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2019 Rutherford Intelligence Report – Asset Management & Alternatives Compliance Recruitment PDF



Asset management and alternatives compliance has moved on. Until early 2018 it was dominated by the advent of several major pieces of new legislation. Now regulators have changed tack. They are finessing regulation with additional requirements and upping their expectations of buy-side firms. The pressure on compliance has altered not abated.

Asset management firms have been dealing with the fallout from a regulatory market study. But with a heavyweight exception coming in December, no rules of equivalent stature to the Market Abuse Regulation (MAR), Fourth Money Laundering Directive or the revised Markets in Financial Instruments Directive (MiFID II) are being introduced in 2019.  Some firms are using this as a breathing space in which to take stock of their compliance arrangements.

Taking stock is understandable. But new and revised regulation scheduled for this winter and 2020 will further increase teams’ workloads. Crucially, buy-side firms face harsher regulatory scrutiny of money laundering and financial crime defences and trade surveillance provision.


Although financial market conditions are influencing demand, firms are still having to hire personnel to ensure compliance is adequately resourced. This is especially true of small to medium size firms where the function can easily become overstretched.

People experienced in certain specialisms are in particular demand. Most of this is driven by two factors. One is asset managers’ need to improve their MAR/ financial crime compliance (FCC) and anti-money laundering (AML) measures. The second is rule changes flowing from the FCA’s Asset Management Market Study (AMMS) and other regulatory developments.


The Financial Conduct Authority (FCA) has been critical of asset managers’ handling of market abuse and other FCC risks for some time. A 2015 report found ‘only a minority of firms had appropriate controls.’ Recently it stepped up its efforts to tackle the problem. In 2018 it extended its ‘5 Conduct Questions’ programme to wholesale firms beyond banking and started sending asset managers questionnaires on their risk management procedures.

The FCA is concerned about insufficient awareness of market abuse and similar risks. It has some justification. One asset management professional told this report the sector’s financial crime measures were ‘shockingly behind the sell-side.’

“The regulator is likely to be looking for a high-profile asset management scalp”  MLRO, asset management

In a speech to the Association for Financial Markets in Europe this February, Julia Hoggett, FCA Director of Market Oversight, said some firms inadequately assess the risk their institution could be used to facilitate financial crime. She added that their staff were insufficiently aware of risks their behaviours may pose and surveillance of possible information leaks was deficient.

Combatting money laundering is a permanent FCA priority. Again, it is scrutinising buy-side firms more than before. Swingeing financial penalties and reputational damage incurred by banks amply demonstrate the potentially painful consequences of AML lapses.

A Euros 443,000 fine imposed on Appian Asset Management in Ireland last June reinforced the point that AML is not just a sell-side issue.  Heightened FCA scrutiny of buy-side financial crime and AML risks has raised demand for specialists in those fields.

Regulatory pressure also means trade surveillance and best execution experts are highly sought-after. Familiarity with systems such as Charles River, Sentinel and Aladdin makes candidates particularly attractive in the guideline monitoring space.

Asset managers are putting more resources into ‘monitoring and testing,’ sometimes called ‘the second-and-a-half line of defence’.  Specialists in reviewing how systems and processes are working and scouting for potential problems are consequently in demand, as are auditors.

In general, candidates across buy-side compliance disciplines have seen substantial reward uplifts on moving. The size depends on the firm, candidate expertise and the role. By contrast, salary increments for those remaining in post have been extremely modest. Strong uplifts on moving reflect a shortage of quality candidates. This also applies to personnel recruited because of regulatory developments described below.


Following publication of the final AMMS report, the FCA introduced measures to address weak price competition in the industry. Final rules and guidance contained in Policy Statements PS18/8 and PS19/4 are coming into force over the course of 2019.

The PS18/8 changes include a duty on authorised fund managers to assess schemes’ overall value to unit holders annually, stricter governance requirements and new box profits rules. PS19/4 mainly deals with disclosing information about benchmarks and consistency of benchmarks used in fund documentation.

aring for the AMMS changes has been a considerable undertaking for many firms.  Operating the new regime will add another task to the compliance checklist.

‘AMMS is a big project, one of our biggest in a long time because of its implications.” Head of compliance, asset management.

Recent regulatory developments have seen firms seeking experts to advise frontline teams directly. Detailed knowledge of earlier regulation like UCITS remains sought-after.

New rules about information customers must receive in this field and regarding pensions have fed continuing demand for marketing and distribution compliance specialists. Candidates in this space are receiving significant salary increases. This possibly relates to their being relatively few people dedicated to this narrow but increasingly important discipline.


SRD II increases the disclosure and reporting obligations of institutional investors and asset managers. Final FCA rules and guidance were published in Policy Statement PS19/13 just days before coming into force on June 10th 2019.

Briefly, firms must develop and disclose a shareholder engagement policy. This must show how they monitor investee companies on various matters. These include non-financial performance and risk, and environmental social and governance (ESG) issues. Each year firms must disclose how the policy has been implemented.

These changes should be viewed alongside the new UK Stewardship Code, the finalised version of which is expected this summer. Furthermore, the FCA said in Discussion Paper DP19/1 that it will be paying particular attention institutional investors’ stewardship performance in future. Like the AMMS changes, all this will add to the compliance workload.


A significant development in the alternatives sector is that firms are finding the threshold at which they must create or expand a dedicated compliance function is moving lower. More regulation and FCA warnings about AML, financial crime and surveillance are stretching the function’s capacity at some firms. That makes expansion almost unavoidable.

The result is consistent year-on-year compliance department growth across alternatives. This continues and we predict tight competition for the best candidates towards the end of 2019.

Demand in this sector is very different from asset management. Firms tend to be smaller and accordingly so are compliance teams. The emphasis is on adaptable personnel able to cover several fields. Asset management compliance functions tend to be larger and comprised of people concentrating on narrow areas.

Experienced personnel able to hold CF10 compliance oversight and CF11 money laundering reporting control functions remain highly sought-after. Candidates find these posts at alternatives firms very attractive so employers can keep their expectations high. That said, a salary uplift of 20-25 percent is achievable for the right person.

‘Low or no’ salary increases for those remaining in post at larger firms make moving to a hedge fund or private equity house more attractive. They can also offer more generous bonus arrangements than banks.

Candidates are drawn to alternatives by more than money. Many find the idea of a varied role, close work with other departments and greater freedom to effect change highly appealing.

Compliance redundancies at banks have expanded the talent pool available to alternatives. Although firms prefer to recruit from their own sector this is not always possible. Cultural fit is a major consideration. People must be suited to working in a small team and dealing directly with the front office. They must take a wide, commercially-alert view of issues and be ready to enact changes when necessary.


If anything, alternatives firms are under greater pressure regarding their AML and FCC arrangements than asset managers. While this is mitigated by factors like using a transfer agent, the FCA underlined its concern by conducting spot checks of hedge funds in the spring.

Partly this is because alternatives firms are judged likely to face AML risks. Another factor spurring greater FCA activity is an evaluation of UK regulatory arrangements by the inter-governmental Financial Action Task Force (FATF) last December. This criticised the FCA for focusing AML supervision on just 170 large banks and high-risk firms.

As FATF observed: ‘There are a significant number of firms undertaking high and medium risk activities falling outside [the FCA’s] regular, cyclical supervisory attention.’

The FCA is keen to prove it has changed its policy and will actively look for risks in far more firms in future. On top of this, firms must prepare for introduction of the EU’s Fifth Money Laundering Directive in January 2020.

With spot checks and inspections much more likely, firms are starting to recruit more AML and FCC personnel. The rise of Systematic Internalisers has increased financial crime exposure for quantitative trading firms and we have seen an appetite amongst these firms for AML experts with broad knowledge and business-line comprehension. Quant hedge funds, HFTs and prop-traders in particular are also looking for top trade surveillance experts. As with senior staff, many of these hires are coming from banking and the caveats about the requisite skillset and need for cultural fit applies.

Wise Owl


Knowledge of private credit has been strongly sought-after by private equity houses in recent months. Regulatory advisory experts who can adapt to working with less compliance infrastructure are also in demand at alternatives firms.

Compliance staff with additional qualifications in areas such as law, maths or tech are highly valued. People from banks with electronic trading compliance knowledge have seen strong interest from quant hedge funds and prop-trading firms this year.



The FCA regards this body of regulation as the cornerstone of its drive to improve conduct, cultures and accountability. It is being extended to all firms this December. The level of obligations SMCR will impose essentially depends on a firm’s size.

Having been in operation with banks since 2016 and insurers since last December, many core elements of SMCR will be familiar. They include regulatory approval of those in Senior Management Functions, assignment of Prescribed Responsibilities and annual ‘fit and proper’ certification of relevant staff. These, the Conduct Rules and Regulatory References requirements will apply to all firms. Only the largest organisations, which are termed enhanced scope, face the full regime that applies to banks.

Some firms reported feeling confident with their initial SMCR preparations. Firms have a transitional year until December 9th 2020 to complete fitness and propriety assessments and certify relevant staff so the immediate pressure is less than it could have been.  However there are lessons to draw from banks’ experience with SMCR.

“We are beginning to think more about SMCR after the backlog created by Brexit and the increased workload of the pre-holiday rush.” Head of compliance, private equity firm.

Many banks were surprised by the cumulative burden of SMCR’s various elements. Several different regulatory records must be kept up to date alongside annual tasks like certification. Larger or more complex buy-side firms, especially enhanced scope ones, may find the same.

The way SMCR is being applied to solo-regulated firms- with three tiers of increasing obligations- adds another complexity. The FCA estimates there will only be approximately 400 enhanced scope firms when the regime is introduced. But another 1200-1400 may need to keep their status under review to check whether they have become enhanced scope. Alternatively firms can elect to follow the tougher requirements anyway.

HR commonly handles routine SMCR administration but compliance cannot abrogate its responsibilities. SMCR is financial regulation not employment law. The FCA expects boards and CCOs to demonstrate that they take compliance with the regime seriously.

Many clients are reporting that they intend to focus more on SMCR over the summer. They say the practical side of meeting SMCR requirements will be assessed internally before they consider asking a consultancy to check their conclusions. After experiences with MiFID II introduction, firms are reluctant to be among the first to use a consultancy. The feeling is that doing so would be paying consultants to research solutions they later sell to other firms.

“You are paying for [a consultancy] to gather information to sell to other people.” Head of compliance, private equity firm.


Continuing uncertainty is a factor dampening financial markets but otherwise Brexit is not having a major impact currently. Most larger firms executed their plans for establishing an EU office ahead of the UK’s intended March departure.

There has been a huge jump in demand for UK-based personnel to work in Dublin. Other EU centres recruiting from Britain include Luxembourg and Frankfurt. This is due to pronounced local compliance talent shortages. Most hiring is for vice-president or manager level posts to flesh out teams often established with just a managing director. Candidates are showing reluctance to take jobs outside the UK.

The Central Bank of Ireland amongst others has raised its requirements considerably to demonstrate that it supervises an efficient and highly regulated market. This and the shortage of local talent are rapidly putting firms that created Dublin offices for Brexit between a rock and a hard place.


The FCA has said repeatedly that improving diversity, particularly appointing women to senior roles and those formerly viewed as ‘male,’ is part of complying with SMCR. Last December its Executive Director for Strategy and Competition, Christopher Woolard, described the link between the two and said ‘the way a senior manager approaches issues around diversity may be relevant to our assessment of their competence and character.’

Some firms are requesting candidate shortlists split 50:50 male and female. This is likely to become more common although talent shortages in niche areas may present problems.


As well as the new SRD II regulatory requirements, ESG issues are fast becoming a vital business consideration for firms. A pension fund body recently filed an FCA complaint criticising fund managers for failing to act on ESG matters. Several major private equity firms have hired heads of ESG or responsible investment in response to growing investor demand. ESG factors can also create a dilemma for hedge funds when it comes to short selling.


In its 2019-2020 Business Plan, the FCA said it would conduct an appraisal of firms’ compliance with MiFID II. This could be uncomfortable for some. Last year the FCA received 1,335 inaccurate transaction reporting notifications. That is just the breaches firms spotted- the real figure is almost certainly many thousands higher.

Part of this review will assess compliance with product governance requirements. The FCA is also to consult on a new prudential regime for MiFID II investment firms.

Furthermore, moves have started to change MiFID II to include ESG and sustainability requirements. In April the European Securities and Markets Authority published final advice on the amendments. The EU’s co-legislators reached agreement on a new ESG Disclosure Regulation in March.

This autumn the FCA will reveal draft rules for a new duty of care towards consumers. These are likely to involve a new or revised Principle in the FCA Handbook’s PRIN section and a right to sue for Principles breaches. Firms such as wealth managers may need to overhaul processes and client information.

Meanwhile investment managers must deal with an FCA ‘Dear CEO’ letter about significant governance, oversight and control shortcomings regarding authorised representatives.

Not all these developments affect every firm. But each adds to the compliance workload. It is a question of cumulative effect. MiFID II already increased firms’ reporting obligations. That burden is being added to by further regulatory change and far stiffer FCA scrutiny of financial crime, market abuse and AML arrangements.


Against a background of assets under management headwinds, balancing departmental budgets is becoming increasingly challenging. Some larger buy-side firms have already started reallocating compliance resources. This has seen teams make redundancies in some specialisms while hiring in others to meet the shifting regulatory landscape.

Despite this, growing pressure on compliance may well produce a shortage of available talent in Q3/4. This is likely to be mitigated by more candidates entering the market as they recognise that the only way to gain a salary uplift is to move.

With the FCA’s eye turning from banks to the buy-side, firms may be obliged to hire later in the year to ensure an overstretched compliance function does not lead to costly breaches.

If you would like a confidential discussion about the compliance recruitment market please contact