TD Bank 2014 Annual Report Download - page 73

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 71
EXECUTIVE SUMMARY
Growing profitability in financial services involves selectively taking
and managing risks within TD’s risk appetite. The Bank’s goal is to earn
a stable and sustainable rate of return for every dollar of risk it takes,
while putting significant emphasis on investing in TD’s businesses to
ensure it can meet its future strategic objectives.
The Bank’s Enterprise Risk Framework (ERF) reinforces TD’s risk
culture, which emphasizes transparency and accountability, and
supports a common understanding among stakeholders of how the
Bank manages risk. The ERF addresses: (1) the nature of risks to the
Bank’s business strategy and operations; (2) how the Bank defines the
types of risk it is exposed to; (3) risk management governance and
organization; and (4) how the Bank manages risk through processes
that identify and assess, measure, control, and monitor and report risk.
RISK APPETITE
TD’s Risk Appetite Statement (RAS) is the primary means used to
communicate how TD defines risk and determines the risks it is willing
to take. In defining its risk appetite, The Bank takes into account its
vision, mission, strategy, guiding principles, risk philosophy, and capac-
ity to bear risk. The guiding principles for TD’s RAS are as follows:
The Bank takes risks required to build its business, but only if those risks:
1. Fit the business strategy, and can be understood and managed.
2. Do not expose the enterprise to any significant single loss events;
TD does not ‘bet the Bank’ on any single acquisition, business,
or product.
3. Do not risk harming the TD brand.
TD considers current conditions and the impact of emerging risks in
developing and applying its risk appetite. Adherence to enterprise risk
appetite is managed and monitored across the Bank and is informed
by the RAS and a broad collection of principles, policies, processes, and
tools. TD’s RAS describes by major risk category the Bank’s risk princi-
ples and establishes both qualitative and quantitative measures with
key indicators, thresholds, and limits, as appropriate. RAS measures
consider both normal and stress scenarios and include those that can
be aggregated at the enterprise level and disaggregated at the business
segment level.
Risk Management is responsible for establishing practices and
processes to formulate, monitor, and report on TD’s RAS measures.
The function also monitors and evaluates the effectiveness of these
practices and measures. RAS measures are reported regularly to senior
management, the Board, and the Risk Committee of the Board
(Risk Committee); other RAS measures are tracked on an ongoing basis
by management, and escalated to senior management and the Board,
as required. Risk Management regularly assesses management’s
performance against TD’s RAS measures.
The Bank’s risk management resources and processes are designed
to both challenge and enable all its businesses to understand the risks
they face and to manage them within TD’s risk appetite.
RISKS INVOLVED IN TD’S BUSINESSES
TD’s Risk Inventory describes the major risk categories and related
subcategories to which the Bank’s businesses and operations could
be exposed. The Risk Inventory facilitates consistent risk identification
and is the starting point in developing risk management strategies
and processes. TD’s major risk categories are: Strategic Risk, Credit
Risk, Market Risk, Operational Risk, Insurance Risk, Liquidity Risk,
Capital Adequacy Risk, Legal and Regulatory Compliance Risk, and
Reputational Risk.
RISK CULTURE
The Bank’s risk culture embodies the “tone at the top” set by the
Board, Chief Executive Officer (CEO), and Senior Executive Team (SET),
which informs TD’s vision, mission, guiding principles, and leadership
profile. These governing objectives describe the attitudes and behav-
iours that the Bank seeks to foster, among its employees, in building
a culture where the only risks taken are those that can be understood
and managed. TD’s risk culture promotes accountability, learning from
past experiences, and encourages open communication and transpar-
ency on all aspects of risk taking. TD employees are encouraged to
challenge and escalate when they believe the Bank is operating outside
of its risk appetite.
Ethical behaviour is a key component of TD’s risk culture. TD’s Code
of Conduct and Ethics guides employees and Directors to make deci-
sions that meet the highest standards of integrity, professionalism,
and ethical behaviour. Every TD employee and Director is expected
and required to assess business decisions and actions on behalf of the
organization in light of whether it is right, legal, and fair. TD’s desired
risk culture is reinforced by linking compensation to management’s
performance against the Bank’s risk appetite. Performance against risk
appetite is a key consideration in determining compensation for execu-
tives, including adjustments to incentive awards both at the time of
award and again at maturity for deferred compensation. An annual
consolidated assessment of management’s performance against the
RAS prepared by Risk Management and reviewed by the Risk
Committee is used by the Human Resources Committee as a key input
into compensation decisions. All executives are individually assessed
against objectives that include consideration of risk and control behav-
iours. This comprehensive approach allows the Bank to consider
whether the actions of executive employees resulted in risk and control
events within their area of responsibility.
RISK FACTORS AND MANAGEMENT
Managing Risk
Major Risk Categories
Strategic
Risk
Credit
Risk
Market
Risk
Operational
Risk
Insurance
Risk
Liquidity
Risk
Capital
Adequacy
Risk
Legal and
Regulatory
Compliance
Risk
Reputational
Risk