Significant reduction in compliance recruitment
|
Compliance |
Dec 2006 |
Jun 2007 |
Dec 2007 |
Jun 2008 |
Dec 2008 |
|
New vacancies |
85 |
119 |
107 |
99 |
67 |
|
Closing vacancies |
59 |
67 |
76 |
62 |
33 |
|
Candidates registering |
198 |
172 |
146 |
165 |
186 |
|
Defensive registrations |
10% |
13% |
26% |
32% |
41% |
|
Overall salary increase |
18% |
19% |
22% |
21% |
11% |
Whilst the effects of the credit crunch might have been slower to filter through to the compliance recruitment market, the ensuing recession and contraction in the financial services industry have now clearly shown up in our survey data.
The number of new vacancies registered for the whole of 2008 was 166. This is a material fall on the 226 vacancies registered in 2007. The number of vacancies fell on a quarter by quarter basis throughout 2008 and, although not clear from the data, there was, as in other areas of corporate governance, a significant fall in the number of new vacancies in the final quarter of 2008.
At the end of the year the number of vacancies stood at 33, less than half the number at December 2007. Whilst the market is not yet characterised by widespread recruitment freezes, companies have been managing their staffing requirements without resorting to the external recruitment market. Recruiting whilst announcing redundancies is insensitive and not appropriate if there are people internally who are capable of undertaking the role.
- Defensive registrations up to 41%
The number of candidates registering in the second half of 2008 peaked in October, following the banking collapses and mergers. However, although numbers were up on 2007, they were not as dramatic as might have been expected.
This is because defensive registrations, which reached 41% in the second half of 2008, drove the increase, whilst, not surprisingly, discretionary registrations were down. In uncertain times, people not in fear of redundancy prefer the perceived security of staying with their existing employer. Were it not for this, registrations would have been significantly higher.
- Average salary increase falls by half
Salary increases achieved by changing jobs fell to 11% in the second half of 2008. This was half that achieved in 2007. The market is now vacancy rather than candidate driven. However, the figure is an average and, whilst many people are accepting lower offers as a result of unemployment or insecurity, there are a number of sought after individuals in secure jobs who in the current recruitment market require a significant financial inducement to take the risk of changing employer. Overall, the increase in the number of candidates in the recruitment market and the fall in the number of vacancies is exercising downward pressure on salaries. Even the best candidates are becoming more realistic in their expectations.
Market commentary
The changes that have occurred in the compliance recruitment market during 2008 have been as profound as they were unexpected. In the 2008 Market Report, written twelve months ago, it was not possible to predict the scale of the damage that would be done to the global financial system and increasingly the real economy.
Nobody anticipated that financial institutions such as Bear Stearns and Lehman Brothers would no longer exist and many others including AIG, Citigroup and Royal Bank of Scotland would only exist because of state support. The scale of the losses, and it would certainly be an optimist who believed they are over, were staggering. Not surprisingly, as businesses have disappeared, merged and rationalized, the number of people employed in banking sector and the wider financial services industry is falling and will continue to do so. It is abundantly clear that the executive management of these institutions took risks that were incompatible with the interests of their shareholders. Corporate governance appears to have taken a pro management bias and the interests of shareholders and the wider economy relegated to those of short term incentives. The political and consequent regulatory response to these developments will no doubt be far reaching. Business will go on, but not as before.
In this context there have been two competing forces that have shaped the compliance recruitment market during 2008.
- The ongoing need for FSA regulated companies to comply with the wishes of the FSA or face sanction. Job security has been helped by warnings from the FSA to maintain staff numbers. The message has been that the recession should not be used to cut compliance staff. Compliance should be integral to the business regardless of market conditions. The FSA is enforcing penalties for non-compliance ensuring that effective and well staffed compliance teams remain essential.
- The financial services industry in the UK is contracting. Whatever the FSA might direct, if a company no longer exists or has withdrawn from a service line, they will not be employing compliance staff.
Financial services companies have found themselves between the rock of the FSA’s insistence on continued compliance with regulatory initiatives and the hard place of rapidly deteriorating economic conditions with the consequent squeeze on profitability.
The Madoff scandal has further highlighted the need for more robust regulation, particularly in the private investment pool / hedge fund sector. Regulation of hedge funds has to date been light touch, especially compared to other financial services and products. This will now change.
While the whole industry has been affected and recruitment has all but ceased in some areas, there are pockets of activity and the ongoing need to meet the FSA’s requirements and other regulations will underpin the compliance profession into 2009. To date, relatively few companies have made job cuts unless the business has ceased trading or a service or product line has been withdrawn.
Regulatory initiatives
Outside investment banking, in the first half of 2008 there was steady demand for compliance staff from asset and wealth management, the retail banking and insurance sectors. This demand was substantially driven by the regulator’s continued work on implementing the Markets in Financial Instruments Directive (MiFID), executing its continuing ARROW 2 assessment visits and the progression of other initiatives such as Treating Customers Fairly (TCF) and financial crime.
Hedge funds came under scrutiny at the beginning of 2008 as the FSA began checking the suitability of the sector’s systems and controls to prevent market abuse. Demand for compliance staff rose, in part due to these regulatory initiatives, but also reflecting the growth in the industry.
The FSA acknowledged in its 2008/9 Business Plan that financial crime risks remained high and exposure to money laundering and fraud continued to challenge the financial services industry. As such, the regulator intently pursued its three year financial crime plan, which commenced in 2007, to encourage the risk based implementation of suitable policies. The industry was responsive to this and there was a noticeable increase in the number of vacancies created to manage money laundering, fraud and financial crime. Companies became more conscious of the potential penalties that could be inflicted for non compliance with AML (and related) principles and risk based regulations, on top of the huge losses that could occur should they neglect to identify instances of financial crime.
TCF continued to have an impact on recruitment levels, particularly in retail financial services. The FSA’s deadline to have TCF procedures embedded within the business was December 2008 when companies were required to be “TCF ready”. Many compliance vacancies during 2008 required some responsibility for TCF initiatives. Companies sought candidates who could demonstrate skills in approving financial promotions and ensuring compliant sales and the suitability of advice to consumers, all in a bid to promote the delivery of a fair service to customers. The insurance sector proved more culpable in failing to meet the required standards and FSA pressure contributed to increased demand from the insurance sector.
Generally, compliance roles are more secure than many others in the financial services industry. Companies are required to be compliant with FSA and other regulations. It is encouraging that there are generally no blanket freezes on compliance recruitment. Roles essential to conduct business will continue to arise and as the FSA continues to focus on this area, it will remain a good market for those with experience in fraud risk and financial crime compliance.
In the final quarter of 2008, demand continued in the investment management sector for compliance professionals with experience of investment compliance monitoring, knowledge of portfolio monitoring, managing investment restrictions and pre and post trade surveillance (probably as a result of the MiFID implementation). In wealth management and private banking, monitoring skills were in demand, reflecting the FSA’s requirement for companies to use a risk based approach to identifying and managing compliance risks. Candidates with experience of audit methodology and compliance / FSA regulations were highly sought after but difficult to find.
Rationalisation
Although there was and is a continued need for banks and financial services companies to comply with FSA initiatives, the financial position of many deteriorated during 2008. As the year progressed and business volumes dropped, maintaining existing staffing levels, despite warnings from the regulator, became more problematic. Whilst regulatory initiatives helped buoy demand during the earlier part of the year, for some companies, efficiency drives and cost cuts became more commonplace and compliance staff found themselves at risk of losing their job. For the first time in six years compliance professionals had greatly reduced bargaining power in the recruitment market. Competition for the existing vacancies is high and many companies, even those in reasonably secure sectors, have reassessed their recruitment needs.
However, amongst the gloom, Liquidity Reporting should result in increased recruitment activity in the second half of 2009. The FSA has outlined their plans to implement a new regime, the aim of which is to supervise the potential breach of key liquidity benchmarks. The list of these is extensive, but the most common are likely to include breaches of individual liquidity guidance and metrics and a loss of retail / wholesale funding. This will produce a new compliance monitoring skill set and potentially see strong overlaps within finance and market risk.
Analysis by sector
Investment Banking
The demise of the investment banks during 2008 was clear for all to see. It resulted in both significant redundancies and a major decline in demand for compliance staff as the remaining banks froze external recruitment. The flood of investment banking compliance candidates entering the recruitment market was unique. During 2008, the number of investment banking candidates registering for defensive reasons, at 42%, was at a record high. In the first half of the year, demand from the asset and hedge fund management industry was able to absorb some of those who were made redundant. However, as demand declined and the number of redundancies increased, unemployment rose.
Those investment banks with vacancies have benefited from an excellent range of candidates. With the competition to secure a position high, they have sought the perfect candidate. Candidates have been required to become more flexible, particularly on their salary expectations and have shown a willingness to meet as many companies for interview as possible. For candidates, perceived job security has become far more influential in the recruitment process than in previous years.
Whereas investment banks have recently sought specific experience such as derivatives, structured finance or commodities, in 2008 they sought general experience. Development into new and “riskier” products has plunged and the smaller banks that have had vacancies require more generalist compliance staff able to cover a range of duties. Boutiques have continued to recruit with demand for compliance staff mainly at middle manager level.
Employment prospects in investment banking are likely to be subdued for at least the next twelve months. A better strategy for many may be to secure roles in other industry sectors such as retail banking or asset management.
Asset / Wealth Management
Demand in asset management for compliance staff was generally subdued but stable at the start of 2008. The exception was the hedge funds. This in part reflected the FSA’s focus on checking Market Abuse systems and controls together with a more general requirement to strengthen compliance functions. Other demand came from traditional asset managers who were evolving their business towards more innovative and alternative investment products. Demand fell in the second half of 2008 with demand from hedge funds seemingly grinding to a halt and other asset managers becoming more cautious. Frequently, recruitment was put on hold until 2009.
There was demand throughout the year from the wealth management sector for experienced compliance monitoring and advisory staff. Unfortunately there were few suitable candidates with the requisite private banking compliance experience in either monitoring or policy / advisory at the £40-65,000 level most commonly sought. Many potential candidates were in what they already perceived as secure positions and saw no reason to prejudice this.
Those vacancies that emerged in investment management were concentrated in the £50-£80,000 range. Both junior and senior Heads of Compliance vacancies were particularly scarce in the second half of the year. The vacancies were invariably business critical roles where experience was required to add value immediately with little or no training. In spite of the immediate availability of a number of Heads of Compliance, budget constraints made their appointment less viable.
The demand for AML / Financial Crime staff continued throughout the year and the wealth management industry has been active in seeking to hire strong AML skills into their compliance teams. Knowledge of sanctions, managing financial intelligence and fraud risks were key elements in these roles.
At the end of 2008 there were more candidates entering the recruitment market and fewer vacancies. Hedge funds and smaller asset managers were still shedding staff. Whilst larger groups were maintaining staffing levels, few were actively recruiting.
Those that are now recruiting are looking for a close match with the skills and experience they require. They are taking time to fully assess candidates and with higher levels of authority required to authorise recruitment, vacancies are taking longer to fill. We expect this to continue into 2009.
Retail Banking & Financial Services
Vacancies fell in retail banking and financial services throughout 2008. Not surprisingly, the worst hit area was the mortgage providers. By the second half of 2008, there were effectively no vacancies and a significant number of redundancies. Over 60% of the candidates registering were either redundant or feared redundancy. Retail banking fared rather better with fewer redundancies and a limited number of vacancies. Recruitment freezes and proposed restructuring as a result of mergers were a widespread cause for concern.
For compliance professionals seeking a new role in the retail sector, the market has become highly competitive. During 2008, there was an almost 50% drop in the number of retail financial services companies recruiting compared to 2007. Whilst clients have more control of the recruitment process and stronger bargaining power when hiring, candidates are responding by becoming more flexible on their salary expectations.
The retail banking sector has continued to invest in financial crime and money laundering prevention. Many larger banks realised the importance of protecting their brand and services, resulting in vacancies for candidates with financial crime, AML, sanctions and counter terrorist financing experience. There was also a marked increase in AML and financial crime requirements for smaller retail financial services companies.
The best performing area throughout 2008 was insurance. There were only limited redundancies and whilst recruitment levels were down on 2007, demand was steady. Vacancies were usually around the mid tier level. There was minimal senior management recruitment and even less junior recruitment. Low level responsibilities as they become available are being shared amongst existing team members.
Unfortunately, there were fewer insurance candidates in the recruitment market during 2008 with many opting for the security of their existing employer. As a consequence, insurance vacancies were more difficult to fill and many insurance companies resorted to recruiting otherwise well qualified compliance managers without insurance industry experience. This has been in stark contrast to other sectors.
Whilst we expect the insurance sector to maintain recruitment into 2009, at least for business critical hires, there is unlikely to be much change in other areas. The mortgage sector is unlikely to improve and further redundancies are likely. The retail banks will keep recruitment to a minimum until the current mergers and instability settle and confidence returns. Any improvement is unlikely until the latter half of 2009 at the earliest.
Interim staff
2008 started positively, with strong demand for contractors with AML and KYC experience. Data protection experience was also in demand early in the year. Whilst data security has historically been more of an IT focused issue, the release of the FSA’s Data Protection Policy drove demand for compliance candidates who could fully comprehend the ramifications of poor data protection practices within financial services. Against this, the implementation of MiFID in quarter four of 2007 released a number of contractors as companies handed the responsibility of fully imbedding the directive to their business units. Further TCF, the key initiative for 2008, although appearing in a number of job specifications, did not generate as many additional contract roles as expected.
As 2008 progressed, the number of redundant contractors grew and the number of vacancies fell. Many companies would only retain or recruit contractors for business critical roles. Many otherwise discretionary projects were shelved or curtailed. As companies have announced redundancies, internal candidates have been preferred. Rates have reduced and contracts have become shorter and deadlines more tightly adhered to. The interim market is becoming even more competitive as redundant compliance staff swell the ranks of potential contractors.
The outlook for 2009 may be more positive, in light of the FSA’s recent statement announcing that regulatory control is going to be tightened. As an increasing number of companies freeze permanent recruitment, it is likely that the contract market will be a way of sourcing the necessary expertise. Contractors accustomed to working in a project-led capacity will be in demand together with those who can demonstrate the ability to add value from the outset. The competition for contract roles will remain high. In a market where there will be more candidates than vacancies, contract rate expectations will need to remain as realistic and flexible as necessary.
Summary / predictions
In last year’s report we predicted that the outcome for 2008 would be finely balanced. Maybe the damage to the financial system caused by the credit crunch would be contained. If not then it had a danger of feeding back into the financial services industry in the form of lower demand for the industry’s services. We predicted that the prospects for compliance managers would be more closely tied to developments in the wider economy than many might otherwise like to believe.
Unfortunately, the damage has crossed into the wider economy and is creating far more damage than even the most pessimistic of predictions. It is clearly not simply a local UK problem but is affecting the global economy, making any solutions more difficult.
The total number of people employed in the UK financial services industry will fall during 2009. Some businesses that currently exist will not exist at the end of 2009. Within this context there is little doubt that the number of compliance managers employed in the economy will also fall. A rise in unemployment of 1 million is not going to leave the compliance managers unaffected.
However, on a more positive note, financial services is a core industry that demonstrably cannot be allowed to fail. Compliance is a vital part of the industry and this will be further endorsed by whatever regulation is introduced by the FSA, the Basel Committee, the UK government and EU. The efforts of the SEC to regulate hedge funds following Madoff is also likely to impact the UK.
The compliance costs of being a financial services provider are set to rise and should help underpin employment in compliance. However, any increase in demand for compliance professionals will be more than tempered by further rationalisation within the industry. In 2009, it is going to be a tough recruitment market, but there will be a market. |
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