Compliance Officers' Supervisory Role Remains Nebulous At The SEC

Tuesday, February 28, 2012 10:44
Compliance Officers' Supervisory Role Remains Nebulous At The SEC

Tags: compliance

After a recent case where a compliance officer was charged -- but not fined -- for failing to fire a broker who broke the rules, the SEC is trying to nail down exactly what the role entails.

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Most compliance officers simply monitor activity and alert advisors and their supervisors when something goes wrong. Discipline is left to management, especially when compliance is outsourced.


However, SEC Commissioner Daniel Gallagher is now wondering publicly whether compliance staff have a professional duty to enter the chain of command and enforce their own rules.


It's a job that they almost certainly didn't sign up to do, and one that many avoid in order to avoid breaking their own self-imposed code of conduct.


Gallagher wants to wield the club of "failure to supervise" in order to get firms to watch their street-level advisors more closely and stop infractions before they require SEC attention.


That's a good goal. But if that requires bringing compliance directly into enforcement, it changes the way outsourced compliance in particular interacts with day-to-day operations.


If third-party compliance officers are responsible for day-to-day management at a client firm, they're basically members of the in-house management team. How many will want that level of involvement, no matter what they're billing?


On the other hand, the threat of having to take on an independent compliance officer as a bona fide member of management may scare lax firms into policing their people better on an internal basis.


Either way, it looks like this will become one of the hot-button issues of the year.





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