Bank Technology News  |  May 2008

By Michael GrebbýMIchael Grebb

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Financial institutions wade through an ever-deepening regulatory swamp, William J. Fox sees an escalating war for compliance talent. “There isn’t a day that goes by that three or four of my folks don’t get called by a headhunter,” says the Bank of America svp and global anti-money-laundering executive. “But we haven’t lost a lot of people—knock on wood.”

There are a lot of bank executives knocking on wood these days, hoping to keep rivals away from their talent as the hunt escalates for well-rounded compliance executives who can manage the USA Patriot Act, which boosted banks’ obligations under the Bank Secrecy Act, anti-money laundering and Sarbanes-Oxley rules, and Red Flag guidelines issued by the Federal Trade Commission and the federal financial institution regulatory agencies.

JPMorgan Chase CCO Jeff Reitman says that good compliance officers are emerging as stars. “We’re competing for the top people in the industry,” he says.

But all this regulation has some bankers feeling that they have, in fact, been unfairly deputized. “You kind of get the feeling that the government is looking at us and wanting us to do it all,” says Fox, the former director of FinCEN, the Financial Crimes Enforcement Network of the Treasury Department, which is tasked with overseeing money laundering, fraud, terrorist funding and drug-trafficking.

The trouble is, there just aren’t enough experienced compliance people to go around. “These are high-stress, be-on-the-top-of-your-game-all-the-time kind of jobs,” says Kathryn Reimann, chief compliance officer of Citi’s Global Consumer Group. “The issues come at you at a rapid pace. You’ve got to be able to multi-task. And you’ve got to be kind of a jack-of-all-trades because of the need for business knowledge, people management and compliance skills.”

Jennifer Herrmann, partner in the Philadelphia office of executive-search firm Spencer Stuart, finds that law and government experience are in particularly high demand for compliance positions. “Institutions want very good technical people who know the regulations, but who can also really communicate with the business side. They’re on the front lines. They have to have presence, and with this comes more prestige in the role and more compensation,” she says.

Indeed, the increasing importance of compliance positions has dragged them out of the personnel wilderness and into the boardroom. Bert Ely, principal of financial consultancy Ely & Co., says the higher profile role of chief compliance officers is important since CCOs must communicate—in a diplomatic fashion—how the compliance burden drains bank resources away from other more effective law-enforcement efforts. Suspicious-activity reporting alone grew some 600 percent from 1997 to 2006. “If we’re spending time on all of these nitpicking details, we’re not prioritizing these issues,” he points out.

Fox agrees wholeheartedly. “Banks don’t have unlimited resources,” he says. “The more the government asks us to step up, the more we have to make choices.” Deloitte reached a similar conclusion in its 2007 bank survey, noting that “compliance-spending claims financial resources that could have been invested to enhance customer service, develop new products and expand market share. Similarly, many executives said that technology initiatives designed to drive increased revenue or upgrade risk management had been delayed over the past three years due to the priority that has been placed on compliance-related projects.”

Richard Riese, director of the Center for Regulatory Compliance at the American Bankers Association, observes that the demand for good talent, and the shortage, is driving up salaries: “There’s a premium on people who know the regs and can work with people within the bank.” As people are lured to other institutions, “finding a replacement is harder and harder.”

While “geography always plays” into compensation figures, Herrmann says, “these are highly competitively paid positions now. …Salaries for compliance officers are getting more competitive.”

Total cash compensation across all size institutions averaged $158,400 in 2007 for the top risk and compliance professionals, according to Mercer. For banks with $3 billion or less in assets—about 99 percent of banks—average salaries have risen 15 percent since 2002, according to the ABA. That growth is especially impressive given that, according to a January 2007 report from Hewitt Associates, salary growth across all financial-services firms has remained flat since 2004.

CCOs at the largest banks can now make “well into the seven figures,” with many senior compliance officers earning $300,000 and up, says Herrmann. Large institutions are also among the more generous when it comes to bonuses. Some 79 percent of compliance officers received bonuses in 2007 at banks with less than $20 billion in assets, compared to 92 percent at bigger banks, according to the ABA.

It’s an expensive undertaking for banks. According to a 2007 Deloitte bank survey, adding the human dimension to the technology-heavy compliance mix has greatly outpaced adoption of automated systems, boosting overall compliance spending from 2.8 percent of net income in 2002 to 3.7 percent in 2006. Deloitte reports that the biggest banks spent $83.4 million, on average, on compliance in 2006—up from an average of $44.8 million in 2002. That’s an 87 percent increase in five years.

Deloitte reports that 60 percent of institutions’ direct compliance spending was spent on staff compensation, with an additional 19 percent allocated to out-of-pocket expenses for consultants and vendors. Only 18 percent was spent on capital expenses, such as IT systems, hardware and software.

Despite the costs, the fight for talent makes devising a coherent recruiting and retention strategy vital. With this in mind, Fox says BofA strives to make the jobs as interesting as possible, and emphasizes the critical role compliance plays. “If people have engaging jobs, they’re likely to stay happy,” he says. “I like to talk to employees and tell them what a difference they are making,” lest they consider their jobs “a paper chase and a grind.” Without such an approach, Fox figures it’ll be more difficult to carry out his plans to boost his 152-employee AML crew in 2008 by 33 percent.

Reimann agrees with Fox’s approach to morale. “Some of the more exciting aspects of our jobs include things like educating regulators about our business and finding ways to work with them to find solutions,” says Reimann. “When you talk about keeping compliance officers happy and retaining them — making sure they know what they’re doing is a value-added exercise — goes a long way.”

To improve the working environment and prevent burnout, Reimann adds that it’s important that everyone in the organization understands that compliance is a shared responsibility. “That way, you don’t run into the situation where the compliance person feels that he or she has the burden of the entire world on their shoulders, and anything that goes wrong is their fault, or they’re accountable,” she says. “The accountability has to be shared. That’s one of the big destressers in this industry.”

Given that the myriad compliance issues for banks aren’t disappearing, some leaders are thinking long term when it comes to grooming talent. For instance, JPMorgan Chase recently partnered with the Cardozo School of Law in New York City in an internship program to better prepare future compliance officers at financial institutions. For 10 weeks this summer, five Cardozo law students—and future JPMorgan compliance staffers — will work side-by-side with the bank’s seasoned compliance staff. “That’s a way of us bringing in more resources, which should really help us over time,” says Reitman. His department interviewed 110 candidates for those five positions.

Nurturing the next generation is key, Reimann agrees. And part of that is explaining that compliance is more than green eyeshades and endless paperwork shuffling. “It has not been around long enough that we’ve got people coming out of law schools or business schools or even colleges, saying ‘I want to be a compliance professional,’” she says. “It’s in an evolutionary phase. We’ve got to be better at thinking of development and recruiting in the same way that other professions do.”

Finding good compliance talent can be even more challenging for smaller institutions. “[Community banks are] having trouble finding compliance people and retaining them,” notes Chris Cole, senior regulatory counsel at the Independent Community Bankers of America. In fact, the ABA reports that two-thirds of banks with less than $500 million in assets had one person—or sometimes only part of a single staffer’s duties—devoted wholly to compliance. And among banks with between $1 billion and $20 billion in assets, half had compliance staffs numbering between two and five people.

In a recent survey on community-bank competitiveness by the ABA, community bankers overwhelmingly ranked chief risk officers and chief compliance officers as the two most difficult positions to fill.

Some community banks are turning to other outside resources. “Smaller institutions may not have the in-house resources or subject-matter expertise needed to stay on top of and address the continually changing regulations and requirements in an efficient manner,” says Dave Roy, general manager of banking for Wolters Kluwer Financial Services, which recently released a “Practical Guide to Bank Compliance” to help walk bankers through the rules.

Meanwhile, ABA’s compliance phone hotline, staffed by two in-house compliance experts, fields a majority of calls from lone compliance officers at community banks, says Riese. “Being a one-person shop is a very challenging job,” he says. “At times, you feel like you’re on an island.” When a community bank has just one compliance expert in-house, losing that person can be debilitating for the organization. “Some of them take months to find someone in the market,” he says.

Just ask William Loving, CEO of Pendleton Community Bank, which operates three branches in West Virginia and one in Harrisonburg, VA. The institution, he admits, has had “a challenge” in retaining compliance officers. “We’ve decided to start training them in-house and obviously try to keep them,” he says. “But you run the risk that once you train them, you lose them.” (c) 2008 Bank Technology News and SourceMedia, Inc. All Rights Reserved. http://www.banktechnews.com http://www.sourcemedia.com

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