Published on Oct 27th, 2020 |

Due to the impact of COVID-19 it has created an increasingly difficult regulatory environment with complications for Compliance Professionals. Throughout this impact of the COVID-19 pandemic it has been crucial to maintain a solid working relationship between compliance officers at regulated entities and the OCIE.

The greater focus for today is going to be towards defining the parameters of personal liability for compliance officers.

There were prior concerns before COVID-19 struck that in some quarters the increasing specter of personal liability could cause individuals to forgo a career in compliance, this has now only increased even more with the impact of COVID-19. Compliance officers are dealt with responsibilities that are only growing now, but with an unclear understanding of the liability they could face major challenges in executing those responsibilities.

Commissioner Hester M. Peirce goes into great detail regarding this concern through a proverb that goes through the perspective of “Who is responsible when the nail fails?”

Below are key takeaway’s from the article:

  • A compliance officer who, outside of her compliance functions, directly violates provisions of the securities laws is liable the same way anyone else would be
  • To establish that a compliance officer aided and abetted the company’s violation, the Commission must show that the compliance officer engaged in reckless conduct
  • It is only necessary to show that the individual committed an “‘an act or omission the person knew or should have known would contribute’” to the violation
  • Rule 206(4)-7, the investment adviser compliance rule, exacerbates the problem.  It supports negligence-based charges against an adviser’s CCO, whom the rule makes “responsible for administering written policies and procedures” that must be “reasonably designed to prevent violation, by you and your supervised persons, of the Act and the rules that the Commission has adopted under the Act.”

Want to learn more about her analysis?

Click HERE to review the SEC article!


The Vigilant Team is always happy to schedule a time to chat, feel free to contact us with any questions!