By Mike Reeves | ComplianceJournal.news
FINRA has suspended chief compliance officers in two recent enforcement actions, reinforcing a posture that individual CCOs can face personal sanctions when supervisory systems fail on their watch. In the first case, a CCO at an Ohio-based broker-dealer was suspended for three months and fined $5,000 for failing to establish and implement a reasonable supervisory system for Regulation Best Interest compliance. In the second case, a CCO was suspended for twelve months in all principal capacities and required to requalify as a General Securities Principal after being found to have caused recordkeeping violations and to have provided inaccurate information to FINRA investigators.
The cases are meaningful for several reasons. FINRA enforcement actions against individual CCOs remain relatively rare — the agency has historically focused firm-level sanctions — which makes each individual action more significant as a signal of regulatory direction. The Reg BI case in particular is notable because it arose from a failure to build supervisory infrastructure around a relatively new rule, suggesting that FINRA views transitional compliance periods as carrying their own accountability obligations, not as grace periods.
For CCOs at broker-dealers, the practical implication is straightforward: supervisory program documentation matters as much as the program itself. A CCO who can show a written supervisory system that addresses the relevant obligation, along with evidence that the system was implemented and monitored, is in a significantly different enforcement position than one whose firm's compliance documentation is incomplete or inconsistent. FINRA's enforcement record on individual CCO accountability suggests that documentation gap is increasingly a career risk.
Source: Sidley Austin LLP — Read the full analysis →