SEC Officers Guidance on Liability and Compliance for Brokerage Firms

The Securities and Exchange Commission has published answers to frequently asked questions as guidance about liability that may come out of the Exchange Act related to the responsibilities of chief compliance officers and other legal and compliance staff at broker-dealers. The advisory was issued so firms could consider which circumstances and facts may result in grounds for supervisory liability.

In the FAQ, the SEC notes that for purposes of the Exchange Act Sections 15(b)(4) and (6), a person is a supervisor depending on the specifics of a case and whether he/she had the required ability, responsibility, or authority to impact the behavior of the employee(s) whose conduct is in question. There are, however, legal personnel and compliance staff who can assume a key role without assuming such supervision.

The Commission said that brokerage firms are responsible for establishing compliance programs that make sure compliance with regulations and laws occurs. Firms may want to include processes to identify incidents of noncompliance, a robust monitoring system, and procedures delineating who is tasked with what responsibility and/or supervisory role. The regulator says that compliance and legal staff do play a key part in broker-dealers efforts to create and put into effect a compliance system that works.

The SEC that says that a person with supervisory duties, that also works in a legal or compliance role has to supervise reasonably with the intent to make sure that violations of the Commodity Exchange Act, federal securities laws, and the Municipal Securities Rulemaking Board rules do not happen. The person must either reasonably discharge these duties or know that others are doing so appropriately. Such a “supervisor” can’t just act as “bystander” or turn a blind eye to red flags, wrongdoing, or other indications of irregularity.

Our stockbroker fraud law firm represents clients that have sustained huge losses not just due to broker misconduct but also over the inadequate supervision that allowed such wrongdoing, carelessness, and negligence to arise.

The SEC’s Guidance on Liability and Compliance for Brokers
(PDF)

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