FINRA Issues Reminder About the Scope of Chief Compliance Officer Supervisory Liability
- Source: finra.org
Treliant Takeaway:
Treliant’s experienced compliance and audit executives understand regulatory expectations for and risks of being Chief Compliance Officers, and how to mitigate those risks.
Notice 22-10 Highlights:
FINRA recognizes the vital role that Chief Compliance Officers play in helping to ensure member firms comply with regulatory requirements. FINRA also recognizes the importance of business management in its supervisory obligations of member firms.
Notice 22-10 reiterates the delineation of responsibilities between the Chief Compliance Officer and senior business management. It also points out how Chief Compliance Officers may be liable under Rule 3110 for failure to supervise, specifically, that FINRA will not bring an action against a Chief Compliance Officer under Rule 3110 for failure to supervise except when the member conferred upon the Chief Compliance Officer supervisory responsibilities and the Chief Compliance Officer then failed to discharge those responsibilities in a reasonable manner. The notice goes on to set out the typical responsibilities of a member firm’s Chief Compliance Officer, being advisory, not supervisory.
The Chief Compliance Officer will be viewed as being in a supervisory role and therefore subject to liability under Rule 3110 when either through the member’s written supervisory procedures or otherwise, the member designates the Chief Compliance Officer as having supervisory responsibility, such as
- The member’s written procedures assigning to the Chief Compliance Officer responsibility to establish, maintain, and update written supervisory procedures
- The written procedures assigning to the Chief Compliance Officer responsibility for enforcing the member’s written supervisory procedures or other specific oversight duties usually reserved for line supervisors
- Through its president or some other senior business manager might also expressly or impliedly designate the Chief Compliance Officer as having specific supervisory responsibilities on an ad hoc basis
Notice 22-10 goes on to provide factors for and against charging a Chief Compliance Officer under Rule 3110; however, this is applicable if the Chief Compliance Officer is found by FINRA to be in a designated supervisory role under Rule 3110. Chief Compliance Officer nevertheless should review this section of the notice.