AmazonScience/document-haystack

1Strategic report2Risk Trend Description3Externally driven4Geopolitical and 5macroeconomic 6risks 7Our operations and portfolios are subject to risks associated with political instability, civil unrest and military 8conflict, which could lead to disruption of our operations, physical risk to our staff and/or physical damage to our 9assets. Conflict in certain regions and geopolitical tensions are creating a more complicated business 10environment. Despite expected reductions, global interest rates are nevertheless likely to remain high in 2024, 11which could slow the growth of the global economy and affect our credit portfolio.12Technology and 13cybersecurity risk14There is a risk of service disruption or loss of data resulting from technology failures or malicious activities by 15internal or external threats. We continue to monitor changes to the threat landscape, including those arising from 16ongoing geopolitical and macroeconomic events, and the impact this may have on third-party risk management. 17We operate a continuous improvement programme to help protect our technology operations and counter a 18fast-evolving cyber threat environment.19Environmental, 20social and 21governance (‘ESG’) 22risks23We are subject to ESG risks including in relation to climate change, nature and human rights. These risks have 24increased owing to the pace and volume of regulatory developments globally, increasing frequency of severe 25weather events, and due to stakeholders placing more emphasis on financial institutions’ actions and investment 26decisions in respect of ESG matters. Failure to meet these evolving expectations may result in financial and 27non-financial risks, including reputational, legal and regulatory compliance risks.28Financial crime risk We are exposed to financial crime risk from our customers, staff and third parties engaging in criminal activity. 29The financial crime risk environment is heightened due to increasingly complex geopolitical challenges, the 30macroeconomic outlook, the complex and dynamic nature of sanctions compliance, evolving financial crime 31regulations, rapid technological developments, an increasing number of national data privacy requirements and 32the increasing sophistication of fraud. As a result, we will continue to face the possibility of regulatory 33enforcement and reputational risk.34Digitalisation and 35technological 36advances 37Developments in technology and changes in regulations continue to enable new entrants to the banking industry 38and new products and services offered by competitors. This challenges us to continue to innovate with new 39digital capabilities and adapt our products, to attract, retain and best serve our customers. Along with 40opportunities, new technology, including generative AI, can introduce risks and we seek to ensure these are 41understood and managed with appropriate controls.42Evolving regulatory 43environment risk44The regulatory and compliance risk environment remains complex, in part due to the UK’s Financial Conduct 45Authority’s (‘FCA’) implementation of its Consumer Duty in July 2023. There continues to be an intense 46regulatory focus on ESG matters, including on ‘green’ products. Regulatory scrutiny of financial institutions 47following recent banking failures may result in new or additional regulatory requirements impacting the Group in 48the short to medium term. 49Internally driven50Data risk We use data to serve our customers and run our operations, often in real-time within digital experiences and 51processes. If our data is not accurate and timely, our ability to serve customers, operate with resilience or meet 52regulatory requirements could be impacted. We seek to ensure that non-public data is kept confidential, and  53that we comply with the growing number of regulations that govern data privacy and cross-border movement  54of data.55Risks arising from 56the receipt of 57services from  58third parties 59We procure goods and services from a range of third parties. Due to the current macroeconomic and 60geopolitical climate, the risk of service disruption in our supply chain has heightened. We continue to  61strengthen our controls, oversight and risk management policies and processes to select and manage third 62parties, including our third parties’ own supply chains, particularly for key activities that could affect our 63operational resilience.64Model risk Model risk arises whenever business decision making includes reliance on models. We use models in both 65financial and non-financial contexts, as well as in a range of business applications. Evolving regulatory 66requirements are driving material changes to the way model risk is managed across the banking industry, with a 67particular focus on capital models. New technologies, including AI and generative AI, are driving a need for 68enhanced model risk controls.69Change execution 70risk71Failure to effectively prioritise, manage and/or deliver transformation across the organisation impacts our ability 72to achieve our strategic objectives. We continue to monitor, manage and oversee change execution risk to try to 73ensure that our change portfolios and initiatives deliver the right outcomes for our customers, people, investors 74and communities.75Risks associated 76with workforce 77capability, capacity 78and environmental 79factors with potential 80impact on growth81Our businesses, functions and geographies are exposed to risks associated with employee retention and talent 82availability, and compliance with employment laws and regulations. While high employee attrition has continued 83to ease generally, a small number of markets still experience heightened inflation, turnover and labour market 84difficulties. Failure to manage these risks may impact the delivery of our strategic objectives or lead to regulatory 85sanctions or legal claims.86 Risk heightened during 2023 Risk remained at the same level as 2022  Risk decreased during 202387HSBC Holdings plc  Annual Report and Accounts 2023 3988Risk overview