Last autumn, Securities and Exchange Commissioner Hester Peirce called for the appearence of a guide to the legal liabilities that threaten compliance officers, the better to reassure them in certain instances and also, indeed, to help the SEC reach decisions about whether to prosecute them. That call has been answered.
The so-called Framework for chief compliance officer liability in the financial sector is an attempt to influence the SEC's evaluation of whether to press charges against CCOs if and when they conduct themselves badly in the execution of their duties. It refers throughout to "the CCO conduct charge."
Before deciding to press charges, the SEC ought to answer at least some of these questions in the affirmative.
- Does the "CCO conduct charge" help the SEC reach its goals?
- Did the CCO not make an effort in good faith to discharge his responsibilities?
- Did the wholesale failure relate to a fundamental or central aspect of a well-run compliance programme (i.e. effort) at the firm?
- Did it persist over time and/or did the CCO have several opportunities to end the lapse?
- Did it relate to a discrete, specified obligation imposed by the securities laws or the firm's compliance programme?
- Did the SEC issue rules or guidelines that related directly to the substantive area of compliance to which the failure relates?
- Did an aggravating factor add to the seriousness of the CCO's conduct?
- If the CCO obstructed the course of justice, were the acts of obstruction or false statements repeated?
- Did the CCO deny that he had obstructed someone when confronted?
- In that instance, did he fail to reverse course immediately and fail to co-operate with anyone?
- Did he exhibit signs of intending to deceive or disregard co-operation with the SEC's regulatory mission?
Mitigation, not litigation
The paper lists only three mitigating 'factors,' i.e. questions that, if answered in the affirmative, help the CCO's cause.
- Did structural or 'resource' challenges hinder the CCO's performance?
- Did the CCO in question disclose things voluntarily and co-operate with whoever might have challenged his behaviour? [This is very vague.]
- Did someone-or-other [presumably the CCO himself] propose, enact or implement policies and procedures in good faith?
CCOs in the financial sector have put up a sustained chorus of complaint about their mounting liabilities in recent years.