Banks, asset managers and insurance companies are experiencing “startling turnover” among chief compliance officers just as these firms are increasingly narrowing their recruiting efforts to compliance officers with expertise in anti-money laundering, cybersecurity and operational risk — which is narrowing the CCO talent pool, according to a recent survey from Russell Reynolds, a large recruiting firm.
According to the survey, 40% of asset management CCOs were appointed in the last two years, with nearly 60% of those appointed coming from outside the firm rather than from internal candidates, thereby “signaling the need for a visible shift by bringing in” outside executives.
Russell Reynolds notes that in conversations the recruiting firm has had with current CCOs, they are highlighting the “growing importance” of anti-money laundering, operational risk and cybersecurity on the compliance agenda.
However, because current CCOs “rarely have significant experience in these areas,” Russell Reynolds is noticing that firms are “hiring to address these capability gaps.”
In particular, the recruiting firm says it expects cybersecurity to become a “separate center of competence” within the compliance function.
Asset management firms have now also moved toward separating the compliance function from the legal function, the Russell Reynolds survey notes, with the survey also noting an increased investment in compliance functions across financial services.
Russell Reynolds analyzed the profiles and backgrounds of CCOs working for the largest banks, asset management firms and insurance companies in North America, Europe and Australia – areas where the recruiting firm says the “regulatory pressures are greatest.”
Historically, the survey notes, “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.”
Russell said that the firm sees 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, the survey says, “but 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, Russell adds that the firm is “witnessing an interesting trend at a number of large to midsize asset managers,” wherein the compliance function is being separated from legal. Said Russell: “We believe as this trend picks up momentum, we will see CCOs in asset management whose backgrounds are more varied/more business-focused.”
What’s more, all three groups of firms have historically been more willing to hire from law firms and regulators, “reflecting a relatively rigid view of ‘feeder’ roles into the CCO role,” Russell notes.
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.”
The survey also found that the compliance function in insurance companies is “still in its infancy,” with less than half of insurance companies having dedicated CCOs.
For the majority of insurance companies without a dedicated compliance function, responsibility for compliance sits with the legal department, the survey found, with 78% of such firms having a general counsel overseeing the compliance function, and the remainder placing compliance under the chief risk officer.
Eight out of the ten of the insurance company CCOs Russell profiled have previously held a compliance role at a bank, insurer or other financial institution.
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