In the wake of the financial crisis, federal and state regulators are increasingly taking action against individuals for alleged compliance lapses inside financial services companies, and recent reports indicate that sanctions imposed on individuals are on the rise. This trend in actions against individuals taken by banking, consumer finance, securities and anti-money laundering regulators elevates the risk of individual liability for both compliance professionals and corporate officers. Most telling, the enforcement actions against individuals are reaching beyond sanctions for personal misconduct to address lapses in oversight and management of controls. Indeed, a recent survey found that more than half of compliance professionals expect their personal liability to increase in 2014.
Securities Enforcement Actions -
For many years, securities industry regulators have pursued individual liability in actions alleging misconduct against corporations or financial institutions. More recently, however, these regulators have increased their pursuit of individuals who fail in their responsibility to ensure that companies adopt and apply required internal compliance standards. In October 2013, SEC Chair Mary Jo White announced that the SEC would “focus[] on deficient gatekeepers – pursuing those who should be serving as the neighborhood watch, but who fail to do their jobs.” Since the end of the financial crisis, the SEC has brought a series of actions against corporate officers, including chief compliance officers (“CCOs”), for institutional compliance issues. For example, in a November 2013 action against an investment adviser for failure to comply with custody rules, not only did the SEC pursue the firm, it also alleged that the CCO failed to take necessary steps to ensure that the firm complied with the required custody rules.
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