The demand for compliance officers in Europe is growing. Why is this so?
The killjoy of finances stereotype.
For many, compliance officers still do not add a tangible value to the business. Quite the contrary, they are often perceived as troublemakers, who only create setbacks and make already difficult things, even more difficult. The Economist coined the term “killjoys of finances” when referring to this kind of stereotypes within the organisations. Nonetheless, worth asking: What have been one of the most in-demand jobs in the United States labour market for years? Yes, compliance officers. The trend does not stop there, it has also reached Europe. And it has eventually left the financial bubble.
Transient trend? Or Change of Paradigm?
In looking at the progression of compliance practitioners since 2015 there has been a steady increase.
A report of recruitment company Barclay Simpson from 2015 found out that 87 per cent of compliance departments surveyed were planning to hire new staff. As expected, finance and banking industries were first to increase the headcount in Anti Money Laundering (AML) or Know Your Client (KYC) departments. The number of compliance professionals in one of the leading European investment banks quickly rose from less than 2,000 to around 7,000 in 2014. The rise was so rapid and massive that The Wall Street Journal pointed out back then, that 10 per cent of the company’s employees’ controls what other 90 per cent does from the compliance perspective. There gions known as financial hubs were the ones where this new phenomenon was especially visible. According to the Financial Times the demand for compliance officers rose by 65 percent in London, fivefold in Frankfurt and six-fold in Luxembourg between 2015 and 2017. Following the trend, Eastern Europe was not immune to these changes. In 2020, Business Insider Poland listed the compliance officer in top 10 most demanded jobs in Poland.
So, what caused that rise of demand for compliance officers in Europe?
- Financial crisis– the financial crisis of 2008 which hit global economy, resulted from years of negligence, lack of ethics in the banking sector and under-regulation. Banks hiding information about their financial situation or credits offered to people without income were – among others – recipes for disaster. Recently published FinCEN Files revealed the scale of financial institutions’ negligence, as the sum of financial transfers related to money-laundering or frauds between 1999 and 2017 was estimated to USD 2 trillion. The policymakers understood that there needs to be more control.
- New regulations – a need for compliance officers in the Netherlands or France was a response to changes in domestic laws. It created a demand for specialists responsible for tracking the changes in regulation and making sure that their company complies with the law. Although American Foreign Corruption Policy Act dates to 1977, it was after 2010 when other countries – like the United Kingdom and its Bribery Act 2010 - decided to act to better tackle new challenges. French legislation SAPIN II from 2017 obliged all companies with more than 500 employees to have a code of conduct and implement anti-corruption measures. On the EU level, directives aimed at developing more effective system of tackling risks associated with financial irregularities and compliance risks had effect on national legislations. For example, GDPR regulation from 2016 obliged every company to develop personal data protection policy. Similar effects had 5th AML Directive from 2015 or Mandatory Disclosure Rules from 2018.
- Growing environmental awareness–Rising awareness of environmental issues such as global warming, deforestation, plastic pollution or biodiversity loss also has impact on regulators. Since 2009 the companies in the EU can voluntarily join Eco-Management and Audit Scheme (EMAS) from 2009. As a result of lack of effective and compulsory environment law enforcement on the EU level, the European Commission prepared in 2018 an Action Plan on Environmental Compliance and Governance. EU member states have however already taken an action. Due to French Energy Transition for Green Growth Law from 2015 companies are obliged to report the impact of their business on climate change.
- Penalties –When a major international investment bank received a fine of USD 1.9 billion in 2012, it did not hold the infamous record for the highest fine in the industry for too long. The next year another bank was punished with a USD 9 billion fine. According to GDPR regulations, companies may face a fine of up to EUR 20 million and 4% of worldwide annual revenue for a non-compliance with personal data security. In January 2019 the French Internet watchdog fined global IT company with EUR 50 million fine. It was a clear sign that not only policymakers but also enforcement agencies were serious. Companies realised that they needed professionals with skills in risk assessment and compliance to mitigate risks of hefty fines and reputational damage.
- Brexit –It was not a surprise that after Brexit several companies decided to move their operations to continental Europe. It was also clear, that they would need to find new people. United Kingdom will remain a key economic partner of the EU, but as the final outcome of leaving the EU is far from being predictable, professionals versed in international trade and regulations became even more necessary.
- Technological development–the internet revolution, global digitalisation and widespread access to new technologies create new risks. Data and privacy breaches, attacks from hackers or online fraud are only few examples of threats of 21stcentury. On the other hand, digitalisation of banking services, encrypted online messaging or crypto-currencies added new dimension to old threads: terrorism, money-laundering or international crime. Banks were quick to hire AML and KYC analysts, but other sectors also understood the need of having a risk specialist onboard.
- COVID-19 –the ongoing global COVID pandemic made us all aware of the importance of health and safety standards, crisis management policies and operational resilience. Some governments were quick to respond; in other countries, rules and regulations were changing constantly and their implications were uncertain. It is hard to estimate what will be the far-reaching consequences, but 56 per cent of respondents surveyed by Osborne&Clark said that they expect the compliance risk to be higher in upcoming years, while 70 per cent agreed that the spending on compliance will grow in the next five years.
- Russia sanctions – The Crimea crisis, caused by Russia in 2014, was a new chapter in the history of international sanctions, especially those imposed by United States and the EU. As we noted in 2017 “Russia is undoubtedly one of the most promising and attractive markets”, especially for companies from the EU. For many businesses in Europe, sanctions against Russia created a new environment. Sanctions concerned mainly finances, oil and gas and military industries. Importance of managing risks associated with dealings in Russia became evident in February 2020. A financial institution from the United Kingdom was fined GBP 20.4 million for working with one of sanctioned entities from Russia.
A real added value
Changing attitudes of consumers, new regulations, widespread usage of social media, environmental awareness, fair economy – the number of challenges that companies are facing nowadays seems to grow. Companies must understand even more complex reality and expect the unexpected more than ever. In first place they must understand the importance of due diligence in identifying risks in advance and mitigating them, by having competent compliance specialists onboard. Also, considering the fact that compliance degrees only recently appeared in the offer of universities outside legal curriculum, many experts still lack formal training and seek expertise outside. RFG/Refinitiv by providing up-to date and insightful due diligence services can play an important role in supporting its business partners, especially compliance departments, with managing all sorts of integrity risks.