March 2017

Challenger Banks: Where and how are they sourcing essential talent in risk and compliance?

A market study by Peter Johnson

The Human Capital Specialists Challenger Banks: Sourcing talent within Risk and Compliance

Market study findings

Challenger banks are not just riding the current economic storm, they are ploughing their own path by outperforming the Big 5 Banks in all the key categories: successful public offerings, agile cost bases, superior customer service and higher earnings per share; all of which are driving the popularity and growth of their products.

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 , Metro and Shawbrook; and digital challengers such as Atom, and Monzo. Our findings are detailed within this report:

Experiencing a lack of Harnessing the benefits of internal talent executive interim solutions

• A very low number of firms have promoted • Many start-ups and growing challenger banks internally to fill Chief Risk Officer and Head of have executive interims/contractors in senior Compliance roles. Only 12% of Chief Risk Officer roles, allowing them to keep a low fixed cost and 8% of Head of Compliance positions have base during periods of growth. been awarded to internal candidates. • Their ability to do this has been aided by a • The UK regulators continue to take a keen interest marked rise in the number of high calibre senior in proposed appointments to guarantee risk and compliance professionals choosing a candidates will have the technical and influencing career of short term contracts, rather than ability to ensure financial and conduct permanent roles. responsibilities are met. • Whereas in the past firms may have relied on • It is to be expected that early stage start-ups will secondees from Big 4 or boutique need to hire from the external market but it is the consultancies, more are now looking to clear trend across all challenger banks, regardless independent executive interims, who provide a of size. more economical solution.

• This is in stark contrast to the Big 5 Banks where • Often executive interims will have broader there is a strong bench of more senior individuals, experience gained from a range of often very well known to the regulator, who are organisations and may have operated at a more ready to step into senior leadership roles. senior level than their peers at other organisations who are in permanent roles. • Of the small percentage of internal promotions to Specialists in change, they can help firms set up, fill Chief Risk Officer and Head of Compliance build out and embed a strong risk and roles, the vast majority have taken place at the compliance function. larger challenger banks. This is due to their larger teams and more senior individuals from which to pick.

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.

The Human Capital Specialists | www.leathwaite.com 1 1 Challenger Banks: Sourcing talent within Risk and Compliance

Market study findings

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 Where are firms hiring Heads of Chief Risk Officers from? Compliance from?

• A significant number of Chief • Challenger bank Heads of Compliance hires Risk Officers (35%) have been hired from the tend be from more disparate sources. big five retail banks or Nationwide. • As with Chief Risk Officers, a number of firms • This is particularly the case with the larger (15%) have hired Heads of Compliance from the challenger banks who can both afford to hire Big 5 Banks or Nationwide. Again, this is often strong talent from larger firms and also require the larger challengers. someone with experience of working within a larger, more complex environment, often with • A much smaller proportion have hired from experience of higher levels of scrutiny from the other challenger banks (8%) and a larger regulator. number (15%) have hired from consultancies or executive interims taking on a permanent role. • 19% of challenger banks have hired their Chief This has happened at a number of start-up and Risk Officers from other challenger banks, with early stage firms. smaller firms able to offer good opportunities for individuals to take on a broader role for • A significant number (27%) have also been deputies and other senior risk officers within hired from other parts of such larger challengers. as insurance. Firms have been more flexible in hiring Heads of Compliance valuing operating • 8% of firms have hired from Big 4 or boutique style, calibre and influencing skills above consultancies, often when they have previously technical product knowledge and direct been seconded to the firm. 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.

The Human Capital Specialists | www.leathwaite.com 2 1 Challenger Banks: Sourcing talent within Risk and Compliance

Appendix: A selection of CRO & Head of Compliance People Moves

January 2016 from where he held the role of Director, Global Head, Policy and Risk Governance. Philip Doyle joined Tandem as Head of Financial Crime (MLRO). Philip joined from Fair Isaac Advisors, where he held Margot Lyons was appointed Chief Risk Officer for Ulster the role of Principal Consultant, Global Fraud. Bank. Lyons joined from GE where she was the MD of Risk Management for GE Financial Markets, and Head of Operational February 2016 Risk for GE Treasury. Eleanor Dewar joined Sainsbury’s Bank as Head of Policy and September 2016 Advice, Compliance and Conduct. She joined from where she was a Senior Audit Manager. David Kindred joined start-up bank Civilised as Interim Chief Risk Officer. He joined from Tesco Bank where he was Interim Jason Costain joined Williams & Glyn as Head of Financial Financial Risk Director. Crime Operations. Costain joined from Co-operative Bank where he was Head of Financial Crime Prevention. Mark Thundercliffe joined CYBG, the independent UK bank as Chief Risk Officer. He joined from HSBC where he was Chief Risk March 2016 Officer for the retail banking and wealth management businesses in Europe. Paul Blackmore joined Harrods Bank as Head of Operations Assurance. He joined from Metro Bank where he held the role of January 2017 Head of Operational Risk. Iain Laing joined TSB Bank as Chief Risk Officer. Laing joined Peter Rossiter joined as Interim Chief Risk from Nationwide where he held the role of Chief Risk Officer. Officer. Rossiter joined from Brighton Consultancy where he spent a year providing interim risk management services. Petrina Oliver joined Aldermore Bank as Head of Enterprise Wide Risk. Oliver joins from RBS where she held the role of June 2016 Head of Prudential Regulation and Frameworks, Risk Analytics and Models. John Hunt was appointed Chief Risk Officer (Retail) for Together Money. He joined from Nationwide where he was Allan Reid joined Sainsbury’s Bank as Head of Financial Crime. Head of Group Risk Oversight. Reid joins from Williams & Glyn where he held the role of Head of Financial Crime. Alison Verlander joined TSB as Director of Compliance and Regulatory Risk. She joined from RBS where she held the role of Graeme Forrester joined Sainsbury’s Bank as Chief Risk Head of Business Model Analysis and Conduct Delivery. Officer. Forrester replaces Mark Mullington who is relocating to Australia. August 2016

Mark McFadyen joined Virgin Money as Head of Financial Crime Risk and MLRO. McFadyen was previously UK Head of Fraud for the RBS Retail Business. Dr. Usman Chaudry joined Tandem Bank as Head of Credit Risk and Enterprise Wide Risk Management. Chaudry joined

Leathwaite

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 [email protected] Peter Johnson, Leathwaite

The Human Capital Specialists | www.leathwaite.com 3 1