Compliance officers personal liability

06 November 2015

Since the global economic downturn in 2008 there has been a much greater focus on cross-border regulation, and an increased focus on global regulators working more collaboratively. As such over the last seven years the reach of the Securities and Exchange Commission (SEC) has expanded which has resulted in a record increase in enforcement actions.

During its most recent fiscal year the SEC filed a record 755 enforcement actions and obtained orders totalling USD 4.16 billion in disgorgement and penalties. Although the totals are astounding and reinforce the SEC’s commitment to curtail wrongdoing across the financial services industry, very few compliance officers would expect that any of those penalties would be paid out of their personal cheque books.

Recent developments involving U.S. government and regulatory bodies have brought corporate compliance to the forefront, and compliance officers across the investment management industry are concerned about the potential implications. Chief compliance officers at BlackRock Advisors LLC and SFX Financial Advisory Management Enterprises Inc. were recently charged by the SEC and found personally liable for failing to implement compliance policies and procedures. Both individuals and their respective firms were handed substantial fines as part of corresponding settlement agreements.

In addition, the U.S. Department of Justice (“DOJ”) recently created a stir when it announced the hiring of “compliance counsel” who will work with prosecutors to evaluate compliance programs of companies under investigation and determine if the companies should be prosecuted when employees engage in alleged criminal conduct. The DOJ recently reinforced their commitment to deter misconduct by seeking accountability from individuals who perpetrate wrongdoing and ensure that they are at the core of any investigation of corporate misconduct. Compliance officers are already tasked with the unenviable responsibility of administering corporate compliance programs in the face of an ever-changing regulatory and risk environment, the SEC’s recent actions to hold compliance officers liable for the implementation of such programs are sending a troubling message.

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For further information please contact Steve Ellis, Partner, Financial Lines group on +44 (0)207 895 7727 or email