Bank of Montreal 2003 Annual Report Download - page 56

Management’s Discussion and Analysis of Operations and Financial Condition
BMO Financial Group 186th Annual Report 200352
risk management while also meeting the forthcoming Basel II
regulatory requirements.
Each component of our operational risk framework is at a dif-
ferent stage of development. Our approach is to continuously
improve each component in a way that is useful to business and
BMO faces many risks that are similar to those faced by non-
financial firms, principally that its profitability (and hence
value) may be eroded by changes in the business environment
or by failures of strategy or execution. Sources of these risks
include volatile economic market activity, changing client expec -
tations, adverse business developments and relatively ineffective
responses to industry changes. Risks to BMO’s margins and vol-
umes are categorized as business risk due to earnings volatility,
and for each operating group, related capital at risk is estimated
Giventhe nature of BMO’s business, we are committed to dealing
with social and ethical risks in a responsible manner on an on-
going basis. In discharging these responsibilities, we conduct our
business and operations in accordance with the highest ethical
standards and in full compliance with all domestic laws and reg -
ulations in every jurisdiction in which BMO operates.
BMO is committed to truthful and ethical practices in adver-
tising and adheres to the Canadian Code of Advertising.
B MO also champions principles of inclusion through our
diverse workforce and supportive and equitable workplace.
BMO adheres to the principles of confidentiality and privacy
in customer relations. We follow applicable codes of conduct
and legislation that protect and respect personal information
and initiate fair and timely redress of customer complaints and
concerns.
Whether dealing with individuals or corporations, the repu-
tation, integrity and character of a counterparty and/or its
management are important considerations in deciding whether
to conduct business with that counterparty.
In the development of foreign business, we consider ethical,
political, social and economic factors in addition to other more
traditional lending considerations. BMO does not knowingly
lend, in North America or internationally, for purposes that
support the suppression of basic individual freedom, encourage
racial discrimination or national hatreds, or promote the use of
violence or repression.
Business risk due to earnings volatility captures the possibility that
volumes will decrease or margins will shrink with no opportunity
being available to offset the revenue declines with a reduction in costs.
Business risk is an enhancement of and replacement for strategic risk,
introduced last year.
Business Risk due to Earnings Volatility
based on the volatility of earnings over a one-year horizon at a
99.95% confidence level.
We also only lend to foreign customers purchasing military
equipment when the purchases are consistent with Canada’s
national defence policy or international treaty obligations and,
when such transactions are originated in non-Canadian jurisdic-
tions, the transactions are also in compliance with the national
defence policies and international treaty obligations of the ori-
ginating country.
BMO endeavours to avoid providing preferential treatment,
or the appearance thereof, when entering into banking transac-
tions with a political party, constituency association, candidate,
leadership contestant or any other public official (including the
individual’s family and/or related business enterprises).
We exercise the fundamental rule of good banking practice,
“Know your customer,” in the course of all business dealings with
customers and in the evaluation of prospective customers.
We will not knowingly conduct any type of business with cus-
tomers whose money is derived from illegal activities. BMO will
not complete any transaction of any type or operate any account
for customers who fail to provide evidence of their identity,
source of funds, or any other information we require to estab-
lish the good faith of a customer.
BMO also maintains strict conflict of interest rules for em-
ployees, officers and directors.
Social and Ethical Risk
BMO is committed to the principle of sustainable development
and, in particular, to the belief that the quality of our lives
improves when economic growth is integrated with respect for
the environment. We implement practices across the enterprise
that reduce waste, conserve energy and recycle materials.
In providing credit to customers, we take reasonable pre-
cautions to ensure that we deal with environmentally respon-
sible borrowers.
BMO will continue to demonstrate a willingness to work with
government, industry and all relevant constituencies to support
environmental issues. We are committed to open dialogue with
all relevant constituencies including government, customers,
employees, shareholders and the public at large.
Environmental Risk