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## Risk Management Report continued 

The change in staffing levels within RMG is generally in line with the changes in staffing overall at Macquarie. RMG staff numbers as at 31 March 2014 were 553, which is a ten per cent increase over the year. 

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(1) Headcount numbers only include permanent, active staff (full-time and part-time). Figures prior to FY2011 have not been restated to account for business compliance staff who joined RMG in FY2011 and FY2013. 

To ensure that, on a global basis, risks are managed in a controlled manner, about half of total RMG staff as at 31 March 2014 were based outside of Australia. All offices are subject to the same risk management controls and standards. This is supported by regular staff communication and visits to international offices. 

Consistent with the concept of Operating Groups owning risk, specific day-to-day operations are more appropriately discharged and embedded within the Operating Groups. This applies particularly to the management of compliance and operational risk. The majority of these functions are discharged within the Operating Groups as follows: 

GLYPH<150> A significant number of RMG Compliance staff are co- located with the business and ensure that day-to-day compliance obligations are discharged at the business level. These staff report into their Regional Head of Compliance and ultimately into the Global Head of Compliance 

GLYPH<150> Business Operational Risk Managers (BORMs) are appointed by the Operating Group Heads to be their representative on operational risk management matters, and act as their delegate in ensuring that operational risk and standards are addressed appropriately within their division. BORMs have functional reporting lines to the RMG divisional Head of Operational Risk. 

## New business and acquisitions 

Innovation is encouraged across Macquarie’s businesses and activities. Therefore, it is important that all elements of new business initiatives are well understood before commencement. 

All new business initiatives must be signed off by RMG prior to commencement. 

The formal new business approval process requires all relevant risks (for example, market, credit, equity, legal, compliance, taxation, accounting, operational and systems) to be reviewed to ensure that all risks are identified and addressed prior to implementation (including ongoing risk monitoring processes). The approvals of RMG, Finance Division, Taxation Division, Legal and Governance and other relevant stakeholders within Macquarie are obtained. RMG also checks that all necessary internal approvals are obtained prior to commencement. 

For all material transactions, independent input from RMG on the risk and return of the transaction is included in the approval document submitted to senior management. 

The Operational Risk function within RMG oversees the new product and business approval process. 

RMG Internal Audit performs an audit of the operations of any significant new businesses based on an assessment of the associated risk faced by Macquarie. The audit typically takes place within six to twelve months following acquisition or launch and includes confirmation that operations are in line with the new product approval document. 

## Risk management and monitoring 

The risk management framework incorporates active management and monitoring of market, credit, equity, liquidity, operational, compliance, regulatory and legal risks. It is designed to ensure policies and procedures are in place to manage the risks arising within each division. Application varies in detail from one part of Macquarie to another; however, the same risk management framework applies across all business activities. 

## Credit risk 

Credit Risk is defined as the risk of a counterparty failing to complete its contractual obligations when they fall due. The consequent loss is either the amount of the loan not paid back or the loss incurred in replicating a trading contract with a new counterparty. 

The RMG Credit team maintains a comprehensive and robust framework for the identification, analysis and monitoring of credit risks arising within each business. Key aspects of this framework are discussed below. 

## Analysis and approval of exposures 

The Macquarie and Macquarie Bank Boards are responsible for establishing the framework for approving credit exposures. The Boards delegate discretions to approve credit exposure to designated individuals within Macquarie whose capacity to exercise authority prudently has been assessed. 

