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It's all about controls

It's all about controls

Compliance. Systems. Controls.

When Bob Diamond appeared in front of the Treasury Select Committee yesterday, in between averring his love for Barclays, he admitted that the bank’s “systems and controls weren’t strong enough,” and that compliance should have been informed of the LIBOR low-balling. In situations where compliance was informed, the issue doesn’t appear to have been appropriately escalated.

As Nomura  analysts point out today, Barclays isn’t alone in being exposed to LIBOR litigation. This is an industry-wide issue. In Canada, RBS, HSBC, Lloyds, JPMorgan and Citi have all been compelled to submit records related to Yen LIBOR submissions.  In Singapore, the head of delta trading at RBS’s global banking and markets division (as it was then known), has alleged that the bank condoned collusion between its traders and LIBOR rate setters to maximise profits. What is an issue at Barclays, is an issue elsewhere.

Did Barclays – and by implication the other banks – have enough risk, compliance and control staff to rein in its traders?

Ostensibly, yes.

In March 2010, subsequent to Barclays’ equities hiring push, Dixit Joshi said two thirds of the 700 people the bank had hired the previous year had been for “infrastructure” roles. Only a third of the new hires had been revenue earners.

Equities isn’t rates or treasury and none of those 460 new infrastructure staff would have been in a position to restrain Barclays’ LIBOR setters.  However, the ratio of 30% revenue generators to middle and back office staff holds across the industry, and we can assume it was replicated in divisions implicated in the LIBOR scandal.

Actually, risk and control staff are still outnumbered 

And yet this number is misleading. When banks say 70% of their staff are in middle and back office roles, they’re including the quantity of people who work in technology.  A more detailed breakdown, provided helpfully by JPMorgan reveals that salespeople and traders actually outnumber risk and control professionals. Hence, JPMorgan said it had 2,500 salespeople last year, along with 2,000 traders and 800 researchers, but only 4,000 control and risk professionals. By comparison, it had 13,000 people in technology and operations.

Following the LIBOR scandal and the issues at JPMorgan’s CIO, which also amounted to a controls failure, hiring is likely to step up.

Recruiters in London say compliance hiring is already comparatively strong and that few compliance staff are losing their jobs. “Defensive registrations [from people who have been made redundant, or think they’re going to be] only account for 16% of our compliance candidate registrations,” says Sasha Hughes, a compliance specialist at recruitment firm Barclay Simpson.

“Compliance is still a very buoyant hiring market,” confirms Priya Mariannie at recruitment firm Elgin White.

Recruiters add, however, that many of the new compliance and control roles are being filled internally, with salespeople and traders being moved into the new positions. Would that work somewhere like Barclays? Only if compliance professionals receive a substantial status boost while traders are taken down a notch. The vehicle for achieving this? Compensation.

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