SEC Publishes Frequently Asked Questions about Liability of Compliance and Legal Personnel at Broker-Dealers


Broker-dealers may choose to structure their supervisory and compliance systems in different ways. No matter which particular structure is employed, compliance and legal personnel play a critical role in efforts by broker-dealers to comply with legal and regulatory requirements through the implementation of effective systems.

Liability for failure to supervise is a facts and circumstances determination. The purpose of these FAQs is to provide staff guidance to consider in assessing whether particular facts and circumstances result in potential supervisory liability for broker-dealers’ compliance and legal personnel.1 The Exchange Act does not presume that a broker-dealer’s compliance or legal personnel are supervisors solely by virtue of their compliance or legal functions.2 Rather, the question is whether compliance or legal personnel have supervisory authority over business units or other personnel outside the compliance and legal departments as could be the case, for example, if a chief executive or operating officer also is the firm’s chief compliance officer. Supervisory authority also can be implicitly delegated to, or assumed by, compliance or legal personnel.

The Commission has stated that ultimately the responsibility for a broker-dealer’s compliance resides with its chief executive officer and senior management.4 When Commission staff seeks to bring legal actions for failure to supervise, our focus is on the roles and responsibilities of the respective parties. As a general matter, the staff does not single out compliance or legal personnel. Rather we encourage compliance officers and other compliance and legal personnel to take strong and vigorous action regarding indications of misconduct.

Responses to Frequently Asked Questions

Question 1.

Is a chief compliance officer or any other compliance or legal personnel a supervisor of broker-dealer business personnel solely by virtue of the compliance or legal position?

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