N2 leads to compliance hires

However, when they were finally published, the FSA regulations were presented as principles, rather than specific rules. The regulations do not make it absolutely clear what specific changes in work procedures, staff training and qualifications are necessary for strict compliance.

As a result, the main response of investment banks at this point has been to hire consultants to review their regulatory compliance and to hire more compliance officers themselves.

James Dean, partner in the regulatory practice at Ernst & Young, says: "The investment banks are quite uncertain about what actually qualifies as 'sound practices' and so they are always interested in what their peers are doing. We can give them a broader view."

The consultancy groups have been extremely busy in reviewing operations and setting up state-of-the-art systems to comply with N2. Consultancies work around the whole rulebook of the FSA, and some of the jobs can run for quite long periods of time. Starting with diagnosis, the consultancy may stay on to remedy and come back to review operations.

At the moment, the training and development of all those who work in compliance remains at the forefront for those involved in the sector at whatever level.

Howard Davies, the chairman of the FSA, says in the agency's annual report: "Although we are almost fully staffed, experience levels in frontline areas remain too low. An intensive programme of training and development will be necessary to correct that deficiency."

Headhunters say these comments are really directed more at the investment banks.

One headhunter specialising in compliance says: "Howard Davies' comments are probably just a very interesting tactic. He has done a brilliant job of raising the profile of compliance since N2 came in and banks now take it very seriously indeed."

Just in case they do not, the FSA goes about making it clear that it is well aware of the difference between those institutions that are doing the bare minimum to get by, and those that are being much more proactive.

In a recent informal speech to members of the Securities Institute, David Jackman, head of industry training and business ethics, spoke bluntly.

He described the firms who "do actually get the idea that compliance is good business sense" as those where "there is a real sense of buy-in at a senior level and the compliance officer is taken seriously - has status".

He went still further to say that the firm that was "the perfect pupil" was one "where values are clearly articulated - maybe an ethics code or an ethics committee in a larger firm". Compliance was about having a culture of learning, and that involved investment in training, he suggested.

It is not clear at this stage just how much training is going on, but in order to meet demand for compliance officers, financial institutions, the FSA, and consultancies are now all recruiting in this area, and competing with each other for talent.

UBS Warburg is the latest in a series of investment banks to confirm its top roles in compliance. Morgan Stanley and Citigroup are two other institutions to have staffed up their compliance departments recently, say headhunters.

By means of an internal appointment, UBS Warburg made Michael Herde its head of compliance for Europe, the Middle East and Africa. He was with the investment bank's Region Americas compliance department since January 1999, and served as counsel to the regulation department of the National Association of Securities Dealers (NASD) before that.

UBS filled the job internally after advertising the vacancy following the departure of Peter Haines to Bank of America. In the Americas, John Polanin, head of equities legal, is to assume the role of head of compliance.

Nick Lloyd, who heads search in compliance at financial services specialist headhunter Hogarth, Davies & Lloyd, says: "Over the past three or four years most institutions have raised the size of their compliance departments enormously."

Tony Blunden, the former head of compliance and operational risk for Credit Suisse Financial Products, joined Ernst & Young in July 2000 to head the operational risk practice.

Ernst & Young's regulatory department is currently recruiting 15 people - a 20% increase for the practice - and is looking within the industry, rival consultancies, and the FSA.

The FSA itself has been on a big recruitment drive, and is almost up to its full strength of 2,100 after being under-staffed by around 100 people last year and 200 the year before.

As recruiters, the financial institutions are in a position to take their pick of the best candidates.

Lindsay Reid, who has just left his position as head of compliance at recruitment consultant Joslin Rowe, says: "Rather than just look at good law graduates with investment banking experience, banks now want people with hands-on experience. Caution is also the by-word when it comes to getting people to move."

At the most junior levels, compliance assistants with a year's experience may earn 30,000 (E46,500), rising to 70,000 to 80,000 with a bonus on top for a head of compliance at a small securities house. A vice-president, legal and compliance and global heads of compliance, particularly at the US houses could earn 100,000 to 150,000 with a sizeable bonus, says Reid.

Lloyd says: "Compliance is now a market and a profession in its own right and there is a career there for people that has some longevity to it."

Holding one of the top jobs in compliance, however, has historically also involved a danger of becoming the scapegoat in the event of falling foul of the regulations.

Under the new regulatory regime, all senior individuals in organisations who are customer-facing or handle money have to be registered with the FSA as approved persons, with wired diagrams showing who is responsible for what.

Dean says: "Of course responsibility comes with the turf if you want to move to a senior position in compliance.

"But whereas organisations might have assumed their senior-most person would deal with the regulator, now there is a growing understanding that even if he can coach, advise, and take some responsibility, if something goes wrong, the FSA will be after the approved person on that list. It does mean quite an important culture change."