Heightened regulatory scrutiny and international sanctions since the Russia-Ukraine war broke out has turned the spotlight on legal and regulatory compliance talent.
Sanctions by Western nations and Russia’s response generated new threats to business continuity. This increased demand for talent from commodity participants to ensure they are not breaching new rules or exposing themselves to fines. However, finding compliance talent with adequate skillsets and trading knowledge is proving increasingly challenging, against an already limited candidate pool and rocketing compensation levels.
Compliance functions encompass a wide range of tasks and job titles, from Head of Compliance, Compliance Manager for Trading, to Trading Risk and Compliance Analysts. Essentially, they are responsible for maintaining the organization’s legal, regulatory, and ethical integrity. Depending on their seniority, they shape the organization’s policy and ensure that it is strictly followed by all the team members across the business.
The compliance team guides and trains the management and employees from back- to front-office on legal matters, updating them daily on recent regulatory changes through compliance analysis and responding in case of investigations from regulators and governments.
More recently, since the Russia-Ukraine war, their role has continued to extend to a wider range of imperatives beyond pure commercial performance. Protecting the reputation of the business has become increasingly critical amid rising risks associated with sanctions as well as market behavior, corruption, and codes of conduct.
There is also a wider recognition from executive management and industry stakeholders that compliance and regulatory roles have become more central to business strategy, with more influence on strategic planning and performance.
Sanctions are not new to the commodities industry. For instance, over the past few years, commodity players have had to deal with international sanctions against Iran, a major oil producer. But the Russia-Ukraine war, and the escalation of international tensions through sanctions and embargoes took many by surprise in a short amount of time. This sparked an unprecedented level of complexity and unpredictability that commodities players had to navigate on a day-to-day basis.
For instance, the latest price cap on Russian crude oil introduced late last year and implemented on 5 December 2022, came with limited information on the terms of implementation, according to some commodities players. In anticipation of the new price cap, some took the precautionary measure not to take delivery of cargoes as early as October. In Europe, the war led to decades-high price volatility in energy and metals markets in 2022. This, in turn, caused increased regulation and greater focus on aspects as diverse as monitoring and reporting transactions, market conduct and fraud.
The war raised the need for compliance and regulation experts to intensify communication on a day-to-day basis with colleagues from different departments, front desks, trading, legal, risk, finance, and operations to execute the deal.
Those keen to strengthen their capabilities in compliance and regulation have also raised their headcount. Talent demand has sky-rocketed, and supply is so scarce that it has become increasingly difficult for recruiters to find profiles with the relevant skills and history. The shortage of suitable candidates is especially stark at the mid-level (5 to 7 years of experience) due to a lack of in investment in this talent group over the past decade. As a result, compensations have also significantly risen over the past year, a trend exacerbated by rising salaries among mid-level legal talent in law firms and consultancies.
“Some salaries for mid-level compliance roles have gone up by around 35,000 euros from a year ago. This is due to the combination of demand, inflation, and a lack of talent in London, partly because it has become more difficult to bring individuals into the UK since Brexit, unless they get sponsorship. There is also a lot of talent movement and candidates jumping ship, as they often get poached,” Penelope Gerard, Head of HC Group’s Compliance and Legal practice said.
For external hires, many will be seeking candidates with a legal background, such as lawyers who have touched on compliance matters or a compliance adviser with significant experience in the commodity sector. This is to ensure that they are versatile enough, work independently, and that they have sufficient knowledge of the business’ compliance needs when commissioning work to external advisors.
While there is usually a preference for legal experts, experience in the trading business, KYC and due diligence is highly sought after. In some cases, brokers and traders who bring significant trading experience represent suitable candidates. However, finding individuals who are keen to make a move to compliance and regulatory roles is not a given and considered more an exception. Lastly, employers are interested in individuals who worked for a regulator and are keen to take on an industry role. But those with trading business experience are not easy to find. In Switzerland, many have been reverting to profiles coming from banking compliance with a view to training them on commodities trading.
Other compliance risks
While sanctions have kept many compliance professionals very busy in 2022 and early 2023, the focus on regulatory work is largely expected to be on implementation in the foreseeable future.
There are other risks beyond those sparked by the war, from anti-money laundering, fraud, and other forms of misconduct, including in sectors outside of commodities such as cryptocurrencies. Enforcement has become key, which is likely to justify more recruitment, therefore, intensifying competition for talent.
George Voloshin, a corporate intelligence and sanctions expert, says anti-corruption initiatives from the EU and Western nations are also likely to result in more legal cases. “For commodities, a big topic will probably be bribery and corruption, because commodities are still sourced from high-risk countries. The European Commission and other Western nations made it a priority to fight corruption. We’re seeing a number of trials in the press. Since these trades involved many banks, they also feel the pressure to make sure that they don’t get into any deal that involved corruption,” he explains.
In the US, HC Group has seen more demand for regulation and compliance talent in the energy markets over the past year than it has historically. Much of the demand is triggered by changing rules at the state and federal levels, which is fuelling more volatility in the market and making compliance roles a rapidly evolving – and highly prized - function.
Sustainability and growing ESG pressure are expected to increase for big commodity players and gradually trickle down in the oil and gas value chain, from smaller oil players to ship owners. However, the drive for a cleaner and more sustainable economy is raising several competing priorities that need to be resolved between compliance resources and sustainability capabilities as more participants are still in the process of shaping their own sustainability teams.
In the wake of the global coronavirus pandemic, geopolitical upheavals in 2022 sharpened the role of compliance teams, placing them at the heart of future business strategy. There is a view that commodity companies were less prepared to face increased compliance needs than the banking sector, which had gone through tighter regulations following the 2008 financial crisis. With more legal and compliance risks emerging, commodity companies are playing catch-up, and many are now constantly adjusting their compliance ‘trigger points’ to protect the business. Despite the intrinsically theoretical nature of these roles, those who can apply their expertise through hands-on experience and commodities business practice will add value to companies and set their profile apart in an ever-competitive talent market. - FS
For queries related to HC Group’s activities in the legal and regulatory compliance functions, please contact:
Penelope Gerard, Senior Associate, Legal and Compliance
Archie Armitt-Goddard, Associate, Legal and Compliance