A simple review of FINRA’s enforcement proceedings demonstrates a new norm; compliance officers are being held accountable as supervisors for rules violations. How can a compliance officer avoid being held accountable as a supervisor?
The best way for compliance to insulate yourself is to make sure that there are clear divisions between compliance and supervisory duties. For one, compliance officers should not be managing the day to day operations of the firm, such as hiring and firing personnel. Instead, compliance should only make “recommendations” to supervisors when it comes to compliance issues.
Another effective tool is to have separate written supervisory procedure manuals for supervisors and compliance officers. The firm may call the manuals two different things as well. For example, you may want to call the compliance manual the “ethics” manual and the other the “supervisors’ manual”.
Similarly, in those manuals, you should define the roles of those in a supervisory versus compliance capacity. Depending upon the size of the firm, you may want to consider naming in your manuals the individuals who serve in those capacities. The manuals should be revised every year to reflect personnel changes.
One last method to consider is for the chief compliance officer to ask the supervisors on a monthly basis whether they are aware of anything requiring a Rule 4530 disclosure.
This guidance is no guaranty that a regulator will not try to couch compliance as supervision, but doing nothing is not an option. Define roles, act separately, and protect yourself from being miscast as a supervisor.