The quantitative risk outlook for 2016 includes continued focus on CCAR driven projects and finalizing changes to the FRTB framework. There will be intense competition for quantitative talent as banks reduce headcounts while also needing skills in areas like risk management, XVA, and meeting new regulatory requirements. Candidates need the most up-to-date technical skills in areas like coding, statistics, and machine learning to stay competitive. Risk analytics is a growing field with opportunities for career advancement, as banks invest in projects utilizing new data and models. Regulatory changes on the horizon around areas like XVA, FRTB, and margins will likely cause departments to restructure and create new roles and teams.

1. Quantitative Risk Outlook
for 2016
By THEO MORAPEDI – Quantitative Analytics, Lead Consultant,
Global Markets Search | Huxley
Specialties: Derivative Quantitative Analysts & Developers across EqD,
FX, Rates, Credit and Commodities. Also Flow and Linear Quants in
Fixed Income
Front Office Quantitative Researchers, Traders, Strategists and
Developers, Covering Equities, Fixed Income, EM and FX to Investment
Banks, Hedge funds and Trading houses
Quant Risk Analytics: XVA/CVA, Counterparty Credit Risk, Market Risk
(VaR) Methodology, Model Validation, Model Review, Model Risk
An opening statement
.
It already feels like we’re well into 2016 and my observations are there
is a lot to look forward to in the banking sector. Many lessons were
learnt over the course of last year, with the intensification in scrutiny
from the regulators and an ever-increasing amount of pressure on cost.
Today amidst a challenging trading environment, banks are being
forced to be leaner, more robust and efficient in their efforts to boost
profitability.
How is 2016 shaping up?
We expect there to be a continued focus of CCAR driven projects and
this will be a priority on the business agenda until at least the beginning
of Q3. The final changes to the FRTB framework are expected to be
finalised over the coming weeks and months; this will impact many front
office and risk departments in areas including model validation, market
risk analytics, counterparty credit, credit risk management and liquidity
risk.
In the area of front office quantitative analytics and trading there has
been an exodus across the industry with many of the tier 1 banks in
London reducing headcount by up to a staggering 20-30%. That trend
on its own is telling, the days of earning huge bonuses with job security
and working on sophisticated model development are becoming a
distant memory. Furthermore, “growth hiring” in the front office is
relatively unheard of, the exception may be to certain equities
businesses and in electronic trading teams.

2. So where does that leave you? With the relentless scrutiny from
regulators because of the 2008 financial collapse, there has been an
increasing focus of liquidity, collateral and meeting capital requirements
to prevent the mistakes of the past reoccurring. All of the above fall into
the category of risk management and it’s a non-negotiable that sits high
on the agenda of CEO’s / CRO’s / CFO’s and board level executives.
Challenges for hiring managers
For hiring managers this has presented some challenges in sourcing the
right blend of skills needed to scale up their teams or department. Due
to the talent shortage, there is fierce competition among banks, fin-tech
companies, hedge funds, asset managers, Big 4 firms and start up
consultancies all in the market for experienced quants. There is also the
growing presence of the likes of Google, Facebook, Microsoft and
Amazon who on top of lucrative pay packages offer benefit packages
that include flexible working hours, longer maternity cover, extra
“personal days” or longer annual leave entitlements; break out areas,
casual dress code and even stock options.
Many hiring managers are aware of these threats, as the steady decline
in the intake of strong Masters and PhD graduates into the industry in
recent years has created longer-term challenges to talent acquisition.
The smaller talent pool moving into the finance sector has resulted in
multiple offers and counter offers, forcing hiring managers to accelerate
the interview processes and move quickly in order to secure the best
people on the market particularly in the AVP/Associate market, a trend
which we expect to continue.
A candidate’s perspective
For candidates there are similar challenges. The financial services
industry has been accelerating the investment in cutting edge
technology and cloud based services (big data). As such, the key
requirements for a typical “quant job” have been geared towards
increasing computational power. Coding skills (C++/C#/F#/Python) and
statistical programming languages (SAS/R/VBA) are in demand across
the sector particularly in credit risk.
Many firms are moving towards automated systems that are exploiting
sophisticated algorithms an example being machine learning. This of
course will mean that having the most up-to-date technical skills is
essential if they’re to stay on top in an increasingly competitive job
market.
Good news for Quantitative Analytics
Risk analytics has moved on a lot in the past five years and quants in
the risk arena are highly sought after, relatively well paid, and have a
strong influence within the infrastructure of the bank, not to mention
have longer-term career opportunities. This increase in opportunities
contrast the career ladder in front office; put simply over a 15-year

3. career there is a significantly higher possibility of making it to the top
(Director, Managing Director, Global Head) in the risk world. This is
because of an extremely large group of VP’s waiting for ED promotions
in front office and even longer wait to make MD creating a bottleneck.
Moreover, in the risk analytics space, many banks are investing in high
visibility projects many of which can offer Greenfield work expanding
into new territories. This work is not saddled with legacy systems and
data, but focused on utilising cleaner data, building models representing
the world we live in today that are fit for purpose and that are properly
understood by the users.
Having recently attended the annual Quantitative Risk Management
Conference 2015 with speakers and delegates from a real cross section
of Europe’s leading investment banks addressing key topics, including:
- The role of a quant
- Model risk and validation
- CCPs & Counterparty Credit Risk
- Value adjustment and fair value adjustment
- Fundamental Review of the Trading Book (FRTB)
- Data management and systems
Heads of department across Front Office Quants, CVA/XVA research,
Counterparty Credit Risk, Model Risk Management, Market Risk
Methodology and Model Validation spoke in depth about some of the
major regulatory challenges in the industry.
Regulatory changes in the financial services
The topic of XVA proved to be a hot topic of conversation as research
into the area is continually being challenged, and within the industry, it is
very much an area of interest due to the complex nature of the work.
The term refers to a collection of different value adjustments including;
credit value adjustment (CVA), funding value adjustment (FVA), margin
value adjustment (MVA), capital value adjustment (KVA), liquidity value
adjustment (LVA), default value adjustment (DVA) and collateral valued
adjustment (ColVA). XVA is known in the market place as being difficult
to calculate due to the underlying assumptions to which it associated
and therefore requires strong model validation and governance to
minimize risk.
Over the course of 2015, the majority of investment banks were
investing heavily in infrastructure that calculates these analytics and the
appetite for staff with CVA experience was high, against we do not
expect this to slow as we progress into 2016.

4. The FRTB framework will be announced in the coming months with
consultations and QIS nearing completion, many practitioners anticipate
this being this being one of the biggest shake-ups to the banking
system, as we know it. The underlying objective is to achieve a
transparent, consistent, comparable way of reporting market risk across
banks and geographies. Initial and Bi-lateral margins will also be coming
into effect in 2016, this will enable banks to compute how much extra
margin is need to post collateral against a counterparty defaulting – the
ultimate goal to reduce counterparty risk.
In short, with the changes on the horizon it is likely we will see the
restructuring of risk departments to improve the sharing of information
with new groups, teams and even new roles created. From a
recruitment perspective, it is no secret that many of the top tier banks
will have large budgets put aside to meet the requirements and
deadlines put in place.
Looking ahead to 2016
2016 is already looking like a year with lots of opportunities. So if you’re
looking to try something new, improve yourself or even get your career
on a positive trajectory that may have flat lined in recent years, this may
be the year to move out of your comfort zone and make the jump. The
banks will probably continue to reduce headcount year-on-year for the
foreseeable future and having the awareness of this will enable you to
stay current and acquire the skills and experience needed for tomorrow.
It may be the year to ask yourself, how am I positioning myself in a
rapidly changing industry?
Get in touch if you’d like to discuss what you can do to get ahead and
prosper in year ahead.
Contact us:
Theo Morapedi
Lead Consultant
Quantitative Analytics – Global Markets Search
Huxley
+44 (0)207 469 5055
t.morapedi@huxley.com
uk.linkedin.com/in/theomorapedi