Bank of Montreal 2010 Annual Report Download - page 79

MD&A
Enterprise-Wide Risk Management Framework
Board of Directors
CEO
Operating Groups Risk Management Group
Risk Review Committee Audit Committee
Second Line of DefenceFirst Line of Defence
Policies, Standards
and Guidelines
Measurement
and Reporting
Limits and Controls
and Concurrence
Oversight
and Monitoring
Own the Risks Associated with Business Activities
Reputation Risk
Management Committee
Risk Management
Committee
Balance Sheet
Management Committee
Business
Risk
Reputation
Risk
Operational
Risk
Credit and
Counterparty
Risk
Trading and
Underwriting
Market Risk
Liquidity and
Funding and
Structural
Market Risk Operational Risk
Committee
Capital Management
Committee
Trading Products Risk
Committee
Third Line of Defence – Corporate Audit Group
practices that will optimize return on capital or achieve other business
objectives. Each operating group must ensure that it is acting within its
delegated risk-taking authority, as set out in our corporate risk policies
and limits. Limits are set for the operating groups, each of which has
effective processes and controls in place to enable it to operate within
these limits.
Our second line of defence in the management of risk is provided
by our Risk Management Group and other Corporate Support areas.
These groups provide independent oversight. It is the responsibility of
the Risk Management Group to recommend and set corporate risk man-
agement policies and establish infrastructure, processes and practices
that address all significant risks across the enterprise. Risk Management
Group works on the assessment, quantification, monitoring and report-
ing of all significant risks to senior management and, as appropriate,
the Board of Directors.
Our third line of defence is our Corporate Audit Group. This group
monitors the efficiency and effectiveness of controls across various
functions within our operations, the reliability of financial reporting,
compliance with applicable laws and regulations and the implementation
of significant initiatives.
Risk Governance
The foundation of our enterprise-wide risk management framework
is a governance structure that includes a robust committee structure and
a comprehensive set of corporate policies, which are approved by the
Board of Directors or its committees, as well as supporting corporate
standards and operating guidelines. This enterprise-wide risk manage-
ment framework is governed through a hierarchy of committees and
individual responsibilities as outlined in the following diagram.
All elements of our risk management framework are reviewed on a
regular basis by the Risk Review Committee of the Board of Directors to
provide effective guidance for the governance of our risk-taking activities.
In each of our operating groups, management monitors governance
activities, controls and management processes and procedures and over-
sees their effective operation within our overall risk management
framework. Individual governance committees establish and monitor
further comprehensive risk management limits, consistent with and
subordinate to the board-approved limits.
Limits and Authorities
BMO’s risk principles and risk appetite shape our risk limits, which are
reviewed and approved annually by the Board of Directors and/or board
and management committees:
• Credit and Counterparty Risk – limits on country, industry, portfolio/
product segments, group and single-name exposures;
•
Market Risk – limits on Market Value Exposure and stress exposures; and
• Liquidity and Funding Risk – limits on minimum levels of liquid assets
and maximum levels of asset pledging, as well as guidelines approved
by senior management for liability diversification and credit and
liquidity requirements.
BMO Financial Group 193rd Annual Report 2010 77