Bank of Montreal 2013 Annual Report Download - page 69

MANAGEMENT’S DISCUSSION AND ANALYSIS
MD&A
Enterprise-Wide Risk Management Framework
Board of Directors
Risk Management Committee
Operating Groups
Chief Executive Officer
Corporate Support Areas
Enterprise Risk and
Portfolio Management Corporate Audit Division
Board Risk Review Committee
Balance Sheet and
Capital Management
Reputation Risk
Management Operational Risk
First Line of Defence Second Line of Defence Third Line of Defence
Board Audit and Conduct Review
Committee
Board of Directors is responsible for the stewardship of BMO and
protecting the interest of BMO’s shareholders. The board, either
directly or through its committees, is responsible for oversight in the
following areas: strategic planning, defining risk appetite, identi-
fication and management of risk, capital management, promoting a
culture of integrity, governance, internal controls, succession planning
and evaluation of senior management, communication, public dis-
closure and corporate governance.
Risk Review Committee of the Board of Directors (RRC) assists the
board in fulfilling its oversight responsibilities in relation to BMO’s
identification and management of risk, adherence to risk manage-
ment corporate policies and procedures, compliance with risk-related
regulatory requirements and evaluation of the Chief Risk Officer.
Audit and Conduct Review Committee of the Board of Directors
assists the board in fulfilling its oversight responsibilities for the
integrity of BMO’s financial reporting, effectiveness of BMO’s internal
controls and performance of its internal and external audit functions.
Chief Executive Officer (CEO) is directly accountable to the board for
all of BMO’s risk-taking activities. The CEO is supported by the Risk
Management Committee and its sub-committees, as well as ERPM.
Chief Risk Officer (CRO) reports directly to the CEO and is head of
ERPM. The CRO is responsible for providing independent review and
oversight of enterprise-wide risks and leadership on risk issues,
developing and maintaining a risk management framework and
fostering a strong risk culture across the enterprise.
The Board of Directors, based on recommendations from the RRC and
the RMC, delegates risk limits to the CEO. The CEO then delegates more
specific authorities to the CRO, who in turn delegates them to the
Operating Group CROs or the Treasurer in the case of structural market
risk limits. These delegated authorities allow the officers to set risk
tolerances, approve geographic and industry sector exposure limits
within defined parameters, and establish underwriting and inventory
limits for trading and investment banking activities. The authorities are
reviewed and approved annually by the Board of Directors based on the
recommendation of the RRC. The criteria whereby these authorities may
be further delegated throughout the organization, as well as the
requirements relating to documentation, communication and monitoring
of delegated authorities, are set out in corporate policies and standards.
Risk Management Committee (RMC) is BMO’s senior risk committee.
RMC reviews and discusses significant risk issues and action plans that
arise in executing the enterprise-wide strategy. RMC provides risk
oversight and governance at the highest levels of management. This
committee is chaired by the CRO.
RMC Sub-committees have oversight responsibility for the risk and
balance sheet impacts of management strategies, governance, risk
measurement and contingency planning. RMC and its sub-committees
provide oversight over the processes whereby the risks assumed
across the enterprise are identified, measured, monitored and
reported in accordance with policy guidelines and are held within
delegated limits.
Enterprise Risk and Portfolio Management (ERPM) provides
independent oversight of the credit and counterparty, operational and
market risk functions. It promotes consistency of risk management
practices and standards across the enterprise. ERPM facilitates a dis-
ciplined approach to risk-taking through the execution of independent
transactional approval and portfolio management, policy formulation,
risk reporting, stress testing, modelling, vetting and risk education
responsibilities. This approach seeks to meet enterprise objectives and
to ensure that risks assumed are consistent with BMO’s risk appetite.
Operating Groups are responsible for managing risk within their
respective areas. They exercise business judgment and seek to ensure
that policies, processes and internal controls are in place and that
significant risk issues are appropriately escalated to ERPM.
Risk Culture
At BMO, we believe that risk management is the responsibility of every
employee within the organization. This key tenet shapes and influences
our risk culture and is evident in the actions and behaviours of our
employees and leaders as they identify, interpret, discuss and make
choices and decisions between risk and opportunities. Our risk culture is
deeply rooted and is evident in every aspect of how we run our enter-
prise, including within our policies, risk management frameworks, risk
appetite and tolerances, capital management and compensation.
80 BMO Financial Group 196th Annual Report 2013