Mondrian Alpha’s Change and Transformation division focuses on filling permanent and contract positions in top global investment banks across the US and UK markets. Our ability to build lasting relationships in the industry has meant that we are the first port of call for many financial leaders in the space, and we continually conduct extensive research on the market to ensure that we can offer valuable insights to both our clients and candidates.
Summary of Priorities for 2020
- 2019 can be defined as a year that was focused on data privacy, OTC reform and cybersecurity. There were also large fines for lapses in Compliance in AML, KYC and Sanctions regulations. Going into 2020, cybersecurity will continue to be a top priority for UK and US investment banks, alongside a number of other topics which we have listed below.
- This report will cover the major regulatory concerns going into 2020. Namely: Brexit, the LIBOR Transition, Cybersecurity, IR35, FRTB, Financial Crimes Compliance, and Volcker. Each of these regulations has a dedicated page in the report, where at the top you will find a summary of the expected changes in 2020, and following that, some examples from the market of varying strategies and approaches to combat these changes.
- We acknowledge that, depending on the bank, there are a number of other regulations still of high importance such as; CCAR, Initial Margin, MIFID II, BCBS239 etc. However, we have chosen to focus on those regulations that either have new specifications in 2020, or have been prioritised on the Regulatory Change agenda for 2020 by our clients.
- Our survey suggested that overwhelmingly, the market is expecting LIBOR to be the most impactful regulation of next year, requiring the most manpower and the sharpest focus to meet the 2021 deadline.
- Next was Cybersecurity as a topic for concern, with many banks ramping up their efforts to enhance readiness for the increasing cyber threat.
- Generally, the US and UK have a different approach to the regulatory landscape going into 2020. While the US focuses on regulatory reform, the UK will focus on regulatory fitness. One of our clients, a Managing Director who travels between London and New York, suggested that they had observed a contrasting view of regulatory change in Europe vs the US. They suggested that in Europe, an outcome based approach is generally taken, whereas in the US, the approach is far more prescriptive.
- Aside from the actual regulations that are coming into effect in 2020, there seems to be a heightened focus on risk culture and controls. This may have resulted from a regulator driven emphasis on strengthening operational resilience. Our clients have mentioned that Front Office staff are being increasingly trained on risk, and Compliance officers are far more involved than they used to be in advising the Front Office on their actions.
Rationale & Methodology
This document is intended to provide managers with an insight into how their competitors are dealing with the key regulatory topics for 2020.We hope that managers will find this useful when considering their own approach to structuring and resourcing their teams.
To conduct this research, we have reached out to both, managers and their teams within a variety of banks to deduce their strategies when tackling these regulatory topics. We asked the managers to evaluate their own strategies, and give us insight into what lead them to choose one tactic over another.
We sent out a survey to just under 400 regulatory professionals by emailing key influencers from our database and publishing the link via LinkedIn, and received a fantastic response. This document focuses on regulatory concerns for the UK and US, as this is our main client base. All of our respondents were based in the UK or US.
What level are you within the bank?
The majority of respondents were Director level or above, within or heading Regulatory Change teams.
Where does your team sit within the bank?
36% were sat underneath the Chief Operating Officer.
22% underneath the Chief Compliance or Chief Control Officers.
The remaining were distributed under Chief Risk Officers or Chief Information Officers / Chief Technology Officers.
With much uncertainty, 2020 for many banks will hopefully see the end of the Brexit programmes. Most banks have been planning for Brexit for 2 years minimum, and with the deadline shifting, managers are on the whole frustrated by the resource drain of Brexit. For North America, the priority going into 2020 will be to assess the regulatory impact of Brexit on US investors and securities markets. Indeed, the SEC have commented that they are anxious that companies are not adequately disclosing the potential impact of Brexit. For the UK, the FCA are focused on ensuring that banks have prepared for a smooth transition post-Brexit. Managers in the UK it seems, are now winding down their Brexit programmes, feeling confident they are prepared as extra time has been bought with numerous delays. There is a feeling in the UK that they would prefer resources allocated elsewhere, and are ready to move forward.
We asked those who have worked on Brexit programmes what strategies were to be adopted in 2020. The trend we found was that in the UK, there is going to be a major decrease in headcount on the programme, with contractors no longer needed to shoulder the additional load. Interestingly, in the US, the response was to maintain the headcount of the programme, with a view to decreasing it once a final decision has been made by the UK government.
For 2020, what will happen to the headcount of your Brexit programme?
At the beginning of the Brexit programmes, on average teams in London were increased by 60 people to take on the work. These were mostly contractors, though some banks opted to have a more senior permanent professional overseeing the programme. In the US, teams were increased on average by 8 people.
As expected, these programmes were run globally by all but one of our respondents, and there was both an offshoring and nearshoring of resources.
For Brexit, was there offshoring or nearshoring of resources?
The plan to transition away from LIBOR and to a new benchmark alternate reference rate is due to be completed by the end of 2021. Consequently, 2020 will see many banks increasing focus on their LIBOR programmes, seeing it become a central topic in the regulatory agenda. These programmes will involve a recalibration of a wide range of financial risk models, and many stakeholders at present remain unprepared for the change. There seems to be some frustration in the US about having to follow London’s lead, and for most banks (whether headquartered in the UK or not) the programmes are being run out of London, with the New York teams acting in a supporting role.
With the LIBOR transition being earmarked as the most impactful change for 2020, there was a considerable consensus amongst respondents that the LIBOR programme requires an increased headcount. 71% of respondents testified to this plan going into the new year. All respondents answered that the programme would be run on a global scale with nearshoring and offshoring of resources.
Which regulatory topic do you see as having the most impact on 2020’s regulatory landscape?
The data that proved most intriguing was to what extent banks were deciding to run the programme with contractors, and which chose to have a LIBOR change lead picked from their existing regulatory change team, or recruited as a permanent.
The below pie chart depicts the distribution of increased headcount over contract and permanent seats. Though usually for a change programme, the majority of additional resources on the programme would come from contractors, the data suggests that banks are hiring more permanent employees to deal with the LIBOR transition, which speaks to its weight on the regulatory agenda.
Over the course of 2019, cybersecurity has become a major concern, and is fundamentally interlinked with an increased focus on data privacy. Going into 2020, cybersecurity will continue to be a major regulatory focus for the banks. The two main areas of focus are: data breach prevention and cyber related misconduct in the markets. In this era of digital transformation, issues of cybersecurity have been brought into sharper focus and this topic dominates the regulatory agenda. Banks are tackling this in a range of different ways; some with targeted cybersecurity programmes, others integrating increased risk controls into their CIO/CTO division.
When questioned on their approach to cybersecurity, some 72% of our respondents said that there was a dedicated
programme for cybersecurity concerns. However, there is a widespread effort within firms to improve cybersecurity and operational risk. This is being done through the partnership of Technology, Risk and Compliance.
The below chart shows the most mentioned approaches to cybersecurity:
The controversial tax change, rolling out in 2020 has been cause for much distress for banks and contractors alike. With a Conservative government, April 2020 will likely result in many contractors being terminated from their employers or being offered an alternative solution such as PAYE. Indeed, many banks are offering their best contractors permanent jobs as a result of this change.
This change will solely affect the contractor in the UK and thus our respondents on this section were exclusively based in the UK.
The below chart shows the different approaches that banks are taking in order to prepare for the April 2020 deadline. The Y axis indicates the percentage of respondents who indicated that their bank was using this method.
On a scale of 1 - 100, how prepared is your bank for the IR35 changes? Average answer (below): 55.
The revised market risk framework is scheduled to come into effect on 1st January 2020. As banks are now prepared for this new risk measurement framework, the impact on risk management governance, processes and the underlying IT infrastructure will be revealed also. In 2020, banks will have to consider the increase in data management and data analysis requirements, alongside an increased computational burdun. Banks will be looking at whether to use the market risk capital charge calculation as a daily monitoring tool - an objective that will only become a reality if they succeed in incorporating the new requirements into their daily P&L and risk calculations process.
FRTB has been a major expense for the banks, expecially US banks, throughout 2019. Now, going into 2020, the data suggests that US banks will continue to add resources to their teams. We expect that this decision has been taken to ensure preparedness for the impact of the new market risk framework.
The chart shows the median predicted increased headcount for the FRTB teams in 2020.
There was a split in respondents as to whether or not FRTB was being run on a global scale. 75% of respondents answered “yes” and 25% “no”.
The chart demonstrates a real lack of congruence across the market on strategy for nearshoring or offshoring of resources for FRTB.
Financial Crime continues to be a global priority as we near the beginning of 2020. There have been many large fines for lapses in Compliance within AML, KYC and Sanctions regulations, and so banks are keen to take steps to ensure that this will not be the case for them in the future. The main aim going into the next year is to become faster, smarter and more efficient in the delivery of AML work. The FCA plan to combine enhanced analytical software and their own intelligence gathering to pursue the highest risks. Thus, technology is being increasingly integrated into supervision and compliance as regulators and banks respond to digital disruption. Moreover, tracking tools are improving, giving banks the ability to build a more comprehensive programme.
We asked our contacts in the Financial Crime space their team’s largest concerns going into 2020. Below are examples of answers:
When questioned on headcount strategy, the trend appears to be that the majority of banks are planning on increasing the headcount for their Financial Crimes department. Moreover, some 71% of respondents testified to the fact that their bank has a dedicated change team within Financial Crime.
The chart indicates the percentage of respondents who chose each strategy on headcount:
Volcker 2.0 is a welcome regulatory change for many US banks. It is largely characterised by a change in risk limits, and an increase in training. Now, banks must prepare to set their internal risk limits, and educate the traders on how to remain compliant as this change will likely result in a higher trading volume and increased liquidity. With most banks already having a team for the original Volcker in place, 2.0 mostly sees a minimal increase in headcount and a development of the building relationship between Front Office and Risk/Compliance.
Volcker 2.0 does not require as much manpower as the original Volcker regulation. Consequently, we have seen minimal plans to increase the headcount of the already existing Volcker teams. However, some banks are opting to bring in a “Volcker 2.0 Lead” to deal with these changes. For some of the larger US banks, the trend towards increasing staff is more prominent.
The question as to whether or not the programme was being run on a global scale received a 60:40 response yes:no, as pictured on the right.
The graph (below right) depicts the average planned increase in headcount for our US respondents on their Volcker 2.0 programme.
The graph (right) demonstrates that there is no desire from banks to offshore resources for Volcker 2.0. However, there was a 40% response that banks had planned to nearshore resources. The majority though, will be doing neither.
Many of our clients have stressed that 2020 will be one of the biggest years in terms of the regulatory change pressure. There have been a number of different approaches to dealing with the volume of work.
One of our clients, a European investment bank, has opted to re-centralise all change delivery in order to enhance accountability and encourage an atmosphere of delivery.
Another client, a large US bank, are taking on more permanent staff, and have a 2020 plan to grow their Regulatory Change function, bringing on additional people at AVP and VP level to cope with the strain.
A third example comes from a UK bank, who are looking to majorly cut down on their consultant workforce in order to free up budget for hiring a new Director who will take charge of the remediation piece, separating this activity from the control function.
In the market, the general trend is towards optimisation, efficiency and the correct harnessing of resource. In particular for European banks, “cost cutting” have been the buzzwords of 2019. This will likely continue into 2020 as we see many of our clients turning to us for insight into alternative strategies for delivery that do not involve a large consultant workforce at great expense. We have responded to this by setting up “Outik Consulting”, a sister company which provides consultants at a lower cost than our larger competitors. More details follow in the next section.
For our US clients, there is less concern about cost and more concern about value. Increasingly, regulatory teams are looking for a combination of SME knowledge, change delivery and product expertise. The demand is for well-rounded candidates, and those with exposure to data and technology within the regulatory space are even more valuable. Historically, it was not the norm to have a change professional with deep regulatory or product knowledge. Now, the market has an abundance of candidates who are “triple threats” in this regard. Consequently, our clients are looking to capitalise on this.
The regulatory agenda for 2020 is certainly cluttered, and hopefully this document has provided our readers with some insight into how different banks are looking to deal with the challenge.
Mondrian Alpha: Permanent Recruitment Solutions
Mondrian Alpha was founded in 2010, and the Change & Transformation desk specialises in providing large investment banks in the UK & US with quality candidates. Our product is based on detailed research which is supported by current market mapping of the banks.
Mondrian Alpha: Contract Recruitment Solutions
Mondrian Alpha provides independent contractors to clients in need of a small scale, immediate solution. We work with our clients to determine the skillsets which they are lacking, and have a wide network of contractors who regularly check in with us.
Outik Consulting: Consulting Solutions & Team Build Out
Outik Consulting specialises in providing quality Change & Transformation professionals to our prominent financial services clients. Outik Consultants are largely ex-industry leaders who are able to enhance the expertise and execution capabilities of our clients. We adopt an educated approach to our recruitment, and due to our global network are able to provide a service which is both effective and time efficient.