LeadershipDevelopmentinRiskManagement
Insightsfromthe2017GlobalPracticeAnalysis
LatinAmericanRiskCongress
MichaelSellGlobalHeadofInstitutionalOutreachandBusinessDevelopmentSeptember4,2018
Leadership Development in Risk Management
GARPisanIndependentNon-PartisanAssociation
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Ourmissionistoadvancetheriskmanagementprofessionthrougheducation,researchandthepromotionofbestpracticesglobally.
• Founded1996• Not-forprofit• 150,000members• 195Countries
• Globallyrecognizedcertifications(FRM,ERP)fostermeritocracyintheriskprofession
• Qualityoversight(21memberBoard)• PractitionerOrientated• Respectedobjectiveindustryconvener
GARP DOES NOT LOBBY OR ENGAGE IN CONSULTING ACTIVITIES
Leadership Development in Risk Management
ThreePillarsSupporttheMission
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GARPBenchmarkingInitiative(GBI)
GARPRiskInstitute(GRI)
ProfessionalCertifications(FRMandERP)
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Global Interest in Risk Certification is Strong and Growing
Leadership Development in Risk Management
Leadership Development in Risk Management
RiskManagementEcosystem
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Leadership Development in Risk Management
• Governance• BoardofDirectorsandCEOsetthetone
• Riskcommitteedefinesstrategicriskobjectives• CROreportstoorispartoftheriskcommittee
• RiskManagement• Risktakers
• Recommendrisklimits• Adjustriskexposuresbasedonmarketconditionsandfeedbackfromriskmanagers
• Riskmanagers• Approverisklimits• Monitor,measureandreportrisk,validatemodels,communicateresults
• Compliance• Adherencetointernalandexternalrulesandprocedures
• Governmentoversightandregulation(BaselFramework)• Accountingstandards(GAAP/IFRS)• Legaldocumentationandcontracts(ISDA)
RiskManagementEcosystem-“GRC”
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• Riskmanagement• Market,credit,operational,andenterpriserisk
• Modelcontrol• Construction,validationandbacktesting
• Treasury• Analyzethefirm’sfundingandliquiditypoliciesandexposures
• Regulatorycompliance• FundamentalunderstandingofBaselregulations
• Audit• Analyzeadequacyoffirm’sriskcontrolsandprocesses
InternalStakeholders
Leadership Development in Risk Management
• Governmentregulatoryagencies• Globalstandards–Basel• Localmarkets
• Financialmarketexchanges• Trading.pricetransparencyandmarketliquidity• Centralclearing
• Accountingandconsultingfirms• Auditandregulatorycompliance• Risk-basedtechnologysolutions
• AcademicInstitutions• Riskeducationandresearch
ExternalPlayers
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• Knowledge• Requiredtoperformessentialriskmanagementtasks
• Experience• Markets,currenttrendsandhistoricalcontext
• Professionaldevelopment• Communicationskillsarecritical• Continuingeducation–lifelonglearning
DevelopingFutureLeadersinRiskManagement
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Leadership Development in Risk Management
InsightsfromGARP’sGlobalPracticeAnalysis
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• Takingafreshlookatthepracticeoffinancialriskmanagementtounderstand:o Whofinancialriskmangersareo Whatspecifictaskstheyperformo Whatcriticalknowledgetheyneed
WhatisaGlobalPracticeAnalysis?
• Applyingtheresultsto:o InformFRMexamcontentandcurriculumo HelpGARPbetterdesignofferingsandbuildprogramsofinteresttotherisk
managementcommunity(e.g.,webinars,Conventiontracks)o InformGARP’sContinuingProfessionalDevelopment(CPD)initiatives
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“Toidentifytheknowledgeandskillsnecessaryforcompetentpractice,itisimportanttocompleteananalysisoftheactualworkperformedandthendocumentthetasksandresponsibilitiesthatareessentialtotheoccupationorprofessionofinterest.”
Leadership Development in Risk Management
Leadership Development in Risk Management
SurveyStructureandDemographics
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DomainsofPractice–TasksRiskManagersPerform49Process-BasedTasksAcross6Domains
FinancialRiskFramework(9tasks)
FinancialRiskIdentification(5tasks)
FinancialRiskMeasurementandModeling(12tasks)
FinancialRiskMonitoring(7tasks)
FinancialRiskManagement(10tasks)
FinancialRiskReporting(6tasks)
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Leadership Development in Risk Management
KnowledgetoPerformRiskManagementTasks174KnowledgePoints
Foundational(89knowledgepointsacross10areas)Overviewoffinancialriskmanagement(4knowledgepts)Assetclassesandfinancialinstruments(12knowledgepts)InstitutionalFrameworkofMarkets(5knowledgepts)RegulatoryEnvironment(4knowledgepts)Accounting(9knowledgepts)Economics(8knowledgepts)Statisticalandprobabilityanalysis/econometrics(9knowledgepts)Financialmathematics(24knowledgepts)Modeling(10knowledgepts)Technology(4knowledgepts)
Non-Foundational(85knowledgepointsacross5areas)MarketRisk(12knowledgepts)LiquidityandTreasuryRisk(17knowledgepts)CreditRisk(27knowledgepts)OperationalRisk(17knowledgepts)EnterpriseRisk(12knowledgepts)
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Leadership Development in Risk Management
SurveyRatingScales
• Domains • Importanceofdomaintotheprofessionoffinancialriskmanagementingeneral
(Not,Somewhat,Moderately,Extremely)• Percentageoftimerespondentspendsperformingtasksinthedomain
(0%to100%)
• Tasks• Importanceofeachtasktorespondent’sownwork
(Not,Somewhat,Moderately,Extremely)• PointofAcquisitionwhenafinancialriskmanagershouldbeabletoperformeachtask
(Notnecessary,<2yrs.,2to5yrs.,6to10yrs.,>10yrs.)
• Knowledge• Importanceofeachknowledgeareatorespondent’sownwork
(Not,Somewhat,Moderately,Extremely)• PointofAcquisitionwhenafinancialriskmanagershouldacquiretheknowledge
(Notnecessary,<2yrs.,2to5yrs.,6to10yrs.,>10yrs.)
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• 3,210respondentswithawiderangeofexperience• 52%FRMs
• 125countries• Top10:US,China,India,UK,HongKong,Canada,Switzerland,Singapore,Spain,Germany
• RespondentsfromLATAMincludeBrazil,Columbia,andPeru
• 71%heldMasters,orhigher,degrees
• Manyheldothercertifications(e.g.,CFA,CPA,ERP,ACCA,CAIA)
• 3:1ratiobetweenmaletofemalesurveyparticipants
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HighLevelDemographics
Leadership Development in Risk Management
Top10BusinessTypesandJobTitles
Top10BusinessTypes(100%) Top10JobTitles(85%)1 Bank(43%) Riskmanager(30%)2 Consulting(17%) Analyst(24%)3 Assetmanagement(16%) Consultant(11%)4 Broker/dealer(6%) Portfoliomanager(5%)5 Insurance(6%) Auditor(3%)6 Government(5%) Productmanager(3%)7 Nonfinancialcorporate(4%) Trader(3%)8 Academiaorresearchorganization(3%) Informationtechnology(2%)9 Energy(1%) Modeldeveloper(2%)10 Other(1%) Regulator/examiner(2%)
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• 76%frombanks,consultingfirms,orassetmanagementcompanies• 70%wereriskmangers,analysts,consultantsorportfoliomanagers
YearsofExperience
YearsofExperienceFinancialRiskManagement
FinancialServicesIndustry
Upto2yrs. 22% 11%
2to5yrs. 37% 28%
6to9yrs. 21% 24%
10to15yrs. 12% 20%Morethan15yrs. 7% 17%
Leadership Development in Risk Management
• 54%with6to9yearsinfinancialserviceshadlessthan5yearsinrisk• 64%with10to15yearsinfinancialserviceshadlessthan10yearsinrisk
DistributionofTimeSpentinRiskRelatedActivities
Percentageoffinancialriskmanagementtimeineachactivity
Iperformfinancialriskmanagementtasks 50%
Isupervisepeoplewhoperformfinancialriskmanagementtasks 15%
Iconsulttofinancialriskmanagementprofessionals 10%
Iamnotcurrentlyinvolvedinfinancialriskmanagement 10%
Iteachortrainfinancialriskmanagementprofessionals 7%
Iauditthefinancialriskindustry 5%
Iregulatethefinancialriskindustry 3%
• Mostsurveyrespondentsindicatedtheyspendtheirtime“doing”riskmanagementtasks.
• Buttheyalsospendtimesupervising,teaching,regulating,auditing,andconsulting.
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DistributionofTimeSpentinEachAreaofRiskManagement
Creditrisk,28%
Marketrisk,30%
Operationalrisk,17%
LiquidityandTreasuryrisk,12%
Enterpriserisk,9%
Other*,4%
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ProfilesofPractice
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RelativeImportanceofEachPracticeDomain
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0%
5%
10%
15%
20%
25%
RiskFramework RiskIdentification RiskMeasurementandModeling
RiskMonitoring RiskManagement RiskReporting
16%
22%
18%
16% 16%
12%
WeightedProfilesofPractice(%ofTimexMeanImportance)
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ProfilesofPracticeVarybyAreaofRiskSpecialization
0%
5%
10%
15%
20%
25%
30%
Credit Market LiquidityandTreasury Enterprise Operational
FinancialRiskFramework FinancialRiskIdentification FinancialRiskMeasurementandModelingFinancialRiskMonitoring FinancialRiskManagement FinancialRiskReporting
Leadership Development in Risk Management
0%
5%
10%
15%
20%
25%
30%
FinancialRiskFramework FinancialRiskIdentification
FinancialRiskMeasurementand
Modeling
FinancialRiskMonitoring FinancialRiskManagement
FinancialRiskReporting
<2yrs 2to5yrs 6to9yrs 10to15yrs >15yrs
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ProfilesofPracticeChangewithExperience
Leadership Development in Risk Management
TasksPerformed
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Top10TasksandRelatedPracticeDomains1. Identifysignsofpotentialriskbasedonexposure,trends,monitoringsystems,regulatoryand
environmentalchange,organizationalcultureandbehavior.(Identification)
2. Analyzeandassessunderlyingriskdriversandriskinterconnections.(Identification)
3. Communicatewithrelevantbusinessstakeholders.(Monitoring)
4. Monitorriskexposureincomparisontolimitsandtolerances.(Monitoring)
5. Evaluatematerialityofriskandimpactonbusiness.(Management)
6. Interpretresultsofmodelorriskmeasureandmodifyusingexpertjudgment.(Monitoring)
7. Identifyriskowners.(Framework)
8. Investigatewhylimitsareexceededbyperformingroot-causeanalysis.(Monitoring)
9. Generate,validate,andcommunicatestandardizedriskreportsforinternalpurposes(e.g.staff,executivemanagement,boardofdirectors).(Reporting)
10. Definerisklimitsandtolerancesfortheorganization.(Framework)
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Top5TasksbyAreaofRiskSpecializationProcessBasedTasks Credit MarketOpRisk Liq.&Treas.
Enterprise
Identifysignsofpotentialrisksbasedonexposure,trends,monitoringsystems,regulatoryandenvironmentalchange,organizationalcultureandbehavior C M O L E
Monitorriskexposureincomparisontolimitsandtolerances C M E
Interpretresultsofmodelorriskmeasureandmodifyusingexpertjudgment C M L
Evaluatematerialityofriskandimpactonbusiness C O L
Communicatewithrelevantbusinessstakeholders C L
Analyzeandassessunderlyingriskdriversandriskinterconnections M O
Investigatewhylimitsareexceededbyperformingroot-causeanalysis M L
Identifyriskowners O E
Prioritizerisksbasedontheirexpectedfrequencyandseverity O
Definerisklimitsandtolerancesfortheorganization E
Setriskmanagementframework,includingriskappetite,riskculture,andcorporategovernance E
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RequiredKnowledge
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KnowledgeRatings
MeanImportanceofKnowledgebyAreaofRiskSpecialization
Market Credit Liquidity&Treasury Operational Enterprise
Foundational/crosscutting(89KPs) 3.01 2.99 3.01 3.00 2.99
MarketRisk(12KPs) 3.19 2.91 3.15 2.91 3.01
CreditRisk(27KPs) 2.81 3.28 2.99 2.83 3.03
LiquidityandTreasuryRisk(17KPs) 2.79 2.85 3.34 2.83 3.00
OperationalRisk(17KPs) 2.50 2.66 2.84 3.21 3.03
EnterpriseRisk(12KPs) 2.67 2.87 3.04 3.10 3.45
Leadership Development in Risk Management
Top10FoundationalKnowledgePoints1. Basicrisktypes(e.g.,market,credit,operational)
2. Interestrates,foreignexchangerates,inflationanddeflation
3. Howriskmanagementcanaddvalue
4. Marketparticipants(e.g.,banks,insurancecompanies,funds)
5. Casestudies/Lessonslearned
6. Riskmeasures(e.g.,expectedshortfall,valueatrisk)
7. Monetarypolicy(e.g.,monetarypolicyinstruments,exchangeratepolicies)anditsrelationwithfinancialmarkets
8. Valuationmethods(e.g.,netpresentvalue,simulations,replication)
9. Derivatives(includingswapsandoptions)
10. Discountrates(e.g.,LIBOR,OIS)
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Top10FoundationalKnowledgePointsareConsistentoverTime
RankingsofFoundationalKnowledgePointsAtDifferentLevelsofYearsofExperience
<2yrs
2to5yrs
6to9yrs
10to15yrs
>15yrs
Basicrisktypes(e.g.,market,credit,operational) 1 1 1 1 1
Interestrates,foreignexchangerates,inflationanddeflation 2 2 3 2 2
Casestudies/Lessonslearned 3 6 5 8 2
Howriskmanagementcanaddvalue 4 3 2 3 4Monetarypolicy(e.g.,monetarypolicyinstruments,exchangeratepolicies)anditsrelationwithfinancialmarkets 4 6 9 9 10
Valuationmethods(e.g.,netpresentvalue,simulations,replication) 6 6 11 7 9
Riskmeasures(e.g.,expectedshortfall,valueatrisk) 7 5 6 5 6
Derivatives(includingswapsandoptions) 7 10 10 11 15
Baselframework 9 21 7 6 18
Marketparticipants(e.g.,banks,insurancecompanies,funds) 10 4 4 4 11
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Top10Non-FoundationalKnowledgePoints1. Marketriskdrivers(e.g.,exchangerates,interestrates,equity,liquidity)
2. Scenarioandstressanalysis
3. Valuationriskcategories(e.g.,marketpriceuncertainty,modelrisk,concentration)
4. Creditriskdrivers(e.g.,macro-economicconditions,industryconditions,companyorindividual-specificconditions)
5. Modelsformarketrisk(e.g.,VaR,LVaR)
6. Limits(e.g.,exposurelimits,concentrationlimits)
7. Measuresofportfoliocreditriskexposure(e.g.,expectedloss,unexpectedloss,concentration)
8. Measuresofindividualcreditriskexposure(e.g.,probabilityofdefault,exposureatdefault,loan-to-valueratio,scorecards)
9. Measuresofcounterpartycreditrisk(e.g.,expectedexposure,potentialfutureexposure)
10. Definitionofeventsofdefault
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Top5KnowledgePointsforMarketRisk1. Marketriskdrivers(e.g.exchangerates,interestrates)
2. Modelsformarketrisk(e.g.VaR,LVaR)
3. Valuationriskcategories(e.g.,modelrisk,concentrationrisk)
4. Scenarioandstresstesting
5. Swaps,futures,forwards,andoptions
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Top5KnowledgePointsforCreditRisk1. Creditriskdrivers(e.g.macro-economicconditions,industryconditions,companyor
individual-specificconditions)
2. Measuresofindividualexposurecreditrisk(e.g.,PD,EAD,LTV)
3. Measuresofportfoliocreditrisk(e.g.,EL,UL,concentration)
4. Creditlifecycle(e.g.,performing,delinquent,default)
5. Definitionofeventsofdefault
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Top5KnowledgePointsforOperationalRisk1. Categoriesandsourcesofoperationalrisk(e.g.,people,processes,systems)2. Compliancerisk
3. Riskandcontrolself-assessment
4. Threatstobusinesscontinuity(e.g.,systemandvendordependence,cybercriminals,naturalcatastrophe)
5. Reputationalrisk
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Top5KnowledgePointsforLiquidityandTreasuryRisk1. Fundingstability
2. Assetliquidity
3. Liquiditymetrics(e.g.,liquiditycoverageratio,netstablefundingratio)
4. Sourcesofliquidityrisk(e.g.,market-driven,customer-driven,companyspecific,maturitymismatch)
5. Balancesheetmanagement(e.g.,ALMmatchingfundingtypes)
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Top5KnowledgePointsforEnterpriseRisk1. Riskpoliciesandlimitsframework
2. Roleofriskmanagementinorganizations
3. Riskgovernanceframework(e.g.,3linesofdefense,segregationofduties,independentoversight)
4. Integratedriskmanagement(e.g.,interactionbetweencredit,market,andoperationalrisk)
5. Riskappetitedefinitionandimplementation
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EmergingEducationalNeedsofRiskManagers
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TopicsofInteresttotheGlobalRiskManagementCommunityFoundational• Accounting• Quantitative/statisticalskills• Regulations(CCAR,IFRS9,FRTB)• Derivatives(pricing,valuation,strategies,risks,
accounting)ToolsandTechniques• Riskmodeling• Scenarioanalysis• Hedging(strategies,techniques,accounting)• VaRTech-related• Computerlanguages(R,Python,VBA,SAS,Matlab)• Cyberriskmanagement• Datascience(AI,ML,BigData,etc.)• FinTech• Blockchain
Traditional• Marketrisk• Interestraterisk• FXriskmanagement• Liquidityrisk(measurement,management,
modeling)• ALM• Creditrisk(modeling,management)• Counterpartycreditrisk• XVA• Operationalrisk• Non-FinancialRisks• Riskgovernance• Riskappetiteframework• Compliance• Conductrisk
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ContactUsAnytime
Developing Risk Management Leadership
MichaelSell:[email protected]:[email protected]
TheFRMProgram
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GPA Ensures the FRM is Aligned to Industry Practice
MAINTENANCE ACCEPTANCE RELIABILITY VALIDITY
Oversight & governance Psychometric
analysis Industry
acceptance
✓Continuing
education and network
Leadership Development in Risk Management
TheFRMJourneyBeginswiththeExam
FRMExamPartI:Toolsusedtoassessrisk(4hours,100multiplechoicequestions)• FoundationsofRiskManagement• QuantitativeAnalysis• FinancialMarketsandProducts• ValuationandRiskModels
FRMExamPartII:Practicalapplicationofthosetools(4hours,80multiplechoicequestions)• MarketRiskMeasurementandManagement• CreditRiskMeasurementandManagement• OperationalandIntegratedRiskManagement• RiskManagementandInvestmentManagement• CurrentIssuesinFinancialMarkets
20%-20Questions30%-30Questions30%-30Questions
20%-20Questions
25%-20Questions25%-20Questions25%-20Questions15%-12Questions
10%-8Questions
VoluntaryCPD40hours/2years
CertifiedFRM
2yearsofrelevantworkexperience
Leadership Development in Risk Management
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ProgramRegistrationTimelineandFeesCertificationProgramEnrollmentandExamRegistrationFees
November17,2018 May18,2019
EnrollmentFee US$400 Validfor4Years Validfor4Years
LocationFee* US$40
EarlyRegistration* US$350 May1–July31st,2018 Dec1st,2018–Jan31st,2019
StandardRegistration* US$475 Aug1st–Aug31st,2018 Feb1st–Feb28th,2019
LateRegistration* US$650 Sept1st–Oct15,2018 Mar1st–April15th
*FeesforeachExam(PartI&PartII)
• Enrollment fee includes 1 year complimentary GARP membership • Candidates can elect to take both Part I and Part II on the same date; however, candidates
must pass Part I to have Part II exam scored • FRM and ERP Exams are offered at more than 90 sites around the world • Deferral policy: Can defer Exam registration one time to next exam. $150 fee
RelativeImportanceofEachPracticeDomain
ImportanceofDomaintoWorkofFinancialRiskManagers
%ofWorkTime Not Somewhat Moderately Extremely Total
(mean)
FinancialRiskFramework11% 1% 12% 34% 53% 3.39
FinancialRiskIdentification15% 0% 5% 29% 65% 3.59
FinancialRiskMeasurementandModeling21% 1% 5% 33% 61% 3.55
FinancialRiskMonitoring17% 1% 5% 34% 60% 3.54
FinancialRiskManagement15% 0% 5% 30% 65% 3.59
FinancialRiskReporting16% 1% 9% 41% 49% 3.38
Other5%
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