If there is one word on the lips of Senior Executives in the financial sector today it has to be ‘compliance’. Firms face a raft of legislation covering all aspects of their business whilst the regulatory landscape is constantly evolving. Following the tumult and turbulence of the latest financial crash, an additional series of compliance and legislation has been created to help re-grow the banking industry from its ashes and prevent a second collapse of such magnitude.
As Paul Moore of HBOS has poignantly said “You can have the best governance and risk processes in the world, but if they are carried out in a culture of greed, unethical behaviour and indisposition to change, they will fail.” Far from being party-poopers, risk regulators and officers are playing an invaluable part in creating a stable and more progressive financial architecture, and as of September 2010 they will be literally reinforcing it with an additional three key pillars going by the name of Basel III. Basel III is one of the most significant new regulations about to hit the banking world. An extension of existing regulations laid out by the Basel Committee on Bank Supervision, this new risk framework seeks to control capital adequacy and quality in the banking industry. The primary aim of the committee’s three sets of recommendations is to maintain liquidity in global institutions, using a range of metrics and other measurements.
Basel III itself represents a further tightening of earlier committee recommendations, and is at least partly influenced by the recent global liquidity crisis.Banks will have to increase their core tier-one capital ratio to 4.5% by 2015. In addition, they will have to carry a further "counter-cyclical" capital conservation buffer of 2.5% by 2019. Any bank that fails to meet the new requirements is expected to be banned from paying dividends to shareholders until it has improved its balance sheet. A timeline has been drawn up for implementation of the proposed rules between now and 2019, with the new capital standards and liquidity requirements designed to strengthen markets against any future financial shocks.
This move will undoubtedly create new Risk & Compliance vacancies as banks will seek Basel III experts to help them implement and comply with the new standards. In fact the Basel Committee has already started offering a ‘Certified Basel III Professional’ course which could become a pre-requisite of banks looking for Basel III experts. The Institute of Risk Management will also be offering similar seminars, discussion boards and publications on this monumental piece of compliance.
Although corporate risk governance first emerged in the US in the 1950’s and 60’s, in many ways the Risk industry is still very much in its infancy. If the last few years have illustrated anything, it is that a greater degree of knowledge, control and management of financial risk is urgently required to restrain the wild instincts of an ill-founded confidence . Essentially as increasingly complex financial products and structures evolve, they must be matched with appropriate risk management systems. As Charles Darwin aptly declared 200 years ago: “Ignorance more frequently begets confidence than does knowledge”.
The Risk and Compliance industry in this modern environment, therefore, is teeming with opportunity, and it is not just Basel consultants who will benefit from such changes. As Robert Targett, Managing Director at Austin Andrew explains “Our (Operational) Risk vacancies are at their highest since 2007, not only this, but I believe we have already reached the bottom of the market and firms are learning the lessons of the last two years, bolstering their Risk functions as a key part of their strategy as we come out of the recession”. Now, more than ever, seems to be the era of the Risk Professional, and as we push ever deeper into the second decade of the twenty-first century the prominence of this industry seems likely to increase indefinitely.
If you are looking for a career in Risk, or you are seeking a move within the industry, contact one ofAustin Andrew’s Risk Management experts on 0207 960 6411/6430.