It is 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. As just about every investment bank has had to write off billions of dollars during the global financial crisis, the focus on a more prudent investment strategy has never been greater.

While risk managers try to stop a bank’s employees indulging in behaviour that might lead to big losses, compliance teams are there to ensure banks are working in line with the regulations imposed in the country in which they operate. Since the financial crisis, regulators across the world have increasingly been baring their teeth. With regulators in different countries so far adopting different approaches, there have been increasing calls for more international coordination on how best to reform financial services regulation.

In the UK, the regulatory regime is in a period of flux, with the Bank of England in line to take on more responsibility and the Financial Services Authority soon to be succeeded by the Financial Conduct Authority and the Prudential Regulatory Authority. In the US, the Securities and Exchange Commission is the financial watchdog. In Asia, the Securities and Futures Commission regulates Hong Kong, while Singapore is under the watchful eye of the Monetary Authority of Singapore.

As well as individual country watchdogs, European firms are also regulated by the Committee for European Securities Regulation, the Committee of European Banking Supervisors and the Committee of European Insurance and Occupational Pension Supervisors.

“Overall, it is a very challenging environment. We need to be flexible and keep up with the ever-changing regulatory environment, as well as with the evolving products and services the firm provides,” says one chief operating officer at a US investment bank in Asia.

Roles and career paths

Risk management in investment banks is divided into different areas of risk.

Market risk

Of a group of traded financial products (e.g. stocks, bonds or commodities) falling in value simultaneously because of outside events, such as rising oil prices or terrorist attacks. Also known as ‘systemic risk’.

Credit risk

Of a particular company or an individual defaulting on their obligation to repay their debts.

Operational risk

Of a bank incurring damage or losses due to internal factors, such as systems breakdown or financial wrongdoing.

If you join an investment bank as a graduate trainee, you are likely to be ‘rotated’ around different areas of the risk function. Compliance roles in investment banks can also be divided into various categories.

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 is the control room compliance team that ensures they are stopped and watched.

Monitoring and surveillance

Scrutinising specific behaviour and transactions that might indicate fraudulent activity, such as insider dealing or manipulation of markets across the exchanges.

Anti-money laundering

Stopping money laundering (where the financial proceeds of illegal activities are given the appearance of being legitimate).

Pay and bonuses

The heightened focus on risk and compliance has meant that many teams are expanding, a development that has slowly translated into higher salaries. Risk managers and compliance officers who work alongside salespeople and traders typically earn the most. On the risk side, this means high-earning market risk specialists. And in compliance, sales and trading compliance professionals who specialise in the latest hot product can expect the biggest pay packages.

Skills sought

Perhaps slightly surprisingly, among the key attributes banks look for in their compliance recruits are good communication skills and an ability to build relationships, largely because of interaction with various divisions within the business.

“It is critical for us to be in compliance with both the spirit and the letter of the regulations that govern us, and always to maintain the highest ethical standards,” says James Peters, managing director, IBD compliance at Goldman Sachs. “We’re looking for insightful and persuasive people, who can work constructively with every area of the firm to protect our reputation, manage risk and advance our business.”

In risk, numeracy skills are a must. One risk manager at a bulge-bracket bank says: “You need good applied maths skills and an understanding of differential equations, as well as financial modelling skills. “We look for people who can identify the problem from the confusion that surrounds the business decision, model it and then improve the decision-making around it.”