Financial Crime Market Update

21 days ago Jessica Hodson

Desk Blog

COVID-19 and MLRO and Senior Management Perspective

I started researching and speaking to people about this report early in March, eager to wrap my head around the impact we were going to be facing. The trouble with that tactic was, from early March to now, it has been a rapidly evolving beast. I have collated the thoughts and common threads below, some may seem a little obvious now, but it is quite useful to see the holistic view.

I wanted to specifically canvas the impacts on hiring, but also on the financial crime focus and workloads.

Thank you for those who took the time to speak with me. I tried to speak to someone from each pocket of the market and everyone has been very willing to give their time.

Workload – increase or decrease?

Interestingly, though probably unsurprisingly to you all, the themes remained consistent across all sectors from brokerage to investment banking to fintechs. As Nikki Birt (Money Laundering and Reporting Officer, Metro Bank) pointed out:

“Financial crime compliance still has to be done, in some regards we become more pressurised with people wanting to take advantage of a crisis”.

Retail, brokerages and some fintechs have had an increase in volume, in part due to the emergency loans needing to be issued, but also in terms of the financial crime lifecycle – their transactions are shorter and less complex so unfortunately they tend to feel the ripples of the market quicker compared to investment or wholesale banking.

This doesn’t mean that other institutions are sitting high above the market, riding the storm. There have been plenty of bottom line impacts, with the most common being your clients across all commercial sectors refocusing their strategies to more liquidity etc. and putting on hold projects and financing which will change the flow of your businesses and in turn, the financial crime compliance needs internally. Perhaps this isn’t happening now, but it’s expected to be seen in 6 months’ plus time.

By most accounts projects such as remediations, systems change etc, which were already in motion are still moving forward. Advisory continued to be busy across all products despite the expected drop in volume – a global head of financial crime, European Investment Bank mentioned that private banking was up in volume, which was of course echoed by many of you who I spoke with.

Financial crime operations seem to have had both an increase in workload (picking up offshore teams’ workloads who are unable to work remotely), and also a decrease in new client on-boarding – all of you expected to see a flow on from decreases in new clients to the firm team know that.

The F word

You all know I love a swearword (sorry, Mum) but I meant furlough. This is a very quick point as very few financial crime teams in London have furloughed anyone, and for those who have it is more junior members of staff who you couldn’t actively manage in the right way remotely without substantial increases to your own workload.

Smaller fintechs, as usual, are the smaller ships in this storm and unfortunately many have lost funding or put all back-office teams on furlough.

Where do you go to get better? A&E

That’s automation and efficiencies. If there are any winners out of all of this, it is going to be your change, IT and strategy teams who will finally get their wish lists. John Cusack very succinctly put it:

“There has long been a trend for cost pressures, as well pressures to use tech and automate. This entire remote workforce has now accelerated the change vs taking the next 3 years or so”.

Following this conversation with John, I spoke with a market leader in the transaction monitoring AI space who concurred – they have seen a huge surge in interest, partly because people now have time to have a conversation with them but also, there is a large inherent risk with basing functions abroad, which hadn’t really been revealed before. A key example being cited are the hubs in India for which everyone has seen a monumental problem with the COVID-19 reaction and implications on the workforce there.

Of course, Rome (or banking change) wasn’t built in a day, but you will probably see a few missed calls from tech solution providers and consultancies desperate to fix these inefficiencies for you (as well as one missed call from me trying to get some jobs to recruit, ha ha!) but whether or not these changes are going to be seen anytime soon will depend on so many variables.

The FCA

You all seem to be getting bombarded with contact from the FCA – memos, calls or just general “touching base,” eager to make sure standards don’t slip and that emerging trends are stopped or at least managed.

I spoke to one contact at the FCA who said:

“The bigger concern is that the smaller business with less sophisticated or established teams in our financial sector are going to try to use this for an excuse for sub-par work. Actually this is when we need them the most as they themselves are a target.”

Recruitment Hit

Financial crime recruitment was already quiet in 2019 compared to previous years, as the market waited for Brexit, Boris and bushfires to subside. Little did we know!

Across recruitment, my competitors and I had the general consensus that 2020 was supposed to be the busy year. Almost ironically, this January and February were the busiest FCC recruitment has been in the last 7 years, with a huge increase in newly created roles (not just replacement hires) – which is typically the best indicator for us in agency.

The pandemic didn’t initially impact hiring, most of us couldn’t anticipate what was to happen so interviews moved online. Some hiring managers cancelled roles as they didn’t want to hire someone, they couldn’t meet face to face. Then the hiring freezes began. Some mid-size firms and above were the quickest to react with many putting entire freezes on in mid-March. The rest of the market has followed suit.

Luckily for us all, financial crime compliance is considered to have a direct regulatory impact and thus a critical hire in some instances. I have had a few of these “exception” hires. They are not easy to get apparently, so kudos if you have managed to!

Who is hiring?

I said earlier it was ironic I was so busy in Jan / Feb, because the market is now the quietest it has been in many years.

But there are pockets who are hiring. In particular – brokerage, fintech, retail and payments. On the flipside buy-side in general seems to have gone very quiet. Senior hiring (ED and above) is still moving, typically this is because the turnaround time of a senior hire is at least 6-9 months.

Retention

I could do a whole other article on retention during this time, but I think you are aware. A good point was made very early into these calls:

“We know we won’t be able to offer large bonuses, so we are working on keeping them next year, now”.

This really rings true for your newer hires; they don’t yet have a “buddy” in the business and may start to feel a little anchorless and potentially will be out of bonus cycle. I am incredibly busy with good candidates who have re-evaluated and are now looking for various reasons. People are feeling especially pressured so taking time to assure people and let them know you value their work is at times all it takes. I am making this point more because going forward, there will be fewer hires signed off to replace, so you will be left short in the teams, rather than having your pick of the market for a new hire.

Jessica Hodson specialises in building financial crime functions across all areas of financial services in London. She has strong, longstanding relationships within the market and is known for her candour, market knowledge and technical understanding. To learn more about the current recruitment market, or to speak to her about your hiring needs, please get in touch at jessica.hodson@investigo.co.uk or on 020 3862 2750 – she would welcome an initial confidential chat.