Compliance Officers, Oversight Functions and Enforcement Actions: FINRA Explains

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What do you want to know

  • Under FINRA rules, supervisors can be disciplined for failing to perform their duties.
  • “The role of the CCO, in itself, is advisory, not supervisory,” says FINRA.
  • Responsibility for oversight rests with a company’s management, not its compliance officers, according to FINRA.

On Thursday, the Financial Industry Regulatory Authority reminded broker-dealers when a compliance officer is considered a supervisor and subject to enforcement action for violating FINRA Rule 3110.

Regulatory Notice 22-10 sets out the scope of Supervisory Rule 3110, the role of the CCO, and how FINRA assesses a CCO’s liability under the rule.

“Compliance officers play an important role in facilitating compliance by promoting strong practices that protect investors and market integrity,” Jessica Hopper, executive vice president, enforcement, said in a statement. “That doesn’t automatically make them supervisors, subject to FINRA’s oversight requirements. This Notice helps clarify when a CCO is – and is not – subject to potential liability under FINRA’s Oversight Rule.

For example, FINRA will bring an action against a CCO under Rule 3110 for failure to oversee “only where the business assigns the CCO oversight responsibilities and the CCO fails to discharge those responsibilities in a reasonable manner.” , says the notice.

“In these cases, FINRA will also consider whether charging the CCO is the appropriate regulatory response to remedy the violation after weighing aggravating and mitigating factors.”

As the notice states, “A CCO is not subject to liability under Rule 3110 because of the CCO’s title or because the CCO has a compliance function within a member firm. A CCO will be subject to liability under Rule 3110 only when, either through the Company’s written oversight procedures or otherwise, the Company designates the CCO as having oversight responsibility.

Rule 3110 imposes specific monitoring obligations on brokers.

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