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Authored by Peter Johnson, Leathwaite.

There has been much reported on the impact challengers are having within the banking sector, however, an area that has not been explored in detail is when, and from where, they are sourcing the talent they need in critical senior roles within risk and compliance.

We have analysed the risk and compliance functions at a group of 26 challenger banks, which can broadly be broken down into three groups: large challengers such as Clydesdale, TSB and Virgin Money; smaller challengers such as Aldermore, Metro and Shawbrook; and digital challengers such as Atom, Monzo and Monzo. Our findings are detailed within this report:

Experiencing a lack of internal talent:

A very low number of firms have promoted internally to fill Chief Risk Officer and Head of Compliance roles. Only 12% of Chief Risk Officer and 8% of Head of Compliance positions have been awarded to internal candidates.

  • The UK regulators continue to take a keen interest in proposed appointments to guarantee candidates will have the technical and influencing ability to ensure financial and conduct responsibilities are met.
  • It is to be expected that early stage start-ups will need to hire from the external market but it is the clear trend across all challenger banks, regardless of size.
    This is in stark contrast to the Big 5 Banks where there is a strong bench of more senior individuals, often very well known to the regulator, who are ready to step up into senior leadership roles.
  • Of the small percentage of internal promotions to fill Chief Risk Officer and Head of Compliance roles, the vast majority have taken place at the larger challenger banks. This is due to their larger teams and more senior individuals from which to pick.

Harnessing the benefits of executive interim solutions:

Many start-ups and growing challenger banks have executive interims/contractors in senior roles, allowing them to keep a low fixed cost base during periods of growth.

  • Their ability to do this has been aided by a marked rise in the number of high calibre senior risk and compliance professionals choosing a career of short term contracts, rather than permanent roles.
  • Whereas in the past firms may have relied on secondees from Big 4 or boutique consultancies, more are now looking to independent executive interims, who provide a more economical solution.
  • Often executive interims will have broader experience gained from a range of organisations and may have operated at a more senior level than their peers at other organisations who are in permanent roles. Specialists in change, they can help firms set up, build out and embed a strong risk and compliance function.

As with the broader risk and compliance market, only a small proportion of heads of risk and compliance at challenger banks are gender diverse. Of the 26 challenger banks analysed for this paper, 23% of compliance heads were female and 15% of risk heads.

This is something a number of firms are actively looking to address, through hiring senior female talent and running internal mentoring and talent development programmes aimed at ensuring gender diversity at more junior levels is replicated at a senior level.

Most start-ups and early stage challengers are hiring their Chief Risk Officer six months to a year before launch and then build out a team below them.

A typical structure for start-ups and smaller challenger banks is to hire three senior individuals to report to the Chief Risk Officer; one covering financial risk (credit and market), another operational risk and the third covering compliance, conduct and financial crime.

Financial crime is a key focus for all challenger banks. Many larger challengers have recently restructured, built out their functions and hired new Heads of Financial Crime. For firms that don’t have a dedicated Head of Financial Crime, it is the responsibility of either the Head of Compliance or the Head of Operational Risk.

For start-ups and early stage challenger banks, hiring expertise in this area is addressed very early on in the firm’s development, with at least one start-up hiring someone to cover financial crime before hiring a dedicated Head of Compliance.

Where are firms hiring Chief Risk Officers from?

A significant number of challenger bank Chief Risk Officers (35%) have been hired from the big five retail banks or Nationwide.

  • This is particularly the case with the larger challenger banks who can both afford to hire strong talent from larger firms and also require someone with experience of working within a larger, more complex environment, often with experience of higher levels of scrutiny from the regulator.
  • 19% of challenger banks have hired their Chief Risk Officers from other challenger banks, with smaller firms able to offer good opportunities for individuals to take on a broader role for deputies and other senior risk officers within larger challengers.
  • 8% of firms have hired from Big 4 or boutique consultancies, often when they have previously been seconded to the firm.

Where are firms hiring Heads of Compliance from?

Challenger bank Heads of Compliance hires tend be from more disparate sources.

  • As with Chief Risk Officers, a number of firms (15%) have hired Heads of Compliance from the Big 5 Banks or Nationwide. Again, this is often the larger challengers.
  • A much smaller proportion have hired from other challenger banks (8%) and a larger number (15%) have hired from consultancies or executive interims taking on a permanent role. This has happened at a number of start-up and early stage firms.
  • A significant number (27%) have also been hired from other parts of financial services such as insurance. Firms have been more flexible in hiring Heads of Compliance valuing operating style, calibre and influencing skills above technical product knowledge and direct experience in the sector.

In summary, with an abundance of firms clearly at different stages of their lifecycle, challenger banks are looking to a range of sources to secure the talent that best suits the needs of their business. It is clear that the growth in the sector at early stage firms and larger challengers, will continue to drive hiring of both executive interim and permanent talent.

More information and contact details:

Leathwaite is a Human Capital Specialist offering business intelligence, executive interim solutions, executive search services and management consulting to a global client base, with market knowledge and a worldwide network that are held in high regard by our clients.

Peter Johnson is part of our Governance Practice which focuses on legal, risk, compliance, financial crime and regulatory affairs.

Peter can be contacted at +44 207 151 5151 or and you can connect with him on LinkedIn at Peter Johnson LinkedIn.