In a recent eBook by RegTech firm Clausematch, the company deep-dived into the topic of personal liability for chief compliance officers.
As the regulatory landscape becomes increasingly convoluted, the potential liability for the Chief Compliance Officer (CCO) and other executives is also on the rise. Emerging technologies and globalisation are continually transforming the way businesses operate, making compliance an even more intricate and essential aspect of business. The ramifications of non-compliance have evolved from mere threats of hefty fines to the possibility of criminal charges.
In this environment, Clausematch outlined that the CCO stands as the pivotal force responsible for the company’s adherence to all relevant laws and regulations. They serve as the gatekeeper against regulatory missteps and potential reputational damage, their role significantly vital to any organisation. However, with this great responsibility, CCOs, along with their teams and other key executives, are increasingly being held personally accountable for shortcomings in their company’s compliance systems.
In recent years, regulators and enforcement agencies in both the US and Europe have shown a growing tendency to pursue individual officers, in addition to their respective companies, in cases of compliance failings. This trend shows no signs of slowing down, with the rate of enforcement actions predicted to escalate in the coming years.
For CCOs, CEOs and other high-ranking executives, understanding their personal liability and knowing how to protect themselves have become crucial, said Clausematch. Regulatory requirements and scrutiny have seen a marked uptick in the US, UK, and Europe, as authorities seek to deter corporate crime and hold individuals accountable. Notably, the US Department of Justice (DOJ) introduced a mandate in 2020 requiring CEOs and CCOs to vouch for the proper design and implementation of their organisations’ compliance programmes.
Fast forward to March 2023, the DOJ expanded its corporate guidance, zeroing in on how organisations can effectively administer compliance through personal engagement of management. A new section of the guidance entitled “Compensation Structures and Consequence Management” underscores the importance of implementing internal compensation structures for good governance and the necessity of introducing clawbacks in response to misconduct and non-compliance.
On the other side of the pond, the UK’s Financial Conduct Authority (FCA) adopts a more principles-based approach to regulation. Their focus is directed at mitigating and preventing serious harm, promoting competition and positive change, and setting and testing higher standards. The recent introduction of the Senior Managers & Certification Regime (SMCR) has encouraged senior employees to take on more responsibility for compliance, reinforcing the concept that accountability cannot be outsourced or delegated.
While the FCA has faced criticism for its relatively low number of SMCR enforcement actions to date, an increase in investigations and enforcement actions is anticipated, with the Covid-19 pandemic partly responsible for the slow pace thus far.
In December 2022, the European Commission proposed to streamline how Member States investigate, prosecute, and penalise individuals and entities for sanctions and violations. This will likely lead to a revision of the enforcement system across Member States and a surge in penalties.
Clausematch emphasised that CCOs, even those with small teams or in smaller firms, must ensure that comprehensive policies and procedures are in place and are executed diligently. Documentation, active participation in decision-making, and effective communication with other internal teams are vital for strong governance and risk mitigation.
If you want to read the rest of the eBook, click here.
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