The Role of Financial Risk Manager in an Organization

The world of finance is complex and ever-changing, with new trends and challenges emerging each year. From the rise of digital currencies to the impact of global economic events, staying on top of the latest developments is crucial for anyone who wants to succeed in the financial industry. Whether you’re a seasoned investor, a financial advisor, or someone looking to improve personal finance skills, a solid understanding of the fundamentals is vital.

Introducing finance in an organization

Finance’s role in an organization is to ensure that money is in the right place at the given time. A company requires finance professionals to help make the complex financial decisions necessary to run and grow their businesses. Further, finance professionals aim to determine the best ways to maximize shareholder value. In this article, we will discuss the role of a Financial Risk Manager (FRM) in an organization.

Who is a Financial Risk Manager?

A Financial Risk Manager locates and evaluates threats to a company's resources, earning potential, or success. Financial Risk Managers work in a broad spectrum of areas, such as sales, loan origination, trading, marketing, financial services, and private banking. Many have developed expertise in fields like credit or market risk. FRMs often work for large banks, insurance companies, accountancy firms, regulatory agencies, and asset management organizations and have a technical understanding of risk assessment.

What Does a Financial Risk Manager Do?

Financial Risk Managers perform numerous responsibilities, from formalizing the risk management process to making crucial decisions to ensure the organization's success. There are a few main categories into which financial risk manager positions can be segmented:

1. Market Risk: Due to uncertainty, external factors like war, inflation, technological change, government policy changes, etc., make the market volatile. FRM predicts market risks and takes precautions to avoid losses.
2. Credit Risk: Most financial institutions give credit to individuals and institutions. The FRM has to decide who should extend credit and to whom not. If not repaid, the financial institution may become bankrupt.
3. Volatility Risk: Wars are one of the many threats that can cause loss to financial institutions. FRMs are responsible for protecting financial institutions against such volatility that could result in significant financial losses.
4. Legal Risk: Legal litigations can occur with an individual, an organization, or a government. FRMs must protect companies from legal battles as they can be lengthy, damaging an organization’s relationship with its stakeholders and tarnishing its reputation and economy.
5. Liquidity Risk: Financial Institutions have more than sufficient assets. It could be illiquid, as excess liquidity can be risky for any financial institution. The FRM has to balance the financial liquidity to avoid unnecessary risk.
6. Operational Risk: Operational risk is a term that describes the risks and ambiguities a business encounters when carrying out its regular business operations, procedures, and systems. FRM plays a crucial role in avoiding operational risk.
7. Inflation Risk: The price of day-to-day essentials can rise based on several factors. When inflation outpaces the returns from investment, there is a risk of incurring losses by the company. Here, FRMs’ skills come into play as they must save the company from inflation risk.

How to Become a Financial Risk Manager?

Finance is one of the most enticing and promising fields to work in. So, how to become a financial risk manager in India? Aspirants can follow these steps to embark on their journey to becoming Financial Risk Managers:

1. Meet the educational requirements: They must have a graduate degree in finance, accounting, economics, statistics, or a related field. Some renowned universities offer specialized programs in risk management.
2. Gain work experience: Most financial risk management positions require several years of experience in finance, accounting, or risk management.
3. Obtain relevant certifications: The most popular certification for financial risk management is the Global Association of Risk Professionals (GARP) certification. The certification process includes passing two exams, demonstrating relevant work experience, and adhering to the GARP code of conduct.

Conclusion

Becoming a Financial Risk Manager in India requires education, work experience, certification, and ongoing learning and networking. Financial Risk Management is a demanding and challenging career when one needs to forecast, take precautions, and save the company from various legal problems and risks. As it is crucial for the success of any company, a Financial Risk Manager with a valuable risk management skill set is in great demand.