking capital management through engagement and oversight of the stress testing CCAR programme; and an enhanced modelling infrastructure in support of stress testing and financial crime models. RoTE at 2.7% exceeded the target for 2018. •      Delivered on the Global Risk function people initiatives. Employer advocacy, as a measure of employee engagement, increased to 68% at the end of 2018 (2017: 64%), which represents the number of employees who would recommend HSBC as a great place to work. Focused the development of our leadership talent, and achieved the diversity target, with 28.7% of senior management positions held by women. •      Enhanced the focus on innovative ways of working, through the facilitation of idea generation and knowledge concept evaluation and delivery of new approaches. Education and training of Global Risk in innovation was rolled out to enable change through the use of agile methodologies and cloud technologies. •      Enabled the management of costs and headcount of the Global Risk function, through close ongoing monitoring of performance.
Risk and compliance •     Ensure Global Risk supports the financial crime risk target end state •     Effectively manage material operational risks •     Achieve and sustain the delivery of the global conduct outcomes •     Deliver commitments to regulators, including compliance with the 2018 FX DPA •     Successfully deliver regulatory and internal stress tests in 2018 •     Manage credit and market risk, and oversee liquidity risk within Board approved risk appetite •     Successfully enhance HSBC's model risk management	•      Enabled effective financial crime risk management through the enterprise wide and operational risk management frameworks, with strong governance through risk management meetings and completion of financial crime risk model reviews. •      Made significant progress in adopting and embedding the operational risk management framework, with active focus and engagement on the material operational risks, and increased focus on non-financial risks. •      Successfully drove conduct outcomes through a strong tone from the top, and a continual monitoring of compliance on conduct regulations. Maturity levels across conduct outcomes were excellent. •      Delivered all regulatory updates on time and up to the required standard, with any remedial actions tracked to timely completion. Engagements with other lead regulators gained positive feedback, including working with the Department of Justice and Federal Reserve Board to progress our commitments under the FX DPA. •      Successfully delivered the 2018 annual cyclical scenario to the PRA. Submitted the biennial stress test to the EBA and the CCAR submission to the Federal Reserve Board. •      Managed credit risk, market risk and liquidity risk effectively within the Group risk appetite profile and with oversight from the Group risk management meeting. •      Made significant progress in model risk management during 2018, through significant appointments, ongoing employee training and key stakeholder engagements.

Long-term incentive awards

(Audited)

For the 2018 performance year, the Committee determined to grant John Flint and Marc Moses an LTI award of £3,840,000 and £2,232,000, respectively, after taking into consideration performance achieved for the financial year ended 31 December 2018 and the progress made towards achieving the strategic priorities set out in the June 2018 Strategy Update. The awards will be subject to a three-year performance period starting 1 January 2019. As the awards are not entitled to dividend equivalents per regulatory requirements, the number of shares to be awarded to executive Directors will be adjusted to reflect the expected dividend yield of the shares over the vesting period.

In line with the approach set out for our new policy and feedback received from investors, we have simplified the LTI scorecard by using fewer measures. To ensure the rewards realised by executive Directors are strongly aligned with our strategic priorities and value created for shareholders, a 75% weighting has been attached to the RoTE measure. For target payout (50% of maximum) the average RoTE over the performance period will need to be 11%, and is aligned with our target of achieving a RoTE of more than 11% by 2020. For maximum payout, the average RoTE over the performance period will need to be 12% reflecting a stretch and a continued improvement of the RoTE performance. The RoTE measure will also be subject to a CET1 underpin requiring the CET1 ratio at the end of the performance period to be above the CET1 risk tolerance level.

The scorecard also attaches a 12.5% weighting to an employer advocacy measure. This is a key indicator of employee sentiment and underpins our strategic priority to simplify our organisation and invest in future skills. The 2018 score has been used to set the threshold level of performance for this measure. The target performance level will require an improvement over the 2018 score and the maximum level requires further improvement.

Based on feedback received from investors, we have also included an environmental, social and governance measure with a 12.5% weighting. This will be assessed based on ratings issued by Sustanalytics with threshold level of performance set at receiving an 'average performer' rating and the maximum level of performance requiring an 'outperformer rating', which is the highest rating that can be achieved.

The LTI awards will also be subject to a risk and compliance underpin, which would give the Committee the discretion to adjust down the overall scorecard outcome taking into account performance against risk and compliance factors at the end of the performance period. For this purpose, the Committee will receive information on any risk management failures which have caused significant reputational damage to the Group or have an adverse impact on the financial performance of the Group. This is to ensure that the Group operates within tolerance levels set for relevant risk and compliance metrics when achieving its financial targets.

The measures and weighting that will be used to assess performance and payout are described in the following table.

To the extent performance conditions are satisfied at the end of the three-year performance period, the awards will vest in five equal annual instalments commencing from around the third anniversary of the grant date. On vesting, awards are subject to a retention period of one year.

Stuart Gulliver and Iain Mackay are not eligible to receive an LTI award in respect of 2018.

Performance conditions for LTI awards in respect of 2018
Average RoTE (with CET1 underpin)1	10.0%	11.0%	12.0%	75.0
Employer advocacy2	65.0%	70.0%	75.0%	12.5
Environmental, social and governance rank3	Score to achieve an 'average performer' rating	Mid-point score between average and outperformer threshold scores	Score required to achieve an 'outperformer' rating	12.5
Total4				100.0

1     If the CET1 ratio at the end of performance period is below the CET1 risk tolerance level set in the risk appetite statement, then the assessment for this measure will be reduced to nil.

2     To be assessed based on results of the latest employee Snapshot survey question 'I would recommend this company as a great place to work'

3     To be assessed based on results of the latest rating issued by Sustainalytics. In the event that Sustainalytics changes its approach to provide the ratings during the performance period, this may impact the assessment of the performance condition. To ensure that the performance targets/assessment approach achieves its original purpose (i.e. are no less or more difficult than when the original targets were set) the Committee retains the discretion to review and where appropriate modify the targets once further details on any updated Sustainalytics ratings approach is published.

4     Awards will vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set in this table.

Total pension entitlements

(Audited)

No employees who served as executive Directors during the year have a right to amounts under any HSBC final salary pension scheme for their services as executive Directors or are entitled to additional benefits in the event of early retirement. There is no retirement age set for Directors, but the normal retirement age for employees is 65.

Payments to past Directors

(Audited)

Details of payments made to Stuart Gulliver and Iain Mackay after they stepped down as executive Directors are set out in the following sections. No other payments were made to, or in respect of, former Directors in the year in excess of the minimum threshold of £50,000 set for this purpose.

Retirement arrangements for Stuart Gulliver

(Audited)

Stuart Gulliver stepped down as executive Director and Group Chief Executive on 20 February 2018 and ceased employment with the Group on 11 October 2018.

Under the terms of his service contract, and as previously disclosed, for the period between 21 February 2018 and 
11 October 2018, he received a salary of £802,988, FPA of £1,089,600, cash in lieu of pension allowance of £240,897, contractual benefits totalling £321,778 and other benefits of £64,329. The value of contractual benefits includes the taxable value of £201,078 for the use of a company-provided car and Hong Kong accommodation, the tax expense of £78,201 in relation to the use of a company car and Hong Kong accommodation and insurance-related benefits of £42,499. In October 2018, he was paid cash in lieu of unused holiday entitlement, accrued during the period 2007 to 2017 for leave cancelled at the request of the Group due to urgent HSBC matters, totalling to £466,778. Stuart Gulliver also received a post-employment medical cover as per the shareholder approved policy.

Stuart Gulliver received an annual incentive award for 2018 (pro-rated for time spent in Group Chief Executive role) as set out on page 186. He did not receive an LTI award for 2018.

As disclosed in the 2017 Directors' remuneration report, and referenced here for completeness, Stuart Gulliver was granted good leaver status in respect of outstanding unvested share awards. In respect of his 2016 LTI award, performance will be measured at the end of the original performance period (i.e. 31 December 2019), with the maximum number of shares available pro-rated for time in employment (i.e. 357,911 shares after pro-ration for time and any dividend equivalents accrued in the period during the vesting period).

Stuart Gulliver will not receive:

•     an LTI award for 2018 ; and

•     any compensation or payment for the termination of his service contract or his ceasing to be a Director of any Group company.

Departure terms for Iain Mackay

(Audited)

Iain Mackay stepped down as executive Director and Group Finance Director of the Company on 31 December 2018 ('Departure Date').

In January 2019, he received a payment of £64,385 in lieu of his salary, FPA and cash in lieu of pension allowance for the period from 1 January 2019 to 13 January 2019.

In accordance with the Directors' remuneration policy approved by shareholders, Iain Mackay has been considered a good leaver.  Accordingly, he has been made eligible to receive:

•     an annual incentive award for 2018 (details are provided on page 186);

•     his unvested deferred awards that are due to vest after the Departure Date, on the scheduled vesting dates, subject to the relevant terms (including post-vest retention periods, malus and, where applicable, clawback) and the achievement of any required performance condition. For this purpose, his 2016 and 2017 LTI awards will be pro-rated for the period he was employed by the Group with the maximum number of shares being as follows:

-     2016 LTI awards: 228,817 shares (and the value of any dividend equivalents accrued during the vesting period); and

-     2017 LTI awards: 131,796 shares; and

•     certain post-departure benefits for a period of up to seven years from the Departure Date.

Iain Mackay will not receive:

•     an LTI award for 2018; and

•     any compensation or payment for the termination of his service contract or his ceasing to be a Director of any Group company.

Recruitment arrangements for Ewen Stevenson

Ewen Stevenson was appointed as executive Director and Group Chief Financial Officer of the Company on 1 January 2019, having joined the Group on 1 December 2018.

Ewen Stevenson's 2019 remuneration details are provided on page 197.

In accordance with our approved policy, Ewen Stevenson will be granted share awards to replace unvested RBS awards, which were forfeited as a result of him joining HSBC. The grant value of these awards is £6,464,478.

All replacement awards granted will, in general, match the performance, vesting and retention periods attached to the awards forfeited, and will be subject to any performance adjustments that would otherwise have been applied by RBS.

Ewen Stevenson will also receive an award in lieu of any variable pay award from RBS for the 2018 performance year. This will be based on his maximum opportunity of £1.6m under RBS's policy and the outcome of the 2018 scorecard, as disclosed in the 2018 annual report and accounts of RBS. This award will be granted in shares that will vest in five equal annual instalments between the third and seventh anniversary of the grant date. On vesting, the shares will be subject to a one-year retention period. Details on the value of the final award will be disclosed in the Annual Report and Accounts 2019.

External appointments

During 2018, executive Directors did not receive any fees from external appointments.

Scheme interests awarded during 2018

(Audited)

The table below sets out the scheme interests awarded to Directors in 2018, for performance in 2017, as disclosed in the 2017 Directors' remuneration report. No non-executive Directors received scheme interests during the financial year.

Scheme awards in 2018
(Audited)
	Type of interest awarded	Basis on which award made	Date of award	Face value awarded1 £000		Percentage receivable for minimum performance		Number of shares awarded	End of performance period
Iain Mackay (ceased employment on 31 December 2018)	LTI deferred shares 2	% of salary 4	26 February 2018	2,860		25		395,388	31 December 2020
Marc Moses	LTI deferred shares 2	% of salary 4	26 February 2018	2,860		25		395,388	31 December 2020
John Flint (appointed on 21 February 2018)	Deferred shares 3	See note 5	26 February 2018	1,201		-		166,014	31 December 2017
Stuart Gulliver (retired from the Board on 20 February 2018)	Deferred shares 3	% of salary 6	26 February 2018	1,635		-		226,072	31 December 2017

1     The face value of the award has been computed using the actual share price of £7.234.

2     LTI awards are subject to a three-year forward-looking performance period and vest in five equal instalments subject to performance achieved. On vesting, awards will be subject to a one-year retention period. Awards are subject to malus during the vesting period and clawback for a maximum period of 10 years from the date of the award.

3     Deferred shares form part of the annual incentive, for which awards were determined based on performance achieved during the period to 31 December 2017. These awards are subject to malus during the vesting period and clawback for a maximum period of 10 years from the date of the award. The overall award level could have been 0% of the maximum opportunity if minimum performance was not achieved at the end of the performance period.

4     In line with regulatory requirements, scheme interests awarded during 2018 were not eligible for dividend equivalents. In accordance with the remuneration policy approved by shareholders at the 2016 AGM, the LTI award was determined at 319% of salary and the number of shares to be granted was determined by taking into account a share price discounted based on HSBC's expected dividend yield for the vesting period (i.e. £5.645).

5     John Flint received a discretionary annual incentive award for 2017. Of this 2017 annual incentive award 60% was deferred and 50% of the total deferred award was granted over HSBC shares. The deferred shares will vest in five equal instalments between the third and seventh anniversary of the award date, and on vesting will be subject to a one-year retention period. As the awards were not eligible for dividend equivalents, the number of shares to be granted was determined by taking into account a share price discounted based on HSBC's expected dividend yield for the vesting period (i.e. £5.645).

6     As previously disclosed Stuart Gulliver received a 2017 annual incentive award equivalent to 170% of salary. Of this award 60% was deferred into HSBC shares. The deferred shares will vest in five equal instalments between the third and seventh anniversary of the award date, and on vesting will be subject to a one-year retention period. As the awards were not eligible for dividend equivalents, in accordance with the remuneration policy, the number of shares to be granted was determined by taking into account a share price discounted based on HSBC's expected dividend yield for the vesting period (i.e. £5.645).

The above table does not include details of shares issued as part of the FPA and shares issued as part of the 2017 annual incentive award that vested on grant and were not subject to any further service or performance conditions. Details of the performance measures and targets for the LTI award in respect of 2017 and 2016 are set out on page 191.

Directors' interests in shares

(Audited)

The shareholdings of all persons who were Directors in 2018, including the shareholdings of their connected persons, at 31 December 2018 (or date of retirement from the Board, if earlier) are set out below. The following table shows the comparison of shareholdings with the company shareholding guidelines. There 
have been no changes in the shareholdings of the Directors from 31 December 2018 to the date of this report.

Individuals are given five years from their appointment date to build up the recommended levels of shareholding. Unvested share-based incentives are not normally taken into consideration in assessing whether the shareholding requirement has been met.

The Committee reviews compliance with the shareholding requirement and has full discretion in determining if any unvested shares should be taken into consideration for assessing compliance with this requirement (taking into account investor expectations and guidelines). The Committee also has full discretion in determining any penalties for non-compliance.

HSBC operates an anti-hedging policy under which individuals are not permitted to enter into any personal hedging strategies in relation to HSBC shares subject to a vesting and/or retention period.

Shares
(Audited)
	Shareholding guidelines2 (% of salary)		Shareholding at 31 Dec 2018, or date of retirement from the Board, if earlier3 (% of salary)		At 31 Dec 2018, or date of retirement from the Board, if earlier
							Scheme interests
					Share interests4 (number of shares)		Share options5		Shares awarded subject to deferral1
									without performance conditions4, 6		with performance conditions7
Executive Directors
Stuart Gulliver (retired on 20 February 2018) 8	400	%	1,918	%	3,711,169		-		2,293,071		738,499
Iain Mackay (ceased employment on 31 December 2018)	300	%	663	%	718,532		-		1,025,725		769,296
John Flint (appointed on 21 February 2018)	400	%	445	%	827,691		9,952		570,922		-
Marc Moses	300	%	1,415	%	1,533,039		-		1,019,442		769,296
Group Managing Directors 9	250,000 shares		n/a		n/a		n/a		n/a		n/a

1     The gross number of shares is disclosed. A portion of these shares will be sold at vesting to cover any income tax and social security that falls due at the time of vesting.

2     Unvested share-based incentives are not normally counted towards compliance with the shareholding guideline.

3     The value of the shareholding is calculated using an average of the daily closing share prices in the three months to 31 December 2018 (£6.4589).

4     For variable pay awards (annual incentive and LTI), in line with regulatory requirements, any deferred shares (net of tax) which the Director becomes entitled to are subject to a retention requirement such that they must be held for a predefined period of time. To provide the executive Directors with appropriate flexibility, the Committee determined that the requirement to hold these shares could be met either by retaining the shares that vested from the underlying award (net of tax), or by separately retaining a number of shares equivalent to those that vested under the award. The Committee considers that such an arrangement results in the employee holding the same number of shares as per the original intention of the retention period, as set out in the remuneration policy, approved by shareholders in 2014.

5     All share options are unexercised.

6     Includes Group Performance Share Plan ('GPSP') awards, which were made following an assessment of performance over the relevant period ending on 31 December before the grant date, but are subject to a five-year vesting period.

7     LTI awards granted in February 2017 and February 2018 are subject to the performance conditions as set out in the following tables.

8     Stuart Gulliver's scheme interests deferred with performance conditions include an award granted in March 2013 subject to service and performance conditions. The award vested on 12 March 2018 following the Committee decision on 30 January 2018.

9     All Group Managing Directors are expected to meet their shareholding guideline by 2019 or within five years of the date of their appointment, whichever is later. The shareholding guidelines for this population has been updated from 250,000 shares to 250% of reference salary from 1 January 2019 to align with the approach used for executive Directors.

The following tables detail the performance measures and targets for the LTI award granted in respect of 2017 and 2016.

Performance conditions for LTI awards in respect of 2017 (granted in 2018)
Average return on equity (with CET1 underpin)1	9.0%	10.0%	11.0%	20
Cost-efficiency ratio	60.0%	58.0%	55.5%	20
Relative total shareholder return2	At median of the peer group.	Straight-line vesting between minimum and maximum.	At upper quartile of the peer group.	20
Risk and compliance •     Achieve and sustain compliance with Global Financial Crime Compliance policies and procedures. •     Achieve a sustainable adoption of Group operation risk management framework, along with its policies and practices. •     Achieve and sustain delivery of global conduct outcomes and compliance with conduct of business regulatory obligations.	Performance will be assessed by the Committee based on a number of qualitative and quantitative inputs such as feedback from the Financial System Vulnerabilities Committee, Group Financial Crime Risk assessment against Financial Crime Compliance objectives, outcome of assurance and audit reviews, and achievement of the long-term Group objectives and priorities during the performance period.			25
Strategy				15
•     Sustainable finance3	$30bn	$34bn	$37bn
•     Employee confidence4	65%	67%	70%
•     Customer (Based on customer recommendation in top five markets by revenue)	Improvement in recommendation in three of the top five markets for CMB, GBM and RBWM.	Improvement in recommendation in four of the top five markets for CMB, GBM and RBWM.	Improvement in recommendation in all of the top five markets for CMB, GBM and RBWM.
Total				100

1     Significant items are excluded from the profit attributable to ordinary shareholders of the company for the purpose of computing adjusted return on equity. If the CET1 ratio at the end of performance period is below the CET1 risk tolerance level set in the RAS, then the assessment for this measure will be reduced to nil.

2     The peer group for the 2017 award is: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank, J.P. Morgan Chase & Co., Lloyds Banking Group, Standard Chartered and UBS Group.

3     To be assessed based on cumulative financing and investment made to develop clean energy, lower-carbon technologies and projects that contribute to the delivery of the Paris Agreement and the UN sustainable development goals.

4     Assessed based on results of the latest employee snapshot survey question 'I am seeing the positive impact of our strategy'.

Performance conditions for LTI awards in respect of 2016 (granted in 2017)
Average return on equity1	7.0%	8.5%	10.0%	20
Cost efficiency (adjusted jaws)	Positive	1.5%	3.0%	20
Relative total shareholder return2	At median of the peer group.	Straight-line vesting between minimum and maximum.	At upper quartile of the peer group.	20
Global Standards including risk and compliance •     Status of AML DPA.	Not applicable	Not applicable	Met all commitments to achieve closure of the AML DPA and protect HSBC from further regulatory censure for financial crime compliance failings.	25
•     Achieve and sustain compliance with Global Financial Crime Compliance policies and procedures.	Performance will be assessed by the Committee based on a number of qualitative and quantitative inputs such as feedback from the Financial System Vulnerabilities Committee, Group Financial Crime Risk assessment against Financial Crime Compliance objectives, outcome of assurance and audit reviews, and achievement of the long-term Group objectives and priorities during the performance period.
Strategy •     International client revenues (Share of revenue supported by international network)	50%	51%	52%	15
•     Revenue synergies (Share of revenues supported by universal banking model)	22%	23%	24%
•     Employee3 (Results of employee survey)	65%	67%	70%
•     Customer (Based on customer recommendation in home country markets)	Rank within top three in at least two of the four RBWM and CMB customer segments in home country markets.	Rank within top three in three of the four RBWM and CMB customer segments in home country markets.	Rank within top three in all four RBWM and CMB customer segments in home country markets.
Total				100

1     Significant items are excluded from the profit attributable to ordinary shareholders of the company for the purpose of computing adjusted return on equity.

2     The peer group for the 2016 award is: Australia and New Zealand Banking Group, Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank, JPMorgan Chase & Co., Lloyds Banking Group, Standard Chartered and UBS Group.

3     Assessed based on results of the latest employee snapshot survey question 'I am seeing the positive impact of our strategy'.

Share options
(Audited)
	Date of award	Exercise price	Exercisable		At 1 Jan 2018, or date of appointment, if later		Granted in year		Exercised in year		At 31 Dec 2018
		£	from1	until
John Flint (appointed 21 February 2018)	22 Sep 15	4.0472	1 Nov 18	30 Apr 19	4,447		-		-		4,447
	21 Sep 18	5.4490	1 Nov 23	30 Apr 24	-		5,505		-		5,505
Iain Mackay (ceased employment on 31 December 2018)	23 Sep 14	5.1887	1 Nov 17	30 Apr 18	3,469		-		3,469		-

1     May be advanced to an earlier date in certain circumstances, such as retirement.

The above awards were made under HSBC UK Sharesave, an all-employee share plan under which eligible employees may be granted options to acquire HSBC Holdings ordinary shares. The exercise price is determined by reference to the average market value of HSBC Holdings ordinary shares on the five business days immediately preceding the invitation date, then applying a discount of 20%. Employees may make contributions of up to

£500 each month over a period of three or five years. The market value per ordinary share at 31 December 2018 was £6.469. Market value is the mid-market price derived from the London Stock Exchange Daily Official List on the relevant date. Under the Securities and Futures Ordinance of Hong Kong, the options are categorised as unlisted physically settled equity derivatives.

Summary of shareholder return and Group Chief Executive remuneration

The following graph shows the total shareholder return ('TSR') performance against the FTSE 100 Total Return Index for the 10-year period that ended on 31 December 2018. The FTSE 100 Total Return Index has been chosen as this is a recognised broad equity market index of which HSBC Holdings is a member. The single figure remuneration for the Group Chief Executive over the past 10 years, together with the outcomes of the respective annual incentive and long-term incentive awards, is presented in the following table.

HSBC TSR and FTSE 100 Total Return Index

	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
Group Chief Executive	Michael Geoghegan		Michael Geoghegan		Stuart Gulliver		Stuart Gulliver		Stuart Gulliver		Stuart Gulliver		Stuart Gulliver		Stuart Gulliver		Stuart Gulliver		Stuart Gulliver		John Flint
Total single figure £000	7,580		7,932		8,047		7,532		8,033		7,619		7,340		5,675		6,086		2,387		4,582
Annual incentive1 (% of maximum)	94	%	82	%	58	%	52	%	49	%	54	%	45	%	64	%	80	%	76	%	76	%
Long-term incentive1,2,3 (% of maximum)	25	%	19	%	50	%	40	%	49	%	44	%	41	%	-	%	-	%	100%		-%

1     The 2012 annual incentive figure for Stuart Gulliver used for this table includes 60% of the annual incentive disclosed in the 2012 Directors' remuneration report, which was deferred for five years and subject to service conditions and satisfactory completion of the five-year deferred prosecution agreement with the US Department of Justice, entered into in December 2012 ('AML DPA') as determined by the Committee. The AML DPA performance condition has been met, and as such, this award has now been released. This award vested in 2018 and the value of the award at vesting has been included in the 2018 single figure of remuneration and included as long-term incentive for 2018.

2     Long-term incentive awards are included in the single figure for the year in which the performance period is deemed to be substantially completed. For GPSP awards this is the end of the financial year preceding the date of grant (GPSP awards shown in 2011 to 2015 therefore relate to awards granted in 2012 to 2016). For performance share awards that were awarded before introduction of GPSP, the value of awards that vested subject to satisfaction of performance conditions attached to those awards are included at the end of the third financial year following the date of grant (for example, performance share awards shown in 2010 relates to awards granted in 2008).

3     The GPSP was replaced by the LTI in 2016 and the value for GPSP is nil for 2016 as no GPSP award was made for 2016. LTI awards have a three-year performance period and the first LTI award was made in February 2017. The value of the LTI awards expected to vest will be included in the total single figure of the year in which the performance period ends. Stuart Gulliver was not eligible for an LTI award in respect of 2017 and 2018 given his announced retirement.

Comparison of Group Chief Executive and all-employee pay

The following charts compare the changes in Group Chief Executive pay to changes in employee pay between 2017 and 2018, and provide a breakdown of total staff pay relative to the amount paid out in dividends.

Percentage change in remuneration between 2017 and 2018
Base salary1	-4	%	6	%
Benefits2, 3	-76	%	-1	%
Annual incentive4	-8	%	2	%

1     Employee group consists of local full-time UK employees as representative of employees from different businesses and functions across the Group. The changes for the Group Chief Executive are based on the annualised base salary of the current and former Group Chief Executive to provide a meaningful comparison.

2     The change in the value of the benefit is due to the change in the value of the benefit as reported in the single figure table for the current and former Group Chief Executive.

3     For benefits, the employee group consists of UK employees, which was deemed the most appropriate comparison for the Group Chief Executive given varying local requirements.

4     For annual incentive, the employee group consists of all employees globally. The change is based on annual incentive pool as disclosed on page 33 and staff numbers are based on full-time equivalents at the financial year-end. The percentage change in annual incentive award of the Group Chief Executive is primarily driven by the difference in the 2017 and 2018 scorecard outcome, reflecting performance achieved in those years, and change in annual incentive maximum opportunity for John Flint and Stuart Gulliver, based on their annualised salary. Details of the 2018 total single figure of remuneration for the Group Chief Executive are on page 185.

Relative importance of spend on pay

The following chart shows the change in:

•       total staff pay between 2017 and 2018; and

•       dividends paid out in respect of 2017 and 2018.

In 2018, we returned a total of $2bn to shareholders through share buy-backs.

Relative importance of spend on pay

î	ì
7.6%	0.1%

Return to shareholder			Employee compensation and benefits
		Dividends
		Share buy-back

Pay ratio

The following table shows on the ratio between the total pay of the Group Chief Executive and the median pay of our UK employees.

Pay ratio for 2018
Pay ratio	118:1

We considered compensation of over 40,000 employees (other than the Group Chief Executive) providing services in the UK as at 31 December 2018. We estimated our median compensation using:

•       full-time equivalent fixed pay, which includes salary and allowances;

•       2018 variable pay award, including notional returns paid during 2018;

•       gains realised from exercising awards granted under HSBC Sharesave and all other employee share plans;

•       value of benefits (including pension contributions); and

•       the value of the AML DPA award that vested in 2018.

The value of the benefits have been computed as a percentage of salary. Benefits that are one-off benefits and are provided on a temporary basis to employees currently on secondment to the UK have not been included in calculating the above ratios as these are not permanent in nature and in some cases, depending on individual circumstances, may not truly reflect a benefit to the employee.

The above ratio has been calculated based on the annualised fixed and variable pay for John Flint as we consider this a better basis for a year-on-year comparison for 2019 when the regulations for disclosing the above ratios come into force. The total remuneration of John Flint does not include a value for an LTI award as the performance period for the first LTI award granted to John Flint ends on 31 December 2021. Therefore, to the extent performance conditions are satisfied for an LTI award, the relevant value for John Flint will be reported in the Directors' remuneration report for 2021. In a year in which a value for an LTI award is included in the single figure table of remuneration, the above ratios could be higher.

Given the different business mix, size of the business, methodologies for computing the median pay, estimates and assumptions used by other companies to calculate their respective pay ratios, as well as differences in employment and compensation practices between companies, the ratios reported above may not be comparable to that reported by other listed peers on the FTSE 100 and our international peers.

Non-executive Directors

(Audited)

The following table shows the total fees and benefits of non-executive Directors for 2018, together with comparative figures for 2017.

Fees and benefits
(Audited)		Fees1				Benefits2				Total
(£000)	Footnotes	2018		2017		2018		2017		2018		2017
Phillip Ameen (Retired on 20 April 2018)	3	154		474		6		12		160		486
Kathleen Casey	4, 13	171		174		23		16		194		190
Henri de Castries	13	161		132		4		5		165		137
Laura Cha	5, 6, 14	255		269		13		22		268		291
Lord Evans of Weardale	6, 13, 14	200		215		2		8		202		223
Joachim Faber (Retired on 20 April 2018)		38		162		3		9		41		171
Irene Lee	7, 13	361		300		5		8		366		308
John Lipsky (Retired on 20 April 2018)		66		199		-		25		66		224
Heidi Miller	8, 13	573		571		9		18		582		589
David Nish	13	187		158		11		18		198		176
Jonathan Symonds	9, 14	653		639		1		2		654		641
Jackson Tai	10, 13	228		194		47		43		275		237
Mark Tucker	11	1,500		500		97		318		1,597		818
Pauline van der Meer Mohr	12, 14	239		239		17		16		256		255
Total		4,786		4,226		238		520		5,024		4,746
Total ($000)		6,383		5,636		317		693		6,700		6,329

1     Fees include a travel allowance of £4,000 for non-UK-based non-executive Directors.

2     Benefits include taxable expenses such as accommodation, travel and subsistence relating to attendance at Board and other meetings at HSBC Holdings' registered office. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant.

3     Includes fees of £106,000 in 2018 (£330,000 in 2017) as a Director and Chair of the Audit Committee of HSBC North America Holdings Inc.

4     Resigned as a member of the Financial System Vulnerabilities Committee.

5     Appointed as a member of the Financial System Vulnerabilities Committee on 20 April 2018. Includes fees of £80,000 in 2018 (£75,000 in 2017) as a Director, Deputy Chairman and member of the Nomination Committee of The Hongkong and Shanghai Banking Corporation Limited.

6    The Philanthropic and Community Investment Oversight Committee was demised during 2018.

7     Appointed as a member of the Group Remuneration Committee on 20 April 2018. Includes fees of £210,000 in 2018 (£187,000 in 2017) as a Director, and member of the Audit Committee and the Risk Committee of The Hongkong and Shanghai Banking Corporation Limited and as a Director, member of the Audit Committee and Chair of the Risk Committee of Hang Seng Bank Limited.

8     Includes fees of £412,000 in 2018 (£427,000 in 2017) as Chair of HSBC North America Holdings Inc.

9     Appointed as Deputy Group Chairman on 6 August 2018 and appointed as a member of the Group Risk Committee on 20 April 2018. Includes fees of £240,000 (£382,000 in 2017) as non-executive Chair of HSBC Bank plc, from which he stepped down on 6 August 2018. 

10   Appointed as a member of the Group Audit Committee on 1 December 2018. Appointed as Chair of the GRC on 28 April 2017. As set out in the statement from the Chair of the Group Remuneration Committee, the fee for GRC Chair was increased to £120,000 on 1 December 2018, taking into account the increase in the expectations of the role of the GRC Chair from a regulatory perspective and the expanded oversight role of the Group Risk Committee following the re-assignment of the work previously undertaken by the Conduct & Values Committee and the Financial System Vulnerabilities Committee.

11   The Group Chairman's benefits in 2018 included £10,200 in respect of life assurance and £15,426 in respect of healthcare insurance, as approved by the Group Remuneration Committee.

12   Appointed a member of the Group Risk Committee on 20 April 2018.

13   Appointed as a member of the Nomination & Corporate Governance Committee on 20 April 2018.

14   Conduct and Values Committee was demised during 2018.

The following table sets out the base fee and further fees for additional Board duties such as chairmanship or membership of a committee received by directors in 2018.

		2018 fees
Position		£
Non-executive Group Chairman 1		1,500,000
Non-executive Director (base fee)		110,000
Deputy Group Chairman 2		40,000
Senior Independent Director 2		54,000
Group Risk Committee 3	Chair	60,000
	Member	30,000
Group Audit, Group Remuneration and Financial System Vulnerabilities Committee	Chair	60,000
	Member	30,000
Nomination & Corporate Governance Committee	Chair	40,000
	Member	25,000

1     Group Chairman does not receive a base fee or any other fees in respect of chairmanship of any other committee.

2     The fees for the Deputy Group Chairman and Senior Independent Director were combined and increased to £375,000 with effect from 1 August 2018.

3     The fee for the Group Risk Committee Chair was increased to £120,000 with effect from 1 December 2018.

Non-executive Directors' interests in shares

(Audited)

The shareholdings of persons who were non-executive Directors in 2018, including the shareholdings of their connected persons, at 
31 December 2018, or date of cessation as a Director, if earlier, are set out below. The following table shows the comparison of shareholdings to the company shareholding guidelines.

Shares
	Shareholding guidelines (number of shares)	Share interests (number of shares)
Phillip Ameen (retired on 20 April 2018)	15,000	5,000
Kathleen Casey	15,000	9,635
Laura Cha	15,000	10,200
Henri de Castries	15,000	18,064
Lord Evans of Weardale	15,000	12,892
Joachim Faber (retired on 20 April 2018)	15,000	93,221
Irene Lee	15,000	11,172
John Lipsky (retired on 20 April 2018)	15,000	16,165
Heidi Miller	15,000	4,420
David Nish	15,000	50,000
Jonathan Symonds	15,000	43,821
Jackson Tai	15,000	56,075
Mark Tucker	15,000	288,381
Pauline van der Meer Mohr	15,000	15,000

Voting results from Annual General Meeting

The following table summarises the voting results at our AGM.

Annual General Meeting voting results
	For1	Against1	Withheld
Remuneration report (2018 AGM)	97.00%	3.00%	-
	10,062,767,783	311,311,586	31,562,311
Remuneration policy (2016 AGM)	96.05%	3.95%	-
	8,887,168,002	365,908,568	35,165,873

1     Votes cast.

Implementation of remuneration policy in 2019 for executive Directors

The following table summarises how each element of pay will be implemented in 2019.

Implementation of remuneration policy in 2019
	Summary of operation	Group Chief Executive		Group Chief Financial Officer		Group Chief Risk Officer
Base salary (£)	3.3% increase with effect from 1 March 2019	1,240,000		723,000		723,000
Fixed pay allowance (£)	No change	1,700,000		950,000		950,000
Cash in lieu of pension	No change	30% of base salary
Benefits	No change	Same benefit provisions will be made available to executive Directors
Annual incentive	No change in maximum opportunity	Maximum opportunity will be 215% of base salary
Long-term incentive	No change in maximum opportunity	Maximum opportunity will be 320% of base salary

Annual incentive scorecards

The weightings and performance measures for the 2019 annual incentive award for executive Directors are disclosed below. The performance targets for the annual incentive are commercially sensitive and it would be detrimental to the Group's interests to disclose them at the start of the financial year. Subject to

commercial sensitivity, we will disclose the targets for a given year in the Annual Report and Accounts for that year in the Directors' remuneration report.

2019 annual incentive scorecards

Executive Directors will be eligible for an annual incentive award of up to 215% of base salary.

2019 annual incentive scorecards measures and weightings
	Group Chief Executive1		Group Chief Financial Officer		Group Chief Risk Officer
Measures	%		%		%
Profit before tax ($bn)	10.0		10.0		10.0
RoTE	5.0		8.3		3.3
Revenue growth	10.0		-		-
Positive jaws	5.0		10.0		-
Capital metrics	5.0		16.7		6.7
Strategic priorities	30.0		20.0		15.0
Risk and compliance	25.0		25.0		45.0
Personal objectives	10.0		10.0		20.0
Total	100.0		100.0		100.0

1     Strategic priorities includes financial/quantitative metrics with a 25% weighting.

Long-term incentives

Details of the performance measures and targets for LTI awards to be made in 2019, in respect of 2018, are provided on page 189.

The performance measures and targets for awards to be made in respect of 2019, granted in 2020, will be provided in the Annual Report and Accounts 2019.

Additional remuneration disclosures

This section provides disclosures required under the Hong Kong Ordinances, Hong Kong Listing Rules, the US Securities and Exchange Commission Form 20-F and the Pillar 3 remuneration disclosures.

Employee compensation and benefits

Executive Directors

The details of compensation paid to executive Directors for the year ended 31 December 2018 are set out below.

Emoluments
	John Flint1				Stuart Gulliver2				Iain Mackay				Marc Moses
	2018		2017		2018		2017		2018		2017		2018		2017
	£000		£000		£000		£000		£000		£000		£000		£000
Basic salaries, allowances and benefits in kind	2,863		-		534		3,896		1,984		1,961		1,911		1,914
Pension contributions	-		-		-		-		-		-		-		-
Performance-related pay paid or receivable3	5,505		-		282		2,127		1,088		3,566		3,556		3,590
Inducements to join paid or receivable	-		-		-		-		-		-		-		-
Compensation for loss of office	-		-		-		-		-		-		-		-
Notional return on deferred cash	54		-		41		63		33		42		33		42
Total	8,422		-		857		6,086		3,105		5,569		5,500		5,546
Total ($000)	11,232		-		1,143		7,834		4,141		7,168		7,335		7,139

1     John Flint succeeded Stuart Gulliver as Group Chief Executive with effect from 21 February 2018 and his remuneration in this table is in respect of services provided as an executive Director.

2     Details of payments made to Stuart Gulliver after he stepped down from the Board on 20 February 2018 are provided on page 190.

3     Includes the value of the deferred and LTI awards at grant.

The aggregate amount of Directors' emoluments (including both executive Directors and non-executive Directors) for the year ended 31 December 2018 was $30,550,208. As per our policy, benefits in kind may include, but are not limited to, the provision of medical insurance, income protection insurance, health assessment, life assurance, club membership, tax assistance, Hong Kong accommodation, car benefit, travel assistance and relocation costs (including any tax due on these benefits, where applicable). Post-employment medical insurance benefit was provided to former Directors, Douglas Flint of £4,563 ($6,085), Alexander Flockhart of £5,463 ($7,286), and Stuart Gulliver of £2,840 ($3,787) during the year ended 31 December 2018. Amounts are converted into US dollars based on the average year-to-date exchange rates for the respective year.

Emoluments of senior management and five highest paid employees

The following table sets out the details of emoluments paid to senior management (in this case, executive Directors and Group Managing Directors of the Group) for the year ended 31 December 2018, or for the period of appointment in 2018 as a Director or Group Managing Director. Details of the remuneration paid to the five highest paid employees, comprising two executive Directors and three Group Managing Directors of the Group, for the year ended 31 December 2018, are also presented.

Emoluments
	Five highest paid employees		Senior management
	£000		£000
Basic salaries, allowances and benefits in kind	14,982		39,285
Pension contributions	10		188
Performance-related pay paid or receivable1	19,696		40,519
Inducements to join paid or receivable	-		-
Compensation for loss of office	-		-
Total	34,688		79,992
Total ($000)	46,260		106,678

1     Includes the value of deferred shares awards at grant.

Emoluments by bands
Hong Kong dollars	US dollars	Number of highest paid employees		Number of senior management
$2,000,001 - $2,500,000	$255,182 - $318,978	-		1
$16,000,001 - $16,500,000	$2,041,457 - $2,105,253	-		1
$17,000,001 - $17,500,000	$2,169,048 - $2,232,844	-		1
$24,500,001 - $25,000,000	$3,125,981 - $3,189,777	-		1
$27,500,001 - $28,000,000	$3,508,754 - $3,572,550	-		1
$32,000,001 - $32,500,000	$4,082,914 - $4,146,710	-		2
$33,500,001 - $34,000,000	$4,274,301 - $4,338,096	-		1
$34,500,001 - $35,000,000	$4,401,892 - $4,465,687	-		1
$35,500,001 - $36,000,000	$4,529,483 - $4,593,278	-		1
$38,000,001 - $38,500,000	$4,848,461 - $4,912,256	-		1
$39,500,001 - $40,000,000	$5,039,847 - $5,103,643	-		1
$41,500,001 - $42,000,000	$5,295,029 - $5,358,825	-		1
$46,000,001 - $46,500,000	$5,869,189 - $5,932,984	-		1
$50,000,001 - $50,500,000	$6,379,553 - $6,443,349	-		1
$57,000,001 - $57,500,000	$7,272,691 - $7,336,486	1		1
$58,000,001 - $58,500,000	$7,400,282 - $7,464,077	1		1
$69,500,001 - $70,000,000	$8,867,579 - $8,931,374	1		1
$84,000,001 - $84,500,000	$10,717,649 - $10,781,445	1		1
$93,000,001 - $93,500,000	$11,865,969 - $11,929,764	1		1

Pillar 3 remuneration disclosures

Remuneration for all employees

Remuneration policy overview and governance

Our remuneration strategy is designed to reward competitively the achievement of long-term sustainable performance, and attract and motivate the very best people, regardless of gender, ethnicity, age, disability or any other factor unrelated to performance or experience with the Group. We believe that remuneration is an important tool for instilling the right behaviours, and driving and encouraging actions that are aligned to organisational values and the long-term interests of our stakeholders.

Our remuneration strategy, as approved by the Group Remuneration Committee, is based on the following principles:

•     An alignment to performance at all levels (individual, business and Group) taking into account both 'what' has been achieved and 'how' it has been achieved. The 'how' helps ensure that performance is sustainable in the longer term, consistent with HSBC's values and risk and compliance standards.

•     Being informed, but not driven by, market position and practice. Market benchmarks are sourced through independent specialists and provide an indication of the range of pay levels and employee benefits provided by our competitors.

•     Considering the full-market range when making pay decisions for employees, taking into account the individual's and the Group's performance in any given year. An individual's pay will vary depending upon their performance.

•     Compliance with relevant regulation across all of our countries and territories.

Based on these principles, our approach to determining remuneration is based on the following objectives:

•     Offering our employees a competitive total reward package. This includes market competitive fixed pay levels, which ensure our employees are able to meet their basic day-to-day needs.

•     Maintaining an appropriate balance between fixed pay, variable pay and employee benefits, taking into consideration an employee's seniority, role, individual performance and the market.

•     Ensuring variable pay is awarded on a discretionary basis and dependent upon Group, business and individual performance.

•     Offering employee benefits that are valued by a diverse workforce, appropriate at the local market level and support HSBC's commitment to employee well-being.

•     Promoting employee share ownership through variable pay deferral or voluntary enrolment in an all-employee share plan.

•     Linking reward packages to performance and behaviour with no bias towards an individual's ethnicity, gender, age, or any other characteristic.

The remuneration policy applies for all employees on a Group-wide basis.

Governance and role of relevant stakeholders

The Committee is responsible for setting the principles, parameters and governance framework for the Group's remuneration policy applicable to all Group employees. The Committee also reviews the effectiveness and compliance of the Group's reward strategy.

All members of the Committee are independent non-executive Directors of HSBC Holdings plc. Details of the roles, responsibility and membership of the Committee, including other committees and senior management that the Committee engages with, are set out on page 163. Activities and advisers used by the Committee are detailed on page 184.

The Committee reviewed the Group's remuneration policy in 
2018 and made no material changes to the policy and its implementation for 2018.

Link between risk, performance and reward

Our remuneration practices promote sound and effective risk management while supporting our business objectives.

The key features of our remuneration framework, which (subject to compliance with local laws and regulations) help enable us to achieve alignment between risk, performance and reward, are detailed in the following table.

Alignment between risk and reward
Variable pay pool and individual performance scorecard	The Group variable pay pool is expected to move in line with Group performance. We also use a countercyclical funding methodology, with both a floor and a ceiling, and the payout ratio reducing as performance increases to avoid pro-cyclicality. The floor recognises that even in challenging times, remaining competitive is important. The ceiling recognises that at higher levels of performance it is not always necessary to continue to increase the variable pay pool, thereby limiting the risk of inappropriate behaviour to drive financial performance. The main quantitative and qualitative performance and risk metrics used for assessment of performance include: •     Group and business unit performance: An evaluation of overall Group and business unit performance provided by Finance is considered by the Group Remuneration Committee when determining the Group variable pay pool and the variable pay pool for each business unit. Where performance in a year is weak, as measured by profits, this will have a direct and proportionate impact on the pool. Judgement is exercised to ensure that the pool is adjusted for appropriate current and future risks taking into consideration performance against the risk appetite statement ('RAS'), annual operating plan and global conduct outcomes. Fines, penalties and provisions for customer redress are automatically included in the Committee's definition of profit. •     Individual performance: Assessment of performance is made with reference to a balanced scorecard of clear and relevant objectives. Risk and compliance objectives are included in the performance scorecard of senior management and a mandatory global risk objective is included in the scorecard of all other employees. All employees receive a behaviour rating as well as a performance rating, which ensures performance is assessed not only on what is achieved but also on how it is achieved. Therefore, variable pay of individuals is expected to reflect Group performance, their individual behaviour rating and performance rating determined against their performance objectives for the year, which are aligned to the Group's strategic actions, risk objectives and adherence to the HSBC Values.
Remuneration for Control Function staff	•     The performance and reward of individuals in Control Functions, including risk and compliance employees, are assessed according to a balanced scorecard of objectives specific to the functional role they undertake. This is to ensure their remuneration is determined independent of the performance of the business areas they control. •     The Committee is responsible for approving the remuneration recommendations for the Group Chief Risk Officer and senior management in Control Functions. •     Group policy is for Control Functions staff to report into their respective function. Remuneration decisions for senior functional roles are led by, and must carry the approval of, the global function head. •     The variable pay pool for Control Functions is determined centrally, without influence from the relevant business areas. •     Remuneration is carefully benchmarked with the market and internally to ensure it is set at an appropriate level.
Variable pay adjustments and conduct recognition	•     Variable pay awards may be adjusted downwards in circumstances including: -  detrimental conduct, including conduct that brings HSBC into disrepute; -  involvement in events resulting in significant operational losses, or events that have caused or have the potential to cause   significant harm to HSBC; and -  non-compliance with the HSBC Values and other mandatory requirements or policies. •     Rewarding positive conduct may take the form of use of our global recognition programme, At Our Best, or positive adjustments to variable pay awards. These are used where exceptional behaviours have been demonstrated that go beyond the normal course of an employee's responsibilities. This can also happen when an employee sets an outstanding example of the HSBC Values.
Malus	Malus can be made to unvested deferred awards granted in prior years. It may be applied in circumstances including: •     detrimental conduct, including conduct that brings the business into disrepute; •     past performance being materially worse than originally reported; •     restatement, correction or amendment of any financial statements; and •     improper or inadequate risk management.
Clawback	Clawback can be applied to vested or paid awards granted to Material Risk Takers ('MRTs') on or after 1 January 2015 for a period of seven years. From 2016 onwards, this period may be extended to 10 years for employees under the PRA's Senior Managers Regime in the event of ongoing internal/regulatory investigation at the end of the seven-year period. Clawback may be applied in circumstances including: •     participation in, or responsibility for, conduct that results in significant losses; •     failing to meet appropriate standards and propriety; •     reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract of employment; and •     a material failure of risk management suffered by HSBC or a business unit in the context of Group risk-management standards, policies and procedures.
Sales incentives	•     We generally do not operate commission-based sales plans.
Identification of MRTs	•     Individuals are identified as MRTs if they perform certain specified roles or activities for our regulated entities, or if their total compensation exceeds certain threshold. The variable pay awards of MRTs are deferred over a period of three to seven years to ensure alignment between the payout realised by them and the long-term performance of the Group. Details of the variable pay structure, the deferral and retention period applied to MRTs, in accordance with the applicable local regulations, are detailed in the following table.

Remuneration structure

Total compensation (fixed pay and variable pay) is the key focus of our remuneration framework, with variable pay differentiated by performance and adherence to the HSBC Values. The key features and design characteristics of our remuneration framework that apply on a Group-wide basis, subject to compliance with local laws, are set out below:

Overview of remuneration structure for employees
Fixed pay Attract and retain employees by paying market competitive pay for the role, skills and experience required for the business.	•     Fixed pay may include salary, fixed pay allowance, cash in lieu of pension and other cash allowances in accordance with local market practices. These pay elements are categorised as fixed pay as they are based on predetermined criteria, are non-discretionary, are transparent and are not reduced based on performance. •     Fixed pay represents a higher proportion of total compensation for more junior employees. •     All elements of fixed pay are fixed and may change to reflect an individual's position, role or grade, cost of living in the country, individual skills, competencies, capabilities and experience, as may be evidenced by sustained strong performance of the individual. •     Fixed pay is generally delivered in cash on a monthly basis. However, the fixed pay allowance of executive Directors is delivered in shares.
Benefits Ensure market competitiveness and provide benefits in accordance with local market practice.	•     Benefits may include, but are not limited to, the provision of a pension, medical insurance, life insurance, health assessment and relocation allowances.
Annual incentive Incentivise and reward performance based on annual financial and non-financial measures consistent with the medium- to long-term strategy, stakeholder interests and adherence to HSBC Values.	•     All employees are eligible to be considered for a discretionary variable pay award. Individual awards are determined on the basis of individual performance against their performance objectives for the year, which are aligned to the Group's strategic actions, a global risk objective, and adherence to the HSBC Values and business principles. •     There is a process to identify behavioural transgressions for all employees during the year to ensure compliance with Group policies and procedures, and other expected behaviours. Such transgressions are taken into consideration in determining any current year adjustments to variable pay. •     Annual incentives represent a higher proportion of total compensation for more senior employees and will be more closely aligned to Group and business performance as seniority increases. •     Variable pay awards for all Group employees identified as MRTs under European Union Regulatory Technical Standard 604/2014 are limited to 200% of fixed pay.1 •     All awards are subject to malus and awards granted to employees identified as MRTs are subject to clawback (see section on variable pay adjustment, malus and clawback). •     Awards are generally paid in cash and shares. For MRTs, at least 50% of the awards are in shares and/or where required by regulations, in units linked to asset management funds. •     A portion of the annual incentive award may be deferred and vest over a period of three years, five years or seven years.
Deferral Alignment with the medium- to long-term strategy, stakeholder interests and adherence to the HSBC Values.	•     A deferral approach is applicable to all employees across the Group to defer a portion of annual incentive awards above a specified threshold. The deferred variable pay is delivered through HSBC shares. Vesting of deferred awards will be annually over a three-year period with 33% vesting on the first and second anniversaries of grant and 34% on the third anniversary. •     For MRTs identified in accordance with the PRA and Financial Conduct Authority ('FCA') remuneration rules, awards are generally subject to a minimum 40% deferral (60% for awards of £500,000 or more) over a minimum period of three years2. A longer deferral period is applied for certain MRTs as follows: -     five years for individuals identified in a risk-manager MRT role under the PRA and FCA remuneration rules. This reflects the deferral period prescribed by both the PRA and the European Banking Authority ('EBA') for individuals performing key senior roles with the Group; or -     seven years for individuals in PRA-designated senior management functions, being the deferral period mandated by the PRA as reflecting the typical business cycle period. •     Individuals based outside the UK who have not been identified at the Group level as an MRT, but who are identified as MRTs under local regulations, are generally subject to a three-year deferral period. In Germany, a five-year deferral period is applied for members of the local management board and individuals in managerial roles reporting into the management board. In Malta, a five-year deferral period is applied for executive Committee members. Local MRTs are also subject to a minimum deferral rates discussed above, except in China (where a minimum deferral rate of 50% is applied for the Chief Executive Officer in China), Germany (where a minimum deferral rate of 60% is applied for members of the local management board and individuals in managerial roles reporting into the management board) and Oman (where a minimum deferral rate of 45% is applied). •     Where an employee is subject to two sets of regulations, the requirement that is specific to the sector and/or country in which the individual is working is applied, subject to meeting the minimum requirements applicable under each regulation. •     All deferred awards are subject to malus provisions, subject to compliance with local laws. Awards granted to MRTs on or after 1 January 2015 are also subject to clawback. •     HSBC operates an anti-hedging policy for all employees. This prohibits employees from entering into any personal hedging strategies in respect of HSBC securities.
Deferral instruments Alignment with the medium- to long-term strategy, stakeholder interests and adherence to the HSBC Values.	•     For all employees, other than MRTs identified in accordance with the PRA and FCA remuneration rules or other similar local rules, the underlying instrument for all deferred awards is HSBC shares to ensure alignment between the long-term interest of our employees and the interest of shareholders. •     For Group and local MRTs, excluding executive Directors where deferral is typically in the form of shares only, a minimum of 50% of the deferred awards is in HSBC shares and the balance is deferred into cash. In accordance with local regulatory requirements, for local MRTs in Poland, 50% of the deferred awards are delivered in an instrument linked to the performance of the local entity and the balance in deferred cash. For local MRTs in Brazil and Oman, 100% of the deferred amount is delivered in shares or linked to the value of shares. •     For some employees in our asset management business, where required by the regulations applicable to asset management entities within the Group, at least 50% of the deferred awards is linked to fund units reflective of funds managed by those entities, with the remaining portion of deferred awards being in the form of deferred cash awards.
Overview of remuneration structure for employees (continued)
Post-vesting retention period Ensure appropriate alignment with shareholders.	•     Variable pay awards made in HSBC shares or linked to relevant fund units granted to MRTs, identified in accordance with the PRA and FCA remuneration rules, are generally subject to a one-year retention period post-vesting. Local MRTs (except those in Brazil, France, Oman and Russia) are also generally subject to a one-year retention period post-vesting. For local MRTs in Brazil, France and Russia, a six-month retention period is applied. No retention period is applied for local MRTs in Oman. •     MRTs who are subject to a five-year deferral period, except senior management or individuals in PRA- and FCA-designated senior management functions, have a six-month retention period applied to their awards.
Long-term incentive awards ('LTI') Align the medium- to long-term strategy with stakeholder interests and adherence to the HSBC Values.	•     Only executive Directors are eligible to be considered for an LTI award. See details on page 189.
Shareholding requirement Align interests of senior management with shareholders' interests.	•     All executive Directors and Group Managing Directors of HSBC Holdings are subject to a minimum shareholding requirement. Details are set out on page 191. •     The minimum shareholding requirement must be achieved by 2019 or within five years of their appointment, whichever is later.
Buy-out awards Support recruitment of talent.	•     Buy-out awards may be offered if an individual holds any outstanding unvested awards that are forfeited on resignation from the previous employer. •     The terms of the buy-out awards will not be more generous than the terms attached to the awards forfeited on cessation of employment with the previous employer.
Guaranteed variable remuneration Support recruitment of talent.	•     Guaranteed variable remuneration is awarded in exceptional circumstances for new hires, and is limited to the individual's first year of employment only. •     The exceptional circumstances where HSBC would offer a guaranteed variable remuneration would typically involve a critical new hire and would also depend on factors such as the seniority of the individual, whether the new hire candidate has any competing offers and the timing of the hire during the performance year.
Severance payments Adhere to contractual agreements with involuntary leavers.	•     Where an individual's employment is terminated involuntarily for gross misconduct then, subject to compliance with local laws, the Group's policy is not to make any severance payment in such cases. For such individuals, all outstanding unvested awards are forfeited. •     For other cases of involuntary termination of employment, any severance that may be determined to be paid to an individual will take into consideration the performance of the individual, contractual notice period, applicable local laws and circumstances of the case. •     Where an individual's employment is terminated involuntarily (except where an individual is dismissed for gross misconduct), all outstanding unvested awards will normally continue to vest in line with the applicable vesting dates. Where relevant, any performance conditions attached to the awards, and malus and clawback provisions, will remain applicable to those awards. •     Severance amounts awarded to MRTs are considered as fixed pay where such amounts include: (i) payments of fixed remuneration that would have been payable during the notice and/or consultation period; (ii) statutory severance payments; (iii) payments determined in accordance with any approach applicable in the relevant jurisdictions; and (iv) payments made to settle a potential or actual dispute.

1     Shareholders approved the increase in the maximum ratio between the fixed and variable components of total remuneration from 1:1 to 1:2 at the 2014 Annual General Meeting held on 23 May 2014 (98% in favour). The Group has also used the discount rate of 15.3% for individuals with seven-year deferral period and 7.7% for individuals with five-year deferral period. This discount rate was used for four MRTs in UK and one MRT in Hong Kong.

2     HSBC does not dis-apply any remuneration rules on proportionality grounds. However, in accordance with the terms of the PRA and FCA remuneration rules, and subject to compliance with local regulations, the deferral requirement for MRTs is not applied to individuals where their total compensation is £500,000 or less and variable pay is not more than 33% of total compensation. For these individuals, the Group standard deferral applies.

Material Risk Takers

We identify individuals as Material Risk Takers ('MRTs') based on the qualitative and quantitative criteria set out in the Regulatory Technical Standard ('RTS') EU 604/2014. We also identify MRTs based on additional criteria developed internally. The following key principles underpin HSBC's identification process:

•     MRTs are identified at Group, HSBC Bank plc (consolidated) and HSBC UK Bank plc level.

•     MRTs are also identified at other solo regulated entity level as required by the regulations.

•     When identifying an MRT, HSBC considers an employee's role within its matrix management structure. The global business and functions that an individual works within takes precedence, followed by the geographical location in which they work.

In addition to applying the qualitative and quantitative criteria specified in the RTS, we also identified additional MRTs based on our own internal criteria, which included compensation thresholds and individuals in certain roles and grades who otherwise would not be identified as MRTs under the criteria prescribed in the RTS.

The list of MRTs, and any exclusions from it, is reviewed by Chief Risk Officers and Chief Operating Officers of the relevant global functions and businesses. The overall results are reviewed by the Group Chief Risk Officer.

The Group Remuneration Committee reviews the methodology, key decisions regarding identification, and approves the results of the identification exercise, including proposed MRT exclusions.

Management body and senior management

For the purpose of the Pillar 3 remunerations disclosures, executive Directors and non-executive Directors are considered to be members of the management body. Members of the Group Management Board other than the executive Directors are considered as senior management. No guaranteed bonus, sign-on or severance payments were made to this population for the year ended 31 December 2018.

Remuneration disclosures

The following tables set out the remuneration disclosures for individuals identified as MRTs for HSBC Holdings plc. Remuneration information for individuals who are only identified as MRTs at HSBC Bank plc, HSBC UK Bank plc or other solo-regulated entity levels are included, where relevant, in those entities' disclosures.

The 2018 variable pay information included in the following tables is based on the market value of awards granted to MRTs. For share awards, the market value is based on HSBC Holdings plc's share price at the date of grant (unless indicated otherwise). For cash awards, it is the value of awards expected to be paid to the individual over the deferral period.

Remuneration - fixed and variable amounts
	Executive Directors		Non-executive Directors		Senior management		Total
Number of MRTs	4		11		16		31
	$m		$m		$m		$m
Total fixed	13.8		6.3		36.4		56.5
Cash-based1	6.7		6.3		36.4		49.4
-  of which: deferred cash	-		-		-		-
Share-based	7.1		-		-		7.1
-  of which: deferred shares	-		-		-		-
Total variable2	16.8		-		44.7		61.5
Cash-based	2.5		-		21.1		23.6
-  of which: deferred cash	-		-		12.8		12.8
Share-based3	14.3		-		23.6		37.9
-  of which: deferred shares3	11.8		-		15.3		27.1
Other forms3	-		-		-		-
-  of which: deferred3	-		-		-		-
Total remuneration	30.6		6.3		81.1		118.0

1     Cash-based fixed remuneration is paid immediately.

2     Variable pay awarded in respect of 2018. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable component of remuneration for any one year is limited to 200% of fixed component of the total remuneration.

3     Share-based awards are made in HSBC shares. Vested shares are subject to a retention period of up to one year.

Deferred remuneration at 31 December1
	Executive Directors		Non-executive Directors		Senior management		Total
	$m		$m		$m		$m
Cash
Total outstanding deferred remuneration2	2.7		-		24.4		27.1
-  of which:
Unvested	2.7		-		24.4		27.1
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment	2.7		-		24.4		27.1
Total amount of amendment during the year due to ex post implicit adjustment	-		-		-		-
Total amount of amendment during the year due to ex post explicit adjustment3	-		-		-		-
Total amount of deferred remuneration paid out in the financial year	4.6		-		12.4		17.0
Shares
Total outstanding deferred remuneration2	60.7		-		57.1		117.8
-  of which:
Unvested	56.5		-		48.7		105.2
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment	60.7		-		57.1		117.8
Total amount of amendment during the year due to ex post implicit adjustment	(10.9	)	-		(9.7	)	(20.6	)
Total amount of amendment during the year due to ex post explicit adjustment3	-		-		-		-
Total amount of deferred remuneration paid out in the financial year4	21.8		-		31.3		53.1
Other forms
Total outstanding deferred remuneration2	-		-		-		-
-  of which:
Unvested	-		-		-		-
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment	-		-		-		-
Total amount of amendment during the year due to ex post implicit adjustment	-		-		-		-
Total amount of amendment during the year due to ex post explicit adjustment3	-		-		-		-
Total amount of deferred remuneration paid out in the financial year4	-		-		-		-

1     This table provides details of balances and movements during performance year 2018. For details of variable pay awards granted for 2018, please refer to the remuneration tables above. Deferred remuneration is made in cash and/or shares. Share-based awards are made in HSBC shares.

2     Includes unvested deferred awards, and vested deferred awards subject to retention period as at 31 December 2018.

3     Includes any amendments due to malus or clawback. Page 200 provides details of in-year variable pay adjustments.

4     Shares are considered as paid when they vest. Vested shares are valued using the sale price or the closing share price on the business day immediately preceding the vesting day.

Other MRTs (non-senior management)

Remuneration - fixed and variable amounts
	Investment banking		Retail  banking		Asset management		Corporate functions		Independent control functions		All other		Total
Number of MRTs	628		167		27		144		151		64		1,181
	$m		$m		$m		$m		$m		$m		$m
Total fixed	388.6		90.6		17.9		77.6		60.9		40.9		676.5
Cash-based1	388.6		90.6		17.9		77.6		60.9		40.9		676.5
-  of which: deferred cash	-		-		-		-		-		-		-
Share-based	-		-		-		-		-		-		-
-  of which: deferred shares	-		-		-		-		-		-		-
Total variable2	385.6		83.1		17.0		75.1		45.8		39.5		646.1
Cash-based	188.1		40.6		8.4		37.0		23.1		19.4		316.6
-  of which: deferred cash	95.9		20.1		4.1		17.9		9.6		10.4		158.0
Share-based3	197.5		42.5		4.6		38.1		22.6		20.1		325.4
-  of which: deferred shares3	106.7		22.6		2.4		20.0		11.1		11.5		174.3
Other forms3	-		-		4.0		-		0.1		-		4.1
-  of which: deferred shares3	-		-		2.4		-		-		-		2.4
Total remuneration	774.2		173.7		34.9		152.7		106.7		80.4		1,322.6

1     Cash-based fixed remuneration is paid immediately.

2     Variable pay awarded in respect of 2018. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable component of remuneration for any one year is limited to 200% of the fixed component of the total remuneration.

3     Share-based awards are made in HSBC shares and/or linked to notional fund units in the HSBC World Selection Balanced Portfolio. Vested shares are subject to a retention period of up to one year.

Guaranteed bonus, sign-on and severance payments
	Investment banking		Retail banking		Asset management		Corporate functions		Independent control functions		All other		Total
Guaranteed bonus and sign-on payments1
Made during year ($m)	20.1		1.7		-		1.8		-		-		23.6
Number of beneficiaries	22		2		-		3		-		-		27
Severance payments2
Awarded during year ($m)	17.8		5.7		-		0.9		1.0		1.8		27.2
Number of beneficiaries	18		9		-		2		4		4		37
Highest such award to a single person ($m)	5.4		2.6		-		0.6		0.3		0.8		-
Paid during year ($m)	14.0		5.3		-		0.4		1.0		1.6		22.3
Number of beneficiaries	18		8		-		2		4		3		35

1     No sign-on payments were made in 2018. A guaranteed bonus is awarded in exceptional circumstances for new hires, and in the first year only. The circumstances where HSBC would offer a guaranteed bonus would typically involve a critical new-hire, and would also depend on factors such as the seniority of the individual, whether the new-hire candidate has any competing offers and the timing of the hire during the performance year.

2     Includes payments such as payment in lieu of notice, statutory severance, outplacement service, legal fees, ex-gratia payments and settlements (excludes pre-existing benefit entitlements triggered on terminations).

Deferred remuneration at 31 December1
	Investment banking		Retail banking		Asset management		Corporate functions		Independent control functions		All other		Total
	$m		$m		$m		$m		$m		$m		$m
Cash
Total outstanding deferred remuneration2	170.2		33.6		8.7		26.9		14.8		17.8		272.0
-  of which:
Unvested	170.2		33.6		8.7		26.9		14.8		17.8		272.0
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment	170.2		33.6		8.7		26.9		14.8		17.8		272.0
Total amount of amendment during the year due to ex post implicit adjustment	-		-		-		-		-		-		-
Total amount of amendment during the year due to ex post explicit adjustment3	-		-		-		-		-		-		-
Total amount of deferred remuneration paid out in the financial year	71.3		13.4		4.4		10.6		5.3		8.5		113.5
Shares
Total outstanding deferred remuneration2	252.3		46.5		8.7		52.5		22.0		30.6		412.6
-  of which:
Unvested	219.2		41.1		7.5		46.2		20.8		24.3		359.1
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment	252.3		46.5		8.7		52.5		22.0		30.6		412.6
Total amount of amendment during the year due to ex post implicit adjustment	(39.2	)	(7.2	)	(1.4	)	(7.4	)	(3.5	)	(4.9	)	(63.6	)
Total amount of amendment during the year due to ex post explicit adjustment3	-		-		-		-		-		-		-
Total amount of deferred remuneration paid out in the financial year4	199.5		40.3		7.9		37.2		20.9		19.8		325.6
Other forms
Total outstanding deferred remuneration2	-		-		4.0		-		0.1		-		4.1
-  of which:
Unvested	-		-		2.7		-		-		-		2.7
Total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustment	-		-		4.0		-		0.1		-		4.1
Total amount of amendment during the year due to ex post implicit adjustment	-		-		(0.3	)	-		-		-		(0.3	)
Total amount of amendment during the year due to ex post explicit adjustment3	-		-		-		-		-		-		-
Total amount of deferred remuneration paid out in the financial year4	-		-		1.9		-		0.1		-		2.0

1     This table provides details of movements during performance year 2018. For details of variable pay awards granted for 2018, please refer to both the remuneration tables above. Deferred remuneration is made in cash and/or shares. Share-based awards are made in HSBC shares and/or linked to notional fund units in the HSBC World Selection Balanced Portfolio.

2     Includes unvested deferred awards, and vested deferred awards subject to retention period as at 31 December 2018.

3     Includes any amendments due to malus or clawback. Page 200 provides details of in-year variable pay adjustments.

4     Shares are considered as paid when they vest. Vested shares are valued using the sale price or the closing share price on the business day immediately preceding the vesting day.

MRTs' remuneration by band1
	Management body		All other		Total
€0 - 1,000,000	9		804		813
€1,000,000 - 1,500,000	1		214		215
€1,500,000 - 2,000,000	1		87		88
€2,000,000 - 2,500,000	-		36		36
€2,500,000 - 3,000,000	-		21		21
€3,000,000 - 3,500,000	-		10		10
€3,500,000 - 4,000,000	1		5		6
€4,000,000 - 4,500,000	1		12		13
€4,500,000 - 5,000,000	-		3		3
€5,000,000 - 6,000,000	-		3		3
€6,000,000 - 7,000,000	1		1		2
€7,000,000 - 8,000,000	-		-		-
€8,000,000 - 9,000,000	-		-		-
€9,000,000 - 10,000,000	-		1		1
€10,000,000 - 11,000,000	-		-		-
€11,000,000 - 12,000,000	1		-		1

1     Table prepared in euros in accordance with Article 450 of the European Union Capital Requirements Regulation, using the exchange rates published by the European Commission for financial programming and budget for December of the reported year as published on its website.

Directors' responsibility statement

The Directors are responsible for preparing the

 Annual Report and Accounts 2018,

the Directors' remuneration report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the parent company ('Company') and Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. In preparing these financial statements, the Directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board ('IASB'). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and Group, and of the profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and estimates that are reasonable and prudent;

•     state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed, subject to any material departures disclosed and explained in the financial statements; and

•     prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company and Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, and disclose with reasonable accuracy at any time the financial position of the Company and the Group enabling them to ensure that the financial statements and the Directors' remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Annual Report and Accounts 2018 as they appear on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and Accounts 2018, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company's position, performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the 'Report of the Directors: Corporate governance report' on pages 153 to 157 of the Annual Report and Accounts 2018, confirm that, to the best of their knowledge:

•     the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Group; and

•     the management report represented by the Report of the Directors includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

The GAC has responsibility, delegated to it from the Board, for overseeing all matters relating to external financial reporting. The GAC report on page 159 sets out how the GAC discharges its responsibilities.

Disclosure of Information to Auditors

In accordance with section 418 of the Companies Act 2006, the Directors' report includes a statement, in the case of each Director in office as at the date the Report of the Directors is approved, that:

•     so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and

•     they have taken all the steps they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

On behalf of the Board

Mark E Tucker

Group Chairman

19 February 2019

Report of the independent auditors to the members of HSBC Holdings plc

Opinion

In our opinion HSBC Holdings plc's ('HSBC') Group financial statements¹ and parent company financial statements:

•     give a true and fair view of the state of the Group's and parent company's affairs at 31 December 2018 and of the Group's and parent company's profit and cash flows for the year then ended;

•     have been properly prepared in accordance with IFRSs as adopted by the European Union; and

•     have been prepared in accordance with the requirements of the Companies Act 2006, and as regards the Group financial statements, Article 4 of the IAS Regulation.

Basis of these opinions

In expressing this opinion, I believe that the audit evidence I have obtained is sufficient and appropriate. My work has been undertaken, and my opinion expressed, in accordance with applicable law and the International Standards on Auditing (UK) as issued by the Financial Reporting Council ('FRC') of the United Kingdom. My responsibilities and those of the directors are explained later in this report.

How the audit approach was structured

This was the fourth year that it has been my responsibility to form this opinion on behalf of PricewaterhouseCoopers LLP ('PwC'), who you first appointed on 31 March 2015 in relation to that year's audit. Over 2,000 partners and staff from member firms of the PwC network have spent more than 500,000 hours supporting this report, which in addition to the opinion provides information on how I approached the audit, how it changed from the previous year and details of the significant discussions that I, and my senior colleagues, had with the Group Audit Committee ('GAC').

The audit approach remained broadly unchanged, and reflects how HSBC is organised. It incorporated four important aspects.

(1) Risk assessment and audit planning at a Group level, having regard to HSBC's global businesses:

Additional partners led our audit work on three of the global businesses. Global Private Banking was not included because of its relative contribution to the financial statements. These partners met regularly with the relevant HSBC management to understand strategy and matters which arose throughout the year that could have impacted financial reporting. The partners are specialists in the nature of the relevant businesses and were best placed to design the appropriate audit approach for that part of HSBC. They oversaw each PwC member firm involved in the audit of that global business and assisted me in my review of their work.

(2) Audit work performed at global shared service centres:

A significant amount of the operational processes which are critical to financial reporting are undertaken in operations centres run by HSBC Operations Services and Technology ('HOST') across 11 individual locations. Financial reporting processes are performed in HSBC's 4 Finance Operations Centres. Working closely with me, a partner coordinated the audit work performed by PwC member firms in the UK, Poland, China, Sri Lanka, Malaysia, India and Philippines. This work established an end-to-end picture of the key processes that supported material balances, classes of transactions and disclosures within the HSBC financial statements. It enabled the team to evaluate the effectiveness of the controls over these processes and to consider the implications for the remainder of our audit work. Approximately 10% of the controls tested in the audit are undertaken in these sites.

(3) Audit work executed on individual legal entities:

I received opinions from PwC member firms which had been appointed as the external auditors of the Hongkong and Shanghai Banking Corporation Limited, HSBC North America Holdings Inc, HSBC Mexico S.A., HSBC Bank Middle East Limited Dubai branch, HSBC Bank Canada, HSBC Bank plc, HSBC Bank UK plc, HSBC Global Services (UK) Limited and HSBC Group Management Services Limited (together the 'Significant Subsidiaries').

I was in active dialogue throughout the year with the partners responsible for these audits; this included consideration of how well they planned and performed their work. My senior colleagues and I visited these Significant Subsidiaries, and attended Audit Committee meetings for most of them. We also visited businesses in a further three countries. These visits increased our understanding of some of the smaller businesses within HSBC. I also attended meetings with management in each of these Significant Subsidiaries at the year-end.

The audits of these Significant Subsidiaries relied upon work performed by PwC member firms in Australia, China, India, France, and Germany. I considered how my Significant Subsidiary audit teams instructed and reviewed the work undertaken in these locations in order to ensure the quality and adequacy of their work. Collectively, the PwC member firms completed procedures covering 85% of assets, 75% of total operating income and 85% of profit before tax.

(4) Audit procedures undertaken at a Group level and on the parent company:

I ensured that appropriate further work was undertaken for the HSBC Group and parent company. This work included auditing, for example, the consolidation of the Group's results, the preparation of the financial statements, certain disclosures within the Directors' remuneration report, litigation provisions and exposures, and management's entity level and oversight controls relevant to financial reporting.

In March 2018, I chaired a three-day meeting in London of the partners and senior staff from PwC member firms who undertake audits of the Significant Subsidiaries. There were no significant changes in this team during 2018. The meeting provided an opportunity for those partners and staff to hear directly from HSBC management, including the new Group CEO who outlined his areas of focus. We considered during this meeting how our view of significant audit risks had changed.

1     We have audited HSBC Holdings plc's financial statements which comprise the consolidated and parent company balance sheets as at 31 December 2018, the consolidated and parent company income statements and the consolidated and parent company statements of comprehensive income for the year then ended, the consolidated and parent company statements of cash flows for the year then ended, the consolidated and parent company statements of changes in equity for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. We have also audited the consolidated and parent company balance sheets as at 1 January 2018. Certain required disclosures have been presented elsewhere in the Annual Report and Accounts 2018, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as '(Audited)'. The relevant disclosures are included in the Global businesses and geographical regions sections on pages 47 to 49; the Risk sections on pages 79 to 146; the Capital sections on pages 148 to 149; and the Directors' remuneration report disclosures on pages 185 to 197.

Changes to the audit in 2018

More detailed changes in the approach arose because of:

(1) Changes in the structure and strategy of the HSBC Group

In assessing the Significant Subsidiaries in 2018 I limited work performed on HSBC Bank Middle East Limited to the Dubai branch and removed HSBC Private Bank Suisse S.A. because of its relative size. HSBC Bank UK plc, the ring-fenced retail bank, was included for the first time because it commenced trading as an independent entity in July 2018. There were no other changes in scope.

(2) Impairment of assets required under IFRS 9 "Financial Instruments"

IFRS 9 was applied from 1 January 2018. It has changed the classification and measurement of assets and liabilities on the balance sheet, and the calculation of impairment on assets. With respect to impairment, this has been a substantial exercise for HSBC with changes required to processes and controls to comply with the complexities of the accounting standard. I asked a partner who is a specialist in IFRS 9 to lead the audit of the processes adopted, assumptions made, and control framework established for both the analysis of the transition included in Note 37 and the current year impacts included in the audited credit risk disclosures on pages 79 to 146. The additional work required drove much of the increased audit fee in both 2018 and 2017.

The work undertaken included a review of over 120 models used to calculate the expected losses, but also considered the controls governing the origination, maintenance and necessary adjustments to the data used by these models, much of which had not previously been subject to the application of internal controls suitable for financial reporting.

Time was spent considering how macroeconomic events could impact the calculation of expected loss through the application of forward economic guidance. This guidance cannot consider all possible outcomes that could occur in the future, but is an estimate based on information available at the date of the financial statements. As this is a new and complex accounting standard, market practice will emerge that may lead to refinements in the methodology adopted.

(3) The impact of geopolitical tensions on the macro environment

Geopolitical factors were considered to determine if changes in the approach were required, for example; the impacts of the UK's departure from the EU, China-US trade arrangements, tensions in the Middle East and changing oil prices. I specifically considered how these matters were reflected in IFRS 9, but more broadly on the valuation of assets and liabilities. IFRS requires financial statements to carry certain assets at fair value, as discussed in Note 1. Where this is the case, it is the value on 31 December 2018, and therefore the financial statements cannot reflect changes which will occur in the future as a result of these or other events.

(4) Adding unpredictability to our audit procedures

As required by auditing standards, my team undertook procedures which were deliberately unexpected and could not have reasonably been predicted by HSBC management. As an example, the team in the Middle East undertook unannounced cash counts in branches during the year. The results of these procedures were consistent with our expectations.

(5) Using the work of others

During 2018 I made more use of evidence provided by others. This included testing of controls performed by Group Internal Audit and management themselves in some low risk areas. I also used the work of experts where this is necessary, most notably; the calculation of pension liabilities. An increasing number of controls are operated on behalf of HSBC by third parties, where I rely on audit evidence provided by other audit firms not part of the PwC network. For example, I obtain a report evidencing the testing of external systems and controls supporting HSBC's payroll and HR processes. In all of these situations, the PwC audit teams reviewed the work undertaken and determined it to be acceptable for the purposes of the audit.

(6) Innovations in the audit

My senior colleagues and I are committed to driving innovation and the use of technology in the audit to improve quality and consistency. A workshop was held in India for the PwC member firms involved in the audit to explore how work could be enhanced and new audit procedures could be undertaken. As a result of this workshop, we identified three areas of focus, Ways of Working, Technology Enabled Audit, and Reliance on Others. As a result, we have implemented our 'Agile' working methodology and tools to deliver sections of the audit more efficiently, such as maximising the use of our own offshore service delivery centres for approximately 100 audit procedures that can be performed consistently for all audit teams. To make our audit more technology enabled, we developed five solutions to automate certain standard audit procedures and increased our use of robotics, data analytics and process intelligence.

Responsibilities of the Directors and auditor

The Directors have, on page 206 acknowledged their responsibility to prepare the financial statements to give a true and fair view; to have controls enabling them to be satisfied that the financial statements are free from material misstatement, whether due to fraud or error; and, as described below to assess whether the Group and parent company can continue as a going concern.

It is the sole responsibility of the Directors to ensure that you receive financial statements which are both true and fair. However, an audit has an important role in providing confidence in the financial statements that are provided by companies to their members. That confidence is based upon independence and objectivity. I can confirm that PwC remained independent of the Group in accordance with the ethical requirements that are relevant to the audit of listed public interest entities in the UK, which includes the FRC's Ethical Standard. PwC has also fulfilled its other ethical responsibilities in accordance with these requirements.

There has been considerable media debate about the impact that other services may have on auditor independence. I reviewed the details of services provided by the PwC network of firms and concluded that they were all permitted by the FRC's Ethical Standard, as discussed on page 160, the GAC also rigorously reviewed these other services. The fees for all services provided by members of the PwC network is included in Note 7. Of these fees, 94% are for services related to the audit or providing independent assurance, I am working with the GAC to ensure that progressively during 2019 our services relate solely to these categories.

The audit opinion does not provide assurance over any particular number or disclosure, but over the financial statements taken as a whole. The scope of an audit is sometimes not fully understood. I believe that it is important that you understand the scope in order to understand the assurance that my opinion provides. A further description of the scope of an audit is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities; I recommend that you read this description carefully.

It is also critical that you understand the inherent limitations of the audit which are disclosed in this description, including the possibility that an approach based upon sampling and other audit techniques may not identify all issues.

As in all PwC statutory audits I did specifically address the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

While our audit procedures include obtaining representations that the Group is in compliance with all applicable laws and regulations, an audit does not involve testing HSBC's compliance with each of the very large number of laws and regulations with which the Group, as a financial services business, must comply. I and my colleagues apply judgement in selecting the specific laws and regulations as the focus of our audit procedures. For example, we focused on business authorisations issued by the Prudential Regulatory Authority because in our judgement a breach could lead to a material impact on the financial statements or the Group's going concern. Audit procedures were performed to identify if any such breaches had occurred. These procedures included regularly meeting with some of the Group's regulators, reviewing correspondence with both regulators and legal advisors and meeting with the Group General Counsel.

Annually the Prudential Regulatory Authority provide questions covering aspects of our audit where they would like further information to assist them in their regulatory responsibilities. These questions did not highlight any areas that I had not already considered in our audit.

Materiality

In order for me to perform my work, I had regard to the concept of materiality. The table provides you with details of how I have determined materiality for both the Group and the parent company.

Overall Group materiality	$1bn (2017: $900m)	$1bn (2017: $900m)
How I determined it	5% of adjusted profit before tax excluding the debit valuation adjustment and non-qualifying hedges.	0.75% of total assets. This would result in an overall materiality of $1.8bn and is therefore capped at the materiality for the Group.
Why I believe this is appropriate	Given the geographically dispersed nature of HSBC and the diversity of its banking activities, I believe a standard benchmark of 5% of adjusted profit before tax is an appropriate quantitative indicator of materiality, although of course an item could also be material for qualitative reasons. I selected adjusted profit before tax, because as discussed on page 47, management believes it best reflects the performance of HSBC. I excluded the debit valuation adjustment and non-qualifying hedges as they are recurring items that in my view form part of ongoing business performance.	A benchmark of total assets has been used as the parent company's primary purpose is to act as a holding company with investments in the group's subsidiaries, not to generate operating profits and therefore a profit based measure is not relevant. 1% is a commonly used measure when determining materiality based on total assets. Given the parent company has a significant level of external debt, we considered 0.75% to be more appropriate.

When planning the Group audit, I considered if multiple errors might exist which, when aggregated, could exceed $1bn. In order to reduce the risk of multiple errors that could aggregate to this amount, I used a lower level of materiality, known as performance materiality, of $750m to identify the individual balances, classes of transactions and disclosures that were subject to audit. I asked each of the partners reporting to me on the Significant Subsidiaries to work to assigned materiality levels reflecting the size of the operations they audited. The overall materialities ranged from $67m (HSBC Mexico S.A.) to $837m (The Hongkong and Shanghai Banking Corporation Limited).

My objective is to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error. Reasonable assurance is not a guarantee that an audit will always detect a material misstatement when it exists. It is important to recognise that identifying a material misstatement arising from fraud is more difficult than identifying one arising solely from error because fraud generally involves deliberate concealment, collusion or misrepresentation.

Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The misstatements identified during the audit were carefully considered to assess if they were individually or in aggregate material. I agreed with the GAC that we would report to them misstatements identified during our audit above $50m (2017: $50m), as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. I reported several items for both the Group and parent company to the GAC, impacting either the absolute level of profit and equity or misclassifications within the financial statements and notes. The Directors concluded that all items which remained unadjusted were not material to the financial statements. I agreed with their conclusion. All other significant adjustments that we identified in our audit were adjusted by the Group prior to the issuance of the financial statements.

Matters discussed with the GAC

Most of our discussions occur with senior management of the Group. However, we escalate those matters which we believe are most important to the GAC for their consideration. I attended each of the 13 GAC meetings held during the year. Part of each meeting involved a discussion without management present. I also met with members of the GAC a further 20 times. During these various conversations we discussed my observations on a variety of accounting matters, observations on controls over financial reporting, culture and the impact of changes in senior management. I can confirm that this report is consistent with the reporting made to the GAC.

During the April meeting, the audit plan was presented. This was supplemented by an update in December on how technology was being used in the audit. Throughout the year, this plan was refreshed and revisions discussed with the GAC. For example, given the focus on 'jaws' as an alternative performance measure in external reporting and sensitivity to changes in income and expense recognition significantly lower than materiality, I changed our risk assessment and audit effort.

I discussed with the GAC all of the matters that presented the most significant risks of material misstatement in the financial statements. They include those that had the greatest effect on the overall audit strategy, and the allocation of resources and effort and are discussed below together with an explanation of how the audit was tailored to address these specific areas. To help you understand their impact on the audit, I have listed them in order of decreasing audit effort. This is not a list of all audit risks and I do not form an opinion on any one area, but on the financial statements overall. The list is similar to last year, with the exception of litigation and regulatory enforcement actions, which was not a key audit matter in 2018 as a result of the settlements made by the Group.

IT Access Management

The audit approach relies extensively on automated controls and therefore on the effectiveness of controls over IT systems. In previous years, we identified and reported that controls over access to applications, operating systems and data in the financial reporting process required improvements. Access management controls are critical to ensure that changes to applications and underlying data are made in an appropriate manner. Appropriate access controls contribute to mitigating the risk of potential fraud or errors as a result of changes to applications and data. Over the past four years, management implemented remediation activities that have contributed to reducing the risk over access management in the financial reporting process. The status of the remediation was discussed at several GAC meetings during the year. However, issues related to privileged access and business user access remained unresolved on parts of the technology infrastructure, requiring our audit approach to respond to the risks presented. This matter was discussed in relation to both the Group and the parent company.

Access rights were tested over applications, operating systems and databases relied upon for financial reporting. Specifically, the audit tested that: •      New access requests for joiners were properly reviewed and authorised. •      User access rights were removed on a timely basis when an individual left or moved role. •      Access rights to applications, operating systems and databases were periodically monitored for appropriateness. •     Highly privileged access was restricted to appropriate personnel. Other areas that were independently assessed included password policies, security configurations, controls over changes to applications and databases and that business users, developers and production support did not have access to change applications, the operating system or databases in the production environment. As a consequence of the deficiencies identified, a range of other procedures were performed: •      Where inappropriate access was identified, we understood the nature of the access, and, where possible, obtained additional evidence on the appropriateness of the activities performed. •      Additional substantive testing was performed on specific year-end reconciliations (i.e. custodian, bank account and suspense account reconciliations) and confirmations with external counterparties. •      Testing was performed on other compensating controls such as review controls undertaken by management. •      Testing was performed over toxic combination controls. •      A list of users' access permissions was obtained and manually compared to other access lists where segregation of duties was deemed to be of higher risk, for example users having access to both core banking and payments systems.

GAC Report, page 160. Effectiveness of internal controls, page 164.

Application of IFRS 9 in the calculation of impairment of loans and advances

As this is the first year of adoption of IFRS 9, there is limited experience available to back-test the charge for expected credit losses ('ECL') with actual results. There is also a significant increase in the number of data inputs required for the impairment calculation. The data is sourced from a number of systems that have not been used previously for the preparation of the accounting records. This increases risk around completeness and accuracy of certain data used to create assumptions and operate the models. The global credit environment has remained benign for an extended period of time, in part due to the globally low interest rates and relative strength of the global economy. However, there are a number of headwinds to the global economy as well as certain regional and country specific risks. As a result, whilst the current levels of delinquencies and defaults remains low, the risk of impairment remains significant. At each GAC and Group Risk Committee meeting there was a discussion on changes to risk factors and other inputs within the models, geopolitical risks, such as the escalating US-China trade wars and the UK's departure from the EU, as well as discussions on individually significant loan impairments. The more judgemental interpretations of IFRS 9 made by management continued to be discussed, in particular the application of forward economic guidance, including the severity and magnitude of modelled downside scenarios; and associated considerations of post model adjustments. As the control environment for the calculation of ECL under IFRS 9 continued to be strengthened following initial adoption, we provided updates on the changes being made and the results of our testing procedures.

•      Model performance monitoring controls were tested, including periodic policy and independent model reviews, back testing of performance, and approval of model changes. •      Performed risk based substantive testing of models, including independently re-building certain assumptions. •      Tested the review and challenge of multiple economic scenarios by an expert panel and internal governance committee, and assessed the reasonableness of the multiple economic scenarios and variables using our economic experts. •      Controls over the inputs of critical data, into source system, and the flow and transformation of data between source systems to the impairment calculation engine were tested. Substantive testing was performed over the critical data used in the year end ECL calculation. •      Assessed management's user acceptance testing over the automated calculation of ECL to ensure it is performed in line with business requirements, as well as independently reviewing the underlying script to validate that the calculation operated as per our expectations. •      Observed review and challenge forums to assess the ECL output and approval of post model adjustments. •      Tested the approval of the key inputs, assumptions and discounted cash-flows that support the significant individual impairments, and substantively tested a sample of individually assessed loans.

Credit risk disclosures, page 88. GAC Report, page 160. Note 1.2 (d): Financial instruments measured at amortised cost, page 228. Note 37: Effects of reclassification upon adoption of IFRS 9, page 296.

Investment in associate - Bank of Communications Company, Limited ('BoCom')

For eight consecutive year ends the market value of BoCom has been below the carrying value. At 31 December, the market value based on the share price was $6.8bn lower than the carrying value. This is considered an indicator of potential impairment. An impairment test was performed by HSBC using a value in use ('VIU') model to estimate the investment's value assuming it continues to be held in perpetuity rather than sold. The VIU was only $300m in excess of the carrying value. On this basis no impairment was recorded and the share of BoCom's profits has been recognised in the consolidated income statement. The VIU model is dependent on many assumptions, both short-term and long-term in nature. These assumptions are derived from a combination of management estimates, analysts' forecasts and market data, and are highly judgemental. Given the proximity of the carrying value and VIU, small changes in some of these assumptions would lead to an impairment. We discussed the appropriateness of these assumptions with the GAC, particularly those with the greatest sensitivity related to short term cash flows and the minimum level of capital required by BoCom. The focus of this discussion was on whether the impact of China-US trade tensions and perspectives on the China banking market had been fully reflected. We also reviewed with the GAC the long term profit growth rate and loan impairment rate, and considered reasonably possible alternatives. In the discussion we specifically considered whether the assumptions used captured the current levels of uncertainty, both individually and when standing back and considering the output of the model in aggregate.

•      The conclusions on the appropriateness of the model were reviewed, including an assessment of management's expert. •      A reasonable range for the discount rate used within the model was independently calculated with the assistance of our valuation experts. •      Inputs used in the determination of assumptions within the model were challenged and corroborating information was obtained with reference to external market information, third-party sources, including analyst reports, and historical publicly available BoCom information. •      The controls in place over the model, and its mathematical accuracy were tested. •      We observed a meeting in November 2018 between management and senior BoCom executive management, held specifically to identify facts or circumstances impacting management assumptions. •      Disclosures made in the Annual Report and Accounts 2018 in relation to BoCom were reviewed. •      Representations were obtained from HSBC that the assumptions used were consistent with information currently available to them, both as a shareholder and to which HSBC are entitled through their participation on BoCom's Board of Directors.

GAC Report, page 160. Note 1.1(f): Critical accounting estimates and judgements, page 226. Note 18: Interests in associates and joint ventures, page 265.

Management override of controls - alternative performance measure

The use of alternative performance measures is common by listed companies to help better explain performance. HSBC use a number, and the GAC has considered them in detail during the year, specifically assessing the appropriateness of 'adjusted profit'. During the year we discussed with the GAC the potential for the jaws target to be missed. Given the metric is highly sensitive to small changes in revenue and cost, we concluded that this increased the incentive for management to override controls to meet targets. This change in assessment prompted us to perform a number of incremental procedures which might indicate that revenue or costs were intentionally misstated. We communicated the change in risk assessment during October 2018, and designed a year end testing response as a result. The outcome of our testing was communicated to the GAC in February 2019.

Reassessed significant judgements in light of the enhanced incentives noted in the risk assessment. •    Performed additional tests on journals, specifically considering cut off and unusual combinations that impact costs and revenue. •    Performed work over revenue and expenses booked in January 2019 to assess if they were included in the correct period. •    Tested the clearance and appropriateness of classification of aged reconciliation breaks, considering if there was a trend towards only resolving issues which would improve revenue or reduce costs. •    Considered the accuracy of accruals with a specific focus on the bonus accrual. •    Tested impairment processes at year end, identifying where booking of impairments may have been delayed into FY19 or was close to meeting criteria for impairment at year end.

GAC Report, page 160.

There were a number of other matters which were covered in the meetings, including;

•     the impact of models on the financial statements and the related control environment. The carrying value of almost 70% of the Group's total assets is calculated or supported by models and included areas such as loans and advances, calculation of the present value of inforce policies sold by the insurance businesses and goodwill. Our audit work considered the controls over, inputs into and reasonableness of the outputs of those models with a material impact;

•     internal controls over financial reporting. At the GAC meetings in November 2018 and February 2019, there was an update on the control environment over financial reporting. I provided information on the aggregate number of new and outstanding control deficiencies identified by my team and management. Those deemed to be significant in their potential impact on financial reporting, but not material, were discussed individually;

•     a focus on uncertain tax positions ('UTPs'). During the November GAC meeting, I highlighted the increase in UTP exposure, particularly in the UK entities due to increased focus from HMRC on UK VAT matters in financial services Groups. This increase in UTP exposure is consistent with our expectations based on what we've seen across the sector and given the nature of the Group's business; and

•     a detailed discussion on the quality of the results of quality inspections performed with respect to the audit work of different PwC member firms on which I rely, and the rotation plans for key audit partners.

Going concern

On page 165, the Directors confirmed their belief it was appropriate to prepare the financial statements on a going concern basis, because they believe that the Group and the parent company will continue in business. That statement also included confirmation that they had not identified any material uncertainties to either the Group's or the parent company's ability to continue as a going concern over a period of at least twelve months from the date of their approval of these financial statements. Because not all future events or conditions can be predicted, this statement is not a guarantee. I reviewed this statement, and considered HSBC's budgets, cash flows, capital plan and stress tests. There is nothing arising from this review that is materially inconsistent with my understanding and information obtained during the audit. Further, there is nothing material that I would add to this statement, or that I wish to draw your attention to.

Other required matters and reporting on other information

The Annual Report and Accounts 2018 contains a considerable amount of other information that is required by regulators or standard setters and is outside of the audited financial statements and the auditors' report. This information, while being unaudited, may still be important to your consideration of the performance and position of HSBC, for example risk weighted assets. The Directors are responsible for this other information.

In the table below, I have set out certain areas, my related responsibilities and reporting. Except as outlined in the table, I have not provided an audit opinion or any form of assurance. It is important that you understand the limitations in the scope of my responsibility, particularly over areas important to considering the future potential of HSBC such as the Viability Statement and how the Group's key risks are managed.

Directors' remuneration report on pages 172 to 205
Those parts of which are marked as audited.	Consider whether the information is properly prepared.	In my opinion, this information has been properly prepared in accordance with the Companies Act 2006.
Other remuneration report disclosures.	Consider whether certain other disclosures specified by the Companies Act have been made.	The other required disclosures have been made.
Other areas
Strategic Report and the Report of the Directors' on pages 2 to 206.	Consider whether they are consistent with the audited financial statements. Consider whether they are prepared in accordance with applicable legal requirements. Report if I have identified any material misstatements in either report. This is based on my knowledge and understanding of the Group and parent company and the environment they operate in that was obtained during the audit.	In my opinion, based on the work undertaken in the course of the audit, the information in these reports is consistent with the audited financial statements and prepared in accordance with applicable legal requirements. I have no material misstatements to report.
Viability statement on page 165 which considers the longer term sustainability of the Group's business model, as to whether the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, and why the Directors consider that period to be appropriate. This includes confirmation of the Directors' robust assessment of principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity, and disclosures describing those risks and how they are managed or mitigated.	Review the confirmation and description in the light of the knowledge gathered during the audit, including making enquiries and considering the directors' processes used to support the statements made. Consider if the statements are aligned with the relevant provisions of the UK Corporate Governance Code (the 'Code').	I have nothing material to draw attention to or to add to the confirmation or description.
GAC Report on page 159.	Consider whether it deals appropriately with those matters that I reported to the GAC.	No exceptions to report.
Directors' statement on page 206 that they consider the HSBC Annual Report and Accounts 2018, taken as a whole, to be fair, balanced and understandable and provides the information necessary for you to assess HSBC's position and performance, business model and strategy.	Consider whether any information found during the course of the audit would cause me to disagree.	No disagreements to report.
Corporate governance report on pages 152 to 171.	Consider whether the Directors' statement relating to the parent company's compliance with the Code properly discloses any departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.	Nothing to report following my review.
All other information in the Annual Report and Accounts 2018 aside from the audited financial statements and the auditors' report.	Read the other information and consider whether it is materially inconsistent with the financial statements or our knowledge gained in the audit, or otherwise appears to be materially misstated. I am required to perform additional work to validate if apparent inconsistencies or misstatements are real, and report those matters to you.	Nothing to report following my review.

Other Reporting

In addition, I am required to report to you under the Companies Act 2006 if:

•       I have not received all of the information and explanations required for my audit;

•       adequate accounting records have not been kept by the parent company;

•       returns adequate for my audit have not been received from branches not visited by PwC; and

•       the parent company financial statements and the audited part of the Directors' remuneration report do not agree with the accounting records and returns.

I have no exceptions to report as a result of any of these responsibilities.

Use of this report

This report, including the opinions, has been prepared for and only for you, the parent company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006, and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come except where expressly agreed by our prior written consent.

Richard Oldfield (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

London, United Kingdom

19 February 2019

 

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