Financial firms are recruiting lawyers to do compliance and regulatory jobs in increasing numbers. In this article we ask why more lawyers are becoming compliance officers, the benefits of this trend for corporations and its consequences for the compliance profession in general.

During 2019 alone, 58 anti-money-laundering cases all over the world resulted in financial service businesses incurring fines amounting to US$8.14 billion. This represented a rise from 28 cases in 2018 and the collection of a meagre total of $4.27 billion in that year. The US and UK have always been the most active jurisdictions when it comes to imposing fines for breaches of anti-money-laundering regulations and this has continued into 2020. Their increasing fondness for targeting not only the financial service business in question but also its principal decision makers is heaping pressure on financial institutions to improve their compliance with regulatory standards.

International financial centres (IFCs) are following the lead of the US and the UK when it comes to imposing significant penalties and are striving to prove to international assessors that they have effective and dissuasive AML/CFT sanctions in place. In all of them, this is creating even more demand for capable compliance staff.

Supply and demand

Because it is more and more common for financial service businesses to incur substantial fines for AML/CFT errors, they have greater and greater incentives to build up their AML defences by filling key compliance positions with knowledgeable and experienced staff of high quality. These people are in short supply, so many recruiters are having to broaden their searches. Many firms are encountering great difficulty in hiring direct replacements for the risk managers and compliance officers they lose and instead are looking at people who work in other jobs but who nonetheless have the skills and qualities necessary to do the job to a high standard.

Banks have significantly boosted their numbers of risk and compliance staff, enticing workers away from other sectors and from smaller firms. Simultaneously, many businesses have branched out further, expanding into markets where they, too, need capable risk and compliance people. Major financial institutions are adding to the problem by hoovering up compliance talent, thereby draining the pool of compliance staff and causing salaries to rise.

Everywhere, financial firms are competing for people with proven compliance backgrounds and looking for the best talent in the process. Such competition has forced them to think creatively and target sectors with skill sets of the kind that they can adapt for the benefit of their compliance departments.

An alternative route

The skill sets of people in the legal sector are ideally suited to the subject of compliance. Lawyers are, after all, trained to analyse compliance with ever-more complex laws and regulations. Many younger people with legal qualifications who are eligible for compliance jobs are, however, still deterred by a rather negative stereotyping of compliance as a career. It is interesting to note, however, that people with legal backgrounds who do venture down that road rarely seem to wander back into the mainstream of the legal profession. Lawyers who move to the world of compliance seem content to remain there.

Compliance budgets continue to rise and spending on compliance is unlikely to contract at any time soon. The salaries that firms are offering are increasing because demand is outstripping supply. The sector now presents a viable alternative to the more traditional career paths of the legal profession. The bull market in compliance recruitment is presenting many legal professionals with opportunities for rapid advancement in a growing and reasonably secure sector.

The future of lawyers in compliance

What does this mean for the compliance profession as a whole? It can obviously only grow stronger by absorbing the skill sets that legal professionals offer. Vacant compliance posts spell danger and the act of tapping into the legal profession to recruit another swathe of competent individuals is a remedy for this. The recruitment of lawyers not only enriches the compliance workforce but also shows financial regulators that firms take compliance seriously.

The influence of COVID-19 and Brexit on the financial services industry has yet to be fully understood and may eventually prompt regulators to moderate their use of financial penalties. In the meantime, however, we are unlikely to see a scaling-back of compliance.

* Barry Faudemer can be reached on +44 (0) 1534 719222 or at barryfaudemer@bakerregulatory.com