CITY

HORIZONS

2018Navigating BREXIT

& Talent Management 

BRUIN Financial | Insights into the Financial Services Sector

info@bruinfinancial.com www.bruinfinancial.com

FOREWORD

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The immediate aftermath of the Referendum in 2016 was, by all accounts, bleak: stock markets dropped, sterling suffered, and consumer confidence dipped significantly. Bankers and politicians alike predicted that leaving the EU would prompt a mass exodus of business and deal a crippling blow to London’s position in global finance. The impact on financial services in the UK was high on the agenda, due in no small part to the sector’s 12% contribution to the British economy’s total GDP. Output aside, it generates more than two million jobs and is the country’s biggest export industry, accounting for nearly 50% of the UK’s $31bn trade surplus in services. The UK financial sector’s relevance to the rest of the EU is also substantial. British banks lend nearly $1.4 trillion to EU companies and governments. Much of the financial activities carried out in Europe are either directly or indirectly performed out of London, with 87% of US investment banks’ EU staff employed in London. Estimated job losses ranged from 75,000 - and in circumstances where Brexit undermined the City’s ability to function as the primary ‘clearing house’ for euro-denominated transactions - up to 200,000. Accountancy firm EY calculated that 10,000 jobs would be moved out of the City of London on day one of Brexit across both back office and front office functions, and the most extreme forecasts predicted the wholescale decampment of the financial services industry to mainland Europe. But two years on from the referendum, these predictions have yet to become a reality. And according to a new survey from Reuters, as few as 630 UK-based finance jobs have been shifted or created overseas so far. Furthermore, the financial institutions responding to the survey said that in the event of a "hard" Brexit the number of jobs they expected to move was around 5,800.  Nearly all organisations surveyed said they are moving as few people as possible, hoping for a last-minute political deal that protects access to the EU’s $19.7 trillion-a- year economy after Britain leaves the bloc. However, responses also pointed to the expectation of bigger moves out of London taking place over the decade following Brexit, with a slow drain of jobs from London over a number of years as the financial services industry diversifies across mainland Europe.  As a specialist financial services recruiter with visibility over the UK and European market, BRUIN is uniquely positioned to offer insight for those with responsibility for navigating Brexit from a talent management perspective. City Horizons 2018 examines the current landscape of the financial services recruitment market, to provide hiring managers with an overview of current trends and the market intelligence to retain and attract top talent.   Colin Webster CEO, The FISER Group Parent company of BRUIN Financial

THE BREXIT EFFECT

In the absence of clear guidelines for a post-Brexit landscape, many banks have been exploring operating model designs that allow them to continue to provide European client coverage in an environment where UK entities do not have access to the European market. With the European Banking Authority (EBA) providing guidance suggesting that it will not tolerate “empty shells” to be set up within the EU to provide this access, investment banks have primarily focused on options to extend existing entities or create new ones with the appropriate management, governance, staff and infrastructure to control the risk they generate. Whilst banking requirements have increased across mainland Europe since the referendum results were announced, it is interesting that the numbers we have noted are more or less in keeping with strategies implemented to deal with tighter regulations following the global financial crisis, and as part of larger cost control programmes to offshore certain operational business functions, rather than driven by Brexit.   Many of the large banks which had initially announced plans to migrate significant numbers of jobs to mainland Europe have yet to do so. Other key players have said that although they have moved or hired a small number of staff in European cities, they are aiming to shift as few jobs as possible and will take decisions about staff redeployment over several years.

OVERWHELMINGLY

THE MESSAGE FROM

CLIENTS HAS BEEN

"BUSINESS AS

USUAL"

From the outset the overwhelming message from clients has been ‘business as usual’ in terms of hiring on the asset management side, with an additional remit for specialists to focus on Brexit related activities. We have seen increased demand for operational / business risk professionals as a result, along with significant hiring across compliance and legal in anticipation of substantial regulatory change. Investment risk professionals have also been highly sought after, particularly for those with product knowledge as well as regulatory knowledge. And as firms expand their presence in Europe, sales and marketing strategies have become more tailored to local and broader European audiences, with related language requirements. The priority for buy-side institutions has been to engage with their clients, fund gatekeepers and vendors in a push to retain assets and manage market volatility, with corresponding demand for client services and relationship management specialists. Some of the larger firms have also established in-house teams of dedicated ‘Brexit change’ consultants to oversee regulatory and operational processes during the transition period and beyond.  

INVESTMENT BANKING

ASSET MANAGEMENT

03

INSURANCE

BRUIN Financial

"With the arrival of new insurancesubsidiaries in the EU, we have noted anincrease in demand for specialist skills"

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The non-life insurers expected to be affected by Brexit more than the large UK life insurers and reacted earliest in their planning as a result. Noticeably, the Lloyd’s and London Market players were among the initial tranche to begin positioning for new subsidiary operations within the EU zone, notably by Lloyd's setting up their Brussels presence. The London market will look to write business through Brussels from January 2019. The choice of EU domicile for these London Market subsidiaries has been varied, with most opting for Dublin, Luxembourg, and Brussels as locations of preference. The large life insurers tend to conduct UK domestic business exclusively and mostly have subsidiaries in one or more EU countries already, removing the need to set up new entities.

With the arrival of new insurance subsidiaries in the EU, we have noted an increase in demand for specialist skills – such as underwriting, actuarial, risk, finance, compliance, and legal. We are also seeing this in specialty classes, which are candidate-led and competitive. Although sourcing local talent has been a factor in determining the location of EU offices, it was often the least important after client proximity, business-friendliness and the local regulatory framework. In a market already preoccupied with regular pricing, reserving, capital and transactional work, insurers have also had to deal with inevitable regulatory change; The political go-slow has simply held up a more aggressive approach to hiring so far.

CLIENT DEMAND PRE & POST REFERENDUM

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"In the aftermath of the referendum the market respondedto the stabilising effect of having a result – even if it wasnot the one widely anticipated in the City."

Brexit brought no changes here – and many functional areas are still consistently candidate short, however it is clear that in the aftermath of the referendum the market responded to the stabilising effect of having a result – even if it was not the one widely anticipated in the City. Demand has since diversified considerably across the UK and mainland Europe, now exceeding pre-referendum levels. 

Prior to the referendum, London dominated the demand for talent, with the large banking institutions primarily leading the requirements. Having more or less recovered from a post-recession downturn, the most significant challenge facing financial services recruitment was a shortage of talent, which then coupled with an acutely risk averse approach to hiring in the lead up to the referendum. 

DEMAND FOR CONTRACTORS POST RESULT

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I N V E S T M E N TB A N K I N G :

+ 1 5 %

A S S E T M A N A G E M E N T :

+ 2 4 %

I N S U R A N C E &C O N S U L T A N C Y :

  + 1 3 %

Demand for high quality contractors across our specialisms has increased by over 20% in the last 2 years. In addition to specific Brexit-related projects, experienced contractors have also been used to supplement permanent teams in addressing more immediate regulatory needs such as MiFID II and GDPR. As a result, specialists in legal and regulatory disciplines remain the top drivers, representing 70% of all requirements.  The demand for business analysts and projects roles for programes and testing has also been a key focus as organisations started to bring development teams back to the UK, and look to future proof their offering through digital and innovation, which dovetails with increased demand for short term marketeers with relevant backgrounds and exposure to European markets.

Structural Reform / Ringfencing GDPR Cost Reduction Digital / Innovation / Collaboration Data Analytics

KEY AREAS OF DEMAND:

In terms of candidate drivers, flexible working has become an increasingly common factor. Organisations that can offer options for agile or flexible working, such as the ability to work remotely a couple of days a week, a four day week, or even slightly shorter working hours, are reaping the benefits. Skilled contractors in niche areas are now well placed to negotiate a good work life balance at top tier firms.

LOCAL VS INTERNATIONAL TALENT

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71%

U K P A S S P O R T H O L D E R S :

20%

O T H E R E E A W O R K E R S :

N O N E E A W O R K E R S :

9%

A review of our placements over a 5 year period reveals that British nationals represent 71% of candidates in financial services, other EEA workers represent 20% and non EEA workers account for 9%. The most significant findings were that non British workers were overly represented in a few key areas - namely regulatory roles (63%) and sales & marketing (33%). The very nature of these roles is that they require either a niche global skills set (regulatory) or additional languages and experience with other European markets (sales & marketing), but it appears the City has had to turn to non UK nationals to meet this need. Some of the suggested revisions for immigration post-Brexit, including using a language and points based system, are likely to result in very little change for the City in terms of nationality of the skills base, but could have the unintentional consequence of putting off skilled talent from coming to London. For workers from outside the EEA there is an existing tiered visa system with quotas. Companies are generally required to demonstrate the specialist nature of each role and sponsor the applicant for their visa under strict requirements. Whilst workers from within the EU are not currently subject to a quota system, in reality roles are filled by very specific criteria, which are fundamentally skills and language based. So in effect this already replicates the demands of a quota. As a result we would estimate a revised system for EU workers would have minimal effect from a skills perspective. And adding additional administrative hurdles for EU workers simply levels the playing field with those seeking to come to the UK from outside the EU. However this could have a significant effect on the desirability of the UK as a place to work and we may find it becoming harder to attract skilled EU workers.

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REMUNERATION & BENEFITS

The results of our recent Bonus Survey indicate that there has been a notable uplift in salaries in the UK since the referendum results, and candidates across compliance, audit and risk have received an average increase of 10% in the last year alone. Financial services professionals were on the whole positive about their bonuses, although it was notable that this year the bonus cycle has become more protracted. Interestingly, the gender pay gap reporting legislation has already appeared to have had an impact, with women reporting increases of circa 12% on their base by comparison to 9% for men. Other salary increases reflect that over the last 2 years organisations have prioritised attraction strategies for star performers to capitalise on free movement of people whilst this is still possible. 

Organisations seeking to augment teams both in the UK and more further afield are increasingly turning to benefits as a means of differentiating themselves from their competition. However, if the UK does leave the EU there could potentially be another route - bonuses. Specifically, bonuses could rise if elements of CRD IV, the European Union's banking remuneration regulations are repealed. Whilst subject to bonus cap legislation, employees in mainland Europe do benefit from a number of tax-benefits. These can include relocation allowances, school fees, housing expenses, etc. subject to certain conditions. Fringe benefits in kind such as accommodation benefits, car leasing, lunch vouchers, employer’s occupational pension schemes, and interest subsidies are also relatively common in central Europe.

DISTRIBUTION OF TOTAL STATUTORY EMPLOYMENT COSTS IN EUROPEAN FINANCIAL HUBS (%) *

*SOURCE WILLIS TOWERS WATSON 2018

DEMAND IN EUROPEAN FINANCIAL HUBS

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More than 40 financial companies have drawn up plans to transfer activities to the Grand Duchy. However, this does not seem to have been at the expense of hiring in London, with the trend mostly to add additional people on the ground to support existing UK functions. This has been noted in oversight, product related and transfer agency roles and more broadly in investment risk, sales, marketing and compliance, with firms like Schroders, Wellington, M&G Jupiter and Bluebay expanding their teams in Luxembourg.  This is in addition to the 100 or so insurance companies benefiting from the cross-border distribution of life insurance and a major captive reinsurance domicile.

Since joining the EU in 2004 Poland has established itself as a major offshoring site for banks, with estimates of financial services jobs moved from all Western countries ranging from 35,000 to 45,000. Now it has set its sights on more sophisticated middle office functions such as treasury, risk management, and product development, with the likes of Credit Suisse and UBS among those basing large operations in the country, taking advantage of a well-educated workforce as well as cheap office space and wages. But for many this decision was taken well before the Brexit result, driven by the added attraction of being able to support the European timezone and pass the book between regions. 

LUXEMBOURG

Frankfurt may not have particularly attractive tax rates, English as a primary language, or Ireland's regulatory framework; but Germany does have the largest economy in Europe, with strong and steady economic growth. Over the last twelve months, 10 foreign banks have chosen to move operations and staff from London to Frankfurt, lifting the city’s total tally of “Brexit banks” to 25.  Among the lenders are Goldman Sachs, Citi, JPMorgan and Barclays. However, as German banks are simultaneously cutting jobs, the net effect is likely to be unclear long-term.

FRANKFURT

POLAND

PARIS

The labour and tax reforms implemented by Macron have facilitated a successful financial services blitz, which has seen BlackRock, JPMorgan, Bank of America, Citigroup, HSBC, and Nomura all commit to more hiring in and relocations to the French capital. Ultimately, it is projected that these reforms will contribute to circa 3,500 financial services jobs being redirected from London to Paris, which already boasts a strong financial services scene and three of Europe’s biggest banks: BNP Paribas, Crédit Agricole, and Société Générale.

SPOTLIGHT ON: IRELAND

Over the last few years client demand has predominately been on the buy-side, with half of the Central Bank's Brexit applications from asset managers. The majority of firms seeking to set up units have typically employed 20-50 people to demonstrate that they have substantive operations, which mainly comprise staff in compliance and distribution, but we have also noted increased demand for roles across risk, investment analysis and portfolio management.   Earlier this year, BRUIN entered into a partnership with Ireland-based finance recruiter Barden, to provide high quality specialist recruitment services into the Irish financial services sector. With offices in Dublin and Cork, BRUIN Financial Ireland enhances the range of services that we provide to our clients and candidates, and offers them strong continuity even in the wake of Brexit uncertainty.

Ever since the 1990s, when business-friendly reforms heralded the rise of the Celtic Tiger and a decade of double- digit growth, Ireland has had some very attractive business incentives to offer, from low taxes, to its regulatory environment, and access to the single market. Ireland is now the fourth largest provider of wholesale financial services in the EU with more than 250 of the world’s biggest financial services players, including half of the world’s top 50 banks. And since 2016, the Government has prioritised making Ireland as attractive as possible. In the immediate aftermath of Article 50 being triggered it was insurance firms making the most noise in Ireland, with Legal & General and Standard Life Aberdeen amongst the first companies to pick Ireland as a post-Brexit base against stiff competition from rival centers including Luxembourg, Frankfurt and Paris.

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RECRUITMENT IN IRELAND: OPPORTUNITIES & CHALLENGES  

Ireland is soon to be the only English-speaking common law country in the EU, with a highly skilled workforce of some 42,000 people directly employed in financial services across the country. In addition to Ireland's traditional strengths in insurance, asset management and certain aspects of the international banking sector, significant investment is also being made into disruptive industries such as FinTech, RegTech and InsurTech, designed to future proof the market.  However, Ireland’s allure as a post-Brexit base for global financial firms has driven wages upwards for certain roles considerably, with some positions offering up to 15% more than a year ago, particularly in niche areas such as risk and compliance. And upwards pressure on remuneration is likely to  continue, with the central bank expected to approve more firms’ expansion plans in the coming months. Coupled with new legislation within banking and insurance, demand is often for the same talent. As a result the market is very candidate driven, particularly at the senior end, making counter-offers almost inevitable. Organisations are having to move increasingly quickly and become more competitive, not just in terms of remuneration, but also reviewing their incentives to focus on flexibility, work environment and opportunities for career progression.

LOOKING AHEAD

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Not only will this affect remuneration levels, but will demand greater flexibility, such as considering returners or candidates with transferable skills from relevant sectors. In order to attract best talent, organisations may also need to consider additional training and internal mobility to cover the areas which are particularly candidate driven. Recruitment firms will also need to adapt. Being able to demonstrate how they can add value to the process will become more vital than ever, as will expertise in specialist markets, and being truly consultative. Recruiters are increasingly called upon to find creative approaches to the challenges faced by clients and candidates, particularly with regards to niche talent pools. To achieve this often requires an international approach. Not only in terms of meeting local demand with local talent, but by employing a broad multinational sourcing strategy - which reflects the global nature of these organisations, their audiences, and an increasingly mobile workforce.      

Based on current arrangements, Britain will remain part of the European single market for a transition period of 21 months until the end of 2020. However, this agreement is subject to the EU and the UK adopting a broader exit deal which clarifies the terms and conditions of the “divorce”. Without such an agreement, a “Hard Brexit” would happen in March 2019. It remains to be seen whether the UK will indeed secure an agreement, or even face a second referendum. Whilst still in this state of limbo the financial services industry has been forced to adapt and respond to more immediate regulatory and business needs, whilst keeping one eye on potential clues to their long term future. Looking ahead, as well as adapting to the new legislative landscape, financial services institutions will need to assess their retention and attraction strategies in the face of increasing competition for skilled candidates.  

B R U I N F i n a n c i a l

BRUIN Financial is a specialist financial services recruiter, with offices in London, Manchester and Dublin, and coverage across the UK, Ireland and mainland European financial hubs. Established in 2010, BRUIN is preferred supplier to the world's leading asset managers, investment banks and insurers, across a number of areas:

A B O U T B R U I N

Recruitment &

Talent Management

B R U I N F I N A N C I A L

Executive Search

& Selection

L U D G A T E S E A R C H

ActuarialComplianceCorporate GovernanceCredit & Risk ManagementData & Information TechnologyFinance & AccountancyInvestment & Front OfficeMiddle Office & OperationsLegalPensions & Employee BenefitsProjects & Change ManagementQuants / Data ScienceSales & Marketing Underwriting & Claims

Business Change

& Transformation

I B A M C O N S U L T I N G

B R U I N F I N A N C I A L I S P A R T O F T H E F I S E R G R O U P