The organization analyzed in this research paper is the TD Bank Group (TD) headquartered in Toronto, Canada. TD (also referred to as the ‘bank’ in this paper) offers a range of financial services and products to millions of customers through three key business lines: Canadian Retail, U.S. Retail, and Wholesale banking (Corporate Information, n.d.). As per TD’s proxy circular published in February 2018, the bank’s corporate governance policies and practices comply with the Canadian Securities Administrators’ National Policy 58-201 Corporate Governance Guidelines (CSA Guidelines), the rules of the TSX, and OSFI’s Corporate Governance Guideline.
Corporate Governance Structure
As per TD’s website, the Board of Directors and TD’s management are committed to leadership in corporate governance. While designing corporate governance policies and practices, they have focused on their responsibilities to shareholders and creating long term shareholder value. The board has four committees: audit, corporate governance, human resources, and risk. A simple overview of TD’s corporate governance structure has been extracted and included in Appendix A of this research paper.
What are the key measures/indicators of legal compliance and how does the organization identify and ensure compliance with current legal requirements and anticipate and prepare for future legal requirements?
What are the key measures/ indicators for ethical behavior and how does the organization use these to ensure ethical behavior and decision making throughout the organization in all internal and external transactions with all stakeholders?
In 2018, through its proxy circular (p.71), the bank states that the way their business goals are achieved is just as important as the business goals itself. To ensure a high ethical business conduct and transparency within the organization, the bank has several policies and procedures in effect that includes the Code and the Anti-Bribery and Anti-Corruption Policy. It is imperative in any organization for the board and C-suite to lead by examples and set the tone at the top. In TD, the board and its committees oversee the culture of integrity and the governance committee receives period report from management. Organizations should ensure there is no group or individuals above policies and this is practiced in TD as they apply the Code at all levels of the organization. To ensure its commitment and transparency, the bank files its Code with securities regulators and makes it available to shareholders. The proxy circular of the bank (p.71) states that the Code not only lays the standard that govern how directors and employees deal with each other but also lays ground rules for shareholders, customers, governments, regulators, suppliers, competitors and the media and the public at large. The Code is reviewed annually and compliance by the Code is monitored by management on an ongoing basis. Any material issues arising under the Code are reported to the audit committee by the human resources department. TD also outlines in their circular that “an annual report is submitted by the Head of Human Resources to the audit committee on the attestation process confirming compliance with the Code. Employees are encouraged to report violations immediately to TD and various internal contacts are outlined in the Code under “Reporting Violations”. Employees who may be uncomfortable using these internal channels can report possible violations through the TD Whistleblower Hotline as described under ‘Measures for Receiving Stakeholder Feedback’. The audit committee oversees concerns or complaints relating to questionable accounting, internal accounting controls or auditing matters. The policies on Insider Trading allows trained and experience compliance officers to monitor personal trading of executives and employees in key positions. At a board level, directors are not eligible to stand for election if they have a potential or actual conflict of interest that is incompatible with service as a director. Directors have a personal and ongoing obligation to report any potential or actual conflict of interest to the corporate governance committee.
What are the key measures/ indicators of regulatory compliance and how does the organization identify and ensure compliance with current regulatory requirements and anticipate and prepare for future regulatory requirements?
In January 2018, the Canadian Bankers Association (CBA) published a report titled “Focus: Global Banking Regulations in Canada” which states the global financial crisis led to a series of significant regulatory changes to international banking rules, which are designed to reduce the risk of another financial crisis occurring. In Canada, all banks come under federal jurisdiction. Canadian policymakers and regulators are involved in shaping and adapting regulatory changes for Canada’s financial system. As per CBA’s report, Canadian banks and credit unions must meet regulatory requirements related to capital and liquidity as per global regulatory rules set out by Basel III. One key measure of regulatory compliance is for the bank to have enough capital to equal at least 10.5% of their total risk weighted assets by 2019. From a liquidity perspective, the Basel committee has developed two minimum rules for liquidity – the Liquidity Coverage Ratio (LCR) that has a 30-day horizon, and the Net Stable Funding Ratio (NSFR) that has a time horizon of one year. TD ensures compliance with current regulatory requirements through effective board governance. The board’s role is to oversee the management of capital, liquidity risks and internal controls and at the same time disclose reliable and timely information to shareholders. To be prepared and well-equipped to meet current and future regulatory requirements, the board has reserved certain key decisions to itself. Most board committees ask for or put formal policies in place for major strategic decisions and in TD, the board has formal policies for approving capital allocation decisions. To ensure rigor and compliance, the board has complete authority over the approval of certain other transactions out of the ordinary course of business and for approving the bank’s financial statements prior to release to shareholders (Proxy Circular, p.67).
Primary Risk Areas
What are the organization’s primary areas of risk and how are they minimized?
Following the banking and financial crisis in 2007-2008, most organizations especially the financial services industry have examined their risk management practices closely and attempted to fix loopholes to prevent losses and another financial meltdown. Gangreddiwar (2015) in his article “8 Risks in the Banking Industry Faced by Every Bank” has outlined some central risks and the list has been included in Appendix B. The risks outlined are typical in most organizations in different industries and the banks are no exception to these. The risk committee at TD therefore has an important role to play in ensuring the impact of such risks has minimum to no impact on the efficient business operations. The proxy circular (p.83) indicates that the risk committee oversees the risk profile and approves enterprise-wide risk management frameworks that align with the bank’s risk culture and appetite. The bank takes significant measures to minimize risks to its employees, customers, and shareholders. The risk committee reviews and provides input to the bank’s risk appetite statement prior to presenting it to the board for approval. It reviews the bank’s risk performance against the risk appetite statement and uses that as a key consideration for senior management compensation. The committee engages in comprehensive presentations on cybersecurity, threat detection and intelligence, and enhancements to controls, incident response and resiliency capabilities (p.84). More importantly, it assesses the effectiveness of the Chief Risk Officer and reviews their mandate prior to approval.
Corporate Information. (n.d.). Retrieved from https://www.td.com/about-tdbfg/corporate-information/corporate-profile/profile.jspDisclosure of Corporate Governance Services, Proxy Circular (Publication). (2018, February 28). Retrieved September 15, 2018, from TD Bank website: https://www.td.com/document/PDF/governance/Schedule_A_Pages_from_E-2018-Proxy-Circular.pdf
Focus: Global Banking Regulations and Banks in Canada (Publication). (2018, January). Retrieved September 14, 2018, from Canadian Bankers Association website: https://www.cba.ca/Assets/CBA/Documents/Files/Article Category/PDF/bkg_glb_reg_en.pdf
Gangreddiwar, A. (2015, September 29). 8 Risks in the Banking Industry Faced by Every Bank. Retrieved from https://gomedici.com/8-risks-in-the-banking-industry-faced-by-every-bank/
Overview of the corporate governance structure at TD Bank Group
8 Risks in the Banking Industry Faced by Every Bank
Interest rate risk