Regulatory tech spend will limit front office hiring this year

The increasing amounts of money banks are being forced to spend on regulatory IT projects is stretching budgets to the extent that they're both struggling to recruit for front office technology positions and having to divert existing staff towards cost centres.

The need to invest in governance, risk and compliance (GRC) technology is a headache that refuses to subside for investment banks. The barrage of regulation coming from both sides of the Atlantic, such as Dodd-Frank, Basel II and MiFID II, continues to eat up a large chunk of banks' IT budgets.

Technology budgets are increasing this year, as research from the likes of Gartner, TABB Group and IDC Insights has pointed to, but not to the extent that they can absorb both the costs of these regulatory projects and expensive Greenfield front office developments. Banks are having to prioritise.

"Regulatory demands are inevitably drawing budgets away from other potential areas of investment, including front office projects," says Graham Underwood, managing director of banking technology provider GFT UK. "I believe banks will still recruit technologists for these business areas, but finite budgets means they'll have to prioritise, which may mean that the recruitment focus shifts to the back office."

GFT's research suggests that there's a real need for banks to increase IT staffing levels in order to realise their front office development ambitions anyway. Despite the healthy levels of recruitment in 2010, technology headcount is still down 10% from the peak of 2008, it says.

What's more, the increasing focus on GRC IT investment means that techies working in the front office are being encouraged to switch across to these regulatory-driven projects.

"Banks would love to migrate permanent headcount across to regulatory projects, but there's an understandable reticence from technologists working on exciting Greenfield projects in the front office to move across," says Edward Ekins, managing consultant of the financial services technology division of Twenty Recruitment.

But various banks are taking different approaches to regulatory tech investment anyway. Sources suggest that Deutsche Bank is outsourcing this work to external consultancies, while Bank of America Merrill Lynch is understood to be carrying the work out in-house, for example.

Even when the work is undertaken in-house, with the exception of senior appointments, most of the recruitment is being done on a contract basis, suggests Ekins. But, he adds that an "increasing percentage" of recruitment in the first half of this year will be diverted away from the front office and towards these regulatory projects.

"You have a limited pool of candidates, predominantly contract, who have experience implementing regulatory technology projects, such as MiFID, and as demand increases rates will inevitable rise," he says.

Already, it's possible to earn 1,200 a day at the very senior end, while project manager and business analyst rates come in at 650-800 a day. Development roles pay between 500-750 a day, depending on seniority.