How AI is changing jobs in financial risk management
Risk staff sit firmly in the middle office. That's a bad place to be right now; as financial services firms squeeze pay and cut costs with AI, risk staff are in the crosshairs.
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Enterprise risk staff and those working on regulatory reporting are most susceptible. An investor letter from Goldman Sachs earlier this year said that it had found "six workstreams that we have identified as ripe for disruption," five of which directly involve risk staff. Enterprise risk management, know-your-customer (KYC), regulatory reporting, vendor management and lending each have risk and control teams in most banks. Goldman said that one of the goals of this "disruption" is "bolstering risk management," which would suggest that roles won't be entirely eliminated, but those functions are unlikely to grow.
When Standard Chartered announced plans to cut 8,000 jobs in May, CEO Bill Winters famously said that the bank wanted to replace "lower-value human capital;" risk was highlighted alongside compliance and human resources as areas that would be affected by the cuts. Other banks like HSBC are also starting multi-year transformation plans involving the reduction of tens of thousands of jobs in the name of AI. Citi, meanwhile, made smaller, more targeted cuts to its risk, operations and audit teams as it nears the completion of its multi-year data remediation program.
What parts of the job are being automated? Much of a risk manager's job is to take complex information, filings and documents then distill that into an easily digestible format for management staff. AI tools do a lot of the leg-work here; the major banks have spent the last few years rolling out AI chatbots for staff which can read and analyze proprietary data and documents that they don't want being touched by commercial LLMs. JPMorgan's AI bot has over 150,000 weekly users; no doubt some of those work in risk.
The safest jobs in risk seem to be quantitative risk managers working in markets teams or hedge funds. These are roles that must be separate from the trading desk by design, so their roles cannot be swallowed by traders or desk quants. Petter Kolm, an ex-Goldman Sachs strat currently teaching at NYU Courant, said that he "would expect quant risk professionals to become more closely connected to both engineering and broader risk management." Roles might bifurcate, with some quant risk professionals working on engineering the systems that power their risk models, while other quants might take on the duties of enterprise risk staff deemed to be 'low-value human capital.' Junior roles are often susceptible to automation, but Kolm said junior risk jobs with the highest prospects include "counterparty-risk quants, junior model-risk analysts who need to challenge model assumptions, and quantitative risk analysts interpreting stress results rather than just producing reports."
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