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Education in Regulation

A new master's degree program seeks to ease regulatory burdens with an influx of highly educated compliance professionals.

Have you ever seen a child spend a Saturday afternoon practicing filing audit reports or cataloging archived e-mails? While no child ever says he wants to be a market regulator or a compliance officer when he grows up, a new master's degree program from the University of Reading (U.K.) aims to make that option available and bring an influx of trained compliance professionals into the securities industry.

In partnership with the National Association of Securities Dealers (NASD), the University of Reading will offer what is believed to be a first-of-its-kind Master's in Capital Markets, Regulation and Compliance beginning in October. The program will be taught at the ICMA Centre, the University's business school, in Reading, England.

Increasingly complex investment products and market strategies have led to numerous equally complex regulations designed to protect investors and maintain market integrity. Faced with sweeping market reform mandates from regulatory bodies across the globe, maintaining a compliance staff with the ability and training to facilitate mandated changes without sacrificing margins is top of mind for financial institutions. Consequently, this has created a demand for human capital in the fields of regulation and compliance.

Traditionally, people in the compliance profession have come from varied backgrounds, often some combination of finance and law. But there has never before been a program designed specifically to provide a degree in compliance and regulation in the capital markets as its own discipline, according to the NASD and the University of Reading.

The NASD and the University of Reading hope the new program will facilitate an industrywide strengthening of compliance efforts by training professionals with a robust understanding of the markets and the principles of applicable mandates. "We think that this program will really focus people on these issues, not only because they have to as a practical matter, but because there is a rigor and a discipline around it now that's never been there before," says Paul Andrews, VP and deputy managing director of international affairs and services for the NASD.

Meeting Industry Demand

The need for more physical bodies to meet the demands of market regulations is obvious. Stateside, Regulation National Market Structure (Reg NMS) is keeping executives awake at night, while in the European Union, implementation of the Markets in Financial Instruments Directive (MiFID) is a top priority for financial institutions.

According to the 2006 Market Report in compliance from Barclay Simpson, a London-based recruitment firm, new job vacancies in U.K.-based compliance offices more than doubled during 2005. In the first quarter of 2005, London-based Barclay Simpson reported 27 new openings in the compliance field listed with the firm, a number that grew steadily throughout the year to 60 open positions by the fourth quarter.

"This has come about through some meetings that we were conducting in London with major investment banks ... about education and training needs," says Andrews. "Compliance issues have risen to the top of the barrel."

These businesses' concerns over market regulation certainly are warranted, since even the most seemingly insignificant mandate can have a considerable impact on operations and processes. The complexity of financial markets and financial institutions, particularly those operating globally, makes implementing even minor changes a major undertaking. Bring into play the industry-altering changes required by initiatives such as Reg NMS, and compliance becomes perhaps the most daunting of all business challenges.

Sources of advanced training and education in compliance such as the University of Reading's master's degree program are imperative, according to Lauren Bender, a senior analyst in Celent's securities and investments practice who is based in Paris. "It can't be learned on the job anymore" she asserts. And, "It can't be learned at one company." The changing face of global industry has made domestic and international compliance an integral aspect of running a business in the securities industry, and it is now beginning to be treated as such. "Compliance has a big impact on costs and on margin," Bender continues. "So I think this program is recognition of a new reality."

Setting the Course

The master's program will be a 10-month curriculum designed to provide students with a basis of the conceptual knowledge and principles to face the challenges of both creating regulation and ensuring compliance for the capital markets. Students will learn the ins and outs of market structure, investment products and asset classes, risk assessment, theory of regulation and compliance, practical application, management, and law, according to John Board, professor of finance and director of the ICMA Centre.

The training, however, is not meant to replace on-the-job experience, stresses Board. "We're not trying to create fully formed compliance officers," he says. Rather, the focus of the program will be to provide a broad background in preparation for a career, "not minutiae of individual regulations," Board adds.

The investment banking community is supporting the NASD and the University of Reading in the effort. The academic curriculum will be developed in conference with major banks, including Deutsche Bank, HSBC, JPMorgan Chase and Merrill Lynch. Representatives from these firms will act as a "steering committee," Board relates. The firms will ensure that the curriculum will meet the future demands of the global regulatory and compliance environment, he explains. Additionally, several of these organizations will volunteer internship programs to students pursuing the master's degree, affording the scholars practical experience and giving the businesses a chance to evaluate the program's products, Board notes.

Celent's Bender argues that the most important skill a student can learn from the degree program is to understand the subtleties of creating and maintaining an effective compliance office within an organization. "It's really going to require [a familiarity] with technology and systems, with strategy and with marketing," she says. "Internally, in order to comply, you touch a lot of people's worlds. You step across people's turf in different ways."

Understanding and managing the complex relationships among a business' compliance office and the rest of the organization is what separates the highly qualified from the merely mediocre, Bender asserts. It will be that principle that is most important to the success of the program's graduates, she believes.

For a profession that has been an unstructured conglomerate of law and finance, formal training in the form of an accredited master's degree may bring a sense of legitimacy to a discipline that until recently has gone largely overlooked. The demand for the University of Reading's program, and the securities community's participation, indicates that firms are looking to their compliance offices as an organizational entity with a competitive impact.

'A Strategic Differentiator'

"Compliance can actually be a strategic differentiator," says Bender. If you can do it better, cheaper and faster, "There's a strategic advantage to using compliance, even though you have to anyway," she adds.

The University of Reading's board agrees that people will be looking to the compliance office for a competitive leg up, and will recruit and staff accordingly. "The sense that everybody in London has is that in five years' time, compliance will be a functional profession," Board says. Businesses will look for talented compliance officers, rather than skilled lawyers who just so happen to practice financial law, he suggests.

The NASD already is looking to partner with universities in other regions for similar programs, according to the organization's Andrews. In the short term, programs in Latin America and East Asia are under consideration, with the Indian subcontinent also being contemplated, he relates.

But it will be some time before the industry and academic institutions can judge the impact of the University of Reading's master's program accurately, Celent's Bender points out. "The success of this type of degree is really dependent on the graduates -- so it's important who they attract and how they do when they get out. The success of the graduates will drive the importance of the degrees." <<<

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