Morgan Stanley 2010 Annual Report Download - page 103

Firm Risk Committee. 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. 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, compliance, 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 BAC and the BRC through the Company’s Chief Risk Officer.
Chief Risk Officer. The Chief Risk Officer, who reports to the Chief Executive Officer and the BRC oversees
compliance with Company risk limits; approves exceptions to the Company’s risk limits; reviews material
market, credit and operational risks; and reviews results of risk management processes with the Board, the BAC
and the BRC, as appropriate. The Chief Risk Officer also coordinates with the Compensation, Management
Development and Succession Committee of the Board to evaluate whether the Company’s compensation
arrangements encourage unnecessary or excessive risk-taking and whether risks arising from the Company’s
compensation arrangements are reasonably likely to have a material adverse effect on the Company.
Internal Audit Department. The Internal Audit Department provides independent risk and control assessment
and reports to the BAC 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.
Independent Risk Management Functions. The independent risk management functions (Market Risk, Credit
Risk, Operational Risk and Corporate Treasury departments) are independent of the Company’s business units.
These groups assist senior management and the FRC in monitoring and controlling the Company’s risk through a
number of control processes. Each function maintains its own risk governance structure with specified
individuals and committees responsible for aspects of managing risk. Further discussion about the responsibilities
of the risk management functions may be found below under “Market Risk,” “Credit Risk,” and “Operational
Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity
and Capital Resources” in Part II, Item 7 herein.
Control Groups. The Company control groups include the Human Resources Department, the Legal and
Compliance Division, the Operations Division, Global Technology and Data, the Tax Department and Finance.
The Company control groups coordinate with the business segment control groups to review the risk monitoring
and risk management policies and procedures relating to, among other things, controls over financial reporting
and disclosure; 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 thorough review.
Divisional Risk Committees. 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.
Stress Value-at-Risk.
During 2010, the Company continued to enhance its market and credit risk management framework to address
the severe stresses observed in global markets during the economic downturn. The Company expanded and
improved its risk measurement processes, including stress tests and scenario analysis, and further refined its
market and credit risk limit framework. Stress Value-at-Risk (“S-VaR”), a proprietary methodology that
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