SEC Issues Frequently Asked Questions on Supervisory Liability of Broker-Dealer Compliance and Legal Personnel Under Section 15(b)(4) and 15(b)(6) of the Exchange Act

On September 30, 2013, the US Securities and Exchange Commission (SEC) Division of Trading and Markets issued Frequently Asked Questions (FAQs) in an effort to provide guidance regarding potential supervisory liability of broker-dealer compliance and legal personnel under Sections 15(b)(4) and 15(b)(6) of the Securities Exchange Act of 1934, as amended (referred to below as the “Exchange Act”).

The FAQs restate the SEC’s long-held view that compliance and legal personnel, including chief compliance officers, may be deemed supervisors of broker-dealer employees for purposes of Sections 15(b) of the Exchange Act where such individuals have “the requisite degree of responsibility, ability or authority to affect the conduct of the employee whose behavior is at issue.” The FAQs advise the broker-dealer compliance and legal community that individuals will not be held to assume supervisory responsibility solely by virtue of their compliance or legal position and do not become supervisors solely because they: (1) provide advice or counsel concerning compliance or legal issues to business line personnel, or assist in the remediation of an issue; (2) participate in, provide advice to, or consult with a management committee or another committee; or (3) provide advice to, or consult with, senior management. Rather, the FAQs provide that the determination of whether compliance and legal officers are supervisors depends on “the facts and circumstances of a particular case.” The FAQs provide factors to consider when making this determination, including, among other things, whether a person has been given or assumed clear supervisory authority (through the broker-dealer’s policies and procedures or otherwise) and whether a person has the ability to hire, reward or punish the employee or otherwise has the authority to prevent the violation from continuing (e.g., firing or demoting the employee).

Please see full advisory below for more information.

LOADING PDF: If there are any problems, click here to download the file.