Chief Compliance Officer Analysis

2020 Update // WHO ARE TODAY’S CHIEF COMPLIANCE OFFICERS?

//// KEY TAKEAWAYS FROM LARGEST2020 UPDATE: FOREIGN BANKS IN U.S. • Tenure: The average tenure of CCOs at the largest • Overall Experience: 71% of CCOs’ overall foreign banks is 3.8 years. WHOexperience ARE is compliance, TODAY’S compared to 63% in 2019 and 2018. This is a higher percentage • Diversity: In 2020, 29% of CCOs at the largest compared to CCOs at the top US bank HCs (55% foreign banks are female and overall diversity in 2020). among CCOs is 38%. Both of these findingsCHIEF are COMPLIANCE similar to 2019. • Previous Position: 79% of CCOs’ previous position was in a compliance role, compared to 71% in 2019 • Internal v. External: 67% of CCOs at the largest and 2018. ThisOFFICERS? is a higher percentage compared foreign banks were hired into the role externally. to CCOs at the top US bank HCs (59% in 2020). • External Diversity: 38% of CCOs who came into the role externally are diverse.

1 2020 Update // WHO ARE TODAY’S CHIEF COMPLIANCE OFFICERS?

//// INTRODUCTION In 2020, Second Line Advisors conducted research and analysis on today’s Chief Compliance Officers (CCO) from the top US bank holding companies (>$50B in assets) and the largest foreign banks operating in the US (~>$50B in assets) to identify and assess trends on talent, profile, and diversity.

Key Takeaways FROM TOP US BANK HOLDING COMPANIES • Tenure: In 2020, average CCO tenure was 6 years. • External Diversity: 45% of CCOs who came into their role externally are diverse. • Education: 35% of CCOs hold a JD. • Diversity: In 2020, female diversity among CCOs • Previous Position: 59% of CCOs’ previous was 43% and overall diversity among CCOs was position was in a compliance role, an increase 53%. Both gender and overall diversity have been from 53% in 2019, 50% in 2018 and 50% in 2017. trending upward over the last four years (see • Internal v. External: 41% of CCOs were hired into graphs below). the role externally, which is very similar to 2019, • Overall Experience: 55% of CCOs’ overall 2018 and 2017. experience is compliance, an increase from 47% in 2019, 40% in 2018 and 38% in 2017.

EXPERIENCE VS. PREVIOUS OVERALL DIVERSITY (LAST 4 YEARS) POSITION 60

55% Compliance 50 59% 40 12% Legal 8% 30 10% Audit 6% Overall Experience 20

8% Previous Position Risk 10 12%

2% 0 Business 2017 2018 2019 2020 4%

2% Government GENDER DIVERSITY (LAST 4 YEARS) 2% 50

Financial 2% Crime 2% 40

2% Operations 6% 30

4% Finance 0% 20

2% Regulatory 10 0%

0 2017 2018 2019 2020 2 2020 Update // WHO ARE TODAY’S CHIEF COMPLIANCE OFFICERS?

//// NEW CCOs HIRED IN 2020 In 2020, there were nine new Chief Compliance Officers hired at the top US bank holding companies. 78% (count: 7) of the newly hired CCOs overall experience and previous position was compliance; the other CCOs’ overall experience and previous position was risk and audit. In addition, only one of nine new CCOs in 2020 was hired into the role externally. This external hire is a female who came from a compliance background. Notably, of the nine new CCO hires in 2020, 78% (count: 7) are female.

GENDER DIVERSITY WHERE ARE THE 9 PREVIOUS CCOs NOW?

2 4 CCO Board of Directors Member 1 Professional Services 1 CRO 1 In Transition

NOTABLE COMPARISONS BETWEEN >$250B VS. <$250B U.S. BANKS • Among the bigger banks, 69% of CCOs report to the • Overall diversity among CCOs is higher at the Chief Risk Officer, 25% report to the Chief Executive smaller banks (58%) as compared to the bigger Officer, and 6% report to the General Counsel. banks (44%).

• Over half of CCOs at both smaller and bigger banks • Bigger banks have fewer females that came into have overall experience in compliance (55% at the role externally as compared to the smaller smaller, 56% at bigger). banks.

• However, smaller banks more open to hiring risk backgrounds as compared to bigger banks, which did not hire any CCOs with risk backgrounds.

KEY TAKEAWAYS FROM LARGEST FOREIGN BANKS IN U.S. • Tenure: The average tenure of CCOs at the largest • Overall Experience: 71% of CCOs’ overall foreign banks is 3.8 years. experience is compliance, compared to 63% in 2019 and 2018. This is a higher percentage • Diversity: In 2020, 29% of CCOs at the largest compared to CCOs at the top US bank HCs (55% foreign banks are female and overall diversity in 2020). among CCOs is 38%. Both of these findings are similar to 2019. • Previous Position: 79% of CCOs’ previous position was in a compliance role, compared to 71% in 2019 • Internal v. External: 67% of CCOs at the largest and 2018. This is a higher percentage compared foreign banks were hired into the role externally. to CCOs at the top US bank HCs (59% in 2020). • External Diversity: 38% of CCOs who came into the role externally are diverse.

3 2020 Update // WHO ARE TODAY’S CHIEF COMPLIANCE OFFICERS?

//// Conclusion

Our annual assessment of the Chief Compliance Officer role in Financial Services has shown progression in the areas of diversity, reporting lines, and continued elevation of experienced compliance professionals. We were pleased to see that the average tenure of the standing CCOs in 2020 was 6 years, which is much improved compared to years prior. Compliance as a function continues to provide standout progression in the area of diversity – 43% of the CCOs are female. Banks have been consistent in their likelihood to hire a CCO from the outside (41% of the time) and when they do, nearly half of the new hires are either gender or racially diverse.

Over the last 20 years, Compliance has gone from a sub-Legal function in the industry to push either up or across organizationally. Compliance has generally been viewed as a risk stripe since the FRB drove regulatory enhancements post-financial crisis, which has largely led to the CCO reporting to the Chief Risk Officer in most cases. Nearly 70% of the largest banks have the CCO as a reporting line to the Chief Risk Officer, while 25% have the role directly to the Chief Executive. This is by far significantly different than what it was in the early evolution of Compliance. However, a recent regulatory action in the industry (FRB consent order of Citigroup in 2020) required Citigroup’s Chief Legal Officer to have overall responsibility for overseeing compliance. It remains to be seen if this is specific to Citigroup or a potential best practice in the regulator’s eyes, but it’s quite unusual and certainly disruptive if it’s the latter.

There continues to be components of compliance and non-financial risk in the DNA of today’s CCO, which organizationally dance around within the industry such as Ethics, Privacy and to a degree, Financial Crime, which is largely dependent on the regulatory journey a company is on. Of the newly hired Chief Compliance Officers in 2020, the large majority (78%) have previous compliance experience, which is actually a great sign of the continued maturity of the function. In many cases for banks over the last decade, the CCO role became one which needed the right leadership individual to drive change and transformation considering the impact and influence needed organizationally. This created a ceiling for individuals which developed a “compliance career” through the ranks.

Current and future Chief Compliance Officers have responsibilities which have become more challenging, broader and more diversified. The challenges of budget, automation, accountability, delineation of tactical responsibilities, combined efforts with non-financial risk stripes, ownership and sophistication of technologies and the migration to cloud are just some of the matters which fall on their plate. On top of it all, the perspective and regulatory approach change from administration to administration adds an additional layer of complexity. The CCO role is certainly not an easy one in the industry, and those who sign up for it hold a critical role to the firm’s integrity, protection and reputational impact internally and externally.

Looking forward, the profile of the Chief Compliance Officer will likely evolve further to keep pace with the rapid advances in automation, machine learning/AI and advance technology standardization. Tomorrow’s CCO will need to be increasingly aware of and engage with technology and other functions like cybersecurity and data management to understand and get out in front of the risks of the future.

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//// about Second line advisors Second Line Advisors is the leading executive search firm for Risk, Compliance, and Regulatory. With decades of executive search experience, we are trusted advisors to Financial Services, Banking, and FinTech clients in the areas of Risk Management, Compliance & Financial Crime, and Regulatory. Our services include Executive Search, Board of Directors Search & Introductions, and Talent Pipelining & Succession Planning.

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