Bank of Montreal 2015 Annual Report Download - page 78

MD&A
Changes to Our Credit Ratings, Capital and Funding Markets
Credit ratings are important to our ability to raise both capital and funding in order to support our business operations. Maintaining strong credit
ratings allows us to access capital markets at competitive pricing. Should our credit ratings experience a material downgrade, our costs of funding
would likely increase significantly and our access to funding and capital through capital markets could be reduced. In part, given changes in the
regulatory environment, capital and funding markets have been less liquid than previously. Reduced market liquidity could impact the valuation of
bank securities and the availability and pricing of bank funding. A material downgrade of our ratings could also have other consequences, including
those set out in Note 8 on page 156 of the financial statements.
Operational and Infrastructure Risks
As a large enterprise conducting business in multiple jurisdictions, we are exposed to many operational risks that can have a significant impact.
Such risks include the risk of fraud by employees or others, unauthorized transactions by employees and operational or human error. Given the
large volume of transactions we process on a daily basis, certain errors may be repeated or compounded before they are discovered and rectified.
Shortcomings or failures of our internal processes, employees or systems, or of services and products provided by third parties, including any of our
financial, accounting or other data processing systems, could lead to financial loss and damage our reputation. In addition, despite the contingency
plans we have in place, our ability to conduct business may be adversely affected by a disruption to the infrastructure that supports both our
operations and the communities in which we do business, including but not limited to disruption caused by public health emergencies or terrorist acts.
Legal Proceedings
We are subject to litigation arising in the ordinary course of business. The unfavourable resolution of any such litigation could have a material adverse
effect on our financial results. Damage to our reputation could also result, harming our future business prospects. Information about certain legal and
regulatory proceedings we currently face is provided in Note 26 on page 192 of the financial statements.
Critical Accounting Estimates and Accounting Standards
We prepare our financial statements in accordance with International Financial Reporting Standards (IFRS). Changes that the International Accounting
Standards Board makes from time to time to these standards, which govern the preparation of our financial statements, can be difficult to anticipate
and may materially affect how we record and report our financial results. Significant accounting policies and future changes in accounting policies are
discussed in Note 1 on page 140 of the financial statements.
The application of IFRS requires management to make significant judgments and estimates that can affect the dates on which certain assets,
liabilities, revenues and expenses are recorded in our financial statements, as well as their recorded values. In making these judgments and
estimates, we rely on the best information available at the time. However, it is possible that circumstances may change or new information may
become available.
Our financial results could be affected for the period during which any such new information or change in circumstances became apparent, and
the extent of the impact could be significant. More information is included in the discussion of Critical Accounting Estimates on page 78.
Accuracy and Completeness of Customer and Counterparty Information
When deciding whether to extend credit or enter into other transactions with customers or counterparties, we may rely on information provided by
or on behalf of those customers and counterparties, including audited financial statements and other financial information. We may also rely on
representations made by customers and counterparties that the information they provide is accurate and complete. Our financial results could be
adversely affected if the financial statements or other financial information provided by customers or counterparties are materially misleading.
Caution
This Risks That May Affect Future Results section and the remainder of this Enterprise-Wide Risk Management section contain forward-looking statements.
Other factors beyond our control that may affect our future results are noted in the Caution Regarding Forward-Looking Statements on page 30.
We caution that the preceding discussion of risks that may affect future results is not exhaustive.
Framework and Risks
Enterprise-Wide Risk Management Framework
Our enterprise-wide risk management framework operates at all levels of the bank and consists of our three-lines-of-defence operating model and
our risk appetite framework, underpinned by our risk governance structure, and our strong risk culture.
Enterprise-Wide
Risk Management
Framework
3 Lines of
Defence
Operating
Model
Risk
Culture
Risk
Governance
Risk Appetite
Framework
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