Bank of Montreal 2008 Annual Report Download - page 77

MD&A
BMO Financial Group 191st Annual Report 2008 | 73
Board of Directors is responsible for the stewardship of BMO and
supervising the management of the business and affairs of the Bank.
The Board, either directly or through its committees, is responsible for
oversight in the following areas: strategic planning, promoting a culture
of integrity, the identification and management of risk, internal controls,
succession planning and evaluation of senior management, communica-
tion and public disclosure and corporate governance.
Risk Review Committee of the Board of Directors (RRC) assists the
Board in fulfilling its oversight responsibilities in relation to BMO’s
identification and management of risk, adherence to risk management
corporate policies and procedures, and compliance with risk-related
regulatory requirements.
Audit Committee of the Board of Directors independently monitors
and reports to the Board of Directors on the effectiveness of disclosure
controls & procedures and internal controls, including internal control
over financial reporting.
The President and Chief Executive Officer (CEO) is directly
accountable to the Board for all of BMO’s risk-taking activities. The Risk
Management Committee and its sub-committees as well as Enterprise
Risk and Portfolio Management support the CEO.
Risk Management Committee (RMC) and RMC Sub-committees
The RMC is BMO’s senior risk committee. The RMC reviews and discusses
significant risk issues and action plans that arise in executing the enter-
prise-wide strategy. RMC ensures that risk oversight and governance
occur at the highest levels of management. This committee is chaired
by the Chief Risk Officer (CRO). The RMC Sub-committees have oversight
responsibility for the risk and balance sheet impacts of management
strategies, governance, risk measurement and contingency planning.
The RMC and its sub-committees ensure that the risks incurred across
the enterprise are consistent with our risk strategy and are identified,
measured, monitored and reported in accordance with policy and within
delegated limits.
Enterprise Risk and Portfolio Management (ER&PM) encompasses
oversight of the credit, operational and market risk functions. It pro-
motes consistency of risk management practices and standards across
the enterprise. ER&PM facilitates a disciplined approach to risk-taking
through the execution of transactional and portfolio management,
policy formulation, risk reporting, modelling, vetting and risk education
responsibilities. This approach seeks to meet corporate objectives and
to ensure that risks taken are consistent with BMO’s risk tolerance.
Operating Groups are responsible for managing risk within their
respective areas. They exercise business judgment and seek to ensure
that policies, processes and internal controls are in place and that
significant risk issues are escalated to ER&PM.
Enterprise-Wide Risk Management
BMO Financial Group has an enterprise-wide approach to the identifica-
tion, measurement, monitoring and management of risks faced across
the organization. These risks are classified as credit and counterparty,
market, liquidity and funding, operational, business, model, strategic,
reputation and environmental risk.
BMO’s risk management framework guides our risk-taking activities in
order to align them with client needs, shareholder expectations and
regulatory requirements. The framework provides for not only the direct
management of each individual risk type but also the management of
risks on an integrated basis, with three lines of defence in the manage-
ment of risk.
Comprehensive Risk Governance
BMO’s risk governance structure promotes making sound business deci-
sions by balancing risk and reward. It promotes revenue-generating
activities consistent with our standards and risk tolerance levels and
drives the maximization of long-term shareholder return.
Our comprehensive risk governance structure (see box below)
includes a body of corporate policies approved by the Board of Directors
or its committees, as well as supporting corporate standards and
operating procedures. These are reviewed on a regular basis to ensure
that they provide effective guidance for the governance of our risk-
taking activities. In each line of business, management ensures that
Enterprise Risk and Portfolio Management (ER&PM)
Liquidity and
Funding and
Structural
Market Risk
Trading and
Underwriting
Market Risk
Credit and
Counterparty
Risk
Operational
Risk
Reputation
Risk
Business
Risk
Management Risk Committees
Board Oversight
Assurance
Risks Managed
Reporting Controls
Corporate Audit
Oversight Limits Policies
Board of Directors
Audit CommitteeRisk Review Committee
Balance Sheet
Management Committee
Operating Groups and Operating Group CROs
Trading
Products Risk
Committee
Operational
Risk
Committee
Risk Management
Committee Reputation Risk
Management Committee
Text and tables identified with a blue-tinted font in the Enterprise-Wide Risk Management section of the MD&A form an integral part of the
2008 annual consolidated financial statements. They present required GAAP disclosures as set out by the Canadian Institute of Chartered
Accountants (CICA) in CICA handbook section 3862, Financial Instruments –Disclosures, which permits cross-referencing from the financial
statement notes to the MD&A.
i
SEE PG 115
The Risk Management
Group together with
other Corporate
Groups provide policy
frameworks, oversight
and infrastructure
to manage risks
Business leaders
“own” the risks
in their operations
Corporate Audit
Group monitors
compliance
with policies,
standards
and guidelines
as a third line
of defence
Effective risk management relies on a comprehensive risk
governance structure and three lines of defence working in partnership
to identify, measure, monitor and manage risk.
Operating
Groups
Corporate Audit Group
Risk Management
Group & Other
Corporate Areas