Finra Reminds Members of the Scope of Rule Pertaining to Potential CCO Liability

In a recent release aimed to address CCO concerns Finra stated that supervisory obligations covered in its Rule 3110 are the responsibility of registered broker-dealers’ business management, not compliance officials. The notice regarding CCO liability follows efforts to address concerns regarding increased enforcement actions holding CCOs personally liable. Recent frameworks drafted by The New York City Bar Association in June 2021 and The National Society of Compliance Professionals in January  were submitted for consideration by the SEC and other U.S. regulators. In its release, Finra stated that the CCO’s role, in and of itself, is advisory, not supervisory. “Accordingly, FINRA will look first to a member firm’s senior business management and supervisors to determine responsibility for a failure to reasonably supervise. FINRA will not bring an action against a CCO under Rule 3110 for failure to supervise except when the firm conferred upon the CCO supervisory responsibilities and the CCO then failed to discharge those responsibilities in a reasonable manner.”  An article in Compliance Week noted that From 2018-21, only 28 of FINRA’s nearly 440 enforcement actions involving violations of Rule 3110 have included charges against CCOs. Of that group, 18 of the CCOs were also the chief executive officer or president at the business.