Risk Adjudicator. It s About You. What is Risk Adjudication? What is the role of the Risk Adjudicator? Areas of Focus

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1 Risk Adjudicator It s About You Are you the kind of person that likes to be thorough and methodical when it comes to making critical decisions? Do you have an interest in business operations and a curiosity to understand the different needs of multiple clients? Do you have high ethical standards with the ability to remain independent so that decisions are based on facts instead of intuition or relationships? Are you comfortable making decisions in dynamic environments, characterized by uncertainty? Then, maybe being a Risk Adjudicator is for you. What is Risk Adjudication? Risk Adjudication is the matching of the risk or potential for loss when lending money (i.e., issuing credit) with the organization s need to be profitable. Risk Adjudication is the arbitration of the company s decisions about whether to lend money to an individual or an organization. Given the importance of these decisions, the expertise that Adjudicators bring to these critical decisions is highly valued by institutions across all segments of the financial services sector. What is the role of the Risk Adjudicator? Risk Adjudicators play a key role in determining how financial institutions use their money and that of their depositors. When making important lending decisions, Risk Adjudicators must consider a multitude of inputs. They must consider their company s lending policies, qualitative data (i.e., market or environmental factors), quantitative data (e.g. financial statements, risk model outputs/reports) and analyst research reports. Adjudicators work with large amounts of data where the consistency, completeness, accuracy and timeliness of the information are crucial to accurately managing the risk. Adjudicators often take an entrepreneurial approach to their work to anticipate the information needed to improve upon existing policies and design new policies to better manage risk. Areas of Focus Risk Adjudicators tend to work on loans to medium and large-sized businesses, reviewing applications for credit from clients whose needs are more complex and require more than the automated assessment of the credit risk. While some automated risk assessment may be involved, Risk Adjudicators also need to assess the worthiness of the credit transaction based on other qualitative and quantitative factors, such as the client s financial status, account history with the financial institution, and potential profit for the financial institution. Depending on the size of the organization, Adjudicators may be aligned with a specific business line such as mortgages or lending within a specific portfolio such as agriculture or mining. Risk Adjudicators work mostly in the banking segment. In the Insurance industry, Adjudicators are known as Underwriters (please see Insurance Underwriter job profile). Copyright 2010 Toronto Financial Services Alliance. All rights reserved. 1

2 Main Duties Commonly, the main duties of a Modeller include: Credit Application Adjudicators are primarily responsible for conducting the final review and making the final decision on requests for funding (i.e., credit applications). Based on a range of qualitative and quantitative factors, Adjudicators must assign a particular level of risk to each application for credit. If this level of risk is within the organization s risk tolerance threshold, then the credit is approved. Key Activities:! Review credit applications for completeness and consulting with front line staff as required to ensure that all important client information is obtained.! Assess key risk factors related to the client s application for credit, apply the appropriate risk models and review other risk factors such as; the client s financial position, account history, potential for payment, probability of default, and reputation.! Negotiate/recommend terms and conditions for credit approval through front line staff as appropriate (e.g. banking branch staff, mortgage sales force, commercial lending officers).! Make final decisions/determinations (i.e., adjudicate) on credit applications received from front line staff. Credit Renewal Adjudicators are responsible for reviewing credit renewal applications, which are submitted when the terms of credit are nearing a close (e.g. when a loan becomes due). Due to changing forces in the business environment, each time a credit transaction comes to the end of its term, the Adjudicator must reassess the risk factors associated with the transaction and determine if the credit will be extended. Key Activities:! Review applications for renewal of credit for completeness, and consult with front line staff as required, to ensure all important client information is obtained.! Re-assess key credit risk factors that may have changed since the initial credit application was approved, in order to evaluate and determine the terms of approval. Copyright 2010 Toronto Financial Services Alliance. All rights reserved. 2

3 Staff Training Risk Adjudicators also help the organization s front line staff to better understand the company s credit policies (e.g. application requirements, rejection criteria). By helping their colleagues, who deal directly with the client and the initial request/application for credit, to make a better basic assessment of risk in the very early stages of the transaction, the Adjudicator is able to perform his/her job in a more timely fashion. Key Activities:! Communicate the organization s credit policies to front line (i.e., customer-facing) staff through seminars and regular bulletins.! Provide training specific to the adjudication process so that frontline staff understand the restrictions surrounding credit transactions. Review and Monitor Organization Risk Adjudicators may also be responsible for ensuring that the organization s credit policies are current and for monitoring adherence to policies and standards to ensure the organization effectively manages its credit risk exposure. Key Activities:! Make recommendations to senior management on risk management strategies to protect the organization s overall credit lending structure and portfolio.! Maintain current awareness of regulatory changes and advances in credit risk management practices, to ensure analytical models and methodologies are consistent with industry best practices.! Identify and present opportunities for improvements to risk policies based on changing trends to management.! Review and monitor the organization s loan portfolio to ensure adherence to credit standards and to maintain consistency across the organization. Work Context, Knowledge, Skill Requirements and Applicable Experience Work Context Entry level Adjudicators tend to work at the field level (e.g. district offices). The types of credit applications they receive often reflect the characteristics/needs of their geographic location (e.g. agricultural credit or real estate credit). More senior adjudicators typically work at a company s head office, working with front line staff that interact with clients. Here the Risk Adjudicator s focus is as a business-line credit specialist, but can be called in to work on credit risk decisions that may be larger in scope or complexity. Adjudicators typically work standard business hours, yet they may be called upon to work longer hours as issues and situations require. Depending on the size of the organization, Risk Adjudicators may specialize in one functional area (e.g. commercial real estate) or work across multiple business lines (e.g. agribusiness, manufacturing). Copyright 2010 Toronto Financial Services Alliance. All rights reserved. 3

4 Knowledge Risk Adjudicators require specific knowledge of:! Consumer and/or commercial lending best practices (including for example, requirements for the supporting documentation for loans, minimum debt service ratios, delinquency/default rates and trends, collection/foreclosure costs, management of problem accounts, structuring of loans).! Household budgets and/or business financial statements as these are critical to understanding the client s ability to repay their loans.! The organization s suite of credit products and services and the different levels of risk associated with each.! Competitors credit products and services offered to clients in order to maintain competitive advantage.! General macro-economic trends (e.g. employment and interest rate outlook). In addition, Risk Adjudicators specializing in particular areas must have a strong understanding of the trends in the client s industry.! Mathematical finance and investment products including a solid understanding of the principles of credit risk. Skill Requirements Risk Adjudicators require specific technical competencies:! Strong quantitative skills with the ability to synthesize and apply technical data and information to business practices and risk management.! Masterful ability to investigate potential risks through the use of quantitative and qualitative data in order to make decisions on credit transactions (e.g. review both organizational financial statements and banking credit history in decision review).! Ability to assess the reliability and integrity of information to make the best informed decisions possible.! Advanced computing skills related to key software and platforms such as MS Access, Software tools (e.g. Matlab) and statistical packages (e.g. SAS, SPSS). Soft Skills Risk Adjudicators require specific soft skill competencies:! Excellent written, oral communication and presentation skills to disseminate credit policy information to a variety of people.! High ethical standards with the ability to remain independent so that decisions are based on facts.! Joint application of quantitative and narrative skills to effectively communicate key findings.! Ability to apply logic and structured methods with strong attention to detail so every risk aspect of credit transactions is evaluated.! Ability to negotiate with front line staff to effectively balance the need to manage risk and obtaining or keeping a customer.! Ability to educate front line staff (lenders) on what to look for to assess the credit worthiness and risks of potential customers and what typically contributes to a profitable customer. Copyright 2010 Toronto Financial Services Alliance. All rights reserved. 4

5 Applicable Experience There are a number of related experiences that are transferable to the Risk Adjudicator role. People with the following backgrounds may do well as an Adjudicator:! Mathematics, as Risk Adjudicators are required to analyze and consider complex financial models to made credit decisions.! Corporate Finance provides the background of working with financial products and some of the required quantitative skills.! Engineers who have some of the quantitative skills and experience in applying theory to real life circumstances. However, more training and education would be needed in areas of credit risk and financial products.! Actuaries who have solid financial and quantitative experience that relates directly to adjudication. Training in credit risk would be necessary. Education, Certifications, Designations and/or Licences Entry Level Positions Entry level positions typically require: " College diploma or " Undergraduate university degree In the fields of:! Mathematics! Finance! Economics! Banking! Accounting! Computer science! Risk management Senior Level Positions Senior positions may require: " Graduate degree In the fields of:! Business Administration! Economics! Finance Copyright 2010 Toronto Financial Services Alliance. All rights reserved. 5

6 Additional Certifications Additional certifications may include:! Associate in Risk Management (ARM)! Professional Risk Manager (PRM)! Financial Risk Manager (FRM)! Chartered Financial Analyst (CFA)! Canadian accounting designations ((Chartered Accountant (CA), Certified General Accountant (CGA), Certified Management Accountant (CMA))! Project Management Professional (PMP)! Associate in Risk Management (ARM)! Professional Risk Manager (PRM)! Financial Risk Manager (FRM)! Chartered Financial Analyst (CFA)! Project Management Professional (PMP)! Accredited Consumer & Residential Mortgage Lender! Accredited Commercial Loan Administrator! Associate, Institute of Canadian Bankers (AICB)! Fellow of the Credit Union Institute of Canada (FCUIC)! Fellow, Institute of Canadian Bankers (FCIB) Additional Training Continuing education and additional training may include:! Specialized training specific to computer software and platforms. Representative Job Titles Depending on the organization you work for, Adjudicators may hold various job titles:! Credit Risk Manager! Credit Adjudicator Copyright 2010 Toronto Financial Services Alliance. All rights reserved. 6

7 Career Pathways Moving into the role In financial services organizations, there are typically more senior Risk Adjudication roles than there are entry level positions in an organization. Getting into a senior level role requires a proven analytical track record in credit management. If you are coming directly out of an undergraduate degree program you should consider pursuing a risk analyst role, specifically in credit risk. Here you can gain valuable insight and experience into risk management and credit policy at a financial institution. As an undergraduate you could also consider Lender or Advisory roles. Any of these options are a great place to begin pursuing a career in Risk Adjudication as they allow recent graduates to learn about what credit risk is about and to gain specific skills essential to career progression in the future. Progression beyond the role Moving up in Risk Adjudication takes skill and a proven track record at being able to minimize losses due to credit default while continuing to make a profit for the organization. Movement can occur within the Risk Adjudication career stream to a senior level position, where you would be responsible for larger and more complex credit transactions, and, perhaps acting as an expert in large deals. These types of roles would include Market Risk, Corporate Lending, and/or Corporate Credit Risk Management. Moving through these senior Risk Adjudication roles could ultimately lead to an executive position, where you would have the responsibility for managing the financial institution s entire Credit Risk portfolio. Typical titles for executive roles include Vice President of Risk, and Risk Director. External Factors Impacting the Role Constant changes in modeling techniques and technology have important impacts on Risk Adjudicator roles, especially at the junior levels. The complexity and number of models available for use in the financial services industry are increasing. The more robust these models are in capturing the data, there could be less of a need for Risk Adjudicators to input their own variables into the decision making process. A potential result could be that Risk Adjudicators would not have the benefit of learning their craft on simple credit decisions. This in turn could create a skills gap in the transition from junior adjudicator roles to more senior roles. However, risk appetites at organizations are also increasing. In today s environment, companies are looking to embed a risk management culture. Recent high profile cases have encouraged organizations to improve risk management processes. Regulatory and legislative requirements continue to change, causing a redefinition in duties for risk employees. Organizations are being held liable for their actions and also for the actions of their employees. As a result, organizations increasingly rely on Risk specialists to ensure complete due diligence to ensure they effectively manage all possible risks. The wave of baby boomers situated throughout the financial services sector that are approaching retirement age will also affect the employment outlook for Risk Adjudicators in the near future. Since Risk Adjudicator roles are typically filled by those with years of experience, the retirement of these employees could result in a shortage and increase the demand for Risk Adjudicators. Copyright 2010 Toronto Financial Services Alliance. All rights reserved. 7

8 Employment Trends and Outlook Employment Outlook Demand for Risk Adjudicators continues to increase given:! The increased public scrutiny and attention to risk has created an increased demand for skilled adjudicators as financial organizations conduct greater due diligence in their lending decisions.! An increase in the complexity of investment products has brought with it increased risk, leading financial organizations to be more diligent in evaluating risks within investment and credit products as well as credit applicants. Compensation Compensation levels vary greatly based on experience and the complexity of the risk being modelled. Risk modellers are typically salaried employees often with performance pay component. Copyright 2010 Toronto Financial Services Alliance. All rights reserved. 8