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Risk Management

11:23 AM
Crisitna McEachern
Crisitna McEachern
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A Conversation with GARP's CEO, Adam Davids

WS&T's Associate Editor Cristina McEachern talks with GARP's CEO Adam Davids about the association's big plans for the New Year.

Risk management is a high priority on every financial firm's horizon and risk managers need ways to keep up with the latest industry news and initiatives. Over 15,000 risk professionals find that through GARP, the Global Association of Risk Professionals. The association has been a valuable resource for risk managers as a forum to address and discuss some of the most pertinent issues in their profession. GARP has experienced tremendous growth in the last year and has plans to continue evolving to meet the needs of risk management professionals. WS&T's Associate Editor Cristina McEachern talks with GARP's CEO Adam Davids about the association's big plans for the New Year.

WS&T: What exactly are you doing in terms of staff additions at GARP?

Davids: Currently, we're in the process of building a professional administrative staff--for the past three and a half to four years GARP has been run by volunteer full time risk managers--and we will be splitting the staff to represent the geographic diversity of GARP. We have taken on a COO, who will be based in London, and the office staff will be about evenly split between New York and London. Each of the product lines will have somebody responsible for them, so there will be publications, conferences, training, IT, finance, an FRM (Financial Risk Manager) exam and sales.

WS&T: What are some of the issues that GARP will be focusing on in the coming year?

Davids: We currently have a standards committee, but we're going to move it into high gear next year. The standards committee will have two focuses--one will be on internal standards within the risk committee, a sort of ethical guide for being a risk manager. The second will be what I'm calling reactive lobbying. When we know of an initiative that is coming before the regulatory boards, the standards committee will create a questionnaire to be distributed to the membership for voting. Then we can give a lobbyist a mandate when standing before the various committees as to what the GARP membership would like to see, what regulatory elements it likes, doesn't like, what changes it would like to see put in.

The third element is to be an advocate of risk management as a growing profession. Advocacy will take two roles within GARP. One is basic public relations to make people more aware of risk issues, as well as driving home the need for a chief risk officer in each firm. I see the risk profession today being like the technology industry was seven to ten years ago where each line function has its own risk manager within the line function but there isn't really anyone watching the risk needs of the firm as a whole. Much like in the technology industry seven to ten years ago, everybody had their own IT department, but there wasn't a CTO. Obviously, there was a great need for a CTO then and I see the need for a chief risk officer today.

WS&T: Everybody is talking about the role of chief risk officer and it is catching on, do you see it becoming more popular and maybe even something that in a year or two will be a strictly defined role?

Davids: We already have the ability to produce a currency of risk, which is to say that we can do capital risk allocations. Once that becomes possible you create the methods by which it can be distributed throughout a firm and watch the firms total portfolio. Therefore, there must be somebody spearheading that initiative. It seems logical that there should be a chief risk officer in management making those decisions of allocation.

WS&T: Do you think regulatory changes and new capital allocation requirements are leading to this kind of change?

Davids: There will always be firms that will be led by regulatory changes, but there will also be firms that are well ahead of regulatory changes. So you're going to see both. There will always be those firms that are Caesar's wives and must always be on display as being a cut above.

WS&T: How will you be advancing the role of chief risk officer?

Davids: We can essentially promote it through ink on enterprise-wide risk management and the role of chief risk officer. We will also begin to incorporate enterprise-wide risk management, and, therefore, the role of chief risk officer, into training classes. The other element ties into the FRM certification, which is the financial risk manager certification exam. The ability to produce a certification does a number of things for the profession. First, it bolsters risk credentials in terms of its professionalism. It also ties into the standards idea because then the ethical standards that are part of the standards committee reports can be included into the FRM exam, which strengthens the profession ethically as well as professionally. Also, this can be laying the groundwork for the role of the chief risk officer by mandating that people study enterprise wide risk and not become focused in niche or a particular channel.

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