Staffing for Success in a Post-Recessionary Regulatory

STAFFING FOR SUCCESS
IN A POST-RECESSIONARY
REGULATORY ENVIRONMENT
A look at the evolving demands for multi-dimensional IT
and risk management expertise in the financial services industry
How the past
defines the future
Economic, employment and regulatory parameters
characterizing the slow rebound from the recession
have sharply defined the talent necessary for
renewed success in the “new normal” financial
market. Technological advances, coupled with
federally mandated regulations such as The Dodd–
Frank Wall Street Reform and Consumer Protection
Act, are requiring an innovative, multidimensional
breed of candidates — talent equipped with an
enhanced, overarching skill set opposed to those
with niche expertise.
The good news, from a jobs perspective, is that
progressive employers are actively seeking broadbased technology experts — specifically, qualified
candidates who cater to integral aspects of the
financial services industry. To this end, there has
been an uptick in the hiring of risk management
professionals at major accounting firms, insurance
firms, trading exchanges, banks, and government
bodies such as the U.S. Treasury department.
As evidence, the Securities Industry and
Financial Markets Association (SIFMA) recently
polled nearly 250 business and Wall Street
IT professionals and discovered cautious hiring
practices initiated in reaction to the recession
are subsiding. Further, for the first time since
the 2008 financial collapse, firms are actively
funding IT initiatives. C-level executives indicate
key near-term business priorities include updating
technology-based processes that focus on
trading, portfolio management, and, perhaps
most important, risk management.
Overall, approximately one-half of respondents
expect 20 to 30 percent of their technology
budgets to be earmarked for “transformational
initiatives” in 2011. What exactly is a “transformational initiative?” One example of such a project
is the development of systemic risk strategies.
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More than 55 percent of SIFMA respondents cited
systemic risk as the largest driver of current IT
investments. In addition, more than 90 percent
of respondents expect to increase investments
in analytics in 2011. Risk analytics for compliance
was ranked as the top analytics investment
opportunity (37 percent) followed by analytics
for client segmentation (21 percent) and external
fraud (13 percent).
In order to remain relevant, a deliberate and
significant move toward the development
of sophisticated and formal risk management
programs and processes is required. This industrywide movement is spurred by once-bitten, twiceshy executives and regulators who are fearful
of the telltale signs that could lead to the
next economic collapse. To this end, they seek
candidates who can predict, address, and avoid
breaches of risk management, risk mitigation,
or risks in liquidity, credit defaults, interruption
of business, or terrorism. While every bank,
financial institution, and insurance company
has historically had a risk officer in place, the
financial crisis has stepped up the call — across
all industries — for risk management departments to increase staffing of these in-demand
qualified personnel.
This aggressive search for qualified financial
IT professionals is a result of both the collective
hurt realized by the crash of 2008 and the introduction of The Dodd-Frank Act, which changed
the topography of the industry, forcing companies to adapt in order to traverse and survive.
The Act, which will undoubtedly impact nearly
all financial industry operations, is scheduled to
be fully implemented by July 2011, leaving little
time for companies to secure qualified talent.
A growing majority of companies and organizations
are actively seeking newly certified IT candidates
who can departmentalize their operations
and ensure regulatory requirements are satisfied.
These candidates, however, are not sitting on
the sidelines waiting to be tapped, but are in high
demand, currently employed, and earning top dollar.
This places the responsibility to proactively seek
candidates squarely on employers’ shoulders,
a task often requiring the guidance of a third party
consultant.
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Improving liquidity
risk management
While liquidity risk management (LRM) has become a top priority of banks and lending
institutions since the market crash of 2008, the supporting technology is highly antiquated,
with many organizations still relying on spreadsheets to aggregate sensitive data.
Enterprise and mobile software provider Sybase and Aite Group
recently released a report, “Leveraging Technology to Shape the Future
of Liquidity Risk Management,” which found that:
60% of LRM data is gathered
completely manually in spreadsheets
35% of data is gathered with a combination
of automated and manual processes
5% of LRM data is gathered with
automated systems and processes
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In addition, the three defining components of LRM — analytics, cash management, and collateral
management — are typically disparate systems that are not centrally managed within an organization,
and developing an LRM system can require a tiered roll-out over a two-to-three year period.
To remain competitive, institutions must modernize their
risk management platforms and adopt a comprehensive approach
that underscores the importance of LRM.
3 Greg
MacSweeney, “Firms Struggling to Implement Liquidity Risk Management Technology and Processes,” Wall Street & Technology,
3 August 2010, http://www.wallstreetandtech.com/financial-risk-management/showArticle.jhtml?articleID=226500172.
4 Fred
powers, “Collaborative BI: Are We There Yet?,” Information Management Newsletters, 19 November 2010,
http://www.information-management.com/newsletters/collaborative_business_intelligence-10019162-1.html.
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Leading firms are looking for candidates who
have the ability to master enterprise data
management (EDM) and business intelligence,
and possess an understanding of Financial
Services Authority (FSA) requirements.
According to a study conducted by The Aberdeen
Group, a technology research firm, companies
that combined technology implementations
with a candidate who could oversee business
intelligence management and application requirements experienced a 44 percent improvement
in customer responsiveness, a 42 percent
improvement in employee productivity, and a
30 percent improvement in process efficiency. 4
In order for companies to build a sound LRM
system, they must balance investments in technology with the value of human interpretation.
While this combination of skill sets is not a new
concept, many companies have failed to secure
successful candidates because they operate
under the flawed premise that there is a magic
bullet or a one-stop technology solution that
can manage this all-important task.
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Low latency,
high frequency
Balancing the right mix of talent and technology is just one example of how companies should rethink
how they manage risk. In order to successfully operate in the new regulatory landscape, it is critical that
companies employ high performing teams equipped with the necessary tools to tackle market conditions
that are constantly changing — often by the millisecond.
For example, the financial services industry is focused on an
expanding special class of algorithmic trading known as low latency,
high frequency. These transactions are completed 65 times faster
than the blink of an eye and are redefining the market.
In 2008 alone, 300 securities firms and hedge
funds specializing in this stylized trading made
approximately $21 billion in profits, and an estimated 70 percent of all trading — from Tokyo to
New York — is executed by these high frequency
systems. To place hyper trading in better context,
a five milli-second delay in transmitting an automatic trade can cost a broker one percent of its
flow which could equal $4 million in revenues
per millisecond.
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In the spring of 2010, high-frequency
trading played a significant role in the mini
market crash that saw the Dow Jones industrial
average plunge 600 points in less than 15
minutes. This warp-speed trading model involves
a capricious process, making oversight critical.
As a result, employers require candidates who
can expertly manage mission-critical activities
including latency arbitrage strategies and management of fragmented liquidity environments,
granular time stamping, which tracks delivery
speed of trade data, and reporting on execution
response time across multiple locations.
Companies are no longer seeking
candidates that can be neatly
categorized as technologists. Rather,
they are looking for professionals who
possess a mix of financial and technical
expertise — those who have worked
on a trading desk and are also proficient
in risk management software.
The proliferation of low-latency, high-frequency
financial trading in the Wall Street and Chicago
commodities markets is propelling the technology industry to push the boundaries of latency
by fine tuning fiber-optic network routes, cutting
out loops and diversions, pulling new fiber or
straightening out detours. Latency optimization,
however, requires a balance with performance
optimization, an alchemy resulting in streamlined
sub-microsecond latency with full performance
monitoring for Service Level Assurance (SLA).5
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Financial institutions therefore require specialized
back-end support to deliver low-latency while
continuously monitoring the performance of
the transport network. In today’s competitive
environment, it is essential to have the ability
to assure the delivery of speeds down to microseconds and milliseconds, as well as guarantee
the committed SLA.
Author (N/A), “Wall Street’s Dream – Trading at the Speed of Light,” MRV Communication, 10 August, 2010.
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A closer look at
the Dodd-Frank Act
The surge of companies looking for qualified
technology candidates is directly tied
to the Dodd–Frank Wall Street Reform and
Consumer Protection Act and the Wall Street
Transparency and Accountability Act of 2010.
While the industry continues to brace itself
for the unknown ramifications of the
Dodd-Frank Act territory, one thing remains
certain: Wall Street — and all its moving
parts — is changing fast.
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The Act defines a financial market utility as
“any person that manages or operates a multilateral system for the purpose of transferring,
clearing, or settling payments, securities,
or other financial transactions among financial
institutions or between financial institutions
and that person.”
Under this definition, a designated utility
would be required to provide advance notice
to regulators of any changes to its operations
that would materially affect its level of risk. This,
in turn, would subject the utility to additional
risk management standards and examination and
enforcement oversight. While risk management
officers have always been the last line of defense
between loan officers, traders, and possible losses,
the Act is upping the threat ante, causing the
spike in risk management candidate placement.
Specifically, those with experience in credit default
swaps and credit derivatives are in demand.
According to Michael Dunn, commissioner and
former acting chairman of the U.S. Commodity
Futures Trading Commission (CFTC): “The rulemaking process here in the U.S. is moving at warp
speed as regulators look to propose, revise and
finalize hundreds of new rules that will literally
transform market structure in virtually every area
of financial services — and to do it all by the July
2011 legislative deadline mandated by Congress.”
“I can tell you from my conversations with our
regulators that they understand the magnitude
of this responsibility — and we recognize the
transformative change their actions will have
on global markets and the global economy,”
Dunn added.
“Our collective challenge, therefore,
is to help regulatory agencies write new
rules that effectively meet their goals
of greater risk mitigation and transparency
while still maintaining the competitiveness,
efficiency, liquidity and robustness that
has long characterized the U.S. marketplace.”
MICHAEL DUNN, COMMISSIONER AND FORMER ACTING CHAIRMAN
OF THE U.S. COMMODITY FUTURES TRADING COMMISSION (CFTC)
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Preparing for change,
staffing for success
During the transition from recession to recovery,
company IT requirements as well as federal regulations have evolved. As companies brace for the
bevy of changes slated for July 2011, the goal
is staffing qualified candidates who can ensure
that an organization can adhere to regulations
and remain highly competitive without excessive
down time.
To succeed in this “new normal” market, companies
must continually review and investigate what
changes are required in their operations, including
reviewing existing compliance programs and
taking necessary actions to ensure they conform
with new obligations under the Dodd–Frank
Wall Street Reform and Consumer Protection Act.
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The impending transformation is creating a
significant uptick in the need for temporary and
full-time multi-dimensional candidates. Hiring is
hindered, however, by the fact that the majority
of available candidates do not have the specialized skill set today’s financial institutions
require, forcing companies to train traditional
IT candidates in niche areas like financial
services, or “build” a candidate
from the ground up.
The most elite qualified
candidates will demonstrate
a hybrid of talents including
a strong educational background
in accounting, mathematics,
computer programming,
statistics, and complex systems.
They will also have work
experience in desktop/trade
support, database administration,
business analytics, operations
research, quality assurance,
system engineering, software
development, risk management,
and security.
Similarly, software engineers
with C++, C#, and Java skills as
well as engineers with a strong
financial services background
who can solve real business
problems using financial
technology are increasingly
in demand.
And finally, they must also have
proven leadership and management
expertise to navigate teams
through complex changes.
However, many companies are reluctant to
risk making these high-level, permanent hires
without the assurance that they can deliver
results and will be the right cultural fit.
To lessen the liability, many employers look
to experienced consultants who can ascertain
needs and efficiently place skilled candidates
on a temporary basis — typically from three
to six months — to get projects off the ground.
In this economic environment, short-term
placements can turn into 10-15 month-long
projects, and successful engagements can
lead to full-time job offers.
There is a new sense of urgency as the
glut of projects that were put on hold during
the recession become corporate priorities.
Market-leading institutions will act quickly
and nimbly to employ both temporary and
full time candidates to manage cutting edge
technology implementations and achieve
regulatory compliance.
For more information, or to discuss your
staffing needs and challenges in this postrecessionary regulatory environment, please
contact your local Modis representative today.
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