In a world first, by the end of this year South African banks will have access to a pool of actuaries trained and qualified in managing risks unique to the banking industry.
The Actuarial Society of South Africa formally introduced the new Banking Fellowship subject to an audience of actuaries and local and international high-powered banking personalities at the Society’s 2015 Banking Seminar in Johannesburg.
Michael Tichareva, chairperson of the Society’s Banking and Finance Committee, told delegates that the introduction of the Banking Fellowship subject marked a new era for risk management in banking around the world.
According to Tichareva, involving actuaries in banking was a relatively new trend sparked mainly by regulatory reform initiatives. These include the introduction of the Basel II and III banking regulations and recent changes in international accounting rules that now require a forward looking approach to credit loss provisioning.
He explained that the roles played by actuaries in banking therefore typically relate to management of risks such as credit risk, market risk, liquidity risk, operational risk and other business risks in addition to capital and balance sheet management.
“Given actuaries’ quantitative abilities and understanding of the financial world, they are able to play a key role in each of these areas,” said Tichareva.
Since banking has not been recognised as an actuarial practice area until recently, actuaries have entered the world of banking equipped only with the skills needed for traditional fields such as long-term insurance, general insurance, healthcare, employee benefits and investments.
“In a historic world first we have changed this by introducing Banking as a sixth Fellowship subject,” said Tichareva.
The first group of South African actuaries will write the Banking Fellowship examination in October this year.
Tichareva pointed out that banking bailouts in recent years have cost taxpayers around the world trillions, highlighting the need for much improved risk management at banks. South Africa learnt that its own banking system was not infallible when in August last year the South African Reserve Bank (SARB) had to step in to rescue African Bank.
“A sound banking system is one of the cornerstones of a stable economy and a country’s financial markets,” said Tichareva. “Since risk management is a key component of an actuary’s skills set, banks have increasingly been looking towards the actuarial profession to provide the resources needed to accurately assess risk in banking and finance and implement the necessary controls.”
The Society’s Banking Fellowship subject therefore places a strong focus on the management of banking specific risks such as credit risk, market and interest rate risk, liquidity risk and operational risk. Balance sheet and capital management as well as corporate governance and strategy setting in the banking environment are other key focus areas of the subject.
Tichareva said since South Africa is currently the only country where actuaries can specialise in banking, the Society has initiated discussions with actuarial associations in other countries to make the Banking subject available for their Fellowship qualifications and potentially as a certificate course. South African actuaries who qualified as Fellows before the Banking subject was introduced would also benefit from such a certificate course.
According to Tichareva, the Banking subject also complemented the Chartered Enterprise Risk Actuary (CERA) qualification introduced by the Society in 2011. Actuaries with this internationally recognised qualification had sought after skills enabling them to devise and implement effective risk management strategies across organisations.
Currently only a handful of actuarial organisations around the world are authorised to award the CERA credential. The Actuarial Society was one of the first to introduce the qualification.
Michael TicharevaChairperson: Banking and Finance Committee Actuarial Society of South Africa