CCOs must proceed with caution with WSPs and work expectations to avoid assuming responsibilities that s/he will not or cannot undertake. You may think you’re helping out or just being a good team player when, in fact, you are assuming significant regulatory liability. No good deed goes unpunished when the work doesn’t get done.
censured and fined a broker-dealer for inadequate email reviews. Although the firm, through its President/CCO,
conducted weekly reviews, FINRA charges that the firm’s random sampling and
lexicon-based reviews were not sufficient given the firm’s size and risk
areas. The firm used 24 search terms
provided by its email provider, but FINRA asserts that the search terms did not
reflect a meaningful assessment of risk areas and resulted in a large number of
false positives. FINRA faults the firm
for failing to change the email reviews “[d]espite the obvious indications that
the firm’s lexicon system was not reasonably designed.” FINRA also criticizes the firm’s Written Supervisory
Procedures for omitting specific email review procedures.
Just doing email reviews isn’t enough. A firm must conduct effective email reviews that can statistically assess whether supervised persons are complying with the securities laws. We call this “compliance alchemy” i.e. the appearance of compliance without the implementation of adequate procedures and testing.
OUR TAKE: Don’t tell the SEC that you have complied with their document requests unless you have conducted adequate internal due diligence. The Enforcement staff will not look kindly on reckless or intentional misrepresentations during investigations. Also, lying to the staff can result in criminal penalties.