Tag: Rule 3310

FINRA and CCO Supervisory Liability

FINRA released regulatory notice 22-10 that said it generally considers the role of compliance chief an advisory position rather than a supervisory one.

Rule 3110 (Supervision) imposes specific supervisory obligations on member firms. The responsibility to meet these obligations rests with a firm’s business management, not its compliance officials. The CCO’s role, in and of itself, is advisory, not supervisory. Accordingly, FINRA will look first to a member firm’s senior business management and supervisors to determine responsibility for a failure to reasonably supervise. FINRA will not bring an action against a CCO under Rule 3110 for failure to supervise except when the firm conferred upon the CCO supervisory responsibilities and the CCO then failed to discharge those responsibilities in a reasonable manner.

This FINRA notice comes after the New York City Bar Association proposed its framework for CCO liability and the National Society of Compliance Professionals proposed its framework for CCO liability. There has been continuing concerns among compliance professionals in finance about the extent of individual liability for compliance officers.

This concern has grown as the SEC has continued to bring cases against compliance officers without using its own informally stated framework.

  1. Participating in the wrongdoing
  2. Hindering the SEC examination or investigation
  3. Wholesale failure

One and two are usually fairly obvious. Typically with one, the CCO is also wearing another hat.

It’s the wholesale failure that lacks definition and is commonly used without adding any framework to when something is a foot-fault and when it is a “wholesale failure.” Time for the SEC to take the next step and establish a formal framework for CCO liability

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