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The role of the chief compliance officer is the talk of the Securities and Exchange Commission these days – or at least some of its Commissioners. Those who are speaking for the record agree that the role of the CCO is important. Those who are speaking for the record agree that the CCO should not have a target on his or her back. But what is the message to CCOs that two SEC Commissioners and the Chair of the agency are discussing their role and if they should be concerned about an SEC enforcement action?
First, there was SEC Commissioner Gallagher who published a dissenting statement regarding two recent, settled enforcement actions filed by the agency. One was In the Matter of Blackrock Advisers, LLC, Adm. Proc. File No. 3-16501 (April 20, 2015). The other was In the Matter of SFX Financial Advisory Management Enterprises, Inc., Adm. Proc. File No. 3-16590 (June 15, 2015). Each case centered on the adequacy of the policies and procedures of the firm. In each case the CCO settled with the Commission.
The point of Commissioner Gallagher’s dissent was two-fold. First, he argued that Rule 206(4)-7 is “not a model of clarity” since it is addressed to the adviser but applied to the CCO. Second, there is no guidance as to the distinction between the role of the CCO and that of management in carrying out the compliance function. And, enforcement actions are not the way to give guidance to these critical gatekeepers, Commissioner Gallagher noted. Statement of Commissioner Daniel Gallagher, June 18, 2015 (here).
Then Commissioner Luis Aguilar weighed in with comments appropriately titled “The Role of Chief Compliance Officers Must be Supported.” Commissioner Aguilar, who is a former head of compliance, expressed “concern that the recent public dialogue may have unnecessarily created an environment of unwarranted fear in the CCO community . . . [that ] is unhelpful, sends the wrong message . . .”
Commissioner Aguilar then pointed out that the SEC has brought “relatively few cases targeting CCO’s relating solely to their compliance-related activities.” Rather, the “vast majority of these case involved CCOs who ‘wore more than one hat’. . .” Citing Commissioner Gallagher’s remarks he went on to argue that “those who believe that Rule 206(4)-7 unduly puts a target on the back of CCOs. . .” are simply wrong. Since the adoption of the Rule “enforcement actions against individuals with CCO-only titles and job functions have been rare.” Those few cases should not be of concern. Rather, “the Commission has approached CCO cases very carefully. . .” Remarks of Commissioner Luis Aguilar, June 29, 2015 (here).
Now Chair White has joined the discussion. After reiterating the remarks of her fellow Commissioners regarding the importance of the position and its gatekeeper function, the Chair stated: “To be clear, it is not our intention to use our enforcement program to target compliance professionals. We have tremendous respect for the work you do. You have a tough job in a complex industry where the stakes are extremely high. That being said, we must, of course, take enforcement action against compliance professionals if we see significant misconduct or failures by them. Being a CCO obviously does not provide immunity from liability, but neither should our enforcement actions be seen by conscientious and diligent compliance professionals as a threat.” Chair Mary Jo White, “Opening Remarks at the Compliance Outreach Program for Broker-Dealers,” Washington, D.C. (July 15, 2015) (here).
For all the words spoken, and reassurances given, are CCO’s comforted that they are not being targeted by the SEC? That the standards which might be used in any enforcement actions might be vague? Or that only appropriate enforcement actions will be brought? In the end what message does it send to CCOs who are praised for being key gatekeepers that three SEC Commissioners – enough to authorize and enforcement action – are debating their role, the standards and the prospects of an enforcement action?
For more news and commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.
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