SEC Chief of Staff Offers Advice to Chief Compliance Officers

SEC Chief of Staff Andrew Donohue spoke to Chief Compliance Officers ("CCO's") about the challenges they face and the best ways to fulfill their responsibilities.

Mr. Donohue described how CCOs might best "meet the challenge" of carrying out their duties "without fear of personal liability." With regard to those responsibilities, he urged CCOs to:

• develop a "firsthand knowledge" of the rules that apply to a CCO's firm, as well as any exemptive orders or compliance requirements, and know which regulatory regimes are applicable to that firm in light of its business model and the jurisdictions in which it operates;

• have a "clear understanding" of "all of the conflicts of interest", and how those conflicts are reviewed, identified, resolved and disclosed;

• develop a "detailed understanding" of the firm's clients, products and services, have an understanding of the profitability of products and services, and review offering and sales materials and related documents on a regular basis;

• develop a "deep understanding" of the compliance and technology systems used by the firm, including the "key dependencies" of the firm's compliance program;

• possess "detailed knowledge" of a firm's compliance policies, how they are applied and monitored, and how they "interact" with each other and the firm's intended goals;

• develop an "understanding" of the markets in which a firm operates, as well as a "detailed understanding" of that firm's investment products and strategies and any potential issues they may raise;

• "grasp the culture of the firm" and insist that the customer come first; and

• develop an understanding of the gaps in one's knowledge when relying on others' expertise and strive to fill those gaps through open communication.

Mr. Donohue also listed the factors that would motivate the SEC to bring an enforcement action against a CCO. These factors include: (i) when a CCO affirmatively participates in misconduct, (ii) when a CCO helps to mislead regulators entirely and (iii) when a CCO has the clear responsibility to implement compliance programs but fails completely to carry out that responsibility.

Mr. Donohue delivered his remarks at the NRS 30th Annual Fall Investment Adviser and Broker-Dealer Compliance Conference.