Demand for compliance officers in commodities trading

The swathe of regulation that has impacted the derivatives markets in the wake of the G20 rulings has had an inevitable effect on commodities firms who rely on financial markets for the functioning of their business and service offering. The impact of this regulation on commodities firms has led to the creation of new roles, required an upskilling and expansion of capabilities to be placed upon existing staff, and has ultimately led to a demand for talent that remains extremely difficult to satisfy. With international efforts to improve conduct and transparency in the derivatives markets continuing to take their toll on firms, the most obvious staffing need is for compliance officers, which we arguably find are some of the toughest searches across our business.

Commodities firms were much later than financial services players to appoint dedicated compliance officers, who are responsible both for ensuring that regulation is adhered to within the business, and for putting in place the systems and controls necessary to prevent breaches and alert management to any suspicious activity.

Whilst there have been a handful of compliance officers in commodities firms for some time, BP’s integrated trading arm were one of the first commodities businesses to build a comprehensive and sophisticated compliance department in the same guise as one might expect to see in an investment bank, and this was only developed just over a decade ago. Since the original Markets in Financial Instruments Directive in 2007 we have seen the impact of EMIR, REMIT and the Dodd-Frank Act in the US which have all resulted in commodity firms scrambling for talent from a little to non-existent pool. Now, with the wide-ranging implications of MiFID II for commodity firms, particularly when viewed in the context of MAD/R and CRD IV, many other commodity firms have been looking to significantly bolster their capabilities in compliance.

Many of the smaller commodities firms historically relied on legal counsel and risk officers to ensure rules were followed, but the demand for compliance specialists has sky-rocketed in the past five or six years. When commodities firms first started establishing dedicated compliance functions, traditional sources of talent were sought in institutions where individuals would gain a detailed knowledge of the functioning of futures markets; the exchanges and futures brokers. Alongside compliance officers from the exchanges who have moved in to their member firms, we also see a number of today’s compliance officers tracing their roots back to roles such as pit observers, yellow jackets and others who had a part to play in the functioning of open outcry markets.

Since then, the investment banks have provided something of a talent pool, but there remains such a limited number of appropriately-skilled compliance officers working in commodities that those that exist have been in high demand. We have seen a handful of names moving from firm to firm in recent years, receiving an uplift in salary each time, so much so that the most experienced compliance officers can now command an equal pay to lawyers in the commodities space, which is not comparable to other financial markets.

What is often the most pertinent issue faced in commodities is a paucity in supply of up-and-coming young compliance talent, which exists in other asset classes such as equities. While the investment banks now have groups of graduates choosing to go into compliance to create the next generation of talent, this is lacking in commodities and the hardest searches we face right now are for compliance professionals at an AVP/VP comparable level. There are very few sufficiently-skilled individuals in this range, and any flow of talent there was coming out of investment banks has now tightened due to a number of key institutions withdrawing their activities from the sector. One popular path at this level however still remains; the regulator. Exchange supervisors have made successful compliance officers over the years, however require more up front investment due to obvious lack of ‘hands on’ practical compliance experience.

All this has resulted in firms often found fighting for talent, and when individuals do consider their options, the decision on where to move to often comes down to salary, and to the risk profile of the firm they are seeking to join. Many of the up-and-coming talents are attracted to the slightly more aggressive risk profiles of the merchant traders, making it even more difficult to hire for the trading arms of the utilities, which struggle both as a result of their more conservative culture and salary constraints.

For well-skilled compliance officers seeking a move, now is certainly the time to capitalise on a candidate’s market.