BROKER/DEALER COMPLIANCE OFFICERS FACE SURGING PERSONAL LIABILITY RISKS
Since the start of the pandemic, has your firm adopted digital communication and collaboration platforms? If yes, have policies and procedures been implemented to prevent mistakes and misbehaviors?
I pose the above question to those Compliance Officers who have been overseeing compliance at a FINRA-registered firm from their home office. In years past, FINRA and the SEC imposed firm-level penalties but more recently, we have begun to see cases against negligent Compliance Officers at the individual level, resulting in both legal and financial repercussions.
As seen in 2020, cases were not only for regulatory violations, but there was a focus on each firm’s’ procedural gaps. Regulators are aware of the increased use of digital communication and collaboration platforms and will therefore be asking firms what modifications they made to their policies with respect to working in the remote environment. They not only will scrutinize firms but may also scrutinize Compliance Officers in efforts to get the financial services industry to take these issues more seriously.
FOCUS ON MAKING CRITICAL IMPROVEMENTS NOw
For those who have adopted digital communication and collaboration platforms, here are some steps you can take to protect yourself and your firm, from the upcoming surge in liability risks from what is bound to be a year of increased regulatory scrutiny.
1. Enhance Supervision of Digital Platforms
(Personal Email, Text Messaging, Social Media, Microsoft Teams, Zoom and Slack)
Implement supervision and surveillance tools that automatically capture and archive electronic communications data and allow Compliance Officers to review search conversations. Regulators can both demand firms turn over recordings of conversations and penalize them for failing to produce the conversations in a timely fashion.
A single inappropriate conversation on any of the above channels can lead to major complications.
2. Update the Written Supervisory Procedures (“WSP”)
If the way your firm conducts business has changed over the past year, you need to update your WSP accordingly. If new software has been implemented and employees are now permitted to work on personal devices, the WSP should address these changes.
2021 – WE ARE GOING TO SEE THE CHANGING WORKPLACE
We expect regulators to ask:
How did firms adjust to the pandemic?
How did your procedures change?
How are you supervising employees now?
What was the firm missing when going remote in March and what did you do at that time?
How did your procedures change?
How did you train your employees?
Asgard strongly recommends all clients ensure their policies and procedures accurately reflect the firm’s products and services, operations, technology, employees, and vendors and are strictly enforced.
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