“Chief compliance officers play an important role in facilitating compliance by promoting strong practices that protect investors and market integrity. That does not automatically make them supervisors, subject to FINRA’s supervisory requirements,” said Jessica Hopper, Executive Vice President, Enforcement. “This Notice helps to clarify when a CCO is—and is not—subject to potential liability under FINRA’s Supervision rule.”
The Notice discusses the scope of the Supervision Rule (3110), the CCO’s role and how FINRA assesses a CCO’s liability under Rule 3110.
For example, as stated in the Notice, FINRA will bring an action against a CCO under Rule 3110 for failure to supervise only when the firm confers on the CCO supervisory responsibilities and the CCO fails to discharge those responsibilities in a reasonable manner. In those instances, FINRA also will consider whether charging the CCO is the appropriate regulatory response to address the violation after weighing aggravating and mitigating factors.
For 2018-2021, of the nearly 440 FINRA disciplinary actions involving Rule 3110 violations for supervisory failures, CCOs were charged in 28 instances. Of those 28, 18 involved a CCO who was also the CEO or president of the firm—a role that confers supervisory responsibilities. For each of the remaining 10 matters, FINRA found that the firm had conferred upon the CCO specific supervisory responsibilities that the CCO failed reasonably to perform.
FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.