SEC Enforcement Director Delivers Remarks on Compliance Programs, Professionals

On October 24, Gurbir Grewal the Director of the Division of Enforcement at the Securities and Exchange Commission (SEC) delivered remarks at a New York Bar Association Compliance event on the important role of compliance professionals as “the first lines of defense against misconduct.” Director Grewal noted that creating a proactive compliance requires three things “education, engagement, and execution.” On education, he noted when the Commission releases a new rule, exam priority, or industry action, “you should digest it and examine which segments of your company have exposure to the same or similar issues.” He added, “You need to look at these orders and the violative language cited by the Commission and think about how those actions may impact your firms. And if they do, then take the steps necessary to effect compliance.”

Regarding engagement, Director Grewal stated it is important for compliance professionals to engage with “personnel inside your company’s different business units and to learn about their activities, strategies, risks, financial incentives, counterparties, and sources of revenues and profits.” He stated that if the compliance team happens upon an area of unfamiliarity, you must take steps to “learn and understand the issues.” He noted, “Those of you who work in the compliance function are leaders inside your organization and through proactive internal engagement you will be better prepared to discharge your duties.”

Last, Director Grewal highlighted the importance of execution by the compliance team. As an example, he cited the recent Commission actions against 40 firms for violating off-channel communications recordkeeping rules. He said in every case, the firms had policies and procedures in place but that there was widespread failure in implementing those policies. Additionally, in many instances, the individuals in supervisory positions were also violating the policies and procedures. He stated, “adopting the policies is just the first step” and that “[t]hrough leadership, training, constant oversight and the right tone at the top, you need to ensure that the policies are actually implemented and followed.”

Director Grewal stated actions against compliance professionals are rare because “we do not second-guess good faith judgments of compliance personnel made after reasonable inquiry and analysis.” He did, however, mention three “situations” in which the Commission typically brings an action against a compliance professional:

  • where compliance personnel affirmatively participated in misconduct unrelated to the compliance function;
  • where they misled regulators; and
  • where there was a wholesale failure by them to carry out their compliance responsibilities.

He noted that if despite all compliance efforts there is a breach of securities law, “the best thing to do would be to self-report and cooperate.” He noted the Division has previously “aggressively rewarded meaningful cooperation, most notably by recommending that the Commission impose substantially reduced penalties—or even no penalties at all.” 

Click here to read SEC Director of Enforcement Gurbir Grewal’s remarks at the New York City Bar Association Compliance Institute.