SEC Commissioner Calls for Re-Evaluation of Compliance Rules and CCO Liability
SEC Commissioner Hester Peirce, in a recent speech to compliance professionals, advocated for a review of the compliance rules (206(4)-7 and 38a-1), including Chief Compliance Officer liability. Ms. Peirce criticized the rules’ lack of clarity, which allows every securities law violation to indicate a problem with the compliance program. Ms. Peirce also argues that applying a negligence standard of care to enforcement cases against CCOs has created a system of strict liability that is driving professionals away from practicing compliance. Ms. Peirce advocates for a committee of compliance officers to help the SEC draft a framework regarding personal liability. Ms. Peirce promised to draft her own framework to guide compliance officers in navigating how the SEC assesses personal liability for CCOs.
We believe that compliance officers, like lawyers, should only have liability if they furthered the fraud and personally benefited. The SEC does not hold lawyers liable for representing a client that has violated the laws. In the same way, a compliance officer should not be a regulatory target just because the employer/client engaged in wrongdoing. The CCO’s job is to recommend, implement and report; the CCO is not the hall monitor responsible for all bad behavior. We also think the Ms. Peirce’s proposed compliance committee is an effective vehicle for industry participants with real-world experience to inform the SEC.