What Is The Front Office (FO)?
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Risk management jobs are usually considered to be in the middle office. So are compliance jobs. And so are technology jobs. Be warned, however, that not all risk, compliance and technology jobs in banks are in the middle office.
And then you might get a risk person miles away in the corporate centre, in which case they'd be in the back office. Chris Wheeler, banking analyst at Atlantic Equities in London, points out that people in the middle office have risen in stature as banks stop focusing on making revenues at all costs and start thinking about the risks they're taking to earn those revenues.
They'll also work to ensure that procedures are in place to allow the trade to be settled. The back office in an investment bank refers to all the functions that are behind the scenes. Back office professionals work in settlements , making sure that payments are processed. They work in human resources, making sure bankers get paid, or hired, or fired.
They work in technology, making sure that central systems are running correctly. They can also work in areas like central compliance, monitoring employees' conversations and making sure they're not trading forbidden securities on their own accounts.
Back office jobs in investment banks can be considered uninteresting and undesirable. There's a reason for this. It was a repetitive job with very slow career progression. The good news, however, is that as banks automate systems and look for ways of saving money, technology jobs in investment banks are far more important than they used to be.
The other thing to note is that it's not cool to talk about the front, middle and back office any more. Goldman Sachs, for example, has renamed all the functions in its middle and back office "The Federation. Get the latest career advice and insight from eFinancialCareers straight to your inbox. Please click the verification link in your email to activate your newsletter subscription. Click here to manage your subscriptions. On all levels, the efficiency of the information system is defined by its ability to process transactions automatically and in a secure manner: In other words, the transaction is processed with little or no manual intervention.
Risk is any event that could prevent an organization from achieving its objectives or maximizing performance. There is no financial or economic activity in general , without risk-taking. In the context of market activities, a distinction is made between the following categories of activities:.
Contrary to what intuition would suggest, the assets of the company banking or not are what is at risk. The realisation of the risk reduces the value of these assets or prevents the company from meeting its "value creation" objectives.
First, assess the risk, which includes assessing the potential loss generated by the realisation of the risk, and secondly something even more difficult estimating the probability of the risk occurring.
Assessment methods vary according to the type of risk studied. To be relevant, the calculation of risk exposure must be done at different levels of aggregation by portfolio, profit center, department, branch, etc. The risk assessment must be carried out initially in absolute terms, without taking into account any preventive or corrective measures applied.
It is very important to be able to assess the potential impact of the risk, as it will have to be weighed against the cost of future preventive or corrective measures. Cost-intensive measures to prevent low risk would not be rational.
Secondly, risk control consists of limiting exposure a priori by defining limits beyond which it is no longer possible to take a position without the authorization of a risk manager. This method is particularly used for credit risk control.
It aims to avoid risk taking beyond an acceptable limit. Hedging against risk consists of taking positions in financial instruments, often derivatives , the value of which varies inversely with the value of the assets exposed to risk.
Hedging is therefore effective when the risk is realised in order to reduce its effects; if the risk is not realised, the hedge will only have generated a cost. It is also possible to transfer the risk to a third party, either by subcontracting an activity or by taking out insurance.
Finally, the regulatory authorities , via the Basel agreements, require the institution to allocate a sufficient amount of equity capital to guarantee its solvency in the event the risks to which it is being exposed are being realised.