Financial CCOs Propose SEC Advisory Group
The professional association for compliance officers in the financial services industry has asked the Securities and Exchange Commission to form a Compliance Advisory Committee, so that compliance officers at regulated firms can have a stronger voice in SEC policy matters that might affect them.
The National Society of Compliance Professionals, which caters to compliance officers at broker-dealers, hedge funds, registered investment advisers, and similar financial firms, announced its proposal last week. The idea is to establish an advisory committee of 15 compliance officers from the financial world, who would meet quarterly to discuss emerging challenges in their industry and to offer thoughts and recommendations on SEC rulemaking proposals.
“The creation of a Compliance Advisory Committee would provide the SEC with direct access to the collective expertise of those responsible for implementing SEC regulations every day,” Lisa Crossley, executive director of the NSCP, said in a statement. “By facilitating dialogue between the Commission and the compliance community, this initiative would enhance regulatory effectiveness while supporting investor protection, market integrity, and capital formation.”
This is a good idea. Here’s hoping SEC chairman Paul Atkins adopts it.
If the advisory committee does come to pass, it will have plenty to talk about. Last week the SEC released its latest agenda for proposed rulemaking in coming months (all regulatory agencies are supposed to publish updated lists twice a year), and issues specifically relevant to financial firms were all over it. Compliance officers are going to be the folks figuring out how to deal with any new rules the agency devises, so why not give them an opportunity to voice their perspective?
Presumably one issue this committee would want to tackle is that of CCO liability for regulatory infractions, since the Investment Companies Act does raise the specter of compliance officers being held civilly liable for violations that happen at their firms.
The NSCP has complained for years about the supposed threat of CCO liability. In 2022 the group published a proposed framework for when compliance officers should be held liable by regulators; the idea didn’t go very far, but it did prompt FINRA (the regulator for broker-dealer firms) to release its own statement later that year emphasizing that enforcement against compliance officers happens only in very limited circumstances.
Of course, compliance officer liability isn’t really a risk for compliance officers unless you’re (a) committing the misconduct yourself; or (b) truly, awfully negligent at your job. But I’d expect any compliance advisory committee to dwell on this issue at some point.
Anyway, the NSCP’s proposal calls for the advisory committee itself to have a term of 10 years, and members would be appointed on a staggered basis to serve one four-year term with the chance for reappointment to one additional term. Committee members would be appointed “by the Commission, with each commissioner having an opportunity to appoint members” — although I’ll eat my hat if Atkins goes for that bipartisan approach. I assume he would keep final veto power over all appointees and stack the committee with his favorites.
As to whether Atkins actually will endorse this plan and establish an advisory committee, only he knows for sure what he’ll do. But the proposal has the support of several other groups, including the Financial Services Institute, Investment Advisers Association, and Insured Retirement Institute; and the advisory committee neatly fits within Atkins’ larger political philosophy of being more friendly to businesses.
What About the Rest of Compliance?
Of course, corporate compliance officers in other business sectors might be wondering, “What about me? Don’t the regulators care about our perspective too? Where’s our standing advisory committee?”
Don’t hold your breath. Some regulators have occasionally met with groups of compliance officers over the years on an informal basis; for example, back in the 2010s, healthcare regulators met with compliance officers in the healthcare sector to talk shop about effective compliance programs — but that was an informal roundtable, rather than a standing committee that could tap the agency to help with research, make formal proposals, and so forth.
The regulator most relevant to the corporate ethics and compliance community would be the Fraud Section of the Justice Department. While compliance officers have daydreamed about a standing advisory committee to offer thoughts on, say, especially challenging questions for evaluating a compliance program, the Justice Department has never made any serious moves toward this idea.
Plus, considering that the department never used a compliance advisory committee to help revise compliance program guidelines before, I don’t see why they’d bother now. Even if new leaders at the Criminal Division do revise those guidelines sometime in the future, my suspicion is that they’ll just chart their own course. There’s a world of difference between an advisory committee helping a regulatory agency to develop rules; versus an advisory committee helping a prosecutorial agency to develop policies on charging decisions. The latter just doesn’t happen.