Compliance officers in the financial services industry face “unnecessary risks” that undermine effectiveness and regulatory goals, according to a new report by the Compliance Committee of the New York City Bar Association, which explored ways in which the compliance community and regulatory agencies can better achieve their shared goals.
“Compliance officers serve as essential gatekeepers to prevent, detect, and remediate violations of laws, regulations, and internal policies and rules. Because of their role, compliance officers are inherently at risk of becoming subject to regulatory investigations and personal liability,” the report states.
The report goes on to describe how increased enforcement activity brought against compliance officers, recent regulatory focus on holding individuals liable for compliance failures, and increased regulatory requirements contribute to growing apprehension concerning personal liability among compliance officers. “This risk of liability threatens to reduce the ranks of effective, qualified candidates seeking and remaining in compliance positions,” the report states.
Consider the following examples, as previously reported by Compliance Week: In December 2014, Thomas Haider, a former chief compliance officer for MoneyGram International, was fined $1 million for failing to ensure his company abided by the anti-money laundering provisions of the Bank Secrecy Act. In another case, the Securities and Exchange Commission in May 2015 fined Bartholomew Battista, the former CCO of asset manager BlackRock Advisors, $60,000 for failing to report a “material compliance failure” to the firm’s board of directors.
Enforcement officials have tried to alleviate these concerns by stressing they are on the side of compliance professionals, and that they seek only to prosecute those who fail to act in good faith or who mislead regulators in any way. Chief compliance officers are no exception to that rule.
The report stressed the importance of “adequate guidance from regulators to compliance officers regarding how to carry out their duties in order to enhance compliance and reduce their risk of personal liability.” It further offered several recommendations to financial regulators aimed at increasing the dialogue between themselves and compliance officers.
Among the recommendations made in the report include:
- Issue formal guidance articulating specific factors guiding discretion on charging decisions against chief compliance officers;
- Use existing informal guidance—such as risk alerts, enforcement actions, settlements, and reports of examination activities—to provide more detailed and specific guidance to compliance officers;
- Create new platforms for informal communication between compliance officers and regulators, such as roundtables; and
- Create compliance advisory groups made up of key representatives from federal regulatory and enforcement agencies, compliance officers of financial institutions, and compliance professional associations to discuss areas of mutual concern.
Said Compliance Committee Chair Patrick Campbell, “These are practical recommendations that, if implemented, can help the compliance community and the regulating authorities better achieve their shared goals without any fundamental legislative or regulatory actions.”