In the shadows

In a bank or an insurer, the jobs we talk about least are sometimes the ones that prevent disaster.

They sell nothing and earn nothing directly. Their work is to prevent losses. Here are four of these jobs.

First, compliance. It checks that the firm follows the law: money laundering, sanctions, client protection.

Its job is often to say no. No to this doubtful client, no to this transfer, no to this poorly explained product.

That no costs business in the short term. But forgetting it costs far more. In twenty fourteen, a big French bank learned this.

For deals with countries under American sanctions, it agreed to pay eight point nine billion dollars.

Second job: risk management. It models what hasn't happened yet, to know how much could be lost.

A common tool is called value at risk. For example, a portfolio of one million euros, with thirty thousand euros of value at risk.

It means: ninety-nine days out of a hundred, the day's loss stays under thirty thousand euros.

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The twist: the tool says nothing about the hundredth day. That day, the loss can be much bigger. And it comes back two or three times a year.

Models rest on the past. An unprecedented crisis often catches them off guard. A good risk manager knows it, and says it.

Third job: the actuary. A mathematician of insurance. They put a price on a probability.

For example, a house has one chance in a thousand of burning each year. A fire would cost two hundred thousand euros.

Two hundred thousand divided by one thousand: two hundred euros. That is the pure premium, the average cost of the risk per year.

The insurer adds its costs and its margin. But without this calculation, it would go bankrupt in the first hard winter.

The actuary also calculates pensions, annuities, life expectancy. A mistake of a few months, multiplied by millions of contracts, costs a lot.

Fourth job: audit. The auditor checks a company's accounts and certifies that they are fair.

Investors rely on this signature. But audit works by sampling. It doesn't look at every transaction.

And sometimes, it sees nothing. In twenty twenty, the German company Wirecard admitted that one point nine billion euros could not be found.

Its accounts had been certified for years. Almost twenty years earlier, Enron's collapse had already taken its auditor down.

Compliance, risk, actuarial work, audit. When they do their job well, nothing happens. And nobody thanks them.

For you, a simple lesson: a signature, a model, a label reduce risk. They never remove it.

Behind every financial product, there are people paid to doubt. And that is very good news.