How to get into Financial Risk Management

How to get into Financial Risk Management

Financial management is an integral component of all businesses, irrespective of their size, and it contributes significantly to the decision-making process of an organisation. Since financial management is critical to the functioning of a business, it comes with an array of risks. Here’s where financial risk management (FRM) comes into play.

If you are interested in taking up one of the financial risk management courses, read this blog to find out all you need to know.

What is financial risk management (FRM)?

Risks are common in any organisation, especially when there is a large amount of capital involved. Financial risk management refers to the usage of financial instruments in order to manage exposure to risk pertaining to the financial aspects of an organisation. This practice is carried out in order to ensure that risks are managed in case of occurrence. Organisations instil FRM as a core practice to set up guidelines that ensure that risks are managed, as per the organisation’s policies.

Types of financial risk

Financial risks are a major concerns for businesses all over the world. They are caused as a result of market movements that include a host of factors. Based on the various factors that lead to financial risks, they can be categorised into:

• Market risk: When the prices of financial instruments such as shares, bonds and funds fluctuate, this is called a market risk. It can further be classified into directional and non-directional risk. While directional risk entails factors like change in stock price and interest rates, non-directional risk involves more volatile risks.
• Credit risk: When financial obligations towards counter parties are not fulfilled, it leads to credit risk. This type of risk can be classified into two types; sovereign and settlement risk. Sovereign risk arises as a result of ambiguous or difficult foreign exchange policies, whereas settlement risks are caused due to the failure of fulfilling financial obligations that one party has made to another party.
• Liquidity risk: The failure of executing transactions leads to liquidity risks, which can be further classified into asset and funding liquidity risk. Asset liquidity risk refers to the risk caused by the unavailability of buyers to sell to or lack of sellers to buy from. On the other hand, funding liquidity risk refers to an occurrence when an institution with the economic capability to pay off its debts fails to make obligated payments within a certain time frame.
• Legal risk: When legal constraints affect the functioning of an organisation, it gives rise to legal risks. For example, if an organisation faces financial losses due to legal proceedings, then it comes under legal risk.
• Operational risk: Inability to accomplish business operations such as management or technical failures causes operational risk. This type of risk can be categorised into fraud and model risk. While on one hand fraud risk refers to risk arising from lack of controls, model risk is a result of incorrect implementation of business models.

Why should you study financial risk management?

All organisations take risks that are not just limited to financial aspects in order to survive and grow. Since risks are commonplace in the business world, the demand for risk specialists is high. If you are planning to start a career in financial risk management, here are some points that may help you decide if it is the right path for you:  

• FRM is becoming an increasingly sought-after career option, owing to its booming demand.
• Risk managers earn high salaries; as advertised on payscale.com, the average salary of a risk manager is about £49,975 per year.
• Financial risk management is a reputed profession; especially, since financial risk management professionals are critical to the functioning of a business.

What does a financial risk manager do?

The job responsibilities of a financial risk manager are complex and varied, and must be carried out with utmost sincerity. If you assume the role of a financial risk manager, you will be required to:

• Identify and analyse potential risks concerned with the financial aspect using risk management tools;
• Forecast changes in market trends that may affect the functioning of the business;
• They may not directly contribute to the decision-making process of a business. However, the analysis of data and market trends carried out by financial risk managers is critical to business operations.

How to start a career in financial risk management

In order to become a financial risk management professional, you must possess the required professional and soft skills. Here are the steps to starting a career in financial risk management:

• Educational requirements:In order to become a financial risk manager, you need to earn a management degree in the field. The entry requirement for a postgraduate degree in financial risk management is as follows:
  • You must have acquired an undergraduate degree in a financial management course that focuses on financial risks or have relevant work experience;
  • You must have acquired Common European Framework Level B2 in English language or equivalent.
  • After you have completed the educational requirements that are necessary to get into FRM, you need to ensure that you have the correct licensure for a job. FRM professionals in some fields such as the health sector must possess a state or national license to work in the domain.
• Skills required to become a financial risk management professional:
  • The candidates must be aware of the policies concerning financial risks in the region;
  • They must possess excellent communication skills as they will be regularly interacting with stakeholders in this career;
  • They must have strong analytical skills that will help in identifying and assessing change in market trends and better risk analysis;
  • They should have project management and leadership skills that will come in handy while working with their team.

Careers after a course in financial risk management

After you have acquired a degree in financial risk management, you can assume any of the following roles, based on your specialisation and interests:

• Credit Risk Analyst
• Market Risk Specialist
• Risk Manager
• Enterprise Risk Management Specialist
• Regulatory Risk Analyst
• Senior Operational Risk Manager
• Risk Quantification Manager
• Corporate Risk Manager
• Operational Risk Analyst
• Risk Management Analytics Consultant

If you are interested in starting your career with an FRM course, the London School of Business and Finance (LSBF) is offering a postgraduate certificate course in Financial Risk Management that focuses on credit, operational and market risk. This FRM certification is a professional course that will seal your place in the business domain as a finance professional. To find out more about the courses offered by LSBF, click here.

This article was written by Meghdeep Patnaik and edited by Amelia Hayward-Cole.