FINRA Enforcement Chief Explains CCO Liability
FINRA’s EVP of Enforcement, Brad Bennett, recently outlined the factors that FINRA considers when determining whether to charge a CCO or AML Officer. Mr. Bennett says that FINRA will seek to prosecute a CCO or AML Officer where there is recidivism, the individual was involved in the wrongdoing, whether s/he took corrective action, the extent of underlying conduct and investor harm, and whether there was “willful blindness.” Mr. Bennett distinguished two recent cases, one in which the CCO was charged and one where the AML Officer was not. Mr. Bennett says that FINRA did not charge the AML Officer where he made “numerous attempts to question the activity and inadequate supervisory systems.” By contrast, FINRA charged two CCOs who unreasonably relied on customers and their counsel without verification and failed to “consider patterns” that suggested red flags.
OUR TAKE: Document! Document! Document! When a CCO or AML Officer has concerns or sees red flags, s/he must evidence the concerns and suggest remedial action. Otherwise, FINRA (or the SEC) could assert that the CCO intentionally or recklessly allowed the illegal conduct to continue, thereby subjecting the individual to liability.