Compliance - 2017 Salary Guide and Market Report
Welcome to Barclay Simpson’s 2017 Risk Management Market Report - Barclay Simpson has been producing corporate governance market reports since 1990. They produce two reports each year. This one, summarizing and analysing recruitment trends in the risk recruitment market, is supplemented by an employer survey.
Brexit, so far so good?
Our market report in July was released immediately after the vote to leave the EU. At the time, possibly rashly, we predicted that by the time our 2017 report became available, the consequences of that decision would be better known. Unfortunately, six months later, what might practically be achieved in exit negotiations is not clear.
This report focuses on employment. Whilst the anticipated Brexit inspired recession has not occurred, the UK is about to start negotiations to leave the EU, an action that even those who support Brexit recognise will do short term damage to the economy. Given this, from our perspective as recruitment consultants, the key to a successful Brexit will be to avoid any serious self-inflicted economic damage.
What is the main threat to jobs?
Nobody should doubt, particularly those looking to negotiate Brexit on behalf of the UK, the value of the financial services industry to the UK. The largest fifty financial services groups contributed over £70billion in taxes in 2016 and the industry as a whole exported £20 billion of services to the EU. However, whilst much is made of other European cities preparing to purloin business away from the City, it is hardly a risk-free option given that London has a critical mass, talent pool and infrastructure that is to be found nowhere, other than in New York. A move towards deregulation and lower costs in New York is possibly a bigger threat to London than either Paris or Frankfurt. Clearly it will be some time before the consequences of Brexit are known. What we do know is that it has the potential to cost jobs not only in the City, but also in support functions around the UK.
In the meantime, the financial services industry in the UK is undergoing a period of technological disruption. It is possible that the number of people working in the industry is more likely to fall, not as a result of Brexit, but as the industry recognises the opportunities created by technology and the looming threat to the existing establishment from Fintech and a whole myriad of innovative start up financial services companies. London has the expertise, entrepreneurial attitudes, collaborative institutions, savvy investors and even regulators committed to competition and innovation, which all help contribute to a unique ecosystem. For compliance professionals, this revolution is creating significant opportunities.
Positive response to survey
Given Brexit, more uncertain times and the disruption taking place, the responses to our survey make more positive reading than we might have anticipated six months ago. Recruitment budgets have not collapsed, compliance departments report they are as under-resourced as ever and a surprisingly high number recruited in the last six months of 2016. Their recruitment plans for 2017 remain broadly positive. Compliance departments even report they are finding it easier to recruit.
Headwinds in 2017
Economic growth and particularly employment have been far stronger post Brexit than all but a few predicted. However, it is likely the economy will be facing some steady headwinds in 2017. Rising inflation could also have some interesting consequences for salaries in compliance.
Final quarter increase in the number of vacancies
Six months ago, the anticipated recovery in demand that a vote to stay in the EU was supposed to create, did not materialise. The immediate uncertainty caused by Brexit resulted in a hiatus where the value option of doing nothing was taken by both candidates and clients. Fortunately, with economic Armageddon avoided, the compliance recruitment market recovered and in the final quarter of 2016 benefited from a period of catch up as recruitment freezes were lifted and otherwise postponed recruitment was initiated. Despite this, the overall number of vacancies generated was lower than in the comparable period in 2015.
The most striking trend, not only in compliance recruitment, but also in the wider corporate governance recruitment market, has been the displacement of demand away from top tier investment and retail banks to the wider financial services industry. Many of these banks continue to rationalise as they shrink their costs. The regulatory environment that developed in response to the financial crisis and the cost it imposes, has in part led to structural changes in the industry and the emergence of new providers in almost all sectors. These range from Fintech companies that offer personal loans, mortgages, payments and remittances, across commercial lending, foreign exchange, asset based finance, digital banks and more. To the benefit of those who make their living out of compliance, this whole myriad of start-ups, in various stages of their evolution, will potentially require their expertise.
A further source of demand is from the insurance and particularly the asset management sectors as they come under greater regulatory scrutiny. They are now more likely to drive demand than the once all dominant banking sector.
One current trend is the proportionately higher number of junior vacancies being generated by bigger, more established banks and financial services groups. Whilst cost is a driver, so is the changing relationship between compliance and other areas of corporate governance. This reflects a desire to promote internally and backfill the resulting junior vacancies.
Rate of placements
Compliance candidates becoming more available
To provide a better insight into the dynamics of the recruitment market, this graph plots the rate at which placements have been made across the last four years. It reflects the rate at which candidates are accepting offers of employment.
We reported in 2016 that the rate of placements had slowed, as recruiters became more cautious. This was evidenced by interminable recruitment processes and was not helped by a higher proportion of more junior vacancies where there are invariably fewer potential candidates. Whilst still slow by recent standards, the rate of placements has increased. In-demand compliance professionals with highly specific skills remain scarce. However, compliance professionals, as our survey confirmed, are more generally available; and they are also taking a realistic attitude to what they can potentially achieve in the recruitment market.
The rate of placements is also currently being helped by a higher proportion of those companies with vacancies actively looking to fill them. The explanation is to be found in the shift in demand away from well-established banks and into smaller, often more outwardly entrepreneurial groups. If a bank already employs a hundred compliance professionals, they can simply delay recruiting. Smaller, often rapidly growing groups, go to the recruitment market because they need to recruit. This is reflected in their recruitment processes which are usually streamlined and effective. They are also more likely to be seeking generalists to join a small team. Both the broader nature of the role and benefits package can potentially be moulded around the preferred recruit.
These companies are more likely to treat potential recruits and even their recruitment representatives as prospective customers, which in part is reflected in their higher offer acceptance rates. Many established, larger financial services groups simply fail to communicate effectively between the ultimate decision maker and the candidate they might otherwise wish to recruit. Recruitment consultants are often excluded from a process they could facilitate and add value to, whilst smaller entrepreneurial groups benefit from rarely having such inhibitions.
Conclusions from employer survey
The compliance recruitment market remains buoyant. It is encouraging that the number of compliance departments reporting they are finding it easier to recruit increased during the course of 2016. Whilst recruitment budgets are marginally more likely to have decreased, more departments are reporting they are adequately resourced. 72% reported they recruited in the final six months of 2016 and, going forwards, recruitment intentions remain broadly consistent with last year.
Departmental resources improving but still under pressure
- Only 44% of compliance departments believe they are "sufficiently resourced for the demands that are made on it" (up from 32% in 2015)
Recruitment budgets still under pressure
- 37% of departments report that their recruitment budget has increased, down from 42% in 2015
- 16% report a decrease (up from 9% in 2015)
- Increases remain more likely in asset management and insurance than banking where decreases are rising
Marginal slowdown in recruitment activity
- 72% of compliance departments have recruited or attempted to recruit in the last 6 months, down from 77% in 2015 and 86% in 2014
- Asset management groups are most likely to have recruited
Recruitment becoming less of a challenge
- 59% of departments report they are finding it difficult to recruit (down from 79% in 2015)
- 42% of departments report good candidates are hard to find (75% in 2015)
Salary expectations becoming more reasonable
- 18% consider salary expectations to be reasonable (14% in 2015)
- 82% of departments (86% in 2015) report candidate salary expectations to be either excessive or more than expected
Use of external resources has moderated
- 13% of departments report they routinely use external resources (down from 18% in 2015)
- 52% will use external resources for specialist skills, the same as 2015
Compliance departments becoming more likely to recruit internally
- 17% (13% in 2015) of compliance departments used internal recruitment as their principal source of recruitment
- At 47%, external preferred suppliers remain the principal source
Business growth to be main recruitment driver in 2017
- 36% of compliance departments report business growth will be their key driver
- Closely followed by replacement recruitment at 35%
Demand set to continue in 2017
- Only 13% (12% in 2015) of departments report they are unlikely to recruit in 2017
Evidence that Brexit could impact the compliance recruitment market in 2017
- 35% of risk departments report Brexit is influencing the work they undertake
- 27% of departments report they are likely to require additional resource as a result of Brexit in 2017
Our survey reveals a more buoyant recruitment market than we anticipated six months ago. We wrote then, possibly more in hope than expectation, that the compliance recruitment market would learn to live with Brexit. It would appear to have done so. 72% of departments reported they recruited in the final six months of 2016. Whilst recruitment budgets are under pressure, more compliance departments are reporting they are sufficiently resourced and a much lower 59% say they are finding it difficult to recruit. Going forwards, recruitment intentions remain broadly consistent with 2016.
A rapidly evolving industry
The financial services industry in the UK is undergoing a period of rapid evolution. The regulatory environment that developed in response to the financial crisis: the capital constraints and a period of sustained low interest rates, together with advances in technology, has led to structural changes in the industry and the emergence of new providers in almost all sectors. There is also the emergence and rapid growth of challenger banks and new mortgage providers, some of which have expanded their retail presence, while others have a model of lending through a network of intermediaries.
The impact of this is becoming apparent in the compliance recruitment market. It is displacing some of the demand away from the traditional providers of financial services and into the alternative finance sector.
It is no longer every compliance professional’s dream to work in a prestigious bank. Alternative providers offer advantages these banks cannot. For example, access to the CEO, senior management and decision makers, the avoidance of constant reporting, a wider range of work and, perhaps most importantly, a feeling of ownership. These alternative providers represent the epitome of 21st century living. The sometimes stifling levels of management and corporate culture are replaced with casual dress and nimble decision making. For some compliance professionals, this environment is potentially highly attractive. For others, established banks will always retain their cachet.
Clearly these types of seismic changes are seen as an opportunity to some and a threat to others. As recruitment consultants, it is refreshing to be involved in a dynamic and rapidly evolving market and one where we are able to add real value.
Here are some of the regulatory initiatives currently impacting the recruitment market.
Structural Reform (also referred to as Ring Fencing)
Banks with more than £25 billion of deposits are required to hive off their consumer-facing business from riskier investment banking activities by 2019. Ring fencing is contributing to the reshaping of banking as major banks carve out business entities to comply with regulatory pressure while attempting to ensure efficiencies on a macro scale.
Asset Management Market Study
The FCA published its Asset Management Market Study in November having spent a large part of 2016 considering the issues affecting the industry. It outlined the concerns that it would look to the industry to address and, in response, asset managers have been expanding their compliance capabilities.
MiFID II implementation has been delayed until January 2018. Contractors are in high demand to ensure readiness and, whilst the implications are wide-ranging, the immediate impact has been a surge in transaction and trade reporting roles.
MAR came into force in July replacing the existing ‘Market Abuse Directive’. The steady rise in the number of investigations and surveillance roles is continuing and candidates with experience gained outside of traditional financial services are in demand.
The Fourth Money Laundering Directive
The Fourth Money Laundering Directive needs to be implemented in 2017 and the industry is continuing to recruit heavily in AML, Sanctions & ABC.
The political determination that there must not be a re-run of the financial crisis has put the cost of regulation ahead of the need for the industry to be competitive. The emergence of alternative providers is part of the response. However, the regulatory high water mark may have been reached. Whilst some in the City consider Brexit and the transfer of a material part of the industry to the Eurozone a threat, a less published threat to those who make their living out of corporate governance is the potential for deregulation in the United States. That could potentially make New York a more attractive option for the type of high value jobs London excels at. Whilst no doubt all part of the Brexit calculation, the copper-bottomed nature of the industry’s regulation and the jobs that go with them could potentially be at stake.
Although early in the process, our survey asked compliance departments if Brexit was already influencing the work they undertook, or was likely to impact on the resources their departments required. 27% of compliance departments reported they will need additional compliance resources in 2017, higher than any other area of corporate governance. Contingency planning is taking place, should there be a worst-case scenario and the UK has neither special access to the Single Market nor has bilateral agreements in place.
Passporting has helped underpin the growth of London as Europe’s financial centre and helped financial services become our biggest export market. It is impossible to predict either the outcome of Brexit negotiations or the real-world implications for the financial services industry. It could, for example, ultimately result in a leaner, less regulated but far more dynamic industry. However, unless Brexit resulted in a wholesale haemorrhaging of the industry and a collapse in confidence, change is likely to result in opportunities for compliance professionals.
Brexit may also bring into focus the reliance UK compliance departments place on European recruits. Notwithstanding their much-needed expertise, the language skills they bring to the UK are not commonly held by compliance professionals.
Soft and broader skillsets
Compliance professionals looking to secure offers of employment increasingly need to demonstrate that senior management will buy into them. Whilst regulatory fines imposed have fallen to their lowest level since the financial crisis, the fall also reflects a shift towards punishing individuals. 14 of the 23 fines in 2016 were handed to individuals. Regulatory bite is also not simply about fines, but the powers of the FCA to investigate and debar people.
Given this, as regulatory pressures increase on operational management, the ability to deliver potentially controversial messages in a constructive manner has become increasingly valuable. We suggest that compliance professionals looking to enter the recruitment market build their internal network and be able to demonstrate their ability to deliver such messages and their impact. In the current recruitment market, there is a growing demand for broader skill sets that can be transferred across a number of areas. Compliance candidates who have both soft skills and broad technical skills, plus a settled CV, is a combination that businesses will buy into.
Prospective employers are also becoming warier of recruits they believe will not stay. Some compliance professionals have been promiscuous in their use of the recruitment market, moving regularly simply to increase their salary. Our advice in 2017 is to be aware that prospective employers are becoming far less likely to accept potential recruits with multiple job moves.
As our survey indicated, compliance departments are becoming increasingly likely to recruit internally. This is not surprising given the cost constraints that much of the industry and particularly the big banks are operating under.
Notwithstanding the desire to control their costs, in-house recruitment markets within the financial services industry are expanding and, in many instances, reducing the need to recruit externally through agencies.
The increase in direct recruitment and the use of Recruitment Process Outsourcers has also progressively impacted the recruitment market. Roles that previously would have been worked on and filled by external specialists are now being recruited directly by in-house recruitment departments.
There is increasing movement between the 2nd and 3rd lines of defence and between risk and compliance. The financial services industry is under regulatory pressure to demonstrate "cultural change". Evidence is required to show all areas are being effectively monitored and those with experience across risk, audit and compliance (or a combination of two) are in the enviable position of being in high demand.
Framework building skills gained in audit or risk are also hugely valuable to compliance monitoring teams. This is resulting in those with sometimes limited regulatory experience being offered monitoring roles purely because of their transferable skills. Conversely, those with strong regulatory knowledge who are looking to expand their skill set are welcome in many internal audit departments. Lawyers are regularly being employed to work on policy and regulatory development roles due to their ability to interpret legislation.
A further example is that the use of analytics tools, especially in relation to financial crime data, is growing. Monitoring tools are creating vast amounts of data requiring data analysis skills which is opening up opportunities for people with no regulatory knowledge and often no financial services experience. We expect this to grow significantly during 2017.
Regulatory compliance versus financial crime
Outside of smaller financial services groups, the accepted wisdom is now that these two areas are distinct enough to warrant their own departments.
Pure financial crime roles (covering AML, Sanctions, ABC, KYC etc.) tend to be generated by the larger banks. This is a growth area with clear evidence that the number of vacancies has been increasing from 2015. Separate reporting lines, and in many cases separate recruitment teams, are now responsible for financial crime and movement between the two areas is reducing.
The banking and credit recruitment markets have slowed due to the decrease in recruitment from the larger banks. Having been entirely candidate led, this sector is becoming increasingly vacancy focused. As banks rationalise and concentrate their efforts, costs are being cut; including associated regulatory costs. Given the huge weight of banking compliance vacancies that has characterised the compliance recruitment market in the past, any significant decrease in vacancies has a disproportionate effect on overall demand. As a consequence, Fintech and challenger banks importance to the sector grew significantly in the second half of 2016. A number of larger banks are looking to recruit regionally but, given the difficulties this involves, are having to be flexible.
As we have already observed, the FCA took a keen interest in the investment sector in 2016 and this looks set to continue in 2017. On the retail side, there are concerns around fees and the complexity of products sold to customers. Compliance departments with one sole compliance professional have become departments of two or three, and larger companies have further increased their compliance resources. Within the sector, hedge funds and private equity offer the most competitive salaries, often at the expense of work / life balance. However, it remains a highly competitive niche area to secure employment in. Wealth managers continue to be scrutinised over the suitability of their advice and compliance professionals with relevant experience are in high demand.
There was significant demand for compliance professionals in the insurance and pensions sector in 2016. There were examples of teams doubling in size with ABC and sanctions roles growing in importance in the second half of 2016. Employee benefits was the busy area of pensions in 2016, with notable movement at the senior end of the market. Salaries have finally started to catch up with other parts of the market, having lagged behind for many years. The rapid expansion of departments is leading to candidate shortages and frustrated potential employers.
Within the markets sector there has been significant recruitment activity in FX following the FCA’s consultation and we expect this to continue in 2017. After a subdued period, equity markets had a much stronger second half in 2016 and this will likely impact the need for compliance expertise. Compliance recruitment within commodities remains subdued, whilst proprietary high frequency trading, although a small rather challenging niche, has been comparatively busy.
The contract market
Demand for compliance contractors is currently being led by MiFID II. There are numerous roles for regulatory focused change professionals (mostly Business Analysts and Project Managers), to assist with a variety of work streams – from initial gap analysis to detailed transaction reporting and investor protection topics.
A number of financial services groups have also recruited senior compliance consultants to take the lead on MiFID II and advise on specific policy and procedure changes. Contractors with MiFID II experience have been in high demand as have those who have worked on other regulatory change projects such as FATCA and MiFID I.
Rates for contractors with relevant experience are highly competitive, although companies are regularly prepared to reject what they consider to be unrealistic contractor expectations.
Fintech, start-up and other smaller groups are active, recruiting experienced contractors who can work independently and assist with a broad range of requirements. These are often interesting positions in dynamic, entrepreneurial groups. The rates they offer can be lower, although this is often not the key determining factor when contractors consider these positions.
We expect MiFID II demand to continue throughout 2017, particularly from small to mid-size buy-side groups. For some, the transaction reporting requirements will require new trading systems to be implemented, followed by the various policies, procedures and reporting processes to be designed and rolled out. For others, the new rules around research payments, client categorisation and what are acceptable inducements (conflicts of interest) will require external assistance.
SMR certification is also likely to result in demand for contractors in 2017, as this is rolled out across asset management.
We reported in our main Salary Guide and Compensation Survey six months ago that the average salary increase achieved by compliance professionals changing job was 19%, a decrease from 21% in 2015. For those staying with their employer, the increase was 7.5%, down from 8% in 2015.
Whilst Compliance candidates have become more realistic in their salary expectations post Brexit, salary pressures remain. However, it is currently unusual for an offer to be turned down on the basis of salary alone. Our survey shows that 24% of compliance departments found salary expectations to be excessive (up from 21% in 2015), 59% more than expected, and 18% reasonable (up from 14% in 2015).
Salary pressure is currently more sector specific. In 2016, salaries plateaued across banking as recruitment slowed. Salary pressure is currently more likely to be experienced in the insurance and Fintech sectors, where the gap between banking is narrowing. Buy-side salaries are also rising. There is a particular recognition that it is worth attracting and properly rewarding senior hires, as it impacts investor confidence. After aggressive salary growth across financial crime, companies are now generally refusing to offer significant salary increases. However, for those wanting long term incentives and the highest variable compensation, private equity will be the place to be in 2017.
Going forward, after a period when the UK economy flirted with deflation, inflation is likely to have a greater influence on the recruitment market. We were surprised in our remuneration survey last year at the 21% of compliance professionals who reported to have received no salary increase. However, given that inflation is likely to exceed 2% in 2017, many of these departments will need to offer their staff nominal salary increases that are at least in line with inflation. The alternative is that a significant number of compliance professionals will experience a fall in their real earnings. Whilst many of these may have already concluded that given their poor marketability there is little they can do in terms of changing employer, a material rise in inflation is likely to have an unsettling effect on the wider compliance recruitment market. Clearly among more marketable compliance professionals, there is an expectation that their salary will increase, not only in nominal, but also in real terms. If it does not, entering the recruitment market is the obvious solution.
This report was published by Barclay Simpson in February 2017. To read the full report and see more information on the Employer Survey results, click here.