CCO Barred and Fined for Failure to Supervise Head Trader
The Chief Compliance Officer of a broker-dealer was fined and suspended for failing to supervise the head trader charged with collecting excessive markups on corporate bonds. FINRA alleges that the firm had written supervisory procedures but determined that the WSPs were inadequate because they failed to detect over 500 transactions with excessive markups. FINRA charges that the firm and the CCO failed to properly supervise the trader. The firm agreed to pay nearly $1.5 Million in fines and restitution.
OUR TAKE: We do not think that CCOs should have liability for failure to supervise. FINRA, instead of assessing the reasonableness of the policies and procedures, imposes a strict liability standard by using the violation as proof that the WSPs were insufficient. The compliance program cannot insure that no compliance violation will ever occur.