Morgan Stanley 2009 Annual Report Download - page 93

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Risk Management.
Risk Management Policy and Control Structure.
Risk is an inherent part of the Company’s business and activities. The Company has policies and procedures in
place for measuring, monitoring and managing each of the various types of significant risks involved in the
activities of its Institutional Securities, Global Wealth Management Group and Asset Management business
segments and support functions as well as at the holding company level. The Company’s ability to properly and
effectively identify, assess, monitor and manage each of the various types of risk involved in its activities is
critical to its soundness and profitability. The Company’s portfolio of business activities helps reduce the impact
that volatility in any particular area or related areas may have on its net revenues as a whole. The Company seeks
to identify, assess, monitor and manage, in accordance with defined policies and procedures, the following
principal risks involved in the Company’s business activities: market, credit, capital and liquidity, operational
and compliance and legal risk. Capital and liquidity risk is discussed in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Liquidity and Capital Resources” in Part II, Item 7. The
Company’s currency exposure relating to its net monetary investments in non-U.S. dollar functional currency
subsidiaries is discussed in Note 13 to the consolidated financial statements.
The cornerstone of the Company’s risk management philosophy is the execution of risk-adjusted returns through
prudent risk-taking that protects the Company’s capital base and franchise. The Company’s risk management
philosophy is based on the following principles: comprehensiveness, independence, accountability, defined risk
tolerance and transparency. Given the importance of effective risk management to the Company’s reputation,
senior management requires thorough and frequent communication and appropriate escalation of risk matters.
Risk management at the Company requires independent Company-level oversight, accountability of the
Company’s business segments, constant communication, judgment, and knowledge of specialized products and
markets. The Company’s senior management takes an active role in the identification, assessment and
management of various risks at both the Company and business segments level. In recognition of the increasingly
varied and complex nature of the global financial services business, the Company’s risk management philosophy,
with its attendant policies, procedures and methodologies, is evolutionary in nature and subject to ongoing
review and modification.
The nature of the Company’s risks, coupled with this risk management philosophy, informs the Company’s risk
governance structure. The Company’s risk governance structure includes the Board; the Audit Committee and the
Risk Committee of the Board; the FRC; senior management oversight, including the Chief Executive Officer, the
Chief Risk Officer, the Chief Financial Officer, the Chief Legal Officer and the Chief Compliance Officer; the
Internal Audit Department; independent risk management functions (including the Market Risk Department,
Credit Risk Management, the Corporate Treasury Department and the Operational Risk Department) and
Company control groups (including the Human Resources Department, the Legal and Compliance Division, the
Tax Department and the Financial Control Group), and various other risk control managers, committees and
groups located within and across the Company’s business segments.
The Board has oversight for the Company’s enterprise risk management framework and is responsible for
helping to ensure that the Company’s risks are managed in a sound manner. Historically, the Board had
authorized the Audit Committee, which is comprised solely of independent directors, to oversee risk
management. Effective January 1, 2010, the Board established another standing committee, the Risk Committee,
which is comprised solely of non-management directors, to assist the Board in the oversight of (i) the Company’s
risk governance structure, (ii) the Company’s risk management and risk assessment guidelines and policies
regarding market, credit and liquidity and funding risk, (iii) the Company’s risk tolerance and (iv) the
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