In the past, risk managers’ training and experience have been somewhat limited – but now moves are afoot to change all that
Risk management has become a mission-critical function in financial institutions, but are risk managers up to the job? The evidence of the credit crisis – and the subsequent round of sackings among banks’ senior risk managers – clearly indicates that many are not, and that more needs to be done to ensure and assess their competence.
According to Keith Waitt, president and CEO of Consultancy Matters, a risk management training and consultancy firm, part of the problem is that the experience and training of the average risk manager are too limited.
“Chief risk officers (CROs) tend to have grown up in one of the bank’s ‘silos’ – credit, market, operational or regulatory – and lack the rounded experience to assess risk across the whole organisation, which may encompass the very different businesses of retail, corporate, commercial and investment banking,” says Waitt.
He advises that anyone interviewing a potential CRO should thoroughly test the candidate’s understanding of all areas of the business. And organisations looking to grow their own risk experts should design a career structure that ensures they build up experience right across the organisation.
Ideally this should include spells working within the business units as well as the risk management function. “Risk managers will have better judgment if they have direct experience of how the business works,” says Waitt.
Enabling risk professionals to escape from their silos requires a more holistic approach to training that deliberately crosses departmental and functional boundaries, says Waitt. Training should morph as the individual becomes more senior, with increasing emphasis on leadership and influencing behaviours, and less on pure technical knowledge.
There is an art to assessing whether a risk manager’s confidence is built on firm foundations, says Waitt. “Those whose confidence outstrips
Those with high knowledge but low confidence are the little jewels you need to develop
their knowledge are going to cause your next crisis, while those with high knowledge but low confidence are the little jewels you need to develop. Once you’ve assessed someone effectively you can give them the tailored training they need.”
A further problem, says Waitt, is that the financial services industry has had no universally recognised professional qualification for benchmarking risk managers.
However, this is about to change with the establishment this year of the Institute of Risk Standards and Qualification (iRSQ). Created specifically for the banking sector, iRSQ has already gained support from a number of global banks and several of the major financial regulators.
“Risk management should be treated as a profession, not merely a function, and the iRSQ qualification will enable risk managers to demonstrate their abilities, and enable potential employers to distinguish the sheep from the goats,” says Waitt.