Firm business

FINRA: Oversight Obligations Fall on Business Management, Not Compliance Officer

On March 17, FINRA Published Regulatory Notice 22-10 reminding member firms that compliance with their oversight obligations under Rule 3110 “is the responsibility of a firm’s business management, not its compliance officers.” According to FINRA, the role of a firm’s Chief Compliance Officer (CCO) is generally advisory and not supervisory, and as such an action will not be brought against a CCO under Rule 3110 for failure to comply. oversight, unless a company gives the CCO oversight responsibilities, and the CCO then fails “to discharge those responsibilities in a reasonable manner.” Specifically, FINRA has stated that supervisory responsibility will not apply to a firm’s CCO unless the CCO is responsible for establishing, maintaining, and updating the company’s supervisory procedures. company, or has been “expressly or impliedly appointed” to enforce the company’s compliance with its monitoring procedures. . Regarding the determination of a CCO’s liability when the CCO has supervisory responsibilities, FINRA added that it would apply a standard of reasonableness to a CCO’s actions. A CCO may be more likely to be held liable if it is discovered that (i) the CCO “knew of multiple red flags or actual misconduct” and then failed to take action to resolve The problems ; (ii) the CCO “failed to establish, maintain or enforce a firm’s written procedures”; (iii) “failure to supervise the Chief Compliance Officer resulted in conduct contrary to law”; or (iv) the “abusive behavior caused or created a high likelihood of harm to the customer”.

FINRA also listed factors that would preclude charging the CCO, including: (i) the CCO was not provided with sufficient resources to fulfill its oversight responsibilities; (ii) the CCO was overloaded with other responsibilities; (iii) the oversight responsibilities of the CCO were poorly defined; (iv) the firm has changed in such a way that it would be appropriate to allow the CCO time to update the procedures; and (v) the Chief Compliance Officer attempted to perform his duties, including escalating concerns to senior management. FINRA added that it will also consider whether to take action against a company or the president of the company (or another person with more supervisory responsibility than the director) rather than the CCO and explained that in In some cases, a warning letter may be more appropriate than formal disciplinary action. .