Risk Control and Risk Management
Fred Vacelet, MBA, FRM/PRM, CTM, IFQ, is an
international Financial Risk Management Consultant with expertise in
Risk Management methodological frameworks. His experience spans some 25
years, advising international banks and software houses on risk management. Fred holds various degrees, including from London Business
School, England, with post-graduate studies at the Technische (then
West)-Berlin, Germany, and Keio, Japan, universities. His client list includes ABN Amro, Barclays, Credit Suisse, National Bank of Egypt. He is a published author on risk management and Basel Accords and a regular speaker at international conferences. Fred writes and presents training courses and workshops on risk management and Basel Accords.
Ignoring the difference between risk control and management is akin to, on the road, mixing upside barriers and the steering wheel: the former aims at keeping the car on the path whatever comes, whilst the latter helps to keep the car at the optimal place on the road at all times. Such confusion inevitably leads to using soothing risk management patches rather than fully understood solutions, to complacency in risk management and it prevents progress towards understanding risk appetite.
Financial institutions, having to focus on risk regulation, often end up being content with identifying risk and maybe engaging in some mitigation measures after a significant mishap has occurred or when regulatory authorities get nervous. Keeping potential impacts within risk capacity limits becomes the key. However, whilst it keeps everybody at their jobs most of the time, this does not lead to risk optimization.
We detail a framework for handling identified risks, highlighting the measures that are apt to merely satisfy regulators and the measures that fully take into account tail risks as well as routine risks, and the costs and benefits of controls. We also highlight the measures that merely consist of blindly throwing resources at risks. This framework can be applied to market risk and credit risk, where risks and rewards are mostly proportional to the volume of activities, and to operational risks, where the relationships between activities and risks can be less clear.
Using the whole set of risk management
tools, financial institutions can aim at a better understanding of
potential profits and risks, likelihoods and potential impact, and hence
be able to take the right amount of the risks that need to be taken,
within their own risk appetite.
Both terms are often taken interchangeably. However, there are critical differences, which are all too often neglected.
- The shortcomings of risk control
- Regulators’ views on risk handling
- The objectives of risk management
- Risk appetite, views of regulators and bankers
- Managing risks beyond setting impact limits
- A framework for handling identified risks
- Towards risk management optimization
Who Should Attend
- Risk managers