The New York City Bar Association proposed a new framework it hopes will influence decisions by regulators to charge chief compliance officers in certain criminal and civil cases. The move is an attempt to quell growing concerns from enforcement actions that hold financial sector CCOs individually liable for the actions of their firms.
The proposed framework, developed by the New York City Bar Association, aims to guide decisions regarding the charging of CCOs by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, which the NYC Bar Association hopes will adopt the framework.
As it stands, a compliance officer in the financial services sector can be held personally liable for the day-to-day performance of their compliance duties, particularly when it becomes clear in hindsight that there was something the officer should have detected or prevented, the NYC Bar Association said in a 2020 report on the topic.
The 2020 report further noted that the increased focus on personal responsibility in enforcement culture and a greater importance placed on compliance in general add to that risk. The proposal says that this adds to a wave of already growing concerns expressed by CCOs, who worry that the career-damaging effects of some enforcement actions might discourage individuals from becoming or remaining compliance officers in the future.
“CCOs in the financial sector have voiced a sustained tide of concern from increased enforcement actions holding CCOs personally liable, in particular for actions that do not result from fraud or obstruction on their part,” the new proposal said.
Mitigating Factors
The proposal lists 12 affirmative factors, as well as three mitigating factors, that it says ought to be considered by regulatory agencies in deciding whether to charge CCOs. Questions to be asked include whether the CCO conduct charge helps fulfill the SEC’s regulatory goals and whether the officer in question made a good faith attempt to carry out their responsibilities.
The framework proposes mitigating factors to consider, including whether structural challenges hindered the compliance officer’s performance and if the CCO at issue actively cooperated with regulators.
The SEC and FINRA have yet to respond to the proposed framework. 