GUEST COMMENT: How Scotland can lead the way in risk management
It's an inevitable consequence of the global financial crisis that the risk management practices of financial services organisations have been thrust into the spotlight.
Scotland's large banks have been particularly hard hit by the crisis, as has our reputation for financial prudence to some extent. There's a general acceptance that people need to up their game when it comes to risk management.
The profile of risk managers in financial services has seldom been less conspicuous, and an understanding of increasingly complex risk models (and their limitations) is important throughout the organisation. However, the role of the risk manager is also more complex and finding staff with the right skill set is no easy task, despite the proliferation of courses such as GARP's Financial Risk Manager (FRM) exams and PRMIA's Professional Risk Manager (PRM) certification.
I believe that one of the ways to keep financial services firms up-to-date with cutting edge risk management techniques, as well as giving them access to some of Scotland's finest mathematical minds, is to foster links between academia and industry.
Herriot Watt University and Edinburgh University, in conjunction with Lloyds Banking Group, Aberdeen Asset Management, risk management consultancy Barrie & Hibbert, Scottish Financial Enterprise and The Actuarial Profession, have just launched the Scottish Financial Risk Academy aimed at doing just that.
Through a combination of seminars for financial services professionals; running events featuring scholars, industry and regulatory figures and offering internships within financial services organisations for our MSc and PhD students, we hope to ensure Scotland leads the way in risk management techniques.
Financial services organisations have come under fire for failing to understand the risks associated with the increasingly complex products they were dealing with. It's important to address this, and the academy can play a key knowledge exchange role.
It will centre on the specialist area of quantitative risk management, which has been under increased scrutiny by the government and financial regulators over the last 18 months.
The Basel II accord did not do a good enough job of ensuring safe levels of bank capitalisation in the crisis and improvements to the regulatory framework are likely to mean job opportunities for people with the right skills in the future; this also applies to the insurance industry where Solvency II will soon come into force.
The financial services companies behind the academy recognise the risk management challenges. The aim of the academy is provide advanced technical training opportunities to their existing labour force and to their clients as well as gain access to the most able and best-trained students.
It also allow them to evaluate the usefulness of the latest research coming from academia and interact on a more regular basis with Scottish-based and international experts.
Scotland's financial services industry has a real opportunity to cement its reputation for expertise in risk management. In the long term, this could not only add to the stability of firms north of the border, but also make it easier to attract risk management talent from across the UK and Europe.
Alexander J. McNeil is Maxwell Professor in the Department of Actuarial Mathematics and Statistics, within the School of Mathematical and Computer Sciences at Heriot-Watt University. To find out more about the Scottish Financial Risk Academy, please visit his personal webpage: www.ma.hw.ac.uk/~mcneil/<
