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When will FINRA look to hold CCOs liable?

by | Jun 3, 2022 | FINRA

The importance of a compliance program cannot be understated. These programs serve to help member firms follow applicable rules and regulations and mitigate the risk of allegations of a violation. But how much responsibility falls on the shoulders of those who run these programs? Will the Financial Industry Regulatory Authority (FINRA) hold these individuals accountable if the organization they serve fail to comply as advised?

The answer depends on the details of the situation. Member firms generally task Chief Compliance Officers (CCOs) with an advisory position. This role serves to provide guidelines and written procedures to help better ensure those within the firm are aware of their obligations and how the laws apply to their roles. As long as the CCO is serving in this manner, FINRA generally does not hold these actors liable in the event of a violation.

A word of caution: There is an exception

Of course, things are not always this straight forward. FINRA can impose liability to a CCO if the member firm has given that CCO supervisory responsibilities.

This is an important distinction. Rule 3110 requires member firms to designate a supervisor to ensure compliance with securities laws and regulations as well as applicable FINRA rules. This rule also requires these designated supervisors to look into any “red flags” that could be a sign of misconduct within the firm. FINRA has the authority to bring enforcement actions against supervisors who fail to meet these responsibilities. As such, any CCO with supervisory responsibilities could face liability.

Liability in the absence of an exception: The final stop

If the member firm has not designated their CCO with a supervisor function, liability generally rests with those who serve in senior business management positions or other supervisory roles.

FINRAWhen will FINRA look to hold CCOs liable?