Talent drought threatens risk management, say firms

Banks and other financial firms are finding it increasingly difficult to attract and retain talented risk managers, which poses a challenge as they try to bolster risk management teams to cope with new regulation.

“The demand for a very specific skill-set is increasing,” says one London-based bank risk manager. “Firms are looking for people who can really bring experience, who’ve been through the cycles, who have learnt the lessons from building frameworks in the past and are able to challenge and push back on regulatory requirements, or interpret them in a pragmatic way. It’s actually quite a small pool.”

The trend is reflected in the City Jobs Index, an index tracking the number of jobs available and candidates seeking jobs in the City of London. The index is calculated by London-based recruitment firm Robert Walters using a database of online jobs and candidate registrations. During the year-to-date, it shows the number of risk jobs increased by 27% compared with the same period in 2014. Meanwhile, the number of candidates seeking roles in risk declined by 20% compared with the same period last year.

We’ve seen the most acute shortages in operational risk, but anything that’s regulator-driven is a busy market for us

Chad Lawson, Robert Walters

“One of the key reasons is that the intake of graduates seven years ago was limited as part of the cutbacks made in response to the financial crisis, so the talent coming through is harder to find,” says Chad Lawson, associate director of risk and compliance at Robert Walters. “Consequently, the area where there’s the greatest absence of quality people is the associate vice-president to vice-president level – people with between five and nine years’ experience in risk.”

Paul Berry, London-based chief risk officer at Mizuho International, agrees. “Ironically, when hiring at senior level, we tend to have a relatively straightforward search with a good selection of candidates, but around the associate vice-president/vice-president level, it’s more difficult,” he says. “The calibre of the candidates is very varied, which means the good ones are snaffled up very quickly. Experienced and well-qualified young risk managers are in high demand and tend to be very price-sensitive, so you often find that their existing employer looks to buy them back, or another bank comes in with an off-market bid.”

Such bidding wars between firms are becoming more and more frequent, says Theo Morapedi, a London-based recruitment consultant at Huxley Associates, who specialises in quantitative risk analytics. “Banks who have experienced people with a specific skill-set are going to massive lengths to retain those staff, so they’re counter-offering quite aggressively,” he notes.

In terms of risk disciplines, sources say operational risk is one of the hottest areas. Roles relating to credit risk, liquidity risk, regulatory capital and risk governance are also said to be in high demand. Much of this is driven by regulatory change – for example, the introduction of two new minimum liquidity ratios from the Basel Committee on Banking Supervision, as well as its soon-to-be-finalised Fundamental review of the trading book (FRTB).

In the US, banks have reported a similar struggle to obtain modelling and validation staff amid the US Federal Reserve’s annual stress tests – also known as the Comprehensive Capital Analysis and Review.

“We’ve seen the most acute shortages in operational risk, but anything that’s regulator-driven is a busy market for us,” says Lawson at Robert Walters. “Projects like FRTB have driven a lot of hiring, along with anything involving governing processes driven by regulatory scrutiny.”

The problem is not confined to banks. One head of operational risk at a large asset manager expresses similar concerns, complaining that the number of applicants for jobs with genuine risk management expertise is low. The problem of hiring and keeping top talent is likely to worsen over time due to an influx of millennials, they argue, who are regarded as having a different attitude to incentives and work/life balance compared with previous generations.

Some firms are actively encouraging staff to move from front-office roles into risk management, which helps to alleviate the problem, says Morapedi at Huxley Associates. However, it has not fully made up for the shortage of experienced risk management staff.

“Although there has been a shift in terms of front-office quants moving into risk management, these are people who haven’t necessarily worked on regulatory-based projects before,” Morapedi says. “Certain businesses are looking for a very specific type of experience. Ideally, they’ll be looking for people who’ve worked within that same risk function within a different bank, but those people are not often readily available.”

If firms are not able to attract and hang onto the right people, risk managers say it will affect the quality of risk management, institutional memory and their ability to respond to stricter regulatory demands. “The more we lose people of talent in an organisation, obviously the harder it is for that risk management discipline to maintain an ability to contribute to the company,” says the London-based bank risk manager.