As part of the Day 2 opening keynote at Compliance Week’s National Conference, two SEC commissioners from opposing political parties presented slightly different views on how to evaluate the culpability of poor performing chief compliance officers.
Moderator Ken Joseph, a former SEC regulator who is now executive director at Kroll, has questioned Democrat Allison Herren Lee and Republican Hester Peirce for their thoughts on whether it would drive the SEC to investigate a CCO.
Individual CCO culpability, according to Lee, is determined by the details of the matter. CCOs who assist in corporate law infractions should be penalized, she said, and the SEC should “bolster the efforts of” CCOs in their work. However, Lee believes that legal charges should be considered in circumstances when a certain theft happens at a firm under their supervision.
“In those instances where they fail miserably, we have to enforce” securities laws and hold CCOs accountable, she said.Allison Herren Lee
According to Peirce, the SEC has to do a lot better by providing a structure for CCOs that motivates companies to provide them with the resources and authority they need to accomplish their jobs correctly.
“The lack of clarity around CCO liability is problematic. If it’s just a case of being bad at your job, that’s a much different case.”Hester Peirce
She agreed with Lee that CCOs who participate in fraud and violate securities laws, or who actively attempt to thwart SEC investigators, are clear-cut cases.
For a long time, CCO liability has been a popular issue among compliance professionals, especially for CCOs who serve SEC-regulated firms. The National Society of Compliance Practitioners developed a strategy in January encouraging regulators to look at CCO liability thoroughly, considering compliance culture concerns that can be outside the CCO’s control. Another approach released in June 2021 by the New York City Bar Association urged regulators to consider constructive factors that can be available in order to pursue legal action against a CCO, as well as some reducing considerations that could weigh against filing charges. These guidelines are unenforceable, and the SEC has not officially recognized them to impact a determination on whether or not to charge a CCO with a securities law infraction.
The commissioners answered questions regarding digital assets and cryptocurrency, cybersecurity, and compliance’s involvement in environmental, social, and governance (ESG) projects, among other areas of interest to CCOs.
Peirce agreed that Congress had the final say on how to govern digital assets, but that creating and approving federal legislation “takes a long time.” Meanwhile, the SEC should focus on areas of the bitcoin sector that fall “within our sphere,” such as token sales and venues. She opposes the creation of a new cryptocurrency authority “because a lot of cryptocurrencies are merged with traditional finance,” and she believes that separating the cryptocurrency elements could lead to “difficult regulatory issues.”
Lee, who confirmed her departure from the SEC in June, went on to say that the agency regulates all commodities and that if a cryptocurrency is designated security, it should be filed with the SEC. The SEC’s current litigation against Ripple Labs and its XRP taken is being widely monitored because this has been a point of friction between the agency and the cryptocurrency industry.
If a company’s barriers fail to stop a cyberattack, Lee says they may have “failed to have the proper defenses in place,” but they haven’t inevitably failed in their responsibility to have adequate policies and processes in place to safeguard their investors and customers’ financial information.
In terms of ESG, Lee claims that an “unprecedented shift in investor focus” is compelling companies to take environmental and equality concerns seriously, and those accurate SEC disclosures will prevent companies from proclaiming to be making more success than they are.
Pierce, who has opposed the SEC’s potential environment-related disclosure regulation, said at the panel that ESF problems are “nebulous in scope” and that present ESG disclosure rules are more sufficient.
Information from Compliance Week