Guidance (and a Touch of Solace) for Compliance and Legal Personnel on Potential Supervisory Liability
- The SEC’s Division of Trading and Markets recently provided guidance to broker-dealers regarding circumstances under which their compliance and legal personnel will be viewed as “supervisors” and potentially face liability for failure to supervise firm employees under Sections 15(b)(4) and 15 (b)(6) of the Exchange Act of 1934.
- Notably, the SEC takes the position that legal and compliance staff do not become supervisors by merely giving advice to senior management and business personnel. In addition, the guidance sets forth factors that broker-dealers can use to evaluate whether their compliance and legal personnel act in a supervisory role—and thus potentially could face liability as supervisors. The factors consider, among other things, whether the person has supervisory authority or responsibility for business activities and whether the person has the authority to prevent a violation from occurring or continuing.
- Even with the new guidance, broker-dealers should be mindful of recent statements by SEC Chair Mary Jo White that indicate that the Commission plans to bring an increased enforcement focus on “gatekeepers,” which may include compliance and legal personnel.