eFinancialCareers

A steady pair of hands.

It’s up to risk management teams in investment banks to make sure the bank doesn’t take huge risks and therefore make huge losses in its pursuit of gigantic profits. With banks such as UBS, Merrill Lynch and Citigroup having to write off billions of dollars in risky investments over the past 18 months, the calming influence of risk managers has been sorely missed!

While risk managers try to stop the bank’s employees indulging in excessively risky behaviour, compliance teams are there to ensure banks comply with the regulations imposed in the country they’re operating in.

In the UK, the regulator is the Financial Services Authority (FSA). In France, banks must comply with rules laid down by the Banque de France’s banking commission (Comité Consultatif de la Législation et de la Réglementation Financières). In Italy, they have to listen to the central bank – Banca d’Italia, while in Germany, BaFin, which is overseen by the Federal Ministry of Finance, is the source of financial services regulations.

Roles and career paths

Risk management in investment banks is divided into different areas.
• Market risk: The risk that a whole group of traded financial products (for example, stocks, bonds or commodities) falls in value simultaneously because of outside events, such as rising oil prices or terrorist bombs. Also known as ‘systemic risk’.
• Credit risk: The risk that a particular company or an individual will default on their obligation to repay their debts.
• Operational risk: If you join an investment bank as a graduate trainee, you’re likely to be ‘rotated’ around different areas of the risk function. “Because risk can’t really be compartmentalised, it’s important to develop a versatile and mobile skill set,” says Michael Rutledge, executive director for credit risk at JPMorgan. “By rotating graduates, our over-arching objective is to provide close- up experience of a wide range of areas to get a feel for what they enjoy and what they’re good at.”

Compliance roles in investment banks can be divided into various categories, including:

•Sales and trading compliance: Working with a bank’s salespeople and traders to ensure their activities comply with the requirements of the local regulator. Sales and trading compliance pros are often product specialists – for example, they might specialise in bonds, equities or derivatives.
•Control room compliance: Centralised tasks such as maintaining the bank’s restricted list (which restricts confidential information to key individuals) and checking for abnormal or alarming dealing activity. Should certain staff be placed on ‘stop and watch’ lists, it’s the control room compliance team who ensure they’re stopped – and watched.
•Monitoring and surveillance: Scrutinising speciic behaviour and transactions that might indicate fraudulent activity, such as insider dealing or manipulation of markets across the exchanges.
•Anti-money laundering (AML): Stopping money laundering (where the financial proceeds of illegal activities are given the appearance of being legitimate).

Pay

The heightened focus on risk and compliance has meant that many teams are expanding and that banks have been increasing pay to attract the right people. Whether this will continue following the credit crunch is open to question, however.

Risk managers and compliance oficers who work alongside salespeople and traders typically earn the most. In terms of risk, this applies to high-earning market risk specialists. And in terms of compliance, sales and trading compliance professionals who specialise in the latest hot product (currently commodities) can expect the biggest pay packages.

Salary and bonus: junior compliance officer
London (3-5 years’ exp): £45k-£65k plus 30-70%
Paris (3-5 years’ exp): €45k-€60k plus 10-20%
Frankfurt: €50k-€100k

Salary and bonus: junior risk manager
London (2-3 years’ exp): £35k-£45k plus up to 10%
Paris (3-5 years’ exp): €55k-€65k
Frankfurt: €50k-€100k
Source: Robert Half Financial Services Group

Skills

“A keen analytical mind and an ability to interpret the application of rules, regulations and principles to speciic but diverse situations, scenarios and business models are key to succeeding,” says Andrew Morris, head of European risk compliance for Fidelity International.

Frances Goodchild, team leader for credit risk management at JPMorgan, says: “We look for key competencies that reflect the mix of soft and technical skills we need in potential future colleagues – do they have a desire for achievement? Are they lateral thinkers? Will they have the confidence to deal with senior people at an early stage?”

But according to Seung Earm, a vice-president of compliance at Goldman Sachs, one skill stands out above all: “Communication, communication, communication. You might be dealing with management and have only have five minutes to get your message across coherently – if you can’t do that, you won’t succeed.”

Click here and here to read profiles of analysts in risk.

Click here to find out about global trends in the compliance and risk management.