Morgan Stanley 2014 Annual Report Download - page 129

Firm Risk Committee. The Board has also authorized the FRC, a management committee appointed and
chaired by the Chief Executive Officer, which 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 ERM
framework. 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, operational, liquidity and
funding, franchise and reputational risk matters, and other risks, as appropriate, and the steps management has
taken to monitor and manage such risks. The FRC also establishes and communicates risk tolerance, including
aggregate Company limits and tolerance, as appropriate. The FRC reports to the entire Board, the BAC, the
BOTC and the BRC through the Company’s Chief Risk Officer, Chief Financial Officer and Chief Legal Officer.
Functional Risk and Control Committees. Functional risk and control committees comprising the ERM
framework, including the Firm Credit Risk Committee, the Operational Risk Oversight Committee, the Asset/
Liability Management Committee, the Global Compliance Committee, the Technology Governance Committee
and the Franchise Committee, facilitate efficient and comprehensive supervision of the Company’s risk
exposures and processes. The Strategic Transactions Committee reviews large strategic transactions and principal
investments for the Company; the CCAR/RRP Committee oversees the Company’s Comprehensive Capital
Analysis and Review, Dodd-Frank Act Stress Testing and Title I Resolution Plan and Recovery Plan; the Global
Legal Entity Oversight and Governance Committee monitors the governance framework that operates over the
Company’s consolidated legal entity population; the FHC Governance Committee oversees the Company’s
initiatives relating to its status as a financial holding company; and the Culture, Values and Conduct Committee,
established in January 2015, is charged with developing Company-wide standards and overseeing initiatives
relating to culture, values and conduct, including training and enhancements to performance and compensation
processes.
In addition, 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, procedures, controls and systems 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.
Chief Risk Officer. The Chief Risk Officer, who is independent of business units, reports to the Chief
Executive Officer and the BRC. The Chief Risk Officer oversees compliance with the Company’s risk limits;
approves exceptions to the Company’s risk limits; independently reviews material market, credit and operational
risks; and reviews results of risk management processes with the Board, the BRC and the BAC, as appropriate.
The Chief Risk Officer also coordinates with the Chief Financial Officer regarding capital and liquidity
management and works with the Compensation, Management Development and Succession Committee of the
Board to help ensure that the structure and design of incentive compensation arrangements do not encourage
unnecessary and excessive risk-taking.
Internal Audit Department. The Internal Audit Department provides independent risk and control assessment
and reports to the BAC. The Internal Audit Department provides an independent assessment of the Company’s
control environment and risk management processes using a risk-based methodology developed from
professional auditing standards. The Internal Audit Department also assists in assessing the Company’s
compliance with internal guidelines set for risk management and risk monitoring as well as external rules and
regulations governing the industry. It affects these responsibilities through risk-based reviews of the Company’s
processes, activities, products or information systems; targeted reviews of specific controls and activities; pre-
implementation audits of new or significantly changed processes, activities, products or information systems; and
special investigations required as a result of internal factors or regulatory requests.
Independent Risk Management Functions. The independent risk management function (Market Risk, Credit
Risk and Operational Risk Management Departments) are independent of the Company’s business units. These
125