Securities and Exchange Commission members Daniel M. Gallagher and Luis A. Aguilar will soon leave the SEC, but neither is keeping quiet about the SEC’s treatment of chief compliance officers (CCOs).
Gallagher recently issued a statement explaining his dissenting votes in two settled enforcement actions against CCOs of investment advisers. In both actions, the SEC’s order states that the CCO was responsible for the "implementation" of the firms’ compliance policies and procedures. Gallagher criticized this as illustrating a disturbing Commission trend toward strict liability for CCOs for violation of the SEC’s rule requiring investment advisers to "adopt and implement" policies and procedures reasonably designed to prevent violations under the Investment Advisers Act.
Gallagher noted that the rule is "not a model of clarity" and offers no guidance on the distinction between the role of CCOs and management in carrying out the compliance function. Rather, the rule simply states that the CCO is "responsible for administering" the compliance policies and procedures adopted by the firm. Gallagher asked the SEC to examine the rule’s language to determine if clarification is necessary.
Commissioner Aguilar responded with his own statement, asserting that the SEC has carefully struck a balance between encouraging CCOs to do their jobs well and bringing actions to punish those who engage in egregious misconduct. SEC Chair Mary Jo White has echoed such sentiments. Aguilar further stated, however, that CCOs "are responsible for making sure that their firms comply with the rules that apply to their operations," which does seem to put CCOs under a heavy burden.
Aguilar also noted that, over the past six years, the SEC charged CCOs in 80 of the 751 enforcement cases against investment companies and advisers. He also pointed out, however, that "the vast majority of these cases involved CCOs who ‘wore more than one hat,’ and many of their activities went outside the traditional work of CCOs."
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