Safeguards for Compliance Officers

At Jacko Law Group, we work with many Chief Compliance Officers (CCOs) and others responsible for overseeing their firm’s compliance programs. CCOs and others in similar roles face heightened scrutiny, particularly with the constant changes in regulations, technological advancements with limited compliance guidelines, and growing uncertainty of their level of liability for their firm’s compliance efforts.

Under Commissioner Mark Uyeda, the SEC has been tasked with providing a clearer framework for distinguishing liability between the individual and the firm. The absence of such a framework has created uncertainty among CCOs, especially about their responsibilities and the extent of their liability in compliance violations.

Currently, under Rule 206(4)-7 of the Investment Advisers Act of 1940, investment firms are required to implement written policies and procedures to prevent violations. However, the rule is not clear on what specific elements should be included in those policies. This makes it difficult for CCOs to determine how much liability they carry should a violation occur.

In the past, CCOs have been held liable for:

• Failure to properly supervise other compliance staff, or
• Providing false or incomplete information to regulators.

Safeguards for CCOs

To mitigate personal liability, those responsible for a firm’s compliance program can take the following steps.

1. Establish Clearly Defined Roles and Responsibilities: Make sure that your role and responsibilities are clearly defined within the organization. Ensure there is a clear distinction between compliance oversight and supervisory responsibilities.
2. Develop Comprehensive Policies: Tailor policies and procedures to address your firm’s specific risk profile and operations.
3. Provide Ongoing Training: Provide ongoing training to staff and key personnel to promote a culture of compliance, educate on amendments and reinforce compliance obligations.
4. Document Compliance Efforts: Document and maintain thorough records of compliance activities, including potential violations, and response.
5. Review Regularly: Regularly review the compliance program and address any gaps or necessary updates.
6. Ensure Adequate Liability Insurance: Evaluate needs and potential risks to personal assets and get Directors and Officers (D&O) liability insurance. This offers financial protection in the event of legal action.

With these safeguards in place, CCOs can better navigate their responsibilities and reduce the risk of personal liability.

Being a CCO is a tough job; it is even tougher if you wear multiple hats within your organization. JLG helps our clients to mitigate these risks and identify ways that the CCO and executive management team can potentially lessen their liability.

If you have not discussed this recently with JLG, we encourage you to reach out. We will help you to consider what the highest risks are in your organization, and make suggestions on how protect the firm, and those that oversee the Compliance Program.

For assistance with this or other matters, please contact us at 619.298.2880 or email [email protected].