Survey participants indicated they are involved in the daily practice of financial risk management as financial risk managers, in supervisory roles, as consultants, academics and trainers, auditors and regulators. They self-identified as highly educated — 71 percent hold a Master’s degree or higher. While 61 percent of respondents had more than five year’s experience in the financial services industry, less than half — 41 percent — had more than five year’s experience in financial risk management. This indicates that experienced financial services professionals enter the field of risk management from other areas of responsibility at financial institutions.
More than 40 percent of respondents worked at banks, with consulting and asset management firms employing 17 and 16 percent, respectively. Approximately one-third of respondents hold the title of risk manager, one-quarter are analysts and 11 percent are consultants. Approximately 61 percent are employed at firms with more than 1,000 employees.
The GARP Global Practice Analysis survey addressed 49 specific tasks across six process-based domains. Respondents were asked to assign an importance rating from 1 (not important) to 4 (extremely important) to each task. Significantly, all 49 tasks were found to be important on the 4-point Importance Scale, meeting the industry best-practices threshold of 2.5 out of 4. Forty-seven of the 49 tasks received a mean importance rating of at least 3.0, indicating that these tasks are considered of moderate to high importance to the work of financial risk managers.
The top five tasks identified by respondents as most important, earning a mean importance rating of at least 3.3 among all survey respondents, are to:
- Identify signs of potential risk based on exposure, trends, monitoring systems regulatory and environmental change, organizational culture and behavior.
- Analyze and assess underlying risk drivers and risk interconnections.
- Communicate with relevant business stakeholders.
- Monitor risk exposure in comparison to limits and tolerances.
- Evaluate materiality of risk and impact on business.
The five tasks identified as least important, with a mean importance rating of or below 3.0 among all respondents, are:
- Create and inventory of models.
- Generate, validate, and communicate standardized risk reports for external purposes.
- Develop transparent model documentation for independent replication/validation.
- Set capital allocations and risk budgets in accordance with risk management framework.
- Recommend policy revisions as necessary.
Respondents were asked to identify at what level of experience each task should be part of the financial risk manager’s profile, according to a five-level Experience Scale:
- Not necessary
- Less than 2 years
- 2 to 5 years
- 6 to 10 years
- More than 10 years
One-half of respondents indicated that financial risk managers should be able to perform all 49 tasks within the first five years of practice.
More than 77 percent of respondents said financial risk managers should be able to perform these specific tasks within their first five years of practice in financial risk management:
- Monitor risk exposure in comparison to limits and tolerances
- Define and determine type of risk (e.g., credit, market, operational) by classifying risk factors using a consistent risk taxonomy
- Gather quantitative data to perform model evaluation
- Select monitoring methods and set frequency (e.g., intra-daily, daily, weekly, monthly)
- Gather qualitative information to perform model evaluation
- Generate, validate, and communicate standardized risk reports for internal purposes (e.g., staff, executive management, board of directors)
- Identify risk owners
- Investigate why limits are exceeded by performing root-cause analysis
- Analyze and assess underlying risk drivers and risk interconnections
- Escalate breach when limits or alert levels are exceeded according to risk management plan/policies/strategies
- Generate, validate, and communicate ad hoc reports to meet specific requirements
- Escalate unusual behavior or potential risks according to risk management plan/ policies/strategies
Financial risk managers are vital to any integrated financial system of managing and communicating risk. The GPA study is a contemporary and comprehensive description of the work of risk managers across work settings, geographic regions, job roles and experience levels.
The process of a practice analysis is important for programs that desire to continually evolve and reflect the critical knowledge and tasks in the industry. It is important for practitioners who desire to evolve and be successful in their career.