On September 30, 2013, the Division of Trading and Markets of the SEC put out an FAQ detailing when legal and compliance personnel would or would not be held responsible for failing to supervise a broker-dealer employee that commits a violation. Legal and compliance personnel are not, by default, considered supervisors, so they are not held responsible unless their position places them in a supervisory role. This can be determined by considering whether the personnel has the “requisite degree of responsibility, ability or authority to affect the conduct of another employee.” The Division lists several questions that can be used to ascertain whether the personnel has such responsibility, ability, or authority, but key elements are:
- whether the company is structured in such a way that the personnel is clearly designated with responsibility,
- whether the personnel can hire, reward, punish, or fire the employee, and
- whether the personnel knew or should have known that he or she was responsible for preventing the violation.
Further reading: United States: When Legal Or Compliance Personnel May Be Subject To Failure To Supervise Liability Under The Securities Laws
This alert applies to the Series 24, Series 26, Series 62, and Series 82.