While regulatory burdens will lead to the continued increase of overall spending on compliance staff in banking in 2018, the days of every big firm chasing compliance professionals seem to be over. Hiring will increase as well, but so will the selective pruning of staff at large banks – a somewhat new phenomenon.
Around 61% of financial firms expect to increase their compliance budget in 2018, according to a new report from Thomson Reuters, based on interviews with over 800 senior compliance practitioners worldwide. But only 49% of global systemically important financial institutions – all the big banks – plan to do the same. Interestingly, a higher percentage of big banks plan to grow the size of their compliance staff compared to smaller financial firms (46% vs 43%), but the difference is explained by the fact that a surprising 11% of systemically important financial institutions also intend to reduce the size of their compliance teams, compared to just 5% at smaller firms.
Thomson Reuters was quick to point out that large banks typically act as a barometer for future compliance trends, so we could also see smaller firms cutting staff as the regulatory landscape becomes less muddled in certain locations. Banks in the U.S. and the U.K. in particular are taking their foot off the pedal a bit, at least when compared to rivals across the globe.
Just 29% of U.K. firms expect to grow their compliance teams in the year ahead, well below the global average of 43%. That said, nearly three-quarters of U.K. companies expect to increase spending on senior compliance officers in 2018. While the authors don’t make any mention of Brexit, it would be hard to fathom that it isn’t playing a role. Less hiring, but more complexity, more overall spending and better pay for the senior staff who survive.
Meanwhile, just 54% of U.S. firms plan to increase their budget for senior compliance staffers, with only 4% planning a significant increase, well below the totals for all other regions. As an example, nearly eight out of 10 Asian firms (78%) plan to increase spending on senior compliance officers, with 20% anticipating a significant bump. The Trump administration’s plan to further strip down financial regulations should only further this trend. U.S. compliance officers could soon have fewer headaches and shorter days, yet the overall demand for their skills would surely wane a bit.
Overall, the report paints a sunny picture for compliance officers. But the sector isn’t nearly as hot as it was in 2013, when experienced staffers were practically naming their own salary and title following a litany of big scandals and new regulations. If you work in compliance, central Europe and Asia are where you likely want to be.
The other big downside: Personal accountability
The other big downer about working in compliance now is the overall effort by banks to increase the accountability of senior staffers, making them more liable for oversights that happen on their watch. The push isn’t specific to compliance – banks want to put more pressure on senior managers in every division to help eliminate misconduct – but compliance officers seem particularly worried about the buck stopping at their feet. Roughly 18% of respondents to Thomson Reuters' survey said they expect their personal liability to increase significantly over the next 12 months, up from 11% last year.
The response is likely due to the expected implementation of mandates similar to the U.K.’s Senior Manager and Certification Regime, which requires some senior managers at banks to be pre-approved by regulators while attaching personal responsibility for the actions of their reports. The Financial Stability Board (FSB) also published a new proposal in April aimed at eliminating “rolling bad apples” within banks. The FSB wants banks to conduct additional background checks on current employees when they’re promoted and even if they make a lateral move within the firm. They're also proposing that banks conduct separate interviews with HR that concentrate solely on a candidate’s “behavioral competency” in an effort to identify potential red flags. Surely those would be fun conversations.
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