Bram Tijsseling and Robin Farley, Partners in the Global Financial Services Practice of Odgers Berndtson in the Netherlands and the UK, respectively, get behind the headlines, and answer the vital questions.
Why did risk management and regulatory compliance become such a hot topic in 2018?
Bram Tijsseling (BT): It’s no coincidence that, last year, European banks mentioned were hit with big fines for money laundering on a massive scale. Clearly, in Europe, the regulators are getting more aggressive with their enforcement action on money laundering breaches, especially after the EU money laundering directive came into effect in 2017. That’s been impacting a lot of the European banks. So, the combination of increasing regulation and difficulty in executing the right controls, whether it is from a compliance or financial crime perspective within these large organisations, are all coming into play.
"Whilst financial crime and compliance has been an area of significant focus for all the big banks in the last five to six years, financial crime still remains quite difficult to track"
One of Denmark’s banks has been having a lot of issues in the last six months as well. It remains a big risk, because these are very international banks and they operate across many different jurisdictions. Without the necessary controls in place, they are always susceptible to breaches of non-financial risk, whether that is related to financial crime or compliance.
In The Netherlands, we saw an increase in the demand for risk and compliance staff. Did the same happen in the UK and is that the right answer?
Robin Farley (RF): The demand since the financial crisis for larger risk and compliance teams has always been there. Financial crime has also been a problem area for large UK banks coming out of 2008, with one global UK bank falling victim and being fined nearly $2bn in 2012.
There were new regulations, and the enforcement was a regular occurrence across different jurisdictions. Banks had to expand their second line risk and compliance functions. It has been quite steady these last few years, but in the UK and the US, there is now more of a demand to find efficiencies in the second line risk and compliance teams. That’s because the cost pressures have increased and those teams have become too big. Ultimately it is the frontline business that needs to own these financial and non-financial risks. Banks have also been exploring more technologically driven solutions that can remove some of the manual tasks associated with managing these risks.
If you look at other areas like asset management, you are seeing an increase in headcount on the risk and compliance side, because that sector is becoming increasingly regulated too.
As teams in both areas have grown in scale, the requirements of those in CRO/CCO roles has also changed. Demand for these leaders has outstripped supply and remuneration levels have increased over time.
What does it take to be a successful risk and compliance manager at senior management and/or board level?
(RF): Of course, to begin with, you need a combination of technical skills and subject matter expertise. But increasingly, when you are operating at executive committee level or in a senior leadership role, you need more than that. You must have the ability to interact with a number of different stakeholders, both internally and externally. You must be a credible business partner, with a solutions-based approach as opposed to being a controller that always says no.
Senior executives, whether they are Chief Compliance or Chief Risk Officers, will face the situation where the answer is “no”. They need to however think of a way to get to say “yes” or think of a different solution that helps the business to continue to do business. A proactive solutions-based approach is very important for these executives.
"CROs and compliance officers are getting a lot more time in executive committees and boards these days, versus fifteen years ago, so they need to be credible in that environment"
They also need to manage a number of relationships, externally, particularly with regulators. If you are an international bank like ING, you don’t just have regulatory relationships with DNB, you have teams that manage regulatory relationships in the UK, in Asia etc. It is very much an international role and there are many different regulatory touchpoints. All those regulators have different approaches and priorities. Some regulatory regimes are more challenging than others which makes managing risk and compliance all the more challenging across different jurisdictions.
(BT): I think as far as subject matter expertise is concerned and how that can be translated to the business, it’s important that you are able to make an assessment whether something is critical, important or not. Depending on the outcome of this assessment you need to determine the most effective approach which might affect all levels within the organisation.
Furthermore, you need to be a good communicator, adaptable, and empathetic in translating compliance to the business. For compliance to work effectively, the management’s behaviour and organisational culture is key. That also applies to the entire organization.
To be honest, risk and compliance is generally considered to be ‘not sexy’. Doing business and deals is money-driven, that’s ‘sexy’. And that does not only apply to financial institutions. Generating business and sales is often the main motive in most industries. But doing all of that within a risk and compliance-conscious organization is essential.
How can an executive search firm help find the right blend of qualities?
(RF): Of course, our first priority is to find people who have substantive knowledge of the subject, they need to know what they are talking about. Equally, they must have the strategic and commercial skills and the ability to manage stakeholders at senior management level. They must be able to express their opinion confidently and contribute in a senior management environment.
"They are individuals who cannot be easily influenced, are steadfast and independent"
He or she must be able to work as a filter, bring the essentials to the attention of senior management and thereby influence them to make risk based decisions.
(BT): The really high quality CROs and CCOs who possess all these competencies are in very short supply. And there is an increase in demand. The value of executive search is to identify the forward-thinking business partner with the right technical skills. You need a search firm that can take a company’s message to market and engage those individuals to come and join the organisation, whatever your client is.
"This can mean looking in new areas, particularly as the rise of the digital age means a financial services firm becomes more digitally engaged and more like a platform business"
Particularly on the banking side, finding individuals that understand the relevant IT infrastructure is also very important.
Also, there are emerging risks in the IT and cyber and operational resilience space, so bringing in expertise from other areas outside of financial services, whether that is technology or security services, that’s important. And you need a search firm to help bring those people across, because there is a lot of competition. It’s not just the banks that want these people. Quite frankly, every industry wants them, people that can understand technology and infrastructure and can translate that into the industries they are operating in.
Finally, different organisations have different needs. Identifying the right candidate for a particular organisation depends on a host of factors and cultural fit always plays an essential part. A candidate who suits one firm may not suit another. Our role as an executive search firm is to ensure that the fit is right.
Thank you, Bram and Robin.
Odgers Berndtson’s Financial Services Practice advises financial institutions across the world. We support firms in appointing executives and non-executives with the talent to deliver their strategy and promote growth in a challenging macroeconomic context.
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