The integrity of Hong Kong’s investment sector is being preserved by the Securities & Futures Commission (SFC) who have recently made a series of high profile, high-value fines on leading investment and securities institutions in the territory. The SFC purports to be maintaining the high standards expected of leading global investors and protect the investing public. Whatever the impact of the punitive damages imposed on the firms, mostly related to IPO sponsorships, it is clear a message that the regulators will not tolerate anything but the most robust compliance measures, and as demonstrated they will not hesitate in coming down hard on offenders. It’s a similar story in Europe, where one of the world’s largest wealth management firms is currently appealing fines imposed on them by a Paris court for money laundering, a fine that far outweigh their reported 2018 profits. Whilst the firm ardently denies the allegations, there is little chance of a reprieve without every stone being unturned. Such detailed investigations into a businesses’ transactions will only serve as a warning to others to get their house in order.
With the spotlight on compliance teams to deliver assurances that practice levels can be raised and maintained, what does this mean for the compliance professionals in the job market?
It is clear there is a need for institutions to tighten their procedures and bolster teams, but against a backdrop of expected declines in wholesale banking revenues over the next couple of years, we must also consider compliance as a cost that could conceivably be in line to be cut. The net result is we are likely to see more movement in the Hong Kong compliance job market in the coming months. Unsurprisingly there is an element of nervousness amongst professionals looking to move and hiring institutions alike as they go about the routine business of job seeking or hiring and firing.
Current compliance employees of the institutions fined will be worried about their association with a brand that has been sullied by the penalties imposed, but also there will be a concern that the financial impact on the bottom line will affect bonus pools. Such “push” factors will undoubtedly lead to more candidates coming onto the job market over the coming months. It may not be an easy process though; employers will exercise caution when it comes to considering candidates from fined companies. We have come across less risk-averse banks not willing to contemplate these professionals at all. Candidates that do make it to the interview stage must expect to be rigorously questioned about procedures and accountability, likely making the entire hiring process much more involved and longer than normal.
Candidates as yet untouched by the SFC clampdown will be reticent to join an organisation that has been caught up in the recent spate of fines. They are coming to our door with legitimate worries about future bonus pools and the overall stability of such institutions, asking themselves if regulators will continue to have processes and procedures under a microscope and questioning if it can stand up to the increased attention.
Banks will take the time the review their controls and procedures to ensure they withstand regulator scrutiny and these fines will likely result in all banks doing retrospective compliance remediation projects to rectify any gaps and resolve any outstanding issues. This will equate to an uptick in the hiring of candidates to do these remediation projects. Banks will either directly hire these individuals or use consulting firms to second compliance professionals into their teams on a short-term basis until these projects are complete.
There is evidence that a handful of the fined banks were fully aware of the higher risk they were taking over the past few years. As a result of aggressively seeking to onboard clients, they were always playing catch up on the compliance front. Within these institutions, we have seen a spate of hiring at a faster rate than normal to ensure their control functions keep up with their client acquisition rate.
Compliance professionals of all levels will be watching the market with interest as further stories unfold, especially as the results a number of high-profile trials will give some indication of the extent of the personal liability of individuals and teams. Under the MIC regime introduced in 2017 in Hong Kong, personal liability of all senior management is greater, and there is a greater possibility of individuals being held accountable and penalties being enforced. Even custodial sentences are likely to be imposed in the most severe cases. Candidates are likely to be hesitant about committing to roles where their exposure is high. Where they do decide to take on the role, we expect to see a demand for sizeable compensation packages that may drive the salary levels up in some functional areas. For example, money laundering reporting roles come with high levels of liability, and candidates will expect to be handsomely compensated for the personal risk they will bear.
As we move through 2019, we expect the job market to respond to the fallout of further regulatory action and we wait to see how the outcome of legal battles and financial scandals in the region, some of an unprecedented scale, will affect the industry as a whole. The repercussions will set financial institutions on a path that can only mean they must continue to test their control functions and plug any skills gaps in their teams. Whilst some candidates and indeed banks may find their reputations tarnished in the short term, the regulators are proving that no one is above scrutiny and that securing the best talent to deliver robust programs will be a priority across Asia.
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