Proposed Framework Seeks to Better Define Liability for Chief Compliance Officers

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A new framework proposed by the National Society of Compliance Professionals says that regulators should try to understand how a company’s compliance function fits within the governance framework of a larger entity.

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The group said regulators, while conducting regulatory exams, can ask questions such as what are the company’s policies and procedures, the role of the compliance chief, the resources they have with them, and what senior management is involved in approving decisions. .

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“It all comes down to play,” said Brian Rubin, NSCP board member and member of the drafting committee.

The framework comes amid growing concerns among compliance professionals about personal liability over the past decade, and regulators, such as the US Securities and Exchange Commission, are considering the role of compliance officers when determining their individual responsibility in a firm’s potential compliance failures. Let’s see to clarify, the group said in the report.

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Based on the results of two surveys in 2020 and 2021 of 2,000 members of the NSCP, nearly 63% of respondents said they would be charged personally to the relevant compliance officers in cases in which the violations were attributed to the company or other authorities. can be held responsible. About 72% of the respondents said that they concerned regulators have expanded the scope of their responsibilities in enforcing the role and obligation of compliance officers.

According to Mr Rubin, a partner at law firm Evershed Sutherland (US) LLP, the framework, a year in the making, comes after consultations with the SEC and the Financial Industry Regulatory Authority, the financial industry’s self-regulatory arm. in Washington. He added that the group hopes to hold further dialogue with regulators on these issues in the future. may decide to adopt a regulatory framework.

The NSCP’s framework asks regulators to consider nine questions in cases where compliance failure may occur, and proposes that a “yes” answer to any question should reduce the compliance chief’s personal liability. Questions included whether the CCO had the capacity or authority to influence the misconduct, with a nominal, rather than actual, responsibility; and whether there was insufficient support from company leadership, including resources for the compliance chief, to prevent or reduce misconduct.

Last June, the New York City Bar Association proposed a framework intended to guide the decisions of regulators to bring enforcement action against chief compliance officers in the finance sector. That proposal asked regulators to evaluate 12 positive factors and three mitigating factors in deciding whether to charge chief compliance officers for conduct related to their job-related duties under federal securities laws. .

NSCP’s Mr. Rubin said his group hopes that the framework can also be a reference tool for chief compliance officers and company management when considering the structure of a business’s compliance function.

“If there is a perceived goal behind a CCO, it will affect who is going into the profession and how they act if there is a problem,” he said.

Write Mengqi Sun at [email protected]

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