Risk management in the financial sector involves managing exposure to risk, whether it is in-house or on behalf of an external client. This includes analysing likely risks and devising and implementing strategies to minimise or avoid them.
Risk management may also
encompass some compliance work. It is a growing area in
the finance industry, as financial and non-financial
organisations alike become aware of the part that risk
management can play in their long-term financial
Risk management positions are available across a
range of employers, from banks and insurance companies
to the public sector and property firms. Some industries
have in-house functions, while others outsource to
consultancies and banks. Risk management functions
may be known under different names, such as risk control,
and can form part of a bank’s treasury services.
What will I do?
There are several areas of specialisation in risk
management based around five different types of risk:
credit (eg a creditor won’t be paid), liquidity (eg there is
insufficient cash flow to meet obligations), legal (eg not
fulfilling legal requirements or misinterpreting contracts),
operational (eg breakdown in corporate governance) and
market (eg the institution will lose money from bad
Consultancies, banks and insurance companies usually
offer traineeships with graduate schemes, and graduates
gain general business experience before specialising.
A degree in finance, business, maths or accounting is
generally required. A number of postgraduate courses in
financial services include modules on risk management.
Know your terminology
Hedging is a term used to describe risk management
strategy whereby risk is reduced but a business still profits
from investments. This might include balancing an
investment into a changeable market with ‘short selling’ –
selling assets while their price is high and buying them
back when their price is reduced.