Company: HBCYF
Filing Date: 2025-02-20
Form Type: 20-F
Source: 0001089113-25-000040
Chunk: 362

Company: HSBC HOLDINGS PLC
Filing Date: 2025-02-20
Form: 20-F
Chunk 362
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 wildlife trafficking and human trafficking.

Model risk Overview Model risk is the risk of the potential for adverse consequences from model errors or the inappropriate use of modelled outputs to inform business decisions. Model risk arises in both financial and non-financial contexts whenever business decision making includes reliance on models. Key developments in 2024 In 2024 , we continued to make improvements in our Model Risk Management (‘MRM’) processes amid regulatory changes in MRM requirements. Initiatives during the year included: – updating our MRM Framework to meet the requirements of the PRA’s SS1/23 with a programme of work in progress to implement these changes across the model landscape; – completing a review of model tiering across the organisation assessing the materiality and complexity of all models and assigning a new tier which will drive the level of oversight required at model level; – introducing a new framework to govern and manage the risks associated with Deterministic Quantitative Methods, which are complex and material calculators that although not technically models still present similar risks; – following feedback from the PRA and other regulators on a number of our model submissions for internal ratings-based (‘IRB’) models, we are delivering a programme of work to redevelop several IRB models for wholesale credit; – enhancing our framework for the independent validation of models accounting for new generative AI techniques becoming more widely used; and – working closely with businesses and functions in developing a governance framework to manage the range of risks these AI and Machine Learning (‘ML’) techniques can introduce. Governance and structure Model risk governance committees at the Group, business and functional levels provide oversight of model risk. The committees include senior leaders from the global businesses and the Group Risk and Compliance function, and focus on model-related concerns and are supported by key model risk metrics. We also have Model Risk Committees in our geographical regions focused on local delivery and requirements. The Group-level Model Risk Committee is chaired by the Group Chief Risk and Compliance Officer, and the heads of key businesses participate in these meetings. Key risk management processes We use a variety of modelling approaches, including regression, simulation, sampling, machine learning and judgemental scorecards for a range of business applications. These activities include customer selection, product pricing, financial crime transaction monitoring, creditworthiness evaluation and financial reporting. Global responsibility for managing model risk is delegated from the Board to the Group Chief Risk and Compliance Officer, who authorises the Group Model Risk Committee. This committee regularly reviews our model risk management policies and procedures, and requires the first line of defence to demonstrate comprehensive and effective