Banks Trimming Compliance Staff as $321 Billion in Fines Abate

  • Lenders cutting compliance jobs for first time since crisis
  • RBS is preparing to cut as many as 2,000 compliance employees

Banks' Compliance Teams Shrink as Fines Decline

Global banks are paring back staff tasked with detecting wrongdoing for the first time since the financial crisis, ending a hiring boom that accompanied $321 billion in fines, as technology replaces employees and penalties wane.

Royal Bank of Scotland Group Plc is preparing to eliminate as many as 2,000 jobs checking new customers for suspicious traits as it digitizes the process. Other lenders are also replacing compliance staff with computers as they face pressure to cut costs, including UBS Group AG, according to a person familiar with the matter, who asked not to be identified because the matter is private.

“The overall number of people in compliance is absolutely reducing,” said Anne Murphy, head of U.K. financial services at executive-search firm Odgers Berndtson. “Banks are better able to deal with regulatory requirements. They’ll always need people to provide judgment, but a lot of monitoring and surveillance activity can be automated.”

Banks globally have paid $321 billion in fines since 2008 for regulatory failings from money laundering to market manipulation and terrorist financing, according to data from Boston Consulting Group. The related hiring spree for compliance staff comes to a close as banks move past the worst of their misconduct charges and dwindling revenue necessitates the use of technology to control costs at departments once protected from cuts.

Keep Calm

“Panic mode is over now,” said Harry Chetwynd-Talbot, a consultant at headhunter Hedley May who specializes in compliance hiring. “It’s the only part that’s been immune to cost pressure since the crisis. Now organizations are looking at massively inflated risk, compliance, legal functions and thinking ‘we haven’t solved the issue yet, but the answer isn’t to just chuck more people at it.’”

RBS has about 2,000 staff running know-your-customer checks, and will be able to eventually automate that function and only keep a few people to handle issues, Chief Financial Officer Ewen Stevenson told analysts last month. The cuts would represent as much as 2 percent of RBS’s total headcount, which stood at about 79,000 at the end of 2016.

Deutsche Bank AG Chief Executive Officer John Cryan said in early February that the current boost to his firm’s anti-money laundering staff won’t be permanent as certain procedures that need to be carried manually will increasingly be replaced by digital processes. The lender has already scaled back its hiring plans.

Deutsche Bank’s executive in charge of preventing financial crimes and money laundering, Peter Hazlewood, stepped down in January after he was blocked from almost doubling the number of staff at his unit, people familiar with the matter said at the time. Seeking to strike a balance between cutting costs and avoiding more legal battles, the bank approved 400 new hires from a proposed 600, the people added.  

Front Line

Zurich-based UBS is using technology to lower headcount at its compliance department, said a separate person with knowledge of the matter. Meanwhile New York-based JPMorgan Chase & Co. plans to keep its compliance headcount steady in Europe, while hiring selectively, according to a person with knowledge of the matter.

While technology will replace jobs in the future, it will be critical for banks to keep some internal policing roles, according to David Carbery, a specialist in executive-compliance hiring at search firm Shadowhound.

“The positions that are safe for the foreseeable future are the front-line compliance officers -- those on the trading floors offering advice,” Carbery said.

HSBC Holdings Plc expects spending on regulatory programs and compliance to peak at about $3.3 billion in 2017 after surging in recent years, as improved IT systems help the bank to grow without adding costs, CEO Stuart Gulliver said last month.

“The banking industry is likely to employ less people,” the CEO said on a call with reporters at the time. “As more technology comes in, and more robotics are used, the efficiency will go up and the number of people employed in the industry will go down.”

Read more: How banks use data to stop rogue traders before they act

Morgan Stanley President Colm Kelleher agreed at an industry conference Tuesday that banks’ compliance costs are probably poised to recede. Expenses were elevated at many firms as they overhauled systems -- investments that are now reaching fruition, he said.

The U.K.’s exit from the European Union does pose a risk that rules in the region will diverge. But Kelleher said there’s also reason for optimism: As firms shift operations from London to the Continent, authorities in countries where credit is predominantly provided by banks may grow more comfortable with market-based lending, potentially easing some of the regulatory burden that has constrained securities firms.

Banks are also turning to technology providers to crunch data and improve the effectiveness of existing employees.

“Before all you could do is throw people at the problem,” said Erkin Adylov, CEO of technology company, Behavox. “Now banks are using the gains and efficiencies from technology to focus on how you solve the problem. With the same workforce you can do way more.”

— With assistance by Jan-Henrik Foerster, Steven Arons, and David Scheer

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE