Our sectors
  Home > Article in Infrom RM magazine

Something has obviously gone badly wrong out there. Despite the increasingly tight regulatory environment imposed since 2001 in the wake of 9/11 and the WorldCom and Enron scandals, risk management in the financial services sector has not proven to be as effective as we might have liked to believe it was.

With the credit crunch now threatening genuine economic downturn in many key global markets, the man in the street is obviously bemused. For example, how could it have given the nod to a business model which allowed loans to people with little or no prospect of ever paying them back – or the repackaging of these liabilities as cast-iron certainties. It is now up to the risk management community to allay fears that something similar could happen again and to rapidly put the house back into some sort of order.

However, as the old adage goes, every cloud has a silver lining and the ‘credit crunch’ may yet actually turn out to have benefits for the careers of many risk management professionals working in banks and other financial institutions. Taking the view of the more optimistic commentators, it seems likely that the current turmoil will not lead us into any economic Armageddon, but will be severe enough to provide a wake-up call about many of the more unacceptable practices that had crept into favour in the sector before last summer.

If this happens it may also mean that the tendency for risk managers to become ‘embedded’ in their specific business areas and consequently less able or inclined to blow the whistle on such practices will move into reverse. Risk professionals will therefore once again be more able to exercise greater control over the institutions that they work for (rather than be subsumed in the race for the ever more clever, and potentially dangerous, financial instrument).

At the same time we can expect even more formal regulatory measures – nearly 30 pieces of legislation are currently in the pipeline in the UK alone – even though this may be delayed in the USA as energy seeps out of the Bush administration in its closing months. There have even been suggestions that the events of the past year have shown that Basel 2 may simply not be up to the job it was designed for and that there may end up being a leap-frog to what in effect would be a ‘Basel 3’. In such an environment, one thing seems certain. Taken together, all this will mean that, despite the dire predictions of job losses in the financial services sector, it seems unlikely that competent risk managers will figure prominently amongst the casualties.

However it would be wrong to suggest that some sort of boom in the jobs market is either happening now or is likely to in the immediate future. In operational risk, for example, we now see little sign of the ‘mass’ recruitment of risk specialists that happened previously and, where recruitment is happening, it appears to be taking place in a cautious atmosphere that has been one of the main products of the financial market turmoil.

Recruitment processes are slower and more involved with more and stakeholders being brought into the decision making process, perhaps to create a degree of shared responsibility and briefs are much tighter and more specific than we have seen for some time. Above all, financial institutions are intent on getting the best value for money from each hire. Rather than electing for a narrow specialist, employers are much more interested in individuals with wide ranging experience, who can be deployed on a project basis in different areas across the business as the need arises – a ‘rapid reaction force’ for the risk management function. The popularity of the narrowly focused risk professional operating in just one business silo seems likely to be limited, at least until the current market problems are dealt with.

Whatever the state of the market, it appears that McKinsey & Co’s famous ‘war for talent’ never stops being fought, it is merely that the battlefields change or the fronts narrow. Although I have highlighted that a degree of inertia has crept into recruitment since the autumn of last year, demand for some types of background and experience remains as high if not higher than ever.

In the information/security risk area, for example, there is definite and continuing interest in individuals with backgrounds in data leakage issues, both external and internal. In market and credit risk there is intense competition for credit modelling specialists generated by the real shortage of people with relevant experience and an inadequate pipeline of individuals coming up through the training process. The market has also shifted downwards in terms of its focus in 2008 so that most recruitment activity is now taking place at middle management rather than at senior level where roles are relatively limited. This seems to be down to a perception that overall regulatory frameworks are actually fairly robust, but that the problems of the past year mean procedures and processes have to be examined and fixed to make the whole machine work effectively.

It will perhaps come as little surprise that, even in the areas of the market where competition for recruits is relatively fierce, constrained budgets mean there is little sign of any form of bidding war for staff and, across the board, reward packages are generally flat. Money is therefore, by no means the major motivating factor for those risk professionals that are currently on the move, although the effect of the ‘crunch’ on likely bonuses does mean that almost everyone is now paying much more attention to the basic salary element of an employment offer. Instead, risk managers are moving for challenges, for longer term opportunities, for the chance to gain exposure to new areas of expertise, in short for much more sensible and strategic motivations than a slightly larger salary cheque.

One other major motivation is also becoming increasingly common amongst risk professionals we deal with – the desire to find a ‘bolt-hole’ outside the banking sector and specifically within the hedge fund arena. In fact a quick straw poll around the office came up with the finding that as many as seven out of every ten risk managers we interview now raise the idea of such a move.

For the moment however, this option is only realistically available to a relatively small minority. Some hedge funds are ‘cherry picking’ talent from the banks, particularly in the area of market risk, but, given their small size in comparison to even some of the more modest banks, their need for risk professionals supporting infrastructure is fairly limited. Of course the drift of more and more traders to hedge funds will create an increasing need for such people, but at least for now, it is unlikely to satisfy the ambitions of the great majority, hopefully queuing up like refugees from some great natural disaster.

So what can the prudent risk professional do to both safeguard and maximise their career in these troubled times? The first step is to take every opportunity to broaden technical experience to fit in with the desire to deploy risk professionals across a wide range of projects depending on the needs of the business at any particular time. The second is to develop as much understanding as possible of how the whole organisation works, back to front, rather than focus on one specific area, again fitting in with this redeployment trend as well as gaining an appreciation of where risk management fits into the bigger commercial picture.

For those willing to make the investment in time and money this may be achieved through the acquisition of an MBA – a highly effective if demanding way of converting specialist knowledge to a generalist management perspective. The third is to look to develop the inter-personal, communication and leadership skills which will be crucial to the new generation of CROs plugged directly into the most senior management levels of the banking sector.

Justin Russell is a risk management specialist at MRL Financial which has offices in the UK, Germany, Dubai and Singapore - www.mrl-financial.com

Read more about MRL Financial’s extensive experience recruiting for risk analyst jobs  in key organisations.

Alternatively, search for roles using the MRL Financial job search or contact your local MLR Financial office to discuss your hiring needs.
Bookmark this page with:
 stumbleupon del.icio.us digg Google reddit Add to favourites