The post-crisis regulatory tsunami that hit the capital markets over the past 10 years has had a major impact on the global industry’s workforce. Despite strong downward pressure on margins, financial institutions embarked on massive recruitment for their risk management, legal, and compliance teams to cope with the complexity of the new regulatory environment.
A Profound Shift in Employee Headcount
The result was a profound shift in employee headcount, with a significant increase of 190,000 employees in the overall capital markets workforce between 2010 and 2016 (see Figure 1). This heightened regulatory pressure has mitigated the benefits of increased automation and productivity, which should have allowed a stabilization of the overall workforce and, over time, a reduction in headcount and related expenses.
With regulatory reform now in hand, it is critical that financial institutions shift their focus to improving efficiency to weather the ongoing pressure on margins. The massive adoption of new technologies such as artificial intelligence (AI) and data analytics by financial institutions is obviously a means to address this need. The digital transformation of the capital markets is well underway and will accelerate over the next few years. Given this, Opimas is expecting an enormous reduction in staff with more than 400,000 full-time employees lost by 2030.
We believe that this reduction will impact some financial institutions far more than others. Notably, the asset management industry—already under tremendous pressure due to declining management fees and slowing asset inflows—will see some of the greatest cutbacks in the workforce, shedding about one third of its headcount.
Figure 1. Headcount in Capital Markets 2008-2030
Figure 2. Headcount Reduction Estimates by Type of Institution
New Profiles in Demand
While the size of staff in the capital markets will drastically decrease, we also expect a shift in the profiles of employees. Indeed, digital transformation is not just a matter of deploying new technology, but also will require different skill sets to implement and monitor advanced systems. As a result, there is a growing battle for digital talent across industries, with financial institutions vying to attract and retain talent with highly sophisticated skill sets more akin to a Silicon Valley start-up or publicly traded technology company rather than a Wall Street investment bank. Experts in AI, data science and cybersecurity, typically drawn to work at tech companies, are entering the financial industry at an unprecedented rate. Since January 2019, more than 35% of the job offers published by US and European sell-side institutions specifically target candidates with a technology profile. Yet hiring people with these skills is increasingly difficult, as the demand for tech experts is currently outstripping the supply. The reason: The ideal candidate for the capital markets must have double expertise in business, administration or mathematics and also in specific technologies such as Python, data visualization, etc. The new gem in recruitment is a candidate that possesses science, technology, engineering, and mathematics (STEM) specialization.
Adapting HR Structures
To adjust to the changing landscape, financial institutions must implement a new talent strategy not only because they have to recruit new employees with different skill sets, but also because they have to bridge a talent gap within their own organizations. Reskilling or upskilling current employees is a necessity, and financial institutions are being pushed to diversify their learning and development programs. They also firmly rely on partnerships with universities and acquisitions of FinTech companies. In their transition to the workforce of the future, financial institutions will face significant challenges and must completely rethink their internal organization.
While technology is increasingly fulfilling a transversal function across business lines, the organizational silos that characterize financial institutions will have to evolve toward a softer horizontal operating model. They will have to innovate in their business functions and also in their talent management. Business and talent strategies will have to be aligned from the top, requiring strong support from executives.