TD Bank 2014 Annual Report Download - page 76

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS74
Treasury and Balance Sheet Management
The Treasury and Balance Sheet Management (TBSM) group manages,
directs, and reports on the Bank’s capital and investment positions,
interest rate risk, liquidity and funding risk, and the market risks of
TD’s non-trading banking activities. The Risk Management function
oversees TBSM’s capital and investment activities.
Three Lines of Defense
In order to further the understanding of responsibilities for risk
management, the Bank employs a “three lines of defense” model
that describes the roles and responsibilities of the business segments,
governance, risk and oversight functions, and Internal Audit in
managing risk across the Bank. The following chart describes the
respective accountabilities of each line of defense at TD.
THREE LINES OF DEFENCE
First Line Business Segment Accountabilities
Identify and Control • Manage and identify risk in day-to-day activities owned by the line of business.
• Ensure activities are within TD’s risk appetite and risk management policies.
• Design, implement, and maintain effective internal controls.
•
Implement risk based approval processes for all new products, services, activities, processes, and systems.
• Deliver training, tools, and advice to support its accountabilities.
• Monitor and report on risk profile.
Second Line Governance, Risk, and Oversight Function Accountabilities
Set Standards and Challenge • Establish enterprise governance, risk, and control strategies and policies.
• Provide oversight and independent challenge to the First Line of defense through review, inquiry,
and discussion.
• Develop and communicate governance, risk, and control policies.
•
Provide training, tools, and advice to support the First Line of defense in carrying out its accountabilities.
• Monitor and report on compliance with risk appetite and policies.
Third Line Internal Audit Accountabilities
Independent Assurance • Verify independently that TD’s ERF is operating effectively.
• Validate the effectiveness of the First and Second Lines of defense in fulfilling their mandates
and managing risk.
In support of a strong risk culture, TD applies the following principles
to how it manages risks:
• Enterprise-Wide in Scope – Risk Management will span all areas
of TD, including third-party alliances and joint venture undertakings
to the extent they may impact TD, and all boundaries, both
geographic and regulatory.
• Transparent and Effective Communication – Matters relating to
risk will be communicated and escalated in a timely, accurate, and
forthright manner.
• Enhanced Accountability – Risks will be explicitly owned, under-
stood, and actively managed by business management and all
employees, individually and collectively.
• Independent Oversight – Risk policies, monitoring, and reporting
will be established and conducted independently and objectively.
• Integrated Risk and Control Culture – Risk management disci-
plines will be integrated into TD’s daily routines, decision-making,
and strategy.
• Strategic Balance – Risk will be managed to an acceptable
level of exposure, recognizing the need to protect and grow
shareholder value.
APPROACH TO RISK MANAGEMENT PROCESSES
TD’s approach to the risk management process is comprised of four
basic components: identification and assessment, measurement,
control, and monitoring and reporting.
Risk Identification and Assessment
Risk identification and assessment is focused on recognizing and
understanding existing risks, risks that may arise from new or evolving
business initiatives, and emerging risks from the changing environment.
The Bank’s objective is to establish and maintain integrated risk identi-
fication and assessment processes that enhance the understanding of
risk interdependencies, consider how risk types intersect, and support
the identification of emerging risk. To that end, TD’s Enterprise-Wide
Stress Testing (EWST) program enables senior management, the Board,
and its committees to identify and assess enterprise-wide risks and
understand potential vulnerabilities for the Bank.
Risk Measurement
The ability to quantify risks is a key component of the Bank’s risk
management process. TD’s risk measurement process aligns with regu-
latory requirements such as capital adequacy, leverage ratios, liquidity
measures, stress testing, and maximum credit exposure guidelines
established by its regulators. Additionally, the Bank has a process in
place to quantify risks to provide accurate and timely measurements
of the risks it assumes.
In quantifying risk, the Bank uses various risk measurement method-
ologies, including Value-at-Risk (VaR) analysis, scenario analysis, stress
testing, and limits. Other examples of risk measurements include credit
exposures, provision for credit losses, peer comparisons, trending
analysis, liquidity coverage, leverage ratios, and capital adequacy
metrics. The Bank also requires significant business segments and
corporate oversight functions to assess their own key risks and internal
controls annually through a structured strategic Risk and Control Self-
Assessment (RCSA) program and an ongoing process RCSA program.
Internal and external risk events are monitored to assess whether the
Bank’s internal controls are effective. This allows the Bank to identify,
escalate, and monitor significant risk issues as needed.