The Chief Risk Officer: When a Triangle Becomes a Square

4 executives

The traditional shape for the apex of a pyramid is a triangle, right? Translate that into an organogram for any large organisation and you can be sure that the three corners will be occupied respectively by the Chief Executive, the Chief Financial Officer and the Chairman.

Although there is no word for a triumvirate where the relevant number is four, it seems there is now a candidate for the fourth position in the form of the Chief Risk Officer. In an interesting piece appearing recently in the Times by Ian King, he suggests that for large financial institutions, the importance of the CRO is now equivalent to that of the other three.

Credit the Senior Managers Regime

There are a number of reasons for this, some of which are more obvious than others. One of the most compelling ones though, from the perspective of the CEO, is likely to be our old friend the Senior Managers Regime. An eye-catching feature of this regime is the reverse burden of proof under which senior managers are presumed liable unless they can establish their innocence.

If you are the Chief Executive, the ability to place some of your responsibility onto the shoulders of a manager of almost equal standing (rather than relying on delegation to a more junior executive) makes a lot of sense. This is especially so given that English law does not permit a director to delegate his or her supervisory function (a subject about which I have blogged in the past).

The CRO’s Skills Set

The problem is that there are not many people on the job market with the right skills sets and experience. That’s not altogether surprising. A quick look at the LinkedIn jobs vacant section for bank CROs reveals bewildering arrays of skills sought. Here is a sample:

  • Preparation and updating of ICAAP, ILAA, CFP, RRP
  • Management of Credit, Market, Operational and Liquidity risk in accordance with risk appetite.
  • Ensuring compliance with regulatory requirements, specifically CRR, CRD, BIPRU, GENPRU & SYSC,.
  • Ensure stress testing of risk exposures to identify sensitivities and identification and articulation of reverse stress test scenarios.
  • Establish, implement and maintain a comprehensive risk management framework to cover all internal and external risks.
  • Provide support and guidance to relationship managers and other employees to ensure risk appetite is understood and complied with at all levels.
  • Establish, implement and maintain processes and procedures to ensure that emerging and crystallised risks are identified and reported from all staff.
  • Manage appropriate recovery from crystallised risk.
  • Co-ordinate with Compliance, AML, internal audit to ensure that full testing and compliance with all risk management procedures is effective
  • To ensure that treating customer fairly (TCF) is maintained at all times.

I confess I don’t even know what all those acronyms stand for!

As with all markets, this aspect of the job market is governed by supply and demand. According to work place data service, Emolument, the average compliance professional working in a London investment bank can expect a combined salary and bonus of £48,318. The remuneration package for a CRO at a bank will reflect not simply the rarefied skills set but also the very considerable responsibilities he or she must shoulder. As a senior investment banker interviewed by Mr King for his piece put it:

If you pay lots of money to senior revenue generators but don’t have the same money or relative prestige for someone in a control function people will discount it as a career opportunity.

That’s an imbalance which I suspect is well on its way to being corrected.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
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