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How the Chief Compliance Officer role is transforming across Financial Services

A Function in Transition




​The New Face of Compliance:

Changing Talent Requirements in Financial Services

As regulatory pressures intensify around the world, the financial services sector is seizing the initiative by boosting investment in its compliance functions. The impact of increased regulation on the sector is well documented. Less clear, though, are the implications for compliance roles and talent requirements.

To better discuss the changing role of compliance, Russell Reynolds Associates has analyzed the profiles of more than 72 Chief Compliance Officers (CCOs) in banking, insurance and asset management.

Our research shows increased investment in compliance functions across each of these sectors. It also reveals a major shift in the composition of these functions, with a surge of external appointments to key roles over the last two years.


A new wave of Chief Compliance Officers have entered financial services 

Seven years post-financial crisis, the compliance function in financial services remains under heavy scrutiny. For all of the attention that has been paid to optimizing compliance, we believe this much-examined function has yet to reach full maturity. Nowhere is this more evident than in the startling turnover of Chief Compliance Officers in the last two years. 35% of the companies we examined appointed a new CCO after 2013, and 43% of these hires were external.

These findings point us in two key directions. First, financial services companies are deeply interested in overhauling the compliance function; second, they are dissatisfied with their own compliance talent pools. We see a collective search for a more change-oriented, risk-savvy compliance function, with companies clearly signaling the need for a visible shift by bringing in outside executives. This trend is as fascinating as it is unsustainable – organizations will be eventually challenged to develop richer compliance talent internally.

While CCOs are often drawn from law firms and the regulatory realm, cross-pollination between financial services sectors remains a rarity 

Our research shows that banking, insurance and asset management CCOs tend to have backgrounds dominated by their current sector, with very limited movement between these sectors. Oddly, all three groups of firms are more willing to hire from law firms and regulators, reflecting a relatively rigid view of “feeder” roles into the CCO role. However, as regulation for banks, asset managers and insurance companies converge combined with the increased maturity of the talent pool for senior compliance leaders, we expect to see more movement between the three sectors.

Banking CCOs: Rise of the broad-minded business partner

The compliance function in banking is, compared to other financial services sectors, further along the lifecycle curve. In practical terms, this means that banking CCOs are increasingly focused on driving cultural change, rather than simply managing their institutions’ approach to regulation. Historically, the compliance function was a world where the least charismatic sat, the ones who knew process but did not have to interface on a regular basis with business leaders or regulators. However, changes in banking regulation has thrust three crucial needs upon banks all at once – the need for leadership, the need for an advanced understanding of transactions within the digital realm, and the ability to manage regulators on a day to day basis. All these means a cry for a new type of compliance officer.

As a result of these changes, we see this shift manifested in the functional leadership backgrounds of CCOs appointed before 2013 versus those in the last few years.

Gone are the days of principally legal and compliance executives nabbing the top job in the compliance function – For instance, before 2013, 55% of appointees had legal experience and 45% had compliance experience. Since 2013 just 29% of appointees had legal experience and 24% had compliance experience.

Filling the gap were broader-focused appointees from consulting, risk and audit. This new breed of appointees would be well-positioned to contextualize compliance (and the associated cultural change) in the wider picture of the organization. We see the ability to think broadly in the overall functional profiles of current banking CCOs –fully 42% of recent appointees came from “middle office” roles such as operational risk, internal audit, as well as external consulting firms, where competencies such as defining compliance strategy, financial discipline, change management and building credibility with regulators, were integral parts of the role.

Asset Management CCOs: Compliance begins to come of age

Historically, despite the close connection between investment risk and operational risk in the asset management sector, investment-related risk has remained the responsibility of investment teams in these businesses. CCOs (and their Chief Risk Officer colleagues) have accordingly remained very closely aligned with Legal, and somewhat siloed as well as a result. We see this in the backgrounds of asset management CCOs: 68% have held compliance roles in asset management, 41% have held legal roles in asset management, 38% have worked for a regulator, and 24% have worked for a law firm.

Fully 71% have only worked in one or two functions. Nowhere do we see the multifaceted “business side” focus that is so common among banking CCOs – asset management CCOs have traveled a clearly circumscribed path to their roles.

That being said, we are witnessing an interesting trend at a number of large to mid-sized asset managers, wherein the compliance function is being separated from Legal. We believe as this trend picks up momentum, we will see CCOs in asset management whose backgrounds are more varied/more business-focused.

Insurance CCOs: still early days

The compliance function in insurance companies is still in its infancy. Indeed, less than half of insurance companies have dedicated CCOs.

For the majority of insurance companies without a dedicated compliance function, responsibility for compliance sits with the legal department – 78% of such firms have a General Counsel overseeing the compliance function, with the remainder placing compliance under the Chief Risk Officer.

Insurers with a standalone compliance function tend to appoint safe-choice candidates to the CCO role. In fact, eight out of the ten of the insurance company CCOs we profiled have previously held a compliance role at a bank, insurer or other financial institution.

Insurers face many of the same compliance challenges as banks and asset managers, including operational risk, cyber-security, anti-money laundering, regulatory risk, asset liability management and digital. We expect insurers to demand increased capabilities in these areas in their compliance functions in the future.

Priorities are changing… with strong implications for talent

Our conversations with current CCOs highlight the growing importance of anti-money laundering, operational risk and cyber security on the compliance agenda. Current CCOs rarely have significant experience in these areas, and we are starting to see increased hiring to address these capability gaps. In particular, we expect cyber security to become a separate center of competence within the compliance function.

The key compliance priorities and resulting talent implications identified by our research are set out below, reflecting the different levels of compliance maturity within the respective financial services sectors.

What’s next for financial Services CCOs?

 

Methodology

This report is based on Russell Reynolds Associates’ analysis of the profiles and backgrounds of Chief Compliance Officers working for the largest banks, asset management firms and insurance companies in North America, Europe and Australia – areas where regulatory pressures are greatest.

Authors

Cynthia Dow leads the Legal Officers Practice at Russell Reynolds Associates, and is also a member of the Consumer and Board & CEO Sectors. Cynthia focuses on general counsel, chief legal officer, chief compliance officer and other Board and corporate governance assignments across a broad range of industries. Her clients range from Fortune 500 organizations to portfolio companies of leading private equity firms. She is based in New York.

Jason Lim is a Knowledge Associate in the firm’s Financial Services Sector. He is based in Hong Kong.

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Discover more about our expertise in

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We recruit, develop and advise leaders who can embrace new business models, boost the morale of their organization and address the heightened expectations of shareholders, regulators and other stakeholders.
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How the Chief Compliance Officer role is transforming across Financial Services