Morgan Stanley 2014 Annual Report Download - page 127

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Risk Management.
Overview.
Management believes effective risk management is vital to the success of the Company’s business activities.
Accordingly, the Company has established an enterprise risk management (“ERM”) framework to integrate the
diverse roles of risk management into a holistic enterprise structure and to facilitate the incorporation of risk
assessment into decision-making processes across the Company. Risk is an inherent part of the Company’s
businesses and activities. The Company has policies and procedures in place to identify, measure, monitor,
advise, challenge and control the principal risks involved in the activities of its Institutional Securities, Wealth
Management and Investment Management business segments as well as at the holding company level. The
principal risks involved in the Company’s business activities include market (including non-trading interest rate
risk), credit, operational, liquidity and funding, franchise and reputational risk. Strategic risk is integrated into the
Company’s business planning, embedded in the evaluation of all principal risks and overseen by the Company’s
Board of Directors (the “Board”).
The cornerstone of the Company’s risk management philosophy is the pursuit of risk-adjusted returns through
prudent risk-taking that protects the Company’s capital base and franchise, and is implemented through the ERM
framework. Five key principles underlie this philosophy: integrity, comprehensiveness, independence,
accountability and transparency. To help ensure the efficacy of risk management, which is an essential
component of the Company’s reputation, senior management requires thorough and frequent communication and
the appropriate escalation of risk matters. The fast-paced, complex and constantly evolving nature of global
financial markets requires that the Company maintain a risk management culture that is incisive, knowledgeable
about specialized products and markets, and subject to ongoing review and enhancement. In 2014, the Company
established a formal Culture, Values and Conduct Program, which it will enhance in 2015.
Risk Governance Structure.
Risk management at the Company requires independent company-level oversight, accountability of the
Company’s business divisions, and effective communication of risk matters across the Company, to senior
management and ultimately to the Board. The Company’s risk governance structure is composed of the Board;
the Risk Committee of the Board (“BRC”), the Audit Committee of the Board (“BAC”), and the Operations and
Technology Committee of the Board (“BOTC”); the Firm Risk Committee (“FRC”); the functional risk and
control committees; senior management oversight (including the Chief Executive Officer, Chief Risk Officer,
Chief Financial Officer, Chief Legal Officer and Chief Compliance Officer); the Internal Audit Department and
risk managers, committees, and groups within and across the Company’s business segments. The Company’s
ERM framework composed of independent but complementary entities facilitates efficient and comprehensive
supervision of the Company’s risk exposures and processes.
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