TD Bank 2014 Annual Report Download - page 101

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 99
The Bank’s Regulatory Risk groups also create and facilitate commu-
nication with elected officials and regulators, monitor legislation and
regulations, support business relationships with governments, coordi-
nate regulatory examinations, facilitate regulatory approvals of new
products, and advance the public policy objectives of the Bank.
The Legal department works closely with the business segments
and corporate functions to identify areas of potential legal and
regulatory compliance risk, and actively manage them to reduce
the Bank’s exposure.
HOW TD MANAGES LEGAL AND REGULATORY COMPLIANCE RISK
TD’s Code of Conduct and Ethics (the “Code”) sets the “tone at
the top” for a culture of integrity throughout the Bank. The Code
stipulates that every business decision and action on TD’s behalf
must be assessed in light of what is right, legal, and fair. The Code
is supported by a number of other policies, training programs and
tools, and new employee or director orientation materials, covering
a variety of relevant topics, such as anti-money laundering, sanctions,
compliance, privacy, and anti-corruption practices. The Code applies
not only to employees but also all the officers and directors of the
Bank, all of whom are required to attest annually that they understand
the Code and have complied with its provisions. Business segments
and corporate areas manage day-to-day legal and regulatory compli-
ance risk primarily by implementing appropriate policies, procedures,
and controls. The Legal, Compliance, Global Anti-Money Laundering,
and Regulatory Risk groups collectively assist them by:
• communicating and advising on regulatory and legal requirements
and emerging compliance risks to each business unit as required,
including reviewing and approving new products;
• implementing or assisting with policies, procedures and training;
• assessing regulatory and legislative requirements and compliance-
related risks using an independent risk-based approach;
• independently monitoring and testing for adherence to significant
regulatory and legal requirements, as well as the effectiveness of
associated key internal controls;
• tracking, escalating and reporting significant issues and findings
to senior management and the Board; and
• liaising with regulators and industry associations, as appropriate,
regarding new or revised legislation, regulatory guidance and/or
regulatory examinations.
The Bank’s policies and processes also provide for the timely escalation
of potential or actual material legal or regulatory issues to enable
senior management and the Board to effectively perform their
management and oversight responsibilities.
Finally, while it is not possible to completely eliminate legal risk,
the Legal Department works closely with business segments and
other corporate areas to identify and manage risk associated with
contractual obligations and plays a gatekeeper function for unaccept-
able legal risk. The Legal Department also manages litigation risk
within the TD Risk Appetite Statement and provides regular escalation
of material matters to the Audit Committee.
Reputational Risk
Reputational risk is the potential that stakeholder impressions,
whether true or not, regarding the Bank’s business practices, actions
or inactions, will or may cause a decline in TD’s value, brand, liquidity
or customer base, or require costly measures to address.
A company’s reputation is a valuable business asset in its own right,
essential to optimizing shareholder value and therefore, is constantly
at risk. Reputational risk can arise as a consequence of any of the
organization’s activities and cannot be managed in isolation from
other forms of risk. All risk categories can have an impact on reputa-
tion, which in turn can impact TD’s brand, earnings, and capital.
WHO MANAGES REPUTATIONAL RISK
Responsibility for managing risks to the Bank’s reputation, ultimately,
lies with the SET and the executive committees that examine reputa-
tional risk as part of their regular mandate. The RRC is the executive
committee with enterprise-wide responsibility for making decisions
related to reputational risks. The mandate of the RRC is to ensure that
corporate or business initiatives with significant reputational risk
profiles have received adequate review for reputational risk implica-
tions prior to implementation.
At the same time, every employee and representative of the Bank
has a responsibility to contribute in a positive way to the Bank’s repu-
tation. This means following ethical practices at all times, complying
with applicable policies, legislation, and regulations and supporting
positive interactions with the Bank’s stakeholders. Reputational risk is
most effectively managed when everyone at the Bank works continu-
ously to protect and enhance TD’s reputation.
HOW TD MANAGES REPUTATIONAL RISK
Amongst other significant policies, TD’s enterprise-wide Reputational
Risk Management Policy is approved by the Risk Committee. This Policy
sets out the requirements under which each business segment is
required to manage reputational risk. These include implementing
procedures, and designating a business-level committee to review repu-
tational risk issues and escalating as appropriate to the enterprise RRC.
The Bank also has an enterprise-wide New Business and Product
Approval Policy that is approved by the Risk Committee and establishes
standard practices to be used across TD to approve new business and
product initiatives. The policy is supported by business segment specific
processes, which involve independent review from oversight functions,
and includes consideration of all aspects of a new product, including
reputational risk.
Environmental Risk
Environmental risk is the possibility of loss of strategic, financial,
operational or reputational value resulting from the impact of
environmental issues or concerns and related social risk within the
scope of short-term and long-term cycles.
Management of environmental risk is an enterprise-wide priority.
Key environmental risks include: (1) direct risks associated with the
ownership and operation of the Bank’s business, which include
management and operation of company-owned or managed real
estate, fleet, business operations, and associated services; (2) indirect
risks associated with the environmental performance or environmental
events, such as changing climate patterns that may impact the Bank’s
retail customers and clients to whom TD provides financing or in which
TD invests; (3) identification and management of emerging environ-
mental regulatory issues; and (4) failure to understand and appropri-
ately leverage environment-related trends to meet customer and
consumer demands for products and services.