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FX changes require revised hiring strategies

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Global markets took a real beating in January as Brent Crude prices dropped below $30 a barrel. To add to this the lifting of sanctions on Iran has put further downward pressure on oil prices. The collective impact is reshaping the global banking landscape.

As for Foreign Exchange (FX) markets, the market volatility appears to have been a key driver for revenue, making it the top performing business line for the most banks. According to research that we have recently undertaken at BHA with 400 banking professionals, G10 FX businesses at banks increased by more than two-thirds in the first half of 2015 compared to the corresponding period in 2014. 

The changes in the market structure over the last year has had a significant impact on recruitment and hiring plans of market participants as well as the compensation packages of many FX professionals. Factors such as regulatory change, new tech advancements, and an increase in non-dealer market share have all had an impact on UK FX. This has been reflected in the fortunes of market leading institutions in the interbank FX sector which have experienced lower trading volumes in 2015 – leading to many revising hiring strategies for 2016. 

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According to research from Greenwich Associates, year-on-year market shares of the five biggest banks shrank. Barclays, JP Morgan, Citi, Deutsche Bank and UBS all witnessed market shares decline by two per cent as a result of changes to the market structure. 

Compensation has been a hot topic for FX professionals given that bonuses are down this year. The changes announced by the Prudential Regulation Authority in 2014, which require banks to claw back and defer variable remuneration for staff that are subject to the remuneration code, has resulted in shrinking bonuses and increased salaries for many bankers. It has significantly increased fixed costs at a time when banks are focused on cost reduction. 

Code staff in particular have been heavily impacted, dis-satisfaction is high, given that up to 60 per cent of the variable is deferred. There is an understanding of the rationale behind the changes, however the stark reality is something bankers are still struggling to come to terms with. The impact has largely been dependent on seniority and business activity. For example, G10 FX traders are less impacted and expect to be paid well given their strong performance in 2015.

Tech was the second biggest cause for concern and factor driving change as many banks implement more efficient and streamlined e-trading platforms. Again our research showed electronic trading represented 70 per cent of daily turnover in FX markets. However, the knock on effect of this is that staff cuts are being made and the shift towards e-trading has significantly changed the profile of FX market professionals and the way that FX is traded.

As we look ahead into 2016, although macro market volatility will undoubtedly benefit the FX market, the changes outlined above will create significant disruption and instability for FX professionals. This will undoubtedly result in many banks adopting a different approach in terms of hiring. The most likely outcome is the old guard being phased out as more switched on and tech-savvy millennials and Generation Z employees start to flood the market. Equally, with changes to compensation plans and continued cost cutting, banks face stiff competition and the likelihood of staff being poached by hedge funds and technology firms. 

Strategies for hiring and retaining staff amidst this volatility will be critical to the ongoing success of banks, particularly in the FX market. Key considerations are: What are the qualities that the new FX professional will need to have? How do banks recruit the right emerging talent? Equally how do they ensure that they help more established and senior staff realign themselves to an evolving market place? How do they put in place compensation plans that won’t expose the business to risk, but at the same time be motivating and rewarding for FX Professionals?

Similarly, on average, it takes 2.7 days to hire someone online compared to 34 days with traditional methods. Here’s why it’s time for recruitment to go digital.

Solomon Animashaun is senior partner at Barrington Hibbert Associates.

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