Skilling the front office controls function means casting a wide net over compliance, regulation, advanced tech and more. But, as a number of recruiters told 1LoD, to control the front line, what you need most is front line DNA
The front office controls function requires a blend of different skill sets and experience, so it is perhaps not surprising that when 1LoD asked the industry from which areas it expects to recruit talent in the next 12 months, there was not a great deal of consensus.
According to responses, the three most popular categories to supply the front office control area with staff were the front office chief operating office, operational risk and compliance. These three areas each attracted 19% of the vote.
Yet, according to Simon Tuke-Hastings, a partner and head of risk, analytics and regulation at executive search firm Hammond Partners, this is an unlikely outcome. While he is prepared to believe that the front office COO will provide recruits to the control function in the future, it is far less likely that operational risk and compliance will do so.
Moving on from phase one
During the first phase of the development of the front office control function, top tier organisations recruited heavily from operational risk and compliance. And it didn’t end well. “It created a major issue across the sell side in general, where few got it right,” Tuke-Hastings says. “You had people sitting in front of the head of a trading desk trying to influence him or her about changing the business and it became very clear they had never sat on a trading desk and didn’t understand the dynamics. They got steamrollered.”
Consequently, it seems likely that the second phase of development will be characterised by recruitment from people already in the front office. Some 17% of correspondents said that their bank would recruit sales and trading to fill seats in front office controls.
As one senior risk officer at a major global firm headquartered in New York comments: “If you’ve never sat on a trading desk, never been exposed to the conduct and norms of sales and trading, it is quite difficult to be the set of ears and eyes that assesses the reasonableness of that conduct.”
Tuke-Hastings agrees. He believes the pattern will be established from the top down, with 90% of the most senior control jobs being filled by those who headed trading desks or, indeed, ran global markets operations. Further down, those who have sat on a trading desk will be sought after for control jobs.
Another recruiter is particularly surprised by the prominence of compliance in the survey. “People in compliance know about regulations but without the front line DNA, they will get crucified,” he says.
Traders tough to convince
However, whether banks will be successful in recruiting from sales and trading in sufficient numbers is a different question. People who sit on sales and trading desks are better remunerated than is common in the control function, so a switch to supervision isn’t always the most logical move.
Indeed, recruiters say that it is almost impossible to get people who have been running their own trading books to switch over to the control function. However, those traders that have been axed from their jobs would consider it, they add.
But this brings its own risks, as those ex-traders may consider a role in the front office control function as merely a temporary berth before a return to trading, and will use the time on the trading floor to network and get back to trading.
“It is tough to recruit externally to controls from front office trading. A lot of the movement from one to the other that does occur happens internally and happens at a senior level,” says Tuke-Hastings.
Show me the money: How well does a front office controls role pay?
For the very top jobs in front office controls, the financial rewards are considerable. Those who are recruited internally from, say, a role running global markets, can expect to earn multiple millions, say top City recruiters.
However, if a head of front office controls is recruited externally from another similar function at a rival institution, that is to say if they are controls specialists without the most senior trading experience, the rewards are less exalted. These people, all managing director level, could hope to command perhaps £400,000–£500,000, of which around £250,000 will be basic salary and the balance bonus.
Directors in front office controls might earn a total of around up to £200,000 per year, while a senior vice president in the same function would be remunerated to the tune of £130,000–£140,000 annually.
No tech talent?
What is also interesting about the results of this poll is that only a little over 10% of correspondents said that they expected their firms to recruit in the field of technology. Yet everyone in the industry agrees that the front office control function will be making increasingly heavy use of machine learning, AI and new forms of technology to do the job of, say, surveillance – a job currently still done largely by human beings.
Recruiters say that they are not surprised by this result, however, and add that it is very rare for staff to move from technology to the front office. “I’ve never been involved in moving someone from technology to the first line control function,” says one recruiter. “It has happened to others – but it’s an outlier.”
Moreover, only 12% of those polled said that they expected banks to recruit talent that has expertise in regulation. This also might strike the casual observer as somewhat surprising, and one wonders what the regulators themselves might make of this data point.
While the regulatory heat might have been turned down a notch in recent months, it would be naïve to assume that attention has turned away altogether. More rules may still be coming, while those that have been passed down over the last
three or four years require detailed knowledge for full compliance.
“Recruiting to this area is challenging,” concludes Tuke-Hastings. “Every firm has a different idea of what they want in the seat. Not all trading desks see value in it, or they don’t know if it’s a permanent job or a six-month build. Some just say ‘get me traders, get me traders’, in which case they should probably look internally.”