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FRM (Financial Risk Manager) Meaning & Definition

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FRM stands for Financial Risk Manager. A Financial Risk Manager (FRM) is a person who manages financial risks.

The Global Association of Risk Professionals has a professional credential called Financial Risk Manager (FRM) (GARP).

The GARP FRM accreditation is widely regarded as the gold standard for financial risk managers who work in financial markets.

Candidates must pass two tough exams and work two years in the field of risk management to get the FRM certification.

FRMs work for big banks, insurance companies, accounting firms, regulatory agencies, and asset management organisations, and have specific understanding in risk assessment.

TAKEAWAYS IMPORTANT:

• The Global Association of Risk Professionals (GARP) accredits Financial Risk Managers (FRM) (GARP).

• Major banks, insurance corporations, accounting firms, regulatory agencies, and asset management organisations hire FRMs to assess risk.

• FRM certification requires passing a two-part exam and two years of financial risk management work experience.

• Professional recognition (FRM is the global standard in the sector), more employment possibilities, a higher salary, and becoming a better overall risk manager are all advantages of receiving the FRM certification.

• Overall, the CFA is a more difficult credential to obtain, while the FRM is a more specialised certification.

Financial Risk Managers: An Overview (FRMs)

frm meaning

An FRM identifies dangers to an organization’s assets, earning capacity, or success. FRMs operate in a variety of industries, including financial services, banking, loan origination, trading, and marketing. Many focus on areas such as credit or market risk.

Risk is assessed by analysing financial markets and the global environment in order to forecast changes or trends.

The FRM’s responsibility also includes developing methods to mitigate the effects of potential risks.

The Financial Risk Manager (FRM) Program is a programme that helps people manage their financial risks.

The FRM exam examines how risk management tools and strategies can be used to the investment management process.

Candidates must pass a two-part comprehensive exam and have two years of work experience in financial risk management to acquire the FRM designation.

Professionals with the FRM certification have the option of participating in optional continuing education.

Market risk, credit risk, operational risk, and investment management are the major strategic disciplines of risk management that the FRM programme follows.

The exam, which is accepted in more than 90 countries, is meant to assess a financial risk manager’s competence to manage risk in a global setting.

The questions are practical in nature and are based on real-life job situations.

Candidates must be able to apply risk management concepts and methodologies to the day-to-day tasks of a risk manager.

Part 1 of the FRM test consists of 100 questions covering the following four subjects (in order of importance):

  • Risk management’s foundations (20 percent )
  • Quantitative research (20 percent )
  • Markets and goods in finance (30 percent )
  • Models of valuation and risk (30 percent )

Part 2 of the exam consists of 80 questions (weighted as follows) on the following topics:

  • Measurement and management of market risk (20 percent )
  • Management and monitoring of credit risk (20 percent )
  • Operational resiliency and risk (20 percent )
  • Measurement and management of liquidity and treasury risks (15 percent )
  • Risk and investment management are two different things (15 percent )
  • Current financial market issues (10 percent )

Financial Risk Managers’ Industry Prospects (FRMs)

According to the US Bureau of Labor Statistics, the median pay for financial managers, including FRMs, was $127,990 per year in 2018.

From 2018 to 2028, employment of FRMs is predicted to expand substantially faster than the average for all occupations, at 16 percent.

“The key activities of financial managers, including as risk management and cash management, are projected to be in high demand over the next decade,” according to the Bureau.

Naturally, the financial services business employs the great majority of FRMs. However, across all sectors of the economy, from healthcare and engineering to technology and natural resources, there is a significant demand for excellent risk management teams.

These are the top ten companies that employ the most FRMs, according to GARP:

  • ICBC
  • China’s central bank
  • HSBC
  • China’s Agricultural Bank
  • Citigroup
  • KPMG
  • Deutsche Bank is a financial institution based in Germany
  • Credit Suisse is a financial services firm based in
  • UBS
  • PwC

CFA vs. FRM

One of the most well-known financial designations in the world is the Chartered Financial Analyst (CFA).

Where the FRM is regarded as the “gold standard” among financial risk managers, the CFA is regarded similarly among financial analysts.

Because both the CFA and the FRM aim to certify financial industry experts, they’re frequently compared.

The main distinction between the two is that the FRM designation is more specialised than the CFA Charter.

The CFA certifies you in financial analysis, corporate finance, equities, bonds, derivatives, and portfolio management, all of which are essentially connected to investment management.

The FRM, on the other hand, is primarily concerned with controlling exposure to various risks such as operational risk, credit risk, market risk, and liquidity risk. The criteria for the FRM and CFA are also different.

To obtain your FRM certification, you must complete the following steps:

  • Part 1 and Part 2 of the FRM exams must be passed.
  • Have two years of financial risk management experience
  • To obtain your CFA Charter, you must complete the following requirements:
  • To begin the CFA Program, you must have a bachelor’s degree (or be in your final year of a bachelor’s programme).
  • Levels 1, 2, and 3 of the CFA exams must be passed.
  • Join the CFA Institute as a member.
  • Have a total of 4,000 hours in an investment-related role.
  • The FRM Designation has a number of advantages.
  • Earning the FRM certification has a number of benefits.

First and foremost, there is the program’s reputational value. It is often regarded as the most prestigious accreditation in the risk management business.

As a result, it is a significant indicator of competence and experience in the industry. In other words, the FRM has a lot of clout among employers and coworkers.

Given how quickly financial markets change, need for risk management professionals is only expected to increase over time.

The obvious educational gain is the second advantage. The FRM certification, as previously said, equips professionals with a complete understanding of risk management.

In practise, this involves being able to recognise, respond to, and adjust to significant risks.

FRM Frequently Asked Questions

Is CFA or FRM the better option?

That is mostly determined by your chosen job path. Generally speaking, FRMs are designed for risk-related management positions (i.e., credit risk manager, regulatory risk manager, operational risk manager, etc.).

CFA Charterholders, on the other hand, are largely investment management professionals (i.e., investment analyst, portfolio manager, financial adviser, etc.).

Is FRM More Difficult Than CFA?

The FRM examinations are challenging, but not as challenging as the CFA exams.

Pass rates for FRM Part 1 are typically in the 40 percent to 50 percent range. For Part 2, the percentages are between 50 and 60 percent.

Pass rates for Level 1 and Level 2 of the CFA exams have historically been in the 40 percent to 50 percent range.

Pass rates for Level 3 exams are typically around 50%. The CFA is more difficult than the FRM because of the lower pass rates and the addition of one more exam.

How much does the FRM set you back?

Candidates who are new to the FRM must pay a $400 one-time enrollment fee.

The typical registration fee for Part 1 is $750, and for Part 2 it is another $750. Candidates can earn a discounted pricing of $550 for Part 1 and $550 for Part 2 if they register early.

Final Thoughts

The Financial Risk Manager is the most generally recognised professional qualification for risk managers and is widely regarded as the global standard for financial risk.

The demand for experienced financial risk managers is currently high and is expected to continue to rise in the future.

While the CFA is more prestigious and difficult to obtain, FRM has a distinct edge in its highly specialised risk focus.

The Financial Risk Manager is unrivalled for professionals wishing to set themselves apart, improve their employment prospects, and earn more income in the risk management area.

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