An overview of PRMIA

1
The Professional Risk Managers International
Association

• An overview of PRMIA
• followed by
• Views on the Credit Crisis and Thoughts on the
  Way Forward
• David Millar
• Chief Operating Officer, PRMIA
• david.millar_at_prmia.org

2
PRMIA the Global Organisation

• The Professional Risk Managers International
  Association (PRMIA) is the worlds leading risk
  professionals association.
• 54,000 risk professionals from all segments of
  the financial services industry
• Member from 4,000 organisations
• 150 2-hour to one-day meetings annually
• 181 countries
• 60 chapters
• Code of Risk Conduct, Governance and Ethics
• Governance owned by members
• A not for profit organisation
• Member-led, grass-roots organisation run by
  volunteers with a small administration team

3
What PRMIA is about

• A higher standard for risk professionals
• Bringing people and ideas together across
  cultures and industries through events and
  through the website
• Developing and setting standards for the Risk
  Professional and the Risk Profession
• A global focus, with local service, serving
  developing and developed markets for the good of
  the industry and its practitioners
• Member-led, member-driven it provides a forum
  for members with meetings, focus groups and
  resources
• Providing exams (the PRM and the Associate PRM)
  for people who want to learn, to demonstrate
  their skills and advance their careers
• Provides specialist public and in-house training,

4
PRMIA Member Services

• Representation
• An industry policy body
• A forum for members
• Credentials
• The PRM (Professional Risk Manager) and the
  Associate PRM exams
• Events
• Pre-work, lunchtime and after-work events
• One day risk forums
• Participation at selected conferences
• Website
• Library, news, surveys, search, discussion
  groups, careers support, research, networking
• Education
• Specialised training, university faculties,
  web-based training

5
Our risk management standard - the Professional
Risk Managers Handbook

• Over 35 Leading Authors
• In Use in over 110 Countries
• In Use at 23 of 25 Worlds Largest Banks and all
  10 of Worlds Largest Financial Service Companies
  
• The best reference source for financial risk
  managers
• Available online and in print
• ( A 2006 survey of the membership)

6
The PRM Accreditation

• Syllabus
• The PRM Handbook plus material on the PRMIA
  website
• Objective
• To provide a common educational baseline for all
  Professional Risk Managers in the financial
  services industry.
• Comprises
• Statement of best practice
• Everything you wanted to know about Risk but
  were afraid to ask
• Foundations in Finance theory
• Practical elements of credit, market and
  operational risks
• The interface between risk and other disciplines
• Delivers
• Objective proof of capabilities

7
The PRM

• Is PRMIA's most academically advanced program,
  designed to cater to all the needs of a Chief
  Risk Officer. Only successful candidates are
  entitled to use the PRM title. Essential to
  progress from Risk Analyst to Risk Manager
• Accommodates cross-over credits
• Exam I CSI Financial Risk Management and CAIA
  Financial Risk Management graduates
• Exam II Actuarial Associates
• Exams I II CFA Charter Holders, CIIA, CEFA
  Charter Holders, CQF Holders, Actuarial Fellows
• Exam IV the Associate PRM
• Four exams (in any order) Finance (2 hr exam),
  Mathematics (2 hrs), Risk Management (1½ hrs),
  Governance and Case Studies (1 hr) - 120 total
  questions
• Can be done in a year with a commitment of 8
  hours study a week - two years allowed to pass
  all 4 exams.

8
The Associate PRM certificate

• Designed for staff entering the risk management
  profession - or those who interface with risk
  management - auditing, accounting, legal, and
  systems development personnel.
• Mathematically and theoretically less detailed
  than the PRM, the Associate PRM covers the core
  concepts.

• Successful candidates will understand fundamental
  risk management methods and practices,
  demonstrate they can make critical assessments,
  evaluate the implications and the limitations of
  such results, be familiar with past risk cases,
  and understand professional and ethical
  standards.
• The Associate PRM is a single, non-mathematical
  exam of 3 hours with 90 multiple choice question.

9
How do I take PRMIAs exams?

• Teaching methods
• Classroom Training
• Online Courses and Diagnostic Exams
• Exam guides
• A DVD-based training program
• Self-Study Guide
• Professional Risk Managers Handbook, the
  Essentials of Risk Management plus freely
  available website material
• All exams sat via CBT (Computer-Based Testing)
• 4,200 test centres in 145 countries (14 in
  Shanghai, 22 in Beijing, centres in all the
  provincial capitals) all are open every working
  day of the year
• Minimal delay, user-friendly booking system,
  re-bookable with 24 hours notice customer
  focused, total flexibility
• ( In development for the Associate PRM)

10
PRMIA Training Education services

• Graduate Program Standards
• Classroom Courses
• Online Training Courses 40 courses
• Learning Shorts 400 modules covering all
  aspects of finance
• Publications PRMIA books, the Journal of Risk
  Management in Financial Institutions, partner
  books and journals
• Network of Top Universities with a PRMIA Masters
  Accreditation Programme
• Best Practice Standards for Curricula
• Scholarships and Research Grants

11
PRMIA Training Education services

• Some typical courses
• A Complete Course in Professional Risk Management
• A Course in Financial Markets and Instruments for
  Risk Professionals Wednesday Evenings for Four
  Weeks
• A Course in Market Risk Management Best
  Practices Wednesday Evenings for Three Weeks
• Credit Risk Modeling Best Practices
• Operational Risk Management Best Practices
• Hedge Fund Risk Management a Two-Day Training
  Course
• Hedge Fund Risk Management a Two-Day Training
  Course
• Capital Allocation Best Practices
• Governance Best Practices and Case Studies
• Credit Derivatives - a Two-Day Intensive Training
  Course

12
PRMIA the past 12 months

• Associate PRM exam launched
• New chapters in Tokyo, Bangalore, Hyderabad,
  Amsterdam, Frankfurt, Vienna, San Francisco,
  Kolkata, Kuala Lumpur and Johannesburg.
• One-day PRMIA risk forums held in NY, Chicago,
  San Francisco, Beijing, Shanghai, Paris
• A quarterly PRMIA risk journal released free to
  Sustaining Members. PRMIA monthly newsletter
• PRM approved by regulators in Singapore and
  Bahrain
• Agreement with McGraw Hill to update and reformat
  the Handbook and make it available in bookshops.
  Volume 1 released in January 2008.
• New PRM study guide released
• Corporate membership services launched
• PRMIA expand support team to take on marketing,
  sales and conference/event support staff

13
PRMIA the next 12 months

• Increase to the exam services team
• New chapters expected in Los Angeles, Qatar,
  Bournemouth, Shanghai, Beijing, Madrid, Delhi,
  Kuwait, Miami, West Indies, Turkey, Bermuda,
  Romania, Chennai.
• Update of the website with increased facilities -
  enhanced jobs board and web-based bookshop
  services
• Handbook Volume 3 and Exam 3 to be updated and
  enlarged
• New PRM study guide to be released
• New academic partners in USA, Canada, China, UK
  and France
• New exams planned in Islamic Risk Management,
  Understanding Basel II, Accounting Risk,
  Liquidity Risk.
• Chinese language version of the APRM

14
Views on the Credit Crisis and Thoughts on the
Way Forward

• A personal view

15
What went wrong?

• Change in the borrowing/lending model, and the
  move from commission to capital growth
• Easy credit, poor lending strategies and
  securitisation
• Profit and bonus driven institutions short-term
  profit is the only goal, and there is no downside
• Governments encourage growth, regulators are not
  in control.
• Liquidity is not understood and risk management
  not carried out
• (For banks and bankers, read all those involved
  in financial activities and instruments.)

16
The banking model changed

• It used to be that investors and entrepreneurs
  gambled whilst banks provided the capital back
  up.
• Now everyone is investing, i.e. gambling!
• Banks now have a much riskier model - but we
  operate under capital concepts from 1945, and
  capital levels from 1988.

17
The lending model changed

• The cost of borrowing is less than the expected
  investment profit.
• Banks are competing to lend so reducing costs
  further.
• Loans are granted without inspection or
  authorisation.
• The packaging and then slicing of loans means
  that the original credit rating is lost.

18
The incentives model changed

• Reputational risk (other than financial
  insolvency) no longer matters.
• Banks are competing to poach the best sales
  people and offering guaranteed bonuses with no
  downside.
• In the largest banks, there is no downside as
  they know the government will pick up the bill.

19
The control model changed

• Regulators have always been one step behind the
  bankers who employ experts just to get round
  banking regulations.
• Auditors can also be deceived about what they do
  not understand.
• Governments have sought encourage private wealth
  through incentives to borrow and now suffer the
  results of this.
• There is little cross-border control of
  cross-border banks.

20
The risk models never got there!
21
The result ..

• A financial system based on inter-bank liquidity
  and not on deposits
• An investment environment where it is easier to
  borrow than to save
• A culture where risk taking is rewarded with no
  penalty for failure
• A global economy where governments encouraged the
  above and where regulators were not in control.
• A risk management framework that was not up to
  the task.

22
The future 1

• There will be an emphasis on a return to basic
  banking
• High capital levels will be imposed
• The return of Glass-Steagall (at least for
  reporting)
• Tighter, more visible credit authorisations
• Credit rating agencies will become part of the
  regulatory structure
• Credit will become harder
• interest rates will go up
• Global growth rates will decrease
• Ratings will become stricter
• The emerging economies will grow at the expense
  of the established economies

23
The future 2

• Governments will encourage saving
• There will be guarantees on deposits (100K)
• A higher percentage of deposits will have to be
  invested in government stocks
• Margin trading and complex derivatives will be
  discouraged
• Regulations will get tighter regarding
• Capital levels
• Lending as a percentage of deposits
• Securitisation
• Insurance instruments
• Management responsibility
• Bonus payments will be tied to profitability
• Cross-border regulation

24
The future 3

• Risk management will change
• Risk managers will have to sign off all
  activities
• There will be a formal risk management committee
  (as there is an audit committee)
• The following risks will be included into the
  rules
• Liquidity risk
• Remuneration and incentive risk
• Strategic risk
• Basel II will evolve into Basel III the above
  new risks will be included into Pillar 1 -
  Pillar 2 will become more restrictive and have a
  more visible impact on capital requirements

25
The future 4

• Other happenings
• G8 will become G11 or 12 with the addition of
  China, India, Brazil and some of the Middle
  eastern states
• Governments will find themselves owning large
  parts of the banking infrastructure
• Global government debt will increase, industrial
  growth will decrease
• Commodity prices will fall bringing down
  inflation, but unemployment will rise
• Basel III will take two years to be released
• There will be a united nations of regulators
  and supervisors created
• In five years, possibly four, share indices will
  be back to the levels of January2008 it will
  take another two years before they reach January
  2007 levels.

26
The balance of financial power will move Eastwards

• The rebalancing of the global economy towards
  Asia, home to over half the worlds population,
  and its implications for the Middle East, is the
  shift that will affect financial markets most
  profoundly.
• Stephen Green Chairman, HSBC
• October 20th 2008
• but commodity price falls will impact the
  Middle East and Emerging Markets.

27
and

• If I were that good at forecasting
• I would not be talking to you, but .
• on my yacht in the Bahamas!
• Thank you.

28

To Join www.PRMIA.org Member Support
support_at_prmia.org The PRM program
certification_at_prmia.org