The following report provides an update on the key trends that we have observed within the Legal & Compliance market in Asia. It identifies emerging themes across various industries and details the major factors impacting hiring and talent movement.
2016 will be remembered for seismic change, market uncertainty and yes, some pretty big fines. The uncertainty reported at the beginning of 2016 intensified throughout the year as a result of the Brexit and the US presidential election. There was prolonged pressure on organisations to ensure that their internal governance and risk management controls were in good shape, and further regulatory reporting requirements and investigations created additional workloads on already busy in-house legal & compliance teams. As a result, hiring and recruitment within legal & compliance teams throughout 2016 remained buoyant despite being fairly subdued across many other sectors in Asia.
Within compliance teams, demand again outstripped supply last year. However, the focus of hiring, particularly within the investment banking industry, changed from frenetic ‘bums on seats’ to more strategic, middle management recruitment as teams sought managers to lead and develop teams. Candidates, at the Vice President level, with solid experience and management ability were in demand across all disciplines as cost-conscious banks and organisations replaced outgoing senior (and expensive staff) with more junior, inexpensive replacements. In areas of high demand, competitive bidding, buy backs and counter offers were prevalent, particularly in the areas of AML, advisory compliance, testing & assurance, and trade surveillance.
In times of change and insecurity, stability has been a key focus for many candidates. It seems uncertainty has become the new world order.
The rise of the General Counsel. Much has been written about the prominence and rise of the legal function in-house over the past few years, and 2016 saw no divergence from this. It is now the norm, rather than the exception, that the Head of Legal of an organisation will have a seat within the senior management team and be a trusted adviser to the board. Cost-aware businesses want their legal services carried out in-house and within budget by business savvy lawyers who understand the need to facilitate business yet also protect it from risk. Smart, commercially astute lawyers have continued to be sought after by a myriad of businesses, the following areas in particular were active during 2016:
ASSET & WEALTH MANAGMENT
Funds and private banking lawyers with Mandarin language skills and PRC exposure continued to be popular in 2016, and we expect this trend to continue in 2017.
Junior to mid-level product advisory lawyers, M&A lawyers, employment and litigation lawyers were in high demand following the increased activity in the equities markets, new employment regulations and investigations.
While the manufacturing sector has been subdued in Asia, other sectors have continued to enjoy growth including pharmaceuticals, fintech, healthcare, and education and in lesser-developed countries, new infrastructure has resulted in the need for lawyers with solid commercial experience.
The insurance industry is undergoing radical change and disruption. It needs to reinvent itself to face a changing distribution model (more online), increased regulations and potential growth in developing markets like China and Indonesia. As a result, in-house legal teams have quietly been building out and attracting lawyers from related industries such as retail and investment banking.
Last year, the extent of the disruption of financial technology was truly realised, with existing organisations investing a significant amount of time and money in fixing and updating their technology systems and platforms. Fintech and crowd funding startups and technology firms achieved reasonable growth in 2015, and therefore were active with their hiring efforts.
New trademark and patent legislation in the EU and China, along with the continued scrutiny on data privacy, will keep technology lawyers in demand.
While the M&A landscape is predicted to be subdued in 2017, with notable exceptions within the private banking and wealth management segment, Hong Kong is expected to remain active in capital raising through IPO’s and bond issuances, keeping both private practice firms and in-house investment banking legal teams busy throughout 2017. Moreover, activity is expected to be buoyed due to the HK - Shenzhen Stock Connect scheme.
Within the area of legal recruitment, organisations will continue to be cost conscious in 2017 despite the above areas being busy, with much of the work being brought in-house or outsourced to cost efficient centres, via LPO or in-house centres, in lower cost countries, such as the Philippines and India. In-house legal teams will need to be efficient and continue to be an effective partner to their business teams.
Despite the budget restraints and recruitment freezes prevalent in 2016, the one area that bucked these trends was the continued hiring of compliance experts in Hong Kong and Singapore. Remediation, investigations and due diligence projects have all continued to contribute to the hiring of compliance staff and the building out of existing teams. The focus has changed, but the future continues to look bright for compliance staff in 2017 and beyond.
Here are some recent trends we have observed and how they will impact compliance teams in 2017:
ASSET & WEALTH MANAGEMENT
In Hong Kong, the HK - Shenzhen Stock Connect launched on December 5th 2016, improving connectivity between the two capital markets. This allows overseas investors to buy A-shares in Shanghai via Hong Kong stockbrokers, while mainland investors can invest in Hong Kong stocks via mainland brokers. This represents a new, huge pool of liquidity for the Hong Kong Exchange and hopefully is the starting point of access for mainland capital for the Hong Kong market. Some clients are seeking to hire lawyers and compliance officers with Mandarin skills as a result of this market expansion.
The SFC introduced a 3-month consultation on proposals from November 2016 to enhance asset management regulation. Market participants and other interested parties are invited to submit their comments relating to the Fund Manager Code of Conduct and Intermediaries Conduct. This move to increase the protection of investors and ensure market integrity could see compliance teams adding headcount to manage the increased compliance burden.
In Singapore, MAS issued new outsourcing guidelines for financial institutions in 2016, which has driven licensed financial institutions to develop their outsourcing frameworks internally. In addition, MAS has recently set up its AML/CTF taskforce to focus exclusively on AML issues for all financial institutions in Singapore. This adds resource pressure on smaller financial institutions and previously less regulated entities that did not have to focus on these issues. As a result, there has been increased hiring from insurance firms, fund managers, as well as leaner financial institutions.
Experienced compliance officers with APAC regulatory compliance experience in fund management will continue to be sought after by firms this year. Candidates who possess PRC licensing experience will also be in demand by firms seeking to expand into, or enter, the mainland market.
Gender & Diversity
In 2016, 75% of our Legal & Compliance placements in Hong Kong and Singapore at the Director level and above were female.
2016 also saw a number of innovative reforms designed to recover tax revenues from companies as well as ultra high-net-worth individuals who use global banking platforms.
Regulators globally have been more proactive in the enforcement of breaches, and there have been unprecedented fines as a result of actions in the APAC region. Regulatory reporting will increase in 2017 across all licensed financial institutions, and there will be a need for new hiring from financial institutions with leaner legal & compliance teams.
Advisory compliance, AML, as well as compliance reviews will dominate this space. With the implementation of Common Reporting Standards and tax amnesty treaties, there will also be a growing number of tax compliance professionals in demand.
There will be an increase in AML hires across insurance firms, as well as a need for more evolved compliance officers in the technology space as insurance firms delve into digital applications to reach their clients. Data privacy, outsourcing compliance and technology compliance will be new skill sets needed within this space.
FCPA, anti-bribery and anti-corruption hires will continue to grow in demand.
Both Singapore and Hong Kong launched Fintech Festivals in 2016, an attempt to compete for the fintech market globally. MAS has also announced that it is partnering with R3, a blockchain technology company, and a consortium of financial institutions to conduct inter-bank payments using blockchain technology. This project could potentially create a payment system for participants to transact in different global markets round-the-clock that are today limited by time zone differences. The MAS has yet to fully define how fintech will be regulated to allow the startups to grow. In HK, the HKMA launched a regulatory regime known as a “sandbox” which allows fintech pilot projects by banks in the territory to operate without adhering to traditional supervisory requirements. The HKMA and UK FCA have entered into an agreement to collaborate on a number of initiatives to promote financial innovation.
While HKMA and MAS have relaxed their regulatory requirements to help the industry develop, a shift towards KYC, particularly in Singapore, will likely occur as the MAS has set up a taskforce solely dedicated to AML and KYC risks.
We are also seeing state-owned enterprises being subject to enforcement within their own jurisdiction. In China, as part of President Xi Jinping’s anti-corruption drive, the Central Commission for Discipline Inspection (CCDI) has launched investigations into at least 26 central government-owned State Owned Enterprises (SOEs). These investigations have implicated more than 100 officials from China’s largest SOEs, such as PetroChina, Sinopec and China Resources. In October 2015, the CCDI announced plans to inspect all major SOEs in the financial services sector. These include the People’s Bank of China, the central bank, China’s stock exchanges, and China’s banking, security and insurance regulatory commissions along with state-owned banks and insurers. These trends will lead to compliance teams hiring more China specialised Compliance professionals to focus on China related matters.
The Trump administration has promised a less regulated environment for global banks. The impact of such a move on in-house teams will have to be seen – either way, deregulation (while some way off) will still require organisations to have competent teams in place to interpret regulatory changes, implement processes and ensure full reporting requirements are met.
World's Biggest Banks Fined US$321 Billion Since Financial Crisis
According to BCG and bloomberg.com, “Banks globally have paid $321 billion in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing... Banks paid $42 billion in fines in 2016 alone, a 68 percent rise on the previous year.”
Clients spoken to during 2016 have mentioned that retention of key talent was a top priority for them as managers. In a recent survey jointly conducted by Profile Search & Selection and Roffey Park, a leading UK leadership institute, up to 70% of applicants indicated they were open to changing jobs. Below are some of the issues and motivators stated as reasons for seeking a new role:
Candidates have reported a lack of connection and direction from management as the key drivers of unhappiness. Ambiguous leadership and management can seriously undermine a department and team.
Hours/Flexible Work Practices
45% of applicants reported stress and long hours as sources of their unhappiness. There has been a noticeable shift towards “work/life balance” and flexible working arrangements when candidates consider a new role.
Stability/Lack of Prospects
A lack of stability and clear focus has caused many candidates to seek out more stable and well-established environments.
Candidates in the market often want to remain ‘employable’ with many concerned about over specialising in niche roles. A large multinational or investment bank brand no longer denotes job security, and candidates are becoming more and more wary of organisations that do not have an established presence in Asia, strategy or focus. Compensation, while always an important component of a new offer, tends to rarely be the sole contributor to someone leaving. This is evidenced by counter-offers being accepted by addressing the initial motivators for an employee to seek external opportunities - such as wanting a broader role, management responsibilities, a promotion etc.
Some clients are embracing the following solutions within their organisation, which can help with retention and hiring the best talent:
1. Stronger communication from management, especially in relation to change management
2. Breakdown SILO mentality/politics
3. Connect with and appreciate staff - tap into what is important to them
4. Clearer direction and better branding of the organisation; a values driven culture is more likely to encourage innovative business risk
5. Encourage management training
6. Provide career prospects
IMPACT ON SALARIES
Budget constraints are impacting the salaries of current employees. Current employees have received minimal or no increases in their salary as many organisations are diverting resources and budgets to attracting and hiring new talent.
Legal & compliance candidates remain in demand and view moving to another organisation as the only option to increase their compensation. Candidates are demanding as much as 15 to 30% when moving.
The structure of compensation packages is changing in order to protect the employer. Long Term Incentive Plans (LTIPs), claw-backs and deferred bonuses are becoming more commonplace for mid-senior levels.
Bonuses for 2016/2017 have generally been flat, if not down on last year. Some managers have given top performers a higher portion of the bonus pool to try to retain their best talent.
FORECAST: THE YEAR AHEAD
With a new US President and Brexit, a larger number of candidates from the US and UK will look to move to Asia in 2017. This will culminate in both higher internal moves as well as a larger candidate pool for external hires. With the UK and US markets turning inwards, there will be a greater influence in APAC from China across all businesses, resulting in an increased need for Mandarin speaking professionals.
Bank hiring in legal & compliance is expected to be more focused on select hiring. With increased regulatory guidelines and limited headcounts in 2017, there will be more selective hiring with a focus on legal counsels and compliance officers that have good judgement skills and the ability to work with business stakeholders. The “checklist” legal and compliance officers will become a much lower priority.
Fund managers, insurance firms as well as other less regulated entities will also selectively increase their legal & compliance headcounts. As regulators in the region expand their scope and implement guidelines on issues such as outsourcing and AML, smaller financial institutions and previously less regulated entities will need to expand their lean teams to cope with these new reporting requirements. From a candidate perspective, more candidates from large, sell-side institutions will move across to smaller, less regulated entities for perceived stability and work-life balance.
As we enter 2017 with uncertainty and headwinds, clients will focus on the growth opportunities in APAC. There will be an increasingly high need for legal and compliance candidates who can hit the ground running, who have demonstrated experience in dealing with Asian regulators. With the changing business landscape of fintech, digitisation of processes and, increasing cross border regulations, the need for an effective legal and compliance officer who is able to apply his judgement to new applications will remain high. This makes recruiters more crucial than ever - as the judgement of a good recruiter must be able to discern these soft skills, which only comes with years of knowing the candidate and years of judgement.