Trade Group Urges SEC to Limit CCO Liability
The National Society of Compliance Professionals sent a letter to the SEC that urges the Enforcement Division to limit actions against chief compliance officers based on simple negligence. Instead, the NSCP argues that the SEC should only take action against a CCO if three elements are present: (i) a primary securities law violation, (ii) knowing or extremely reckless conduct, and (iii) substantial assistance to the primary violator. The NSCP argues that fear of being retrospectively second-guessed and charged with negligent performance of duties will drive compliance officers out of the profession. The NSCP says that liability should rest with senior managers who are responsible for operating the business and implementing compliance policies. The NSCP explains, “the most a compliance officer can do is take steps through monitoring and testing, and subsequent escalation to management, to mitigate a violation that already has been committed.”
OUR TAKE: We agree with the NSCP that the SEC should set clear standards for CCO liability such that a CCO would only be targeted in extreme cases where the CCO participated in the fraud. We hope the SEC listens to the NSCP, the largest trade group for financial services compliance professionals.