Bank of Montreal 2010 Annual Report Download - page 80

MANAGEMENT’S DISCUSSION AND ANALYSIS
MD&A
Board of Directors is responsible for the stewardship of BMO
and supervising the management of BMO’s business and affairs.
The board, either directly or through its committees, is responsible
for oversight in the following areas: strategic planning, defining risk
appetite, identification and management of risk, capital manage-
ment, promoting a culture of integrity, internal controls, succession
planning and evaluation of senior management, communication,
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 and procedures and internal controls, including
internal controls over financial reporting.
President and Chief Executive Officer (CEO) is directly accountable
to the board for all of BMO’s risk-taking activities. The CEO is sup-
ported by the Risk Manage ment Committee and its sub-committees,
as well as Enterprise Risk and Portfolio Management.
Risk Management Committee (RMC) is BMO’s senior risk
committee. RMC reviews and discusses significant risk issues and
action plans that arise in executing the enterprise-wide strategy.
RMC provides risk oversight and governance at the highest levels
The Board of Directors, based on recommendations from the Risk Review
Committee and the Risk Management Committee, delegates the setting
of credit and market risk limits to the President and CEO, who in turn
delegates more specific authorities to the CRO and the operating group
CROs. These delegated authorities allow the officers to set risk toler-
ances, approve geographic and industry sector exposure limits within
defined parameters, and establish underwriting and inventory limits for
trading and investment banking activities.
These delegated authorities are reviewed and approved annually by
the Board of Directors on the recommendation of the Risk Review Com-
mit tee. The criteria whereby these authorities may be further delegated
throughout the organization, as well as the requirements relating to
documentation, communication and monitoring of delegated authorities,
are set out in corporate policies and standards.
Risk Culture
At BMO, risk culture is characterized as the actions and behaviours
exhibited by our employees and groups as they identify, interpret and
discuss risk and make choices in the face of both opportunity and risk.
Our risk culture shapes the way we view and manage risks, and also the
way we work with our colleagues to assess the ongoing align
ment of
business strategies and activities within the limits of our
risk appetite.
Our risk culture encourages an engagement between Risk Manage-
ment and our business groups that contributes to and enhances risk
transparency. This promotes an understanding of the risks inherent in
our businesses so that they can be managed appropriately. We encour-
age the open and timely sharing of information and ongoing discussions
pertaining to risk to ensure that our understanding remains current.
We also encourage the escalation of concerns regarding potential or
emerging risks to senior management so that they can be evaluated and
appropriate action taken. We actively incorporate risk appetite into our
discussions, and work with the lines of business to consider appropriate
risk-based measures when making business decisions.
of management. This committee is chaired by the Chief Risk
Officer (CRO).
RMC Sub-committees have oversight responsibility for the risk and
balance sheet impacts of management strategies, governance, risk
measurement and contingency planning. RMC and its sub-committees
provide oversight over the processes whereby the risks incurred across
the enterprise are identified, measured, monitored and reported in
accordance with policy guidelines and are within delegated limits.
Enterprise Risk and Portfolio Management (ER&PM) includes
independent oversight of the credit and counterparty, operational and
market risk functions. It promotes consistency of risk management
practices and standards across the enterprise. ER&PM facilitates a dis-
ciplined approach to risk-taking through the execution of independent
transactional concurrence and portfolio management, policy formula-
tion, risk reporting, stress testing, 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 Group CROs provide advice and independent risk oversight
across all risk types, foster a high-performance risk culture at the
operating group level and provide leadership for the operating group
risk organizations.
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 appropriately escalated to ER&PM.
To enhance our risk management capabilities and support the
ongoing strengthening of our risk culture, we continue to add to the
available learning opportunities and have expanded our delivery of risk
training across the enterprise. Our educational programs are designed
to foster a deeper understanding of BMO’s capital and risk management
frameworks across the enterprise, providing our Risk Management
employees and management with the tools and awareness required
to undertake their accountabilities for independent oversight regardless
of their position in the organization. This education strategy has
been developed in partnership with our Institute for Learning, our
Risk Management professionals, external risk experts and teaching
professionals. Our credit training program, together with defined job
descriptions, provides training and practice in sound risk management
as a prerequisite to the granting of appropriate discretionary limits to
qualified professionals.
Risk Principles
The risks we face are classified as credit and counterparty, market,
liquidity and funding, operational, insurance, business, model,
strategic, regulatory, reputation and environmental. Risk-taking and
risk management activities across the enterprise are guided by the
following principles:
• management of risk is a responsibility at all levels of the organization,
employing the three-lines-of-defence approach;
• our risk appetite is approved by the Risk Review Committee, and is
aligned with BMO’s strategic direction;
• ER&PM provides independent oversight of risk-taking activities across
the organization;
• ER&PM monitors our risk management framework to ensure that our
risk profile is maintained within our established risk appetite and
supported with adequate capital;
• all material risks to which the enterprise is exposed are identified,
measured, managed, monitored and reported;
78 BMO Financial Group 193rd Annual Report 2010