A commissioner at the Commodity Futures Trading Commission (CFTC) said she expects the regulator to pursue more individual liability cases against chief compliance officers, in the aftermath of landmark charges laid against the former CCO at Binance.
“There will likely be more cases against CCOs in the future,” CFTC Commissioner Caroline Pham told Compliance Week. Of note, Pham worked in several compliance roles at Citi before being named to the commission.
Pham said the CFTC should reserve charging compliance officers for those who engage in “egregious conduct,” like that found in the case of former Binance CCO Samuel Lim. The CFTC alleged Lim was “willfully aiding and abetting Binance’s numerous violations” of the Commodity Exchange Act in fining him $1.5 million.
The case marked the first time the CFTC charged a CCO with individual liability.
Pham issued a statement that supported the consent order the CFTC reached with Lim.
“I … believe that these charges emphasize the critical necessity of having a robust compliance program that is adequately resourced with personnel that have the requisite character, expertise, and experience,” she said in the statement.
Finding CCO liability is more nuanced in cases where the CFTC does not allege a CCO oversaw a complete failure of a compliance program or complete absence of a program, she said.
“I don’t want to see CCO liability imposed for honest or good-faith mistakes,” she said.
When asked if she thought the CFTC would implement a CCO liability framework like the compliance industry has requested of the Securities and Exchange Commission (SEC), Pham said no.
Frameworks were proposed for the SEC by the New York City Bar Association in 2021 and the National Society of Compliance Professionals (NSCP) in 2022. SEC Commissioner Hester Peirce has expressed support for implementing a CCO liability framework at the regulator, and she discussed the topic as part of a joint session with former SEC Commissioner Allison Herren Lee at Compliance Week’s 2022 National Conference.
Peirce was recently joined in support of a CCO liability framework by her fellow Republican SEC commissioner, Mark Uyeda.
Brian Rubin, partner at law firm Eversheds Sutherland and co-author of the CCO liability framework put forward by the NSCP, said it was “disappointing to hear that the CFTC will likely bring more cases against CCOs.”
“Unless CCOs step out of bounds or they wear multiple hats, their role is generally limited to providing advice,” he said. “They do not manage firms, they don’t control budgets, and they don’t have the power to hire or fire. Therefore, CCOs should rarely, if ever, get charged for their firms’ failures.”
The NYC Bar’s framework provided a series of nonbinding factors for the SEC to consider in weighing whether to lay charges against a CCO at the conclusion of an investigation into securities law violations. Key to the framework was the notion charging a CCO should be considered against whether doing so would help fulfill the SEC’s regulatory goals.
The NSCP’s framework urged regulators to consider CCO liability more holistically, in the context of the compliance culture within the firm. Is the compliance function adequately supported by management? Is it properly funded? Is the CCO and his or her team empowered to enforce violations within the firm? Regulators concluding the answer was “no” to these questions should consider these mitigating circumstances that affect the CCO’s ability to do his or her job within such an environment, the NSCP said.
The NSCP released a survey of its members on CCO liability in January 2022, with more than half (53 percent) saying they remain concerned liability will be imposed in cases where compliance acted negligently rather than recklessly. Other liability concerns included cases where compliance relied on inaccurate data from another employee (66 percent) or compliance did not participate in the violations caused by the company or other executives (63 percent).
In addition, 72 percent of respondents said they were “concerned that regulators have expanded the role of compliance officers and the scope of their responsibilities in imposing personal liability.” Another 70 percent said the overall compliance function at their firm was under resourced.