March 29, 2022

FINRA Wades into the Controversial Deep-End of CCO Supervisory Liability

Enforcement Highlights Blog

The lack of specific guidance regarding failure to supervise liability for chief compliance officers (“CCOs”) has been a controversial and opaque topic that both FINRA and the SEC have struggled with for well over a decade. Back on September 30, 2013, the SEC’s Division of Trading and Markets issued guidance with “FAQs” entitled “Frequently Asked Questions about Liability of Compliance and Legal Personnel at Broker-Dealers under Sections 15(b)(4) and 15(b)(6) of the Exchange Act.” These FAQs focused on the potential supervisory liability of compliance personnel. Just over two years later, on November 4, 2015, the then Director of the Division of Enforcement gave the keynote address at the 2015 National Society of Compliance Professionals, National Conference, in which he described a limited number of categories regarding the infrequent circumstances in which the SEC would consider charging a CCO. Despite these and other historical attempts at clarifying guidance, just this past year we have seen additional attempts to seek and obtain more regulatory clarity for this high-risk area. On June 2, 2021, the New York City Bar issued a Committee Report entitled “Framework for Chief Compliance Officer Liability in the Financial Sector.” Most recently and earlier this year, the National Society of Compliance Professionals (“NSCP”) offered a “Firm and CCO Liability Framework.” (More information on this can be found on NSCP’s website.) In this “Framework,” NSCP proposed that regulators consider CCO liability contextually in reference to resources made available to CCOs in the first instance.

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