Talent and skill is the fabric of your brokerage – Guest Editorial

Reece Pawsey is Co-Founder and Director of London-based FinTop Consulting. He is an experienced recruitment leader whose company is a prominent specialist recruitment consultancy for Finance, FinTech and Compliance roles worldwide.

Imagine if you had decided you wanted to build a Fintech firm. Where would you start? Would you acquire a big head office and a number of places where you could place offices for clients? Or would you – more likely and smarter – start a challenger by building an app?

This dilemma is what faces modern banks, brokerages and financial technology today today. Many banks still have branches and maintain a physical relationship with their clients – even if they know that most of the clients are really not interested in visiting the bank to do their banking.

The needs from both individuals and companies for financial services has changed. Why would you want to borrow money from a bank, when you via an app can get the loan from the community around you? Why would you call your broker and ask him to invest for you, when you can cut out the middleman and do it yourself from an app?

As we look from the outside at the disruption of the Financial industry it might be easy to think, that if you want to build a bank you can just start a FinTech company and make an app.

But of course this is not what’s going on. Banks have always been able to adapt to the changes in their business environment. They have perhaps not always done it swiftly, but they have survived.

From the standpoint of our business in the talent acquisition and talent manager world, we believe the financial institutions will need more IT-bright talents and the FinTech industry will need more financial-bright talents.

This is not just a matter that affects disruptive new companies or challenger banks, however as the importance of technical astuteness and its hold over existing brokerages is very much part of our current landscape, regulatory and compliance management being one to bear in mind.

Day rates for contractors with over six years experience in trade surveillance or communications surveillance – two aspects which have required substantially higher amount of human resources over the past three years due to measures put in place to monitor and stop rate manipulation by inter-bank traders by use of messaging services. As a result, day rates have been as high as £650 per day

Regulators in England, America, the APAC region and Australia are now even investigating the possibilities of monitoring social messaging applications such as the WhatsApp accounts of interbank dealers as well as the institutional terminals used to transmit messages internally and between institutions.

Almost exactly a year has passed since the Swiss National Bank removed its 1.20 peg on the EURCHF pair, the aftermath of which caused institutions and liquidity providers to assess credit risk, and this year, compliance consultants hired to perform credit risk and stress testing roles rose over the past 3 years by 6.3% to £850 per day.

It is clear that London’s bank and non-bank institutions are very much committed to ensuring that they maintain the top quality reputation worldwide, and are willing to commit fiscal resources to it by paying higher day rates for specialist consultancy services.

The downside is that whilst banks which handle a large proportion of interbank FX order flow such as Barclays, HSBC and RBS may well have to pay these rates, it comes at a time when the bank sector is looking toward prioritizing the Asia Pacific region over London, and after a year of regulatory fines and class action litigation running into the billions and a year of lower volumes and sweeping redundancies.

In the institutional FX sector, The Salary Survey” showed that day rates for consultancy and contract positions in certain senior compliance roles would rest at £1,200 per day, and middle-management or internal compliance roles would to £700 per day. That is a lot more than many brokerages pay key revenue-generating executives.

This is not surprising, especially when considering the silent fear that exists within many regulated companies with global offices that they are completely reliant on their ‘responsible officers’ – a compliance sector term for employees that are responsible for regulatory adherence and oversight within a company and hold the license on behalf of a company.

Let’s take an area with very well recognized regulation and a technically advanced regulator, Australia, as an example.

In Australia, which has over the past few years become one of the world’s most highly respected regions for FX and CFD companies, largely due to its very high quality commercial leadership within our industry, its close trade ties to the Asia Pacific region and the tenacity and technological advancement of the Australian Securities and Investments Commission (ASIC), a considerable reliance on responsible officers has arisen.

Indeed, this reliance has culminated in many firms becoming very much at the mercy of their responsible officers, particularly international electronic trading companies with offices in other parts of the world, as well as an ASIC licensed office in Australia.

Changes in recent years from Australia’s highly respected financial markets regulator around assessment of responsible managers within licensees is creating all sorts of confusion for licensees,The Fold Legal solicitor Jaime Lumsden Kelly commented recently that, in the past, ASIC did not routinely assess whether a responsible manager within an advice licensee met the competence requirements of the law, and that licensees assessed and maintained their own organisational competence.

However, according to Ms Kelly, this has changed in recent years. “While an RM is still legally appointed from the date the licensee determines, whether they remain on the licence is increasingly subject to ASIC’s review and opinion,” she said.

“Before a licensee can be sure that a responsible manager will remain on their licence long-term, that person will be assessed by ASIC. They review a detailed history of that person’s experience to determine if they are competent to oversee the provision of financial services or credit activities.

“This means that ASIC is effectively reviewing whether licensees are complying with their organisational competence obligations in light of the experience of its RMs.” Ms Kelly said ASIC’s new process has created uncertainty and both licensees and RMs are hesitant to fully commit to a role until ASIC has rubber-stamped the
arrangement.

Further, licensees are increasingly reluctant to employ responsible managers, because they aren’t sure if they will have ongoing work for them and, similarly, potential responsible managers are reluctant to accept an employment offer from a licensee if they can’t be sure of job security.

“The problem is exacerbated because it can take ASIC four to 12 months to process changes to responsible managers. These delays make it difficult for licensees and potential RMs to maintain a ‘holding pattern’ while ASIC completes its review. It also raises several questions,” Ms Kelly said.

“When should a licensee secure a responsible manager? What if the responsible manager gets a better offer? What happens to their licence if they lose an RM as they wait? Do they need to find a new RM and start the process all over again? What if that person can’t easily be replaced?”

This is a byproduct of the operational validity of brokerages being dependent on having a responsible manager onsite as one of the stipulations of maintaining an ASIC license.

Whilst it is a very good thing that ASIC requires a local responsible officer to be actually liable for his employer’s conduct and to be the subject of ASIC’s electronic surveillance and reporting, it does mean that by default, many of them now realize that they have significant control over brokerages, such a key component is their role.

Many people I know in the industry have met license holding responsible officers from London, Sydney and European regions in the past who have openly admitted that they do little work and are in a very complacent position of their employer actually being at their mercy, which is never a good position to be in as it hampers scalability.

It is relatively well known that Australian clients can often be viewed as high maintenance considering that the protections in place as well as the level of investor knowledge in Australia being high, thus we asked a compliance manager with over 25 years worth of expertise in Australia if Australian retail customers still being targeted by local brokers or are the brokers focusing on international markets.

“It will get worse as ASIC are attempting to bring n mandatory trade analyzing, with every FX broker soon to pay $1 per trade to send to a third party firm who will record and monitor each and every trade in Australia. Its designed to stop money laundering. It will kill the industry except for the very big players. These big players are rumored to have convinced ASIC they can regulate themselves, which seems ridiculous and grossly unfair” is a comment that I have received from a stakeholder in the region.

I particularly single out the Antipodes because Australia’s retail FX industry deserves its very high quality reputation, however let’s hope that its brokerage businesses, especially the small to medium sized participants, do not see this de facto control by employees in positions of apparent power combined with this view that large firms will be the only viable entities, and that they stay in Australia instead of being tempted offshore.

This methodology and thought should apply to every firm in every important financial center globally, hence it is most important to invest in proper procedure and the right professional people and get it right, to avoid us taking massive steps backwards.

The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.