Compliance, Risk Management & Regulation
A question of control
It’s up to risk management teams in investment banks to make sure the bank doesn’t take huge risks and therefore make huge losses in its pursuit of gigantic profits. As just about every investment bank has had to write off billions of dollars over the past two years, the focus on a more prudent investment strategy has never been greater. While risk managers try to stop a bank’s employees indulging in behaviour that might lead to big losses, the compliance teams are there to ensure banks work in line with the regulations imposed in the country in which they’re operating. In the wake of the financial crisis, regulators across the world have increasingly been baring their teeth and, at the time of writing, were seeking international coordination on how best to reform financial services regulation. In the UK, the soon-to-be regulator is the Bank of England, while in the US the Securities and Exchange Commission (SEC) is the financial watchdog. In Asia, the Securities and Futures Commission regulates Hong Kong, while Singapore is under the watchful eye of the Monetary Authority of Singapore. As well as individual country watchdogs, European firms are also regulated by the Committee for European Securities Regulation (CESR), the Committee of European Banking Supervisors (CEBS) and the Committee of European Insurance and Occupational Pension Supervisors (Ceiops). “Overall, it is a very challenging environment,” says Mike Newby, executive director and chief operations officer for Morgan Stanley’s legal and compliance division in Asia. “We need to be flexible and keep up with the everchanging regulatory environment, as well as with the evolving products and services the firm provides.”
Roles and career paths
Risk management in investment banks is divided into different areas. Market risk: The risk that a whole group of traded financial products (e.g. stocks, bonds or commodities) fall in value simultaneously because of outside events, such as rising oil prices or terrorist activity. Also known as ‘systemic risk’. Credit risk: The risk that a particular company or an individual will default on their obligation to repay their debts. Operational risk: The risk that a bank will incur damage or losses due to internal factors such as systems breakdown or financial wrongdoing. If you join an investment bank as a graduate trainee, you’re likely to be ‘rotated’ around different areas of the risk function. Compliance roles in investment banks can also be divided into various categories, including: Sales and trading compliance: Working with a bank’s salespeople and traders to ensure their activities comply with the requirements of the local regulator. Sales and trading compliance pros are often product specialists – for example, they might specialise in bonds, equities or derivatives. Control room compliance: Centralised tasks such as maintaining the bank’s restricted list and checking for abnormal dealing activity. Should certain staff be placed on ‘stop and watch’ lists, it’s the control room compliance team who ensure their activity is monitored. Monitoring and surveillance: Scrutinising specific behaviour and transactions that might indicate fraudulent activity, such as insider dealing or manipulation of markets across the exchanges. Anti-money laundering (AML): Stopping money laundering (where the financial proceeds of illegal activities are given the appearance of being legitimate).
Pay and bonuses
The heightened focus on risk and compliance means many teams are expanding, but this hasn’t really translated into higher salaries. Risk managers and compliance officers who work alongside salespeople and traders typically earn the most. On the risk side, this means high-earning market risk specialists. In compliance, sales and trading compliance professionals who specialise in the latest hot product can expect the biggest pay packages.
Skills sought
Perhaps slightly surprisingly, one of the key attributes banks look for in their risk and compliance recruits is good communication skills and an ability to build relationships. “By its nature compliance involves a lot of interaction with different areas – not just internal managers, sales, traders and so on but also people externally, such as regulators,” says Seung Earm, executive director of compliance at Goldman Sachs. “Even if you know one skill set or product, if you cannot develop a rapport with the people you are speaking to, that is going to be a huge challenge.” “For entry level, the typical person would have received some academic training in law, finance or some other business discipline,” adds Mike Newby at Morgan Stanley. “Junior-level candidates with some work experience usually have some form of training in legal, auditing, consulting, and regulatory and enforcement.”
To read more, please visit eFinancialCareers.com Student Centre
