The Inside Story of Banking & Financial Services in Japan

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Following the 2008 global financial crisis, a state of affairs blamed by some on the freewheeling deregulation of the banking sector, regulatory compliance has been the overriding theme of an industry looking to insulate itself against a catastrophic repeat.

Since then risk compliance has been an integral part of banking concern, with global banks seeing regulatory fees dramatically increasing relative to earnings and credit losses. However, banks in Japan have been slow to follow suit. While some of the more prominent firms may have large compliance units others, particularly smaller organisations, may be restricted to just two or three professionals in their entire compliance unit.

Financial Services Agency (FSA) survey from October of this year, sparked by concern regarding patchy measures for fighting criminal abuse of the financial system, uncovered deficiencies amongst Japan's regional banks and credit associations. The report also found that many of Japan's smaller lenders have inadequate risk management and little buy-in from senior management.

Despite appearances to the contrary, this does not necessarily mean that Japanese banks are entirely negligent in this area. The last 24 months has seen rising concern over compliance practices, and firms have been adding to their compliance departments in order to ensure the robustness of their infrastructure, while others have been outsourcing some of their compliance practices.

One problem that the banks are facing is that some of the old regulations were out-dated and more applicable to the post-bubble era of the 1990s. The FSA has been making moves to change these regulations.

As this happens, in order to adapt to newer controls the banks will require additional staff to implement any new governance that comes out. Regulators are currently in the process of advising banks on the levels of compliance professionals required, applying pressure to ensure that these recommendations are carried out.

Compliance issues also bleed into the other hot topic in the Japanese banking industry, that of crypto currency adoption. By the start of October, worldwide Initial Coin Offerings (ICOs) coin sales worth $2.3 billion had been conducted during 2017 almost 25 times that of the entire previous year, and this exponential growth is making it very much a global talking point.

While Japan was the first nation to popularise the e-wallet, the Japanese public are famously techno-adverse when it comes to payment, with 2014 statistics showing more than 80 per cent of transactions by value were made in cash, and it would not have been beyond the realms of impossibility for Japan to go the ways of China and Korea in banning crypto currency.

However, in September Japan’s financial regulator approved the registrationof 11 crypto currency exchanges. Following this approval there is some debate as to whether these currencies will act as replacements for, or concurrently with the yen. In the meantime, perhaps the biggest question is as to how, and by whom, these currencies will be regulated.

So, with banks already in poor shape with risk compliance, new regulations being adopted, and the possibility of a new currency system, the Japanese banking industry is crying out for experienced compliance professionals. The problem here is that these professionals are made very much conspicuous by their absence.

While Japan’s employment market as a whole is in short supply, with job availability in July reaching a 43 year high of 1.52 positions for every job seeker, this is particularly prevalent in the banking compliance sector where it is estimated that there are three to four positions for every candidate, and companies are struggling to find adequate hires. 

Historically compliance has not been considered an attractive area for candidates in Japan as it has long been deemed a low-impact, poorly remunerated, perhaps uninteresting sector. However, this perception is starting to change as compliance becomes a number one priority in the banking industry, and companies recognise the need to encourage staff into this sector.

To this end, companies are seeing to it that successful candidates can now expect highly competitive salaries, with the additional attractiveness of working an area that offers visibility in an integral piece of the firm.

This is leading not only junior level candidates to become increasingly responsive to the enticement of compliance and securities firms, but also those from other sectors of the industry such as trading or, most prevalently, operations, who see the potential of applying their skills and knowledge to an area with perhaps a better work life balance and an improved salary.

One adverse affect of this skills shift is the rise in candidates required for the operations sector as replacements for those who have moved into compliance. This revolving door situation means that banking operations is another area of firm growth.

When companies do find a suitable candidate, particularly in the hyper-competitive compliance market, they are likely to move quickly and aggressively, driving through the recruitment process with haste. However, this is not necessarily always the case throughout the whole of the banking industry, and quite often the process can be painfully slow, as the candidate short market can lead companies to act with extreme caution as the fear of hiring the wrong candidate, and thus being lumbered with them on a long term contract, prohibits speed of action. This situation is something of a double-edged sword, as companies understand that they must move with urgency, but are apprehensive of doing so.

Despite this recruitment hesitancy, now is a good time for candidates to be in the market, particularly for those in compliance and operations areas, yet candidates must be aware that, although their skills are highly sought after, they can not expect to command astronomical salaries. Each position has a market value spectrum, with some negotiating power depending on the depth of the candidate pool. But if candidates hold out for over and above this valuation, they are likely to be overlooked.

Aside from salary, thanks to the recent societal shift towards shorter office hours following the much publicised working-to-death culture and a realisation by organisations that overworked staff leads to high turnover, candidates can expect to be offered more flexible working options. This may include shorter hours, limited overtime and in some cases, particularly for working mothers, working from home.

Partly thanks to regulatory bodies clamping down on previously lax practices, and partly in reaction to new technological advances, while it may have taken the banking industry in Japan some time, it seems that companies are finally realising the necessity of regulatory compliance. As a result it is a particularly good time for candidates with knowledge of this area. Candidates with a combination of extensive experience working with a regulatory body as well as in a securities firm will be pursued above all others.

Originally produced for Hays Recruitment Asia