Representing financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations nationwide.

Call for More SEC Guidance On Compliance Officer Exposure

At the annual Compliance Week 2014, held last week, there was a general call for the SEC to provide the industry with better guidance regarding legal and compliance officers’ accountability for the misconduct of employees at their firms.  To date, the current rules do not address whether compliance personnel, who advise and consult with businesses management, should be classified as “supervisors” and therefore be liable for their “failure to supervise” in instances of wrongdoing.  In September 2013, to diminish the industry’s growing concerns, the SEC issued guidance stating that compliance personnel were not supervisors and thus could not be held liable for failure to supervise offenses.  That guidance, however, fell short as it dealt solely with broker-dealer firms and did not discuss entities such as investment advisers.  In her Keynote address, Commissioner Kara Stein stated that the agency should provide direction that sets clearer expectations on what it means to act appropriately.  According to Ms. Stein, as the SEC continues to bring cases against legal and compliance personnel who have ignored red flags, establishing a baseline of conduct will remove uncertainty and aid legal and compliance officers in their ability to prevent lapses and enforcement issues.

Clear SEC guidance on this issue is absolutely needed.  It is a general understanding that compliance professionals do not supervise.  All too often, however, Plaintiffs’ lawyers and regulators blur the line between the compliance and supervisory structure.