Future of risks

Exploring the new market landscape: Skillsets, risk and technology

We are familiar with the adage “Knowledge is Power”. Knowledge empowers a person to develop an understanding of matters after analysing from all points of views before forming an opinion about the same. Knowledge also instils a certain degree of confidence in an individual that is evident from the way they carry themselves through their speech and actions.

Over the years, people have been talking a lot about skillsets in an individual. We come across the phrase “skillset” in our everyday lives; be it at our job, or a company recruitment portal, or even while selecting vendors/service providers. These are just a few examples of how keenly the society judges an individual’s ability to perform a specific task with dexterity and skill. There are other terms like talent that share a significant degree of overlap with the term skillset. Talented individuals are generally classified as those who possess a unique skill set.

We are living in an information-heavy age that has made the current market scenario extremely dynamic. Market conditions change rapidly, and individuals and businesses have to adapt to this change quickly. The transition times offered by the market forces are very short, so only those with a sound skillset are expected to thrive going forward. For this reason, I believe professional education is the most vital and sought-after skillset by the market. In today’s market where staying ahead of the pack is the most important, companies are constantly in search of talented individuals armed with professional degrees/qualifications to help them towards their strategic goal of achieving a leadership position in the industry.

We begin this blog with a discussion on a few professional qualifications that satisfy various skillset requirements of the industry in their own specialised way:

Chartered Financial Analyst (CFA)

This course gives an individual a holistic view of the domain for finance and capital markets. Through the various subjects and chapters covered, this course attempts to provide a comprehensive suite of knowledge pertaining to areas including inter-alia equity, fixed income, portfolio management, financial statement analysis, financial risk management and derivatives to name a few. This is a course that comprises of three levels, which covers a gamut of topics focusing on the respective areas, thereby developing the core technical skill set of an individual. This makes individuals eligible to explore various challenging roles in the industry that include all the major areas in finance and capital markets.

Financial Risk Management (FRM):

This qualification provides a focused knowledge in the domain of financial risk management. This qualification is spread across two levels and attempts to build an individual’s knowledge around the domain of financial risk. The main topics covered as a part of the curriculum include inter-alia market risk, credit risk, operational risk, instrument valuation and more. This course goes in-depth in the domain of financial risk, thereby opening up multiple avenues for individuals who are interested in financial risk management.

Chartered Accountant (CA):

Spread across three levels, this qualification aims to build an individual’s skillset on various areas pertaining to accounting like inter-alia writing books of accounts, balance sheets, income statements, cash flow statements, taxation and company laws. This qualification champions all the concepts in accounting. The CPA (Certified Public Accountant) is the counterpart to the CA course in the United States. With globalisation, the demand for CPA in other parts of the world besides America is rising. With an increasing volume of work moving offshore to various locations globally, the demand for individuals with a CPA degree is rising steadily. Individuals with CA/CPA degrees generally meet industry requirements in areas of audit, taxation and accounting.

Institute of Risk Management (IRM):

IRM, headquartered in UK and present across 144 countries, offers globally recognised qualifications in the domain of Enterprise Risk Management (ERM). The qualification is spread over five levels and covers key areas of risk management from an enterprise-wide standpoint. Thus, this qualification introduces individuals to various areas of financial and non-financial risks to which today’s organisations are exposed to. The skillset garnered via this qualification help individuals to apply risk concepts, which would impact at an organisational level, thus helping in steering their organisations towards the achievement of its strategic goals. Because risk is inherent in everything we do, IRM members across 143 countries come various backgrounds- leadership, risk heads, startups, family businesses, consulting and across sectors including health, insurance, energy, pharmaceuticals, financial services.

Post the 2008 meltdown, the importance of risk function in organisations was on the rise. Organisations now view risk function as a strategic one and not a cost centre. Risk function is now seen as a value-added function that has the power to help organisations to not only survive, but also to thrive in the turbulent markets. An organisation-wide framework for managing enterprise risk is of paramount importance towards achieving the organisation’s vision. Having a robust ERM framework in place enables the organisation to develop a risk culture that gets deeply imbibed within the organisation. This further grows a risk-based thought process within every employee in the organisation, helping them relate their duties, responsibilities and functions to the strategic vision of the organisation. In addition to the risk culture, the ERM framework also defines an organisation’s risk appetite. An ERM framework governs the processes and procedures that are followed by all functions within an organisation. Following are the advantages of having a robust and dynamic risk framework:

  • Enables identification of all types of risks the organisation faces
  • Provides tools to measure the exact amount of risk exposed to
  • A comprehensive risk monitoring and reporting system
  • Continuous monitoring of risks via a feedback loop.

Presently, we are living in an unprecedented time due to the coronavirus pandemic that has marred all the countries across the globe. In such a unique situation, organisations that have a comprehensive risk framework in place are expected to sail through these difficult times better.

With the rise of data analytics in recent times, organisations find themselves with billions of bytes of data at hand. This data has the potential to provide valuable insights into the management of potential risks faced by organisations. As a result, even global standard-setting bodies like ISO, COSO have taken cognizance of this fact. They have begun publishing guidelines/practices towards combining the risk framework with big data technologies. As a natural extension to the organisation-wide risk framework, new technologies like AI/machine learning have the potential to further strengthen the existing ERM framework by leveraging the technology prowess to strengthen the backbone of the risk framework. Organisations have begun increasing their investments on new technologies as they believe in the potential of technologies to add value to the firm. Such value-adding initiatives are viewed favourably by the management as they see the potential to manage risks more effectively and move towards the achievement of the long-term vision of the organisation.

Submitted by: Ameya Abhyankar, CFA, CQF, Enterprise Risk Management Exam Coach at the IRM India Affiliate


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