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

I II III IV Risk, Types, Financial Risk, Risk Management Evolution ± past , present Key trends ± Financial Risk industry Key attributes in a FRM professional

Types.Section I Risk. Financial Risk. Risk Management .

 Risk .

uncertain  . In our daily lives we often end up using risk and uncertainty interchangeably Certain vs.

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 .

measure. monitor and control activities ‡ Contain the adverse financial effects of activities . Risk Management aims to ‡ Identify.

present .Section II Evolution ± past .

increasing completion in all the businesses one could be involved in . Importance of Risk Management has grown over time essentially because we have got exposed to an increasingly global environment.

Where will the next few years take risk managers? .

expect a move toward less complicated financial products. Risks would be niched and handled by specialists World is changing from all handling all risks to few handling risks they are good at .   For larger financial firms. In the wake of the financial crash. increased regulatory agency oversight is a certainty For larger businesses.

Risk Managers will become Chief Risk Officers and must be able to ³speak CFO.  As enterprise-wide µRisk Management¶ enterprisegains more acceptance. An ³MBA´ in finance will be the minimum education requirement .´ according to one risk management consultant.

 Negative publicity ± snowballing effect ! .

One thing is certain ² 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. This will compel businesses in all industries to adopt a much more integrated approach to measuring and managing enterprise. ERM will become the industry standard for risk management.wide risks . 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.

2. The rise of the CRO goes hand-in-hand with the trend toward enterprise risk management . A Chief Risk Officer (CRO) will become prevalent in risk-intensive businesses.

Economic capital will be in. Value at Risk (VaR) will be out: Managers and external stakeholders will demand a standardized unit of risk measurement.3. they can spot trends in a company¶s risk profile. for all types of risk. or common currency. This way. as well as compare the risk/return performance of one company against others .

Advanced technology will have a profound impact on risk management. analytics. The Internet (and Intranet) will have a significant impact on risk management and how information. and risk-transfer products are distributed .4.

As companies recognize the need to train and develop their risk management staff. Risk education will be a part of corporate training and college finance programs.5. corporate training programs will increasingly feature risk management .

6. an edge over others interested in the same field but not having those additional qualifications . wanting to make a career in Risk Management. CFA in addition to the regular MBA(Finance) would provide candidates. Qualifications. Importance of giving exams like Global Association of Risk Professionals (GARP).

However. The trend toward ERM and the appointment of CROs have created an exciting career path. 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 .7. for risk professionals. The salary gap among risk professionals may continue to widen. and attractive compensation opportunities.

8. Cyclicality Risk management has witnessed cyclicality of ³importance´ in the last few decades with peaks witnessed immediately after any crisis or scam. .

Section IV Key attributes in a FRM professional .

verbal & written Ability to adapt.Key attributes required :       Understanding the ³business´ issues ± be open minded Very good quantitative skills .applied to complexity Strong communication skills . 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 .



g. A T Kearney. Booz & Co) .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.

Questions ???? .

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