Morning Coffee: The safest job in banking is getting riskier. Barclays’ optimists could be in for a disappointment.

If there’s one job in banking that might be considered immune to the business cycle, compliance would be it.  It’s the one true secular growth industry – year in, year out, there is more regulation to comply with, and therefore more need for people to check that compliance is happening.  And although it’s not considered one of the better paid specialisms, there is always the possibility of coming across some really bad misbehaviour and cashing in through one of the extremely lucrative whistleblower programs.

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Up until now, it’s also been one of the areas which was least exposed to technological change.  In other areas of the bank, people might be tempted to trade off cost against performance, for routine tasks at least.  But compliance is an area where one relatively tiny error can cost millions. So although there has been a little bit of outsourcing and offshoring round the edges, compliance people have, in general, been able to read articles about the new advances in Large Language Models with amused curiosity, rather than wondering whether they’re going to be replaced.

Perhaps no more.  There are now quite a lot of “RegTech” and “ComplianceTech” startups in the FinTech space.  And although none of them are exactly gaining traction yet, executives are beginning to get AI-curious.  According to Alan Carlisle, head of compliance at a payments company, the number of outreach contacts he’s been fielding has gone up by a factor of three in the last six months.  Sooner or later, artificial intelligence will be knocking on the door in compliance too.

This probably doesn’t mean that mid-office jobs will be at risk.  The tasks that are being automated – at this stage – are the genuinely routine ones like sifting through fraud reports, making sure that personal data is treated correctly and filling in the right boxes on operational risk reports.  At present, RegTech looks like it’s more likely to replace offshore support centres than any other category of compliance worker.

But the jobs themselves might get riskier.  In a recent Forrester survey, 21% of “AI decision makers” said that their company was seeing an increase in litigation and legal investigation related to their use of artificial intelligence.  And the thing is, they haven’t yet invented a robot that’s capable of taking the blame.

So compliance officers have to deal with an increasing sense of nervousness that they are looking at the output of an inscrutable machine which sometimes hallucinates.  And also, as the amount of routine work decreases, the proportion of the job taken up with delivering bad news to angry people with assertive personalities increases. Sometimes, as every compliance professional knows, a pile of boilerplate counterparty credit checks can look pretty restful, compared to confronting the head of capital markets.

As we said earlier this week, if you want to know the future of technology in investment banking, try to guess what would be most unpleasant for bankers.  Even the ultra-safe world of compliance isn’t immune from this iron rule.

Elsewhere, there might have been a bit of spilled coffee at Barclays, when bankers and traders read the Bloomberg headline that bonuses there might increase by “as much as 20%”.  According to their responses to the eFinancialCareers Bonus Expectation Survey a mere 20% would have felt like an insult; Barclays were toward the top of the range at 47%.

Part of the reason that Barclays bankers might have been expecting a big percentage increase is that last year they were down 43% across the bank, with many receiving zeroes.  Even the 47% figure would only have got them back to three-quarters of where they were in 2022.  But it seems that sales and trading are looking at single digits, capital markets at 10-20% and advisory bankers will be getting “markedly better” than last year.

As we warned on Tuesday, it might always have been a mistake to presume that just because 2024 turned into a reasonably good year with a better outlook for 2025, that this would be reflected in the compensation round.  The connection between revenue and bonus is always indirect, and it works via the state of the labour market.  At present, there’s not much tension, there are no big players who have a franchise materially smaller than they want, and so expectations management over the next few days is likely to be very much in the downward direction.

Meanwhile …

We hate to say it, but the Christmas Blackstone video is a clunker this year. There is simply not enough Jon Gray, whose surprising natural touch with comedy was the reason they took off in the first place.  The song is just an ordinary corporate cringe video, with private equity people line-dancing in cowboy hats.  And this review is correct to say that the jokes have the unmistakable tinge of committee approval.  It is probably a victim of its own successes; when it was weird and silly, only people who wanted to be in it were there.  But now it’s become A Thing, it is full of people who had to be cast because they were important.  So it goes with everything fun in this industry, unfortunately. (FT Alphaville)

They say that every financial crisis happens when the last person who remembers the previous one has retired.  But this year, financial sponsors clients have been pressuring banks to put up their balance sheet to win business while the 2022 vintage of hung loans are still not syndicated.  (Bloomberg)

Louisa AI is an example of why bankers are getting nervous – founded by a former Goldman MD, it trawls people’s social and professional connections and then suggests frighteningly convincing M&A pitches to them. (Business Insider)

Bill Hwang will be doing his time the hard way – as well as confirming his 18 year sentence, the court just turned down an appeal to be allowed to serve a third of it under house arrest. (Bloomberg)

One advantage of AI bankers is that they don’t accept secret kickbacks from companies and then go to prison. (CBC)

What do you give the banker who has everything?  If you have a top government security clearance and they don’t you can buy them a bottle of barbecue sauce from the CIA gift shop. (WSJ)

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