Chief risk officers rise in tandem with regulation

The increasing importance of managing risk by financial institutions in the wake of the crisis has been underscored by research showing that chief risk officers are paid as much as £2m as they oversee a small army of as many as 20,000 people.

Demand for CROs among the top banks, insurers and asset managers in London has surged to such an extent that they can demand as much compensation as chief financial officers, the research shows after polling 30 current and former CROs at global financial institutions with operations in the UK.

"This elevated status is clearest in banks, where for the first time the CRO is typically regarded as one of the 'big three' executive positions, alongside the CEO and CFO," said Hedley May, the executive-search firm that gleaned the information. "Yet even in the asset managers and insurers the role is growing in stature, driven by the impetus of a more rigorous regulatory environment."

Trying to prevent a repetition of the worst financial crisis in a generation has focused firms' minds on risk and compliance. A 2009 report by Sir David Walker, Barclays' current chairman, who was at the time a senior adviser to Morgan Stanley on bank governance, emphasised the need for boards to focus on risk.

This has meant CROs now report directly to banks' chief executives. At two - HSBC and the Lloyds Banking Group, in which the UK taxpayer still retains a stake - the CRO even has a place on the board, the research shows.

The very best CROs are "polymaths" who spend 15 per cent of their time thinking about the big picture rather than the implementation of specific regulations, according to Hedley May. This, on an average annual salary of £1m, equates to an individual being paid £150,000 for thinking time.

The particular mix of skills needed for the new generation - the average age of current CROs, whose formative years included the recession of the early 1990s as well as the most recent crisis, is now 50 - and fierce external competition mean succession planning is difficult for financial institutions, which must grapple with new issues such as cyber security.

"An enquiring mind and interest in the wider world is critical for a CRO," the UK's Prudential Regulation Authority said in the report. "The mindset is just as important as the skillset when identifying succession talent for the role of CRO. Risk disciplines can be taught, whereas it is hard to train creativity and a broad mindset."

The rise in status of the CRO has a knock-on effect on the non-executive who heads the risk committee on a board, who is meant to be a check on decisions made by the CRO. Recruiting such an individual is an increasing challenge, said Hedley May.

This comes as the PRA and other regulators place increasing focus on the most senior executives and non-executives in an effort to improve culture from the top of banks and insurers following a string of City scandals.

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