Research TD Ameritrade Enterprise Risk Management

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TD Ameritrade Enterprise Risk Management
Introduction
About 50% of market capitalization companies surprisingly decline each year or lose their competitive position in the market. It has been established that the main cause of these disastrous declines is lies on the operational and strategic risks, in fact accounting 80% of the total corporate falls. However, it has been determined that most of these consequences could be mitigated through a comprehensive enterprise risk management (ERM). ERM is the process of planning, organizing, leading and controlling the performance of a business to mitigate the effects of risk on a firm's capital and income. ERM is comprehensive and goes beyond mitigating the risks associated with accidental losses into cushioning against financial, operational, strategic and other potential risks to the business. TD Ameritrade is an online broker company that has taken an initiative in establishing an ERM to prevent its capitalization of the market from an unanticipated decline now and in future. TD Ameritrade's ERM aims at allowing the executive to mitigate risks effectively while increasing the company's competitive advantage. It shall achieve this by helping the executive management to assess enterprise risk areas, develop enterprise risk management strategies, and address risk problems. TD Ameritrade's ERM implementation plan involves various project teams playing different roles and covers a wide range of risk areas.
Implementation Plan
Organizations will establish an ERM with the aim of preventing declines due to operational or strategic risks. However, there is no magical bullet on implementing an ERM program. At TD Ameritrade, the ERM implementation plan is largely influenced by the pursuit of the perceived gains from the program. ERM cannot be measured using traditional business metrics such a return on capital, return on assets and return on investment, and for this reason, TD Ameritrade implements ERM with the perspective of the shareholder value, clients, and associates. ERM has been implemented to meet the value the organization was trying to meet and protect which is adding more value to shareholders through more profit creation. The business chief manager at the company believes that doing what is right and in the best interest of the shareholders, clients and associates as a business strategy can make the company successful.
TD Ameritrade established ERM in 2001 with the aim of expanding risk management across all the organizational departments, the organizations and the entire business units so that one risk management language would be established across the business premises. TD Ameritrade began with establishing a COSO-based, risk-based internal audit function. The COSO-based was expanded throughout the business to support an ERM program and risk evaluation process backed by full support from the executive management of the business. Once an internal risk evaluation had been established and expanded to the entire business, a corporate risk office was established to undertake the ERM. The overall structure of TD Ameritrade ERM's program is an integration of the corporate risk committee which is composed of the executive committee and the strategic risk assessment workshop. Through the workshop, the managers can identify the critical risk events and enter them in the COSO framework. The risks are approached in two ways; through the top-down approach and bottom-up approach. The top-down approach is accomplished by the workshop while the bottom up is accomplished through the committee.
Project Teams
TD Ameritrade has some staff who are dedicated to cascading the tasks and activities down through the organization. These are the board of directors, CRO, CORO, internal audit, executive risk committee and OR committee.
Board of Directors
The board of directors comprises of the top organizational leaders who perform vital roles in the program. The board members establish risk management culture, support management process and understand nature and scope of operational risk policy. They also offer the senior management with clear guidance and direction regarding principles underlying the framework. Also, the board of members undertakes a regular review of the ERM policy and assesses the risk appetite. Another role is establishing clear lines of management responsively for implementing a strong control environment.
Chief risk officer (CRO)
The CRO is entitled to translate operational risk management framework established by the board of director into specific policies and procedures that can be implemented and verified. It also ensures that staff responsible for managing operational risk coordinate and communicate effectively with staff responsible for managing credit, market, and other risks. Moreover, it establishes and maintains effective issue-based resolution processes and to report, track, and evaluate issues to ensure resolution it identifies and assess all the operational risk inherent in material products, activities, processes, and system and make sure those risks are well-understood.
CORO
The CORO ensures risk policy is established by senior management with necessary experience and knowledge about risk management. It also verifies all operational risks are taking into consideration and their potential impacts have been analyzed as well as disclosing and reporting any discrepancy in the operating process.
Internal audit
Reviews procedures and controls established by CRO, CORO, and Chief Compliance Office independently. It communicates and report to the board of director and verifies the efficiency of risk management framework. Also, provides consulting suggestions to senior management team about how to design efficient internal control procedures.
Executive Risk Committee
The executive risk committee organizes periodical meetings to allow productive decision making and through discussions. It permits the review of meeting and evaluation of committee effectiveness. It also meets with the board of directors.
OR Committee
The OR committee includes a combination of members with expertise in business activities and financial as well as independent risk management. It receives input from operating risk committee by country, business or functional area. It also creates an opportunity where all the 15,000 EIG employees can participate and express their opinion on ERM.
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