Risk and compliance are core to financial institutions’ operations, and critical to their business models, yet a “war for talent” exists, and is intensifying, in today’s changing marketplace.
While the financial services industry has a long history of complying with legislation and regulations, many banks today have trouble keeping pace. Risk management practices constantly evolve, and the increasing complexity of compliance requirements create demand for employees with specialized skills. As a result, financial institutions are finding it harder than ever to attract and retain talented risk management professionals—to the point where human capital management is perhaps equally important, if not more important than financial capital management.
Today, even as banks often look to trim staff in order to minimize costs and increase profits, risk and compliance professionals remain in consistently high demand. And top talent, when assigned to tasks not necessarily perceived as prestigious, such as reporting preparation, seems only too willing to take flight for another institution with higher pay. Moreover, demographic shifts in the workforce, such as the increasing prominence of millennials, who typically have less employer loyalty than previous generations, only magnifies these challenges.
There are, however, other reasons—far more subtle and yet extremely important—for the ongoing war among financial services institutions to attract and retain top risk management talent. In the United States, two of the most significant regulatory impacts on risk management in recent years are the Dodd-Frank Act Stress Test (DFAST) and related rules from that legislation, and the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR). Financial institutions must consider four key steps in addressing this regulation:
- Develop and maintain a comprehensive system of internal controls
- Conduct model validation
- Provide ongoing model documentation
- Continually analyze and manage data across the enterprise.
Linking the CRO and the CFO through data
These areas incorporate some traditional risk management skills; however, in increasingly interconnected economic and business environments, DFAST, CCAR, and regulations such as Basel III call for strategic thinking and an implementation that goes beyond simply analyzing data and identifying risk patterns. Chief risk officers (CROs) and their teams today must also model and interpret scenarios in multiple areas, understand external factors (such as a financial institution’s reputation and the implications of the political scene), and finally communicate the impacts of, and intersections between, all of these issues.
Risk management teams must increasingly analyze the impact of changing trends, not only within the financial services industry, but also within the businesses of their corporate customers, and within the economy at large. In addition, the data of the CRO needs to be directly aligned with that of the chief financial officer (CFO), and with data from other departments across the enterprise.
A single source of truth
With the maturation of the CRO function, it has become increasingly common for organizations to create data warehouses with an enterprise view of risk in an attempt to eliminate silos. Yet, creating such virtual warehouses takes time and requires the right people who can analyze risk in conjunction with financial and operational issues to develop the most effective and intuitive system. The CRO’s team can no longer be satisfied with even a seemingly holistic view via its own risk management information technology, but must rather complement its capabilities by understanding systems, processes, and technology across other areas in the bank; effective risk managers have to “connect the dots” and have a lot of dots to connect. They must also be willing to question policies, sometimes even to challenge CFOs and other executives. Ultimately, there must be but a single source of truth.
Advanced analytics, modeling tools, and automation, in attempting to provide that single source of truth, have created opportunities to lower compliance costs and better manage data. While these new technologies help create efficiencies, implementation comes with a price-tag, financially as well as in terms of the new skills sets and training required by employees. In other words, while technology can be a competitive weapon, it also may complicate the battlefront in the talent war.
Building the talent pipeline
For all these reasons, it is important to build and retain the right talent—that is, not just smart graduates from leading schools, but candidates capable of using these new technologies. Banks should partner with top US universities, many of which already feature training in analytics and pertinent software as part of their risk management programs. Academic institutions in other regions, too, will prove to be valuable sources of talent—for example, many universities in India are expanding internationally, and boast rigorous curricula that meet the demands of a global economy.
To help address the evolving regulatory environment, and to better execute risk management operations, many CROs leverage managed services relationships with a strategic partner. Such engagements provide several benefits:
- Best-in-class work management tools and processes not only simplify part of the work but allow complex and simple tasks to be decoupled, matching the right person for the right job and thereby maximizing the capabilities of an organization’s existing talent pool.
- Optimizing technology with tools and processes deployed for numerous clients takes advantage of economies of scale.
- A strategic managed services partner also can provide more effective knowledge management procedures by documenting artifacts and minimizing the risk that critical information will be lost, as compared to what can occur with a turnover in an internal team.
- Hiring at scale provides access to a larger pool of top talent invested in ongoing training than may be available to, or cost effective for, an individual bank. Genpact, for example, runs a Risk Academy for its more than 2,000 risk management professionals, and partners with the Global Association of Risk Professionals (GARP) to include industry-leading certifications and co-developed assessments as part of an intensive ongoing learning and development curriculum. The certificate program covers topics such as credit, bank, and operational risk management; stress testing; loan loss reverses; model validation; modeling for credit markets and operational risk; and related regulatory principles. Genpact consultants also have access to GARP’s full range of educational resources, such as webcasts, webinars, white papers, etc.
- Filling in skills gaps and integrating the talent pool of the managed services provider with the organization’s existing teams provides more effective human capital management.
It is critical that financial institutions carefully evaluate the capabilities and training of the consultants that they hire, and that these consultants not only have the critical skill set needed but also use the latest tools and technologies available. Banks, by supplementing their own risk management teams with resources from a managed service provider, secure a strategic ally on the front line of the talent war.
This PoV is authored by Manish Chopra, Senior Vice President, Global Risk Services, Genpact and was first published in TABB forum.
For more information, contact, firstname.lastname@example.org and visit, genpact.com/what-we-do/industries/banking-financial-services