SEC Commissioner Gallagher’s Remarks on Subjecting Compliance Officers to Supervisory Liability (with Lofchie Comment and a Link to a Barrentine Comment)
SEC Commissioner Daniel M. Gallagher delivered remarks at the 2013 National Compliance Outreach Program for Broker-Dealers. Mr. Gallagher underlined the importance of the need to resolve the uncertainties surrounding what makes a compliance professional a "supervisor" and subject to liability as such.
Commissioner Gallagher said he believes that the regulators should be focusing on the business-line supervisors and not on the compliance official that steps in and takes action in good faith. Commissioner Gallagher said he is worried that the SEC's current position on supervisory liability skews in the opposite direction, reducing the risks of liability only for those who intentionally chose inaction over action. According to Commissioner Gallagher, the SEC must avoid establishing a rigid set of expectations based on bright-line rules that discourage compliance officers from acting out of fear that any "wrong" decision they make might subject them to heightened regulatory scrutiny. Instead, the SEC must establish a regulatory framework that incentivizes compliance officers to fully engage in the many difficult regulatory and business decisions that firms face daily.
Lofchie Comment: Commissioner Gallagher has been a consistent voice of support for compliance professionals and an advocate of the view that the government should be extremely reticent about subjecting compliance professionals to liability, arguing that to bring enforcement actions against compliance professionals will discourage them from becoming involved in firms' problems. His remarks in support of compliance professionals are quoted extensively in the attached SIFMA White Paper.
Click here to view speech in full (links externally to SEC website).Related Item: "SIFMA White Paper: "The Evolving Role of Compliance" (with Barrentine Comment)" (March 12, 2013).See also: Lofchie's Guide to Broker-Dealer Regulation, Supervision Chapter. This chapter contains some discussion of the potential liability of compliance professionals as supervisors.