Emerging Risks: International Border Closures, A Talent Shortage Risk

The COVID-19 Pandemic has impacted people’s lives in so many ways during an extremely challenging 19 months.

Amid the chaos, the Australian economic climate has faced a plethora of challenges whilst trying to maintain a sense of business as usual. Following a brief regulatory respite in 2020, the Australian financial services industry now faces heightened regulatory measures across Banking, Insurance, Wealth Management and Superannuation. As a result, key talent across all facets of risk management and compliance is now at a premium. In recent months we have seen the remuneration packages aligned to high demand skills (cyber, financial crime, data & analytics and financial risk) ascend at a rate we haven’t seen in years.

That’s not to say this is solely an issue in financial services as the demand for commercially astute risk professionals is also high in industries such as utilities, telco and industrials, although not necessarily as supercharged as we are currently witnessing in the financial services market. This supply and demand issue also carry with it several noteworthy risks.

So, what are the impacts of continued international border restrictions?

Less talent means higher pay standards from individuals in demand.

Firstly, risk professionals with “in demand” skills and operating in mid to senior management roles are simply being “overpaid”. Most concerningly, the financial institutions which don’t have the luxury of large headcount budgets will struggle to retain talent and replace the talent they have lost due to aggressive ‘name your price’ hiring strategies adopted by some of the “bigger players” in the market.

Companies forced to gamble on internal promotions.

Secondly, individuals are being promoted into roles with significant responsibility and accountability before they are professionally ready and simply because there is no-one else available. This strategy is particularly concerning when associated with keeping the financial institution and more importantly their customers financially safe. 

Research by the Grattan Institute has shown that the pandemic is acting as a circuit breaker (limited to zero migration) which provides the government time to reconsider how to get skilled migration right. Amid the gloom of COVID-19, there’s a unique opportunity to reset our permanent skilled migration program to favour young, high-skilled workers who bring the biggest economic benefits to Australia. There is an undoubted need for tech savvy, commercially astute, entrepreneurial talent in this country.  

It is extremely healthy to have offshore talent to challenge and evolve future generations of local Australian talent.

This is particularly pertinent in the current risk market as businesses look to take more strategic risks to stimulate the economy and support some of the worst effected businesses, all whilst negotiating new and challenging regulatory requirements. There is also a pressing requirement to open international borders to the more seasoned / senior risk leader. As the regulatory waters get murkier, there is a need for those who have already navigated some of the regulatory stress in offshore markets such as the US, UK, Canada and South East Asia and will be professionally equipped to lead the appropriate responses to the challenges the Australian financial services sector faces in the next two to three years. 

Working for a global executive search business, I have personally found that a lot of my clients’ preference to undertake an international search strategy was increasing exponentially in the two years prior to the COVID-19 outbreak. I would regularly work collaboratively on assignments with my fellow partners in the UK, US, Canada, Singapore, and Hong Kong. 

As of March 2020, this effectively stopped, and the strategy pivoted to target Australian ex-patriots who were looking for an opportunity to return home.  This strategy has been relatively successful but the number of talented risk professionals returning to Australia has diminished significantly. The lack of the pre-pandemic cross pollination of talent from overseas is problematic and could result in substantial issues including a diminishing future leadership talent pipeline, being able to successfully achieve regulatory standards and the continued progression of ever evolving digital risk strategies. All of which will have a negative impact on the Australian financial services market in the mid to long-term. 

EY has calculated that “while international borders remain closed, Australia is losing $7.6 billion per month in economic value.”

We have used EY’s findings because they are recent and robust. However, they must be also modified because we assume that economic activity will not immediately return to 2019 levels.

Growing gaps of talent shortage from delayed international travel.

One of the key risks the Australian financial market faces is due to the “stop start” vaccine roll-out.  Australia is finally starting to gather pace with vaccinations, but the rest of the world is way ahead of and learning to live with COVID-19. International travel is returning between key financial markets in the UK, Europe, US & South East Asia. All whilst Australian borders remain firmly closed for the foreseeable future and despite the economy remaining relatively robust. The risk related talent that Australia needs to keep up with regulatory requirements and continue to be aligned with the global financial markets, will relocate elsewhere. This is true of a lot of in demand disciplines, not just risk but the risk management market is under significant strain and as demands grow, there simply aren’t enough professionals walking the streets of the major cities in Australia to manage the current or future workload.  

For a multitude of reasons, the “hook” of relocating to Australia for the “lifestyle” isn’t as attractive as it once was, in fact the governments authoritarian response to the pandemic will no doubt detract from the overall relocation proposition. We ask ourselves what is the proposition to relocate to a country that embarks on a contentious strategy to chase zero cases which will only result in continued restrictions and domestic border closures imposed by the state governments until we hit the magic 70% vaccinated? Australia risks not just losing iconic sporting events such as the Australian Open and Grand Prix, but it runs the risk of losing out on offshore talent that will help ensure the operational and financial security of its financial institutions.