Morgan Stanley 2009 Annual Report Download - page 94

performance of the Chief Risk Officer. The Audit Committee continues to review the major operational,
franchise, reputational, legal and compliance risk exposures of the Company and the steps management has taken
to monitor and control such exposure. The Risk Committee, Audit Committee and Chief Risk Officer report to
the full Board on a regular basis.
The Board has also authorized the FRC, a management committee appointed and chaired by the Chief Executive
Officer that includes the most senior officers of the Company, including the Chief Risk Officer, Chief Legal
Officer and Chief Financial Officer, to oversee the Company’s global risk management structure. The FRC’s
responsibilities include oversight of the Company’s risk management principles, procedures and limits, and the
monitoring of capital levels and material market, credit, liquidity and funding, legal, operational, franchise and
regulatory risk matters and other risks, as appropriate, and the steps management has taken to monitor and
manage such risks. The FRC reports to the full Board, the Audit Committee and the Risk Committee through the
Company’s Chief Risk Officer.
The Chief Risk Officer, a member of the FRC who reports to the Chief Executive Officer, oversees compliance
with Company risk limits; approves certain excessions of Company risk limits; reviews material market, credit
and operational risks; and reviews results of risk management processes with the Board, the Audit Committee
and the Risk Committee, as appropriate.
The Internal Audit Department provides independent risk and control assessment and reports to the Audit
Committee and administratively to the Chief Legal Officer. The Internal Audit Department examines the
Company’s operational and control environment and conducts audits designed to cover all major risk categories.
The risk management functions and the Company control groups are independent of the Company’s business
units, assist senior management and the FRC in monitoring and controlling the Company’s risk through a number
of control processes. The Company is committed to employing qualified personnel with appropriate expertise in
each of its various administrative and business areas to implement effectively the Company’s risk management
and monitoring systems and processes.
Each business segment has a risk committee that is responsible for helping to ensure that the business segment,
as applicable, adheres to established limits for market, credit, operational and other risks; implements risk
measurement, monitoring, and management policies and procedures that are consistent with the risk framework
established by the FRC; and reviews, on a periodic basis, its aggregate risk exposures, risk exception experience,
and the efficacy of its risk identification, measurement, monitoring and management policies and procedures, and
related controls.
Each of the Company’s business segments also has designated operations officers, committees and groups to
manage and monitor specific risks and report to the business segment risk committee. The Company control
groups work with business segment control groups (including the Operations Division and Information
Technology Division) to review the risk monitoring and risk management policies and procedures relating to,
among other things, the business segment’s market, credit and operational risk profile, sales practices, reputation,
legal enforceability, and operational and technological risks. Participation by the senior officers of the Company
and business segment control groups helps ensure that risk policies and procedures, exceptions to risk limits, new
products and business ventures, and transactions with risk elements undergo a thorough review.
The following is a discussion of the Company’s risk management policies and procedures for its principal risks
(other than capital and liquidity risk). The discussion focuses on the Company’s securities activities (primarily its
institutional trading activities) and corporate lending and related activities. The Company believes that these
activities generate a substantial portion of its principal risks. This discussion and the estimated amounts of the
Company’s market risk exposure generated by the Company’s statistical analyses are forward-looking
statements. However, the analyses used to assess such risks are not predictions of future events, and actual results
may vary significantly from such analyses due to events in the markets in which the Company operates and
certain other factors described below.
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