Bubble could burst on boom in bank compliance units

Compliance was never supposed to be a high-stakes job in finance. For thrills and big pay, the natural choices were investment banking or trading. But that is changing. As the consequences of breaking the rules have increased dramatically, the internal staff policing activities at JPMorgan, Citigroup and elsewhere have become more numerous, better paid and far more in the line of fire.

One industry veteran likens it to American football and asks whether we really want compliance to be the same sort of career: hard, short but well-compensated as a result, with $10m salaries for the top players.

Compliance officials can earn seven figures, although with the pay comes a newly-heightened risk of job loss. US authorities are making clear that they will hold gatekeepers individually accountable for their companies' infractions, particularly for breaches of anti-money laundering controls or the Bank Secrecy Act. In one example, Harold Crawford of Brown Brothers Harriman was fined $25,000 and suspended for a month, as part of a broader settlement of allegations that the bank had various weaknesses in anti-money laundering. Mr Crawford moved from his job as head of compliance to another position at the same company. Others may not be as fortunate.

At the same time, banks are actively seeking the best new talent. JPMorgan, which has more than doubled its compliance team in only two years, currently advertises 255 positions. Would you like to join a 700-person Global Financial Crimes Compliance unit? How about sniffing out and analysing "new high risk and specialised client[s]" in Santiago, Chile?

Then there is this position in Hong Kong: "You will be surrounded by talented and self-driven individuals like yourself who, in line with the highest standards of integrity, combine innovation and analysis to achieve industry leading results and recognition in accordance with the business principles fundamental to our success." But it is essentially a job ad for checking up on colleagues.

Rooting out compromising internal electronic messages is another formidable task, as events of recent years have shown. And there is a senior role doing just that in Mexico City. Or for milder climes, you could help with the 150,000 checks into its own customers that JPMorgan conducts every year, from a desk in Bournemouth, England.

Looked at optimistically, this increased emphasis on compliance could deliver great improvements. Companies are being incentivised to identify wrongdoers among their customers and employees, and pass that information on to law enforcement agencies and regulators so that justice may be done.

Perhaps JPMorgan, which was punished for not doing more to raise the alarm on Bernard Madoff, will take a more vigorous approach, sparing future victims as well as saving money for the bank in the process. It paid $2.6bn in Madoff settlements.

Arguably, the biggest improvement will not be derived directly from the work of thousands more compliance officers - but from their role in instilling a healthier mindset throughout the organisation. This is something that banks including JPMorgan have tried to do.

However, one sceptical lawyer remarks that there is still a responsibility being placed on compliance people that few - if any - are equipped to manage, or even address: "The question that should be asked is 'if this went pear-shaped, how would a prosecutor construct a fraud case in five years' time?' Compliance people don't do that."

Moreover, even the smartest mathematician or most scrupulous lawyer will struggle to catch up with a negligent or criminally-minded trader. That makes it hard to justify the extra staffing. Some compliance is obviously essential for day-to-day business but some business might no longer seem essential when accompanied with skyrocketing compliance costs. At worst - as bankers including Peter Sands, the former chief executive of Standard Chartered, has warned - countries will suffer as international banks pull out to avoid falling foul of tough sanctions for money-laundering offences.

"Cancel those compliance guys in Santiago. They are never going to be good enough to catch the bad guy who lands us with $1bn fine. We're leaving!" It is not something Jamie Dimon has said yet, but the JPMorgan boss could.

Plenty of other booms in banking have turned out to be bubbles. Compliance just might be the latest example.

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