The 20 Rising Stars of Compliance 2007 - (Page 10) RISING STARS 20 COMPLIANCE “The nature of that product is risk,” said Michael Lord & Co.’s Lord. “It doesn’t just go in one direction.” In part due to risks stemming from product diversity, including derivatives, compliance officers will keep finding opportunities at hedge funds and at asset management firms overall, recruiters agree. Recruiters said diversified product knowledge will increasingly benefit compliance officers. Firms will want a compliance officer the investment or marketing side can approach for advice, Lord said. function to police disclosure and know how to smell insider trading. Hedge Funds While the SEC was not successful in federal court last year in defending its hedge fund adviser registration rule, the agency has made headway with hedge fund regulations. In July, the Commission voted to adopt a rule that makes it a fraudulent, deceptive or manipulative act or practice for investment advisers to pooled investment vehicles that include hedge funds to mislead or defraud investors. This includes making false or misleading statements. Some hedge funds have been offering six figure total compensation but recruiters caution that these are still case-specific. Regulatory-induced fear is a large factor at many hedge funds but business models influence these salaries more than they do at securities and other types of investment management firms, they note. For example, a six-figure compliance position at a hedge fund is often a combined general counsel role that may include partner status in the fund. Fixed Income Compliance officers with experience in fixed-income and derivatives are wanted as firms expand into those businesses, recruiters say. Fixed income expertise will put junior and senior-level officers on the high end of the range. Not many compliance officers at securities firms have this background. In addition, regulators at self-regulatory organizations, including the NASD which is now the Financial Industry Regulatory Authority, have been discussing extending some requirements from the equities side to fixed income. “There’s going to be continued attention to the fixed-income area,” said SEPTEMBER 2007 there is much more customer interaction, Solo said. For example, under Securities and Exchange Commission rules adopted under the Patriot Act, every brokerdealer is required to have a customer identification program, also called a CIP set of procedures. Account-opening requirements under CIP include being able to prove a customer’s identity even where an account is transferred from another firm. “For AML, customer experience helps in identifying suspicious persons and activity,” Solo adds. In addition, such experience has benefits for account opening procedures. Firms want an AML officer who knows how to police customer communications and identification because those attributes are such a big factor of AML requirements. Recruiters and compliance officers say AML has become an expansive area of compliance because duties have grown drastically. A mid-level AML compliance officer with five to 10 years of blended experience can earn $150,000-200,000, said Solo. AML directors are earning close to what chief compliance officers in general can earn, he added. It is not possible for compliance officers to have 10 or more years of experience exclusively in securities AML compliance because the rules created this were only implemented from the USA Patriot Act of 2001. Derivatives Compliance professionals with expertise in derivatives will be hotly sought after, recruiters said. Hedge funds increasingly invest in these instruments and regulators are paying close attention to credit risks in credit default swaps, derivatives and derivative-related investments in general. 10 COMPLIANCE RISING STARS “ For AML, customer experience helps in identifying suspicious persons and activity.” DANIEL SOLO senior recruiter The Response Cos. Sub-prime lending and collateralized debt obligations have drawn attention from the SEC because of credit risk and the subprime meltdown. Commissioners and senior officials have warned in speeches about unregulated vehicles such as over-the-counter derivatives and potential insider trading from private equity deals. In particular, private investment in public equity, or PIPE, transactions continue to be a concern. The SEC is looking for insider trading by hedge fund managers in these deals where the deals are not yet announced, which signals the compliance
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