Operational risk, or the risk of losses due to failed internal processes or systems, human error, or external events, has always existed in the financial services industry. Over the past decade, operational risk management (ORM) has become the focus of more resources and regulatory oversight due to the increased complexity and interconnectedness of the global financial system.
In this complex environment, when operational risk materializes, it can lead to substantial losses.
Operational risk management can be less structured than in other functional risk areas. For example, market risk hours are dictated by the hours the market is open. Operational risk professionals will often be asked to help resolve a problem that may be due to internal issues, such as an IT glitch or some breakdown in processes. Still, they can also arise due to an external event such as COVID.
Due to the global nature of large, complex financial institutions, working in operational risk will often mean collaborating with teams from different countries and time zones. And because operational risk is inherent in everything a financial organization does, working in operational risk means interacting with other roles across all different functions and levels.
A Typical Day in Operational Risk Management
Working in operational risk tends to involve working fairly standard 9 am–5 pm or 6 pm days.
Working in operational risk, you’ll start your day by reviewing your schedule of meetings and planning your day around that. In the morning, you may find yourself in more regularly scheduled meetings, such as examining upcoming process and system changes and working with risk colleagues and lines of business (the “owner” of the risk) to anticipate where the operational risk issues will likely manifest.
After lunch, you may unexpectedly be called into a meeting to discuss operational risk issues concerning a new system that needs to be implemented. The system will be used by staff working remotely from home, increasing the operational risk inherent in the system.
Later in the day, you will find time to review incident reports of operational risk breaches in your specific functional area and plan the implications for your organization. You may need to pull historical data from internal risk databases to find any recurring themes that may have contributed to the breach.
Finally, you end the day with a video conference call with operational and compliance risk colleagues from other geographies who have just started their day. The meeting agenda is to resolve the operational risk issues arising from onboarding a global third-party IT supplier.
Operational Risk Qualifications and Experience
While it is common for graduates moving into operational risk analyst roles to have degrees in finance, accounting, economics, or business, people with degrees in other subjects, such as engineering, math, and computer science, often find roles within operational risk. While investment banking is often the preferred choice upon leaving university or college, graduates may consider operational risk roles in insurance, asset management, and consulting firms as good entry points.
Suppose you want to move into operational risk from other roles within the financial services industry. In that case, people with a background in audit, accounting, or compliance have excellent transferrable skills and experience. A sound understanding of systems and processes used in a specific business unit of a bank will help you acquire operational risk roles with those business units.
Effective operational risk management requires a unique blend of qualitative and quantitative skills coupled with a strong personality and the technical and relationship management skills necessary to navigate the organization up, down, and across.
Strong organizational skills are critical; you will likely need to manage multiple tasks simultaneously. While less quantitative than a market risk role, making sense of numbers is essential when working in operational risk. Excel skills are crucial, and SQL, Python, or other computer programming skills are becoming increasingly sought-after.
Finally, operational risk analysts and managers need curious minds. Being inquisitive will enable them to identify issues in processes and help identify good controls and solutions to mitigate them.
Compensation and Career Development in Operational Risk
Operational risk compensation will depend on the industry (investment banking versus asset management versus insurance) and location. Hybrid operational risk roles are more common today, as is the trend of locating functions such as operational risk away from major centers (where it costs companies more to have employees).
Operational risk analysts working at investment banks in major financial centers can expect to earn six-figure USD salaries, plus bonuses, within a couple of years. Career progression is excellent within operational risk, and getting overseas roles is relatively straightforward due to the universal nature of operational risk.
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