In the first article of the year to do with compliance recruitment, our expert describes the stepping stones that a KYC contractor can traverse to find more lucrative employment. He also looks at the part that section 166 Financial Services and Markets Act 2000 plays in generating employment in compliance and warns banks about the effects that IR35 might have on their access to compliance talent.

When opening an investigation, the Financial Conduct Authority often wants to obtain information through informal channels without issuing a formal information request. This process is often called voluntary production.

Typically, a bank slapped with the 'voluntary' option has its new business suspended, so it is motivated to do its s166 exercise quickly. Sometimes, when the job is done, it taps some of the checkers on the shoulder and asks them if they would like to work for it permanently. Plenty of contractors say yes to this offer, but no bank ever takes the whole team on. This happens because it looks good in the FCA's eyes. The FCA, truth to tell, prefers the firms it regulates to have permanent people in place, although it knows that contractors are also useful. During a s166 exercise, it supposes that the bank in question has only improved its compliance because of the appearance of new staff under the 'Big 4' firm. Repentant banks at the end of s166 reviews therefore believe that it is good to be seen to be hiring new permanent staff as proof that they have truly changed their ways.

Gripes after work

On the buy side, especially among wealth asset managers, fewer compliance contractors are being allowed to work from home these days. This has been a recent source of complaints.

Whenever MLROs go to recruitment firms to find jobs, they are not at all reluctant to express their grievances in confidence. The Number One reason why an MLRO wants to leave his job is his superiors' refusal to listen to him. In many cases this is because he requires more resources than they are prepared to give him - a potential recipe for trouble with the law.

IR35

A new accounting standard is about to come into force in April and it could affect any compliance contractor. I expect it to affect up to 90% of the contingent workforce. In general, workers are to be taxed 'on-payroll,' which could see their after-tax earnings drop heavily. There will still be plenty of demand from banks for a flexible workforce, but if the workers suddenly find their work less lucrative, will they be as willing as they are now to apply for jobs? Shall we see banks increase their PAYE (pay-as-you-earn) rates to try to compensate for the problem?

IR35 could therefore cause a run on permanent jobs in the second quarter of this year, with more contractors than ever willing to take on (or at least think about) permanent jobs.

* James Batters can be reached on +44 207 092 0281 or at jbatters@morganmckinley.com