High risk factors at play

PUBLISHED : Saturday, 08 October, 2005, 12:00am
UPDATED : Saturday, 08 October, 2005, 12:00am

The accelerating globalisation of business over the past decade has meant that the related supply chains and financial transactions for just one contract can involve parties in any number of countries.

As a result, by operating in more locations and in different legal jurisdictions, many companies have found themselves exposed to potentially greater risk.

Besides that, recent legislation in the United States, such as the Sarbanes-Oxley and Patriot Acts, has significantly increased the need for corporate vigilance. Extra attention must be focused on tightening internal procedures, closing possible loopholes and minimising the chance of employees at any level engaging in illicit activities.

At the same time, financial institutions are expanding their treasury, structured and derivative products. Mindful of the volatility and complexity associated with some of these value-added products, they are making efforts to strengthen their overall risk management functions.

Formerly, these would have concentrated mainly on assessing credit risk, but the area has become much broader and is creating many jobs.

At one level, financial institutions are competing for risk advisers and managers capable of developing innovative investment products, but that is only part of it.

'Beyond this, the Basel II accord which stipulates measures for enhanced risk management infrastructure and quantifications of risk factors is about to take effect, so we will soon enter a new era,' said Daniel Au, senior compliance officer of BNP Paribas.

Many different types of risk must be addressed. They include physical security, reputation, trading or markets, credit or counterparty, operational, compliance and financial.

'As financial markets have grown in size and sophistication, distinct groups of practitioners have emerged to manage these specific areas of risk,' said Stuart Leonard, managing director of NCFC Business Advisory Services.

'The first thing to decide for someone embarking on a career is in which area to specialise.'

The sectors showing most potential for continued growth are compliance and operations. The former has expanded dramatically in recent years, prompted by new legislation, while the latter is linked to the wider geographical scope of many businesses and the greater dependence on technology.

'A person who wants to build a career should start by applying for a line position in their preferred sector,' said Peter Pang, head of risk management at Citic Capital. 'This can give valuable experience and insights into the most important issues.'

Any would-be risk adviser with a global financial institution should have at least three years' experience with an investment bank, ideally in treasury and derivative operations. Additional experience as an options trader or internal auditor of derivatives trading would be an advantage.

For smaller banks, the predominant need is still to oversee more traditional credit risk functions. Whatever the case, professional qualifications such as certified financial analyst (CFA), financial risk manager (FRM) or certified public accountant (CPA) will enhance career prospects.

David Lam, head of treasury risk management at Fubon Bank, highlighted another area of opportunity. 'It is not unusual for banks to provide a handsome package to recruit a 'rocket scientist' highly skilled in quantitative analysis and price prediction modelling, or somebody with a PhD background, to gain a competitive advantage,' he said.

This quantitative component was as much art as science, according to Mr Pang.

'The art is to sense what risk is involved, while the science is to know all the swaps, options, and structured products which can be combined to create an attractive new product,' he said.

Such talents are well respected and can bring immense value to a business. As a result, many risk managers quickly move up the corporate ladder.