Risk Management Watch: Firms Hiring Risk Managers, Compliance Officers, Operations Risk Professionals
Societe Generale, the French bank reeling from $7.1 billion in losses stemming from illegal trades, says it will be reorganizing its senior management team, according to the International Herald Tribune. The financial behemoth has already announced its first move. Chief Financial Officer, Frederic Oudea, has been promoted to Deputy Chief Executive. Meanwhile, Societe Generale must also cover $4 billion in losses linked to the subprime meltdown. In the wake of the recent fraud and the bank’s exposure to the credit crisis, Societe Generale has been accused of misleading investors, insufficient risk controls and failure to act on information regarding the unauthorized trades.
But Societe Generale is not alone. The subprime crisis has resulted in billions of dollars in write-downs around the world. Several leading banks are assessing what went wrong, who should be held responsible and how to implement effective risk management programs in the future. As a result, enterprise risk management has become a top priority for corporate boards. Executive recruiting firm, A.E. Feldman, reports that this is just one reason why demand is surging for senior level risk managers, compliance officers and operations risk professionals.
Societe Generale is facing a class action law suit. The complaint was filed in New York on March 12th on behalf of all purchasers of American Depositary Receipts of Societe Generale, traded on the U.S. market, and all U.S. purchasers of the bank’s shares on overseas exchanges, between August 1, 2005 and January 23, 2008, according to the AFP. The bank has vowed to mount a “vigorous” challenge to the lawsuit.
It’s probably safe to say we haven’t heard the last of the Societe General trading scandal. Amid the fallout, banks around the world are working to shore up their risk management teams to prevent similar insider problems. Merrill Lynch, Citigroup, JPMorgan Chase, Lehman Brothers, and Morgan Stanley are just a few of the firms that are reorganizing their risk teams and named new Chief Risk Officers.
Looking ahead, a change in culture and mindset is required to create organizations where risk awareness is embedded and managed by a value-based approach, according to gtnews (subscription required). Firms must demonstrate a comprehensive approach to viewing firm-wide exposures and risk - improving governance, ensuring compliance and sharing quantitative and qualitative information more effectively across the entire firm.
Enterprise risk management (ERM) can be described as a risk-based approach to managing an enterprise. ERM involves the integration of strategic planning, operations management, and internal controls - a framework to safeguard a firm against losses, earnings surprises, and other financial risks. It can also provide protection against fraud, systems failure and compliance violations.
And managing risk is now more important than ever. The risk landscape is changing for the worse, according to a new survey conducted by Ernst & Young. The study finds that more than 40% of respondents say the increase in risks has been significant. Audit committee members also identify rising levels of regulatory and compliance risks. Board members say better managing these compliance-related risks, identifying emerging risks and improving systems for risk management remain key priorities.
