Financial

Risk Management –
The Way Forward
– Apurva Mehta
Objective of this session is to
share thoughts on trends in
Financial Risk Management
(FRM) from a practical &
industry perspective
 Index

I Risk, Types, Financial Risk, Risk Management

II Evolution – past , present

III Key trends – Financial Risk industry

IV Key attributes in a FRM professional

 Section I

Risk, Types,
Financial Risk,
Risk Management
 Risk
 In our daily lives we often end up using
risk and uncertainty interchangeably

 Certain vs. uncertain

Types of risks:

a) Business risk
b) Control risk – which essentially comprises
of risks associated with internal controls,
organization or even with Management
(often referred to as Corporate
Governance)
c) Financial risk
 Financial Risk

• Capital risk
• Credit risk
• Liquidity risk
• Interest risk
• Currency risk
 Risk Management aims to

• Identify, measure, monitor and control

activities

• Contain the adverse financial effects of

activities
 Section II

Evolution – past , present

 Importance of Risk Management has grown over
time essentially because we have got exposed to an
increasingly global environment, increasing
completion in all the businesses one could be
involved in
Where will the next few years
take risk managers?
 For larger financial firms, expect a move toward
less complicated financial products. In the wake
of the financial crash, increased regulatory
agency oversight is a certainty
 For larger businesses, Risks would be niched and
handled by specialists
 World is changing from all handling all risks to
few handling risks they are good at
 As enterprise-wide ‘Risk Management’
gains more acceptance, Risk Managers will
become Chief Risk Officers and must be
able to “speak CFO,” according to one risk
management consultant.
 An “MBA” in finance will be the minimum
education requirement
 Negative publicity – snowballing effect !
One thing is certain — the next few years will be
challenging for risk managers as they strive to
balance profits with managing risk
 Section III

Key trends – Financial Risk industry

Key trends :

1. ERM will become the industry standard for

risk management.

ERM (enterprise-wide risk management) will

continue to gain acceptance as the best way to
ensure that a firm’s internal and external
resources work efficiently and effectively in
optimizing its risk/return profile. This will compel
businesses in all industries to adopt a much more
integrated approach to measuring and managing
enterprise- wide risks
2. A Chief Risk Officer (CRO) will become
prevalent in risk-intensive businesses.

The rise of the CRO goes hand-in-hand with the trend

toward enterprise risk management
3. Economic capital will be in. Value at Risk
(VaR) will be out:

Managers and external stakeholders will demand

a standardized unit of risk measurement, or
common currency, for all types of risk. This way,
they can spot trends in a company’s risk profile,
as well as compare the risk/return performance
of one company against others
4. Advanced technology will have a profound
impact on risk management.

The Internet (and Intranet) will have a significant

impact on risk management and how information,
analytics, and risk-transfer products are
distributed
5. Risk education will be a part of corporate
training and college finance programs.

As companies recognize the need to train and

develop their risk management staff, corporate
training programs will increasingly feature risk
management
6. Qualifications.

Importance of giving exams like Global Association

of Risk Professionals (GARP), CFA in addition to
the regular MBA(Finance) would provide
candidates, wanting to make a career in Risk
Management, an edge over others interested in the
same field but not having those additional
qualifications
7. The salary gap among risk professionals
may continue to widen.

The trend toward ERM and the appointment of

CROs have created an exciting career path, and
attractive compensation opportunities, for risk
professionals. However, this new career
opportunity will be available only to risk
professionals who continue to develop new
skills and gain new experiences, while the
others will be left behind
8. Cyclicality

Risk management has witnessed cyclicality of

“importance” in the last few decades with peaks
witnessed immediately after any crisis or scam.
 Section IV

Key attributes in a FRM professional

Key attributes required :

 Understanding the “business” issues – be open minded

 Very good quantitative skills - applied to complexity
 Strong communication skills - verbal & written
 Ability to adapt, adopt & cross pollinate ideas & practices
 Ability to keep abreast of rapidly changing environment
 Highlighting risks early instead of burying them on the nth
page of a report
 Industries that look for dedicated Risk
professionals
 Banks
 Insurance Companies
 NBFCs
 Hedge funds and leading
private equity players
 MNCs in the FMCG sector
 Infrastructure and EPC
companies
 Micro – finance and agri
products based companies
 Various Strategic and
Operational Consulting firms
(e.g. A T Kearney, Booz &
Co)
Questions ????