Company: HBCYF
Filing Date: 2025-02-20
Form Type: 20-F
Source: 0001089113-25-000040
Chunk: 231

Company: HSBC HOLDINGS PLC
Filing Date: 2025-02-20
Form: 20-F
Chunk 231
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 have strengthened our due diligence and monitoring capabilities in respect of the financial stability of our third parties. – We have strengthened the way third-party risk is overseen and managed across all non-financial risks, and have enhanced our processes, framework and reporting capabilities to help improve the visibility of risk and enable more robust management of our material third parties by our global businesses, functions and regions. – We are implementing the changes required by new regulations as set by our regulators. Model risk Model risk arises whenever business decision making includes reliance on models. We use models in both financial and non-financial contexts, as well as in a range of business applications such as customer selection, product pricing, financial crime transaction monitoring, creditworthiness evaluation and financial reporting. Assessing model performance is a continuous undertaking including both regular monitoring of the model’s performance and more fundamental reviews of the model construct and data. Model risk remains a key area of focus given the regulatory scrutiny in this area, with local regulatory exams taking place in many jurisdictions and the PRA’s supervisory statement 1/23 (SS1/23) coming into effect, This provided detailed principles-based guidance on how model risk should be managed, and further developments in policy are also expected from other regulators. We continued to prioritise the redevelopment of internal ratings-based (‘IRB’) and internal model methods (‘IMM’) models, in relation to counterparty credit, as part of the IRB repair and Basel 3.1 and Fundamental Review of the Trading Book programmes. We have a key focus on enhancing the quality of data used as model inputs and ensuring that models adhere to both the letter and spirit of the regulation. Some models have been approved and a number are pending approval decisions from the UK’s Prudential Regulation Authority (‘PRA’) and other key regulators. We also launched a major project to develop 32 Wholesale IRB models which are expected to be submitted for regulatory approval over the next two and a half years. Focus remains on AI and machine learning models where the pace of technological advances, including the development of generative AI, is driving significant changes in modelling techniques, and regulators across the globe are beginning to publish regulations and guidance. Mitigating actions – We are investing in the redevelopment of our IRB models used in our wholesale businesses to enhance our modelling capability and help ensure we meet regulatory expectations for the adoption of Basel 3.1 requirements. – We updated our Model Risk Management (‘MRM’) framework to meet the requirements of the PRA’s SS1/23