Scrutiny of Compliance Personnel May Backfire, SIFMA Exec Says

By Stephen Joyce

April 5 — Financial regulators' scrutiny of anti-money laundering (AML) compliance personnel working at broker-dealers has materially increased and could result in talented individuals leaving the profession, a senior industry executive said.

There is a growing concern that regulators and law enforcement authorities are increasingly questioning the work performed by compliance specialists while needlessly burdening them with extraneous tasks affiliated with their oversight and implementation of AML programs, according to Ira Hammerman, executive vice president and general counsel of the Securities Industry and Financial Markets Association (SIFMA).

At the time anti-money laundering provisions in the Bank Secrecy Act were strengthened by the USA PATRIOT Act following the Sept. 11, 2001, terrorist attacks, regulators told financial institutions to be more concerned about implementing reasonably designed AML programs and less worried about small, unintentional program shortcomings.

“Unfortunately, the pendulum seems to have swung quite far from this approach, and the scrutiny and second-guessing of compliance determinations are a troubling trend,” Hammerman told an April 5 SIFMA conference in New York.

Hammerman said compliance personnel are also burdened by all of the compelled testimony, requests to justify routine conduct and other rigors associated with government investigations, including those not resulting in enforcement actions. He said he's heard anecdotal stories of qualified individuals refusing promotions to AML compliance jobs because of those burdens.

“Be careful what you wish for. If we make it so problematic to want to be a compliance guy, if the downside is so great, people are going to say, ‘You know what? I'm not going to do it. I'll go to Silicon Valley and do something else,'” he told Bloomberg BNA after his speech.

Growing Concern

Federal regulators have said compliance personnel at financial institutions, as well as corporate directors, shouldn't worry about personal sanctions if they perform their responsibilities diligently, act in good faith and comply with the law.

Bradley Bennett, executive vice president of enforcement at the Financial Industry Regulatory Authority (FINRA), reiterated that position in his speech at the April 5 conference.

“If you discharge the functions that are formally assigned to you, you will not hear from the enforcement department. You will not have regulatory issues,” he said.

FINRA may probe a compliance officer's conduct, however, in instances in which he or she is directly involved in wrongdoing, did nothing to stop the behavior or affirmatively disregarded obvious red flags, Bennett said.

While Hammerman said his remarks were more focused on AML compliance personnel working at broker-dealers, the regulated community more generally has expressed growing concerns about the personal liability of compliance officers. The issue was highlighted by an April 2015 Securities and Exchange Commission (SEC) enforcement case charging the former chief compliance officer of BlackRock Advisors LLC with failing to report a material compliance matter .

Stephanie Avakian, deputy director of the SEC enforcement division, said the agency is only interested in actions or inactions by compliance officers that cross a clear line of misconduct or neglect of duties.

“The cases we've brought were cases in which the compliance officers were affirmatively involved in the misconduct, helped mislead regulators or had a clear responsibility to implement programs and policies and wholly failed to carry out their responsibilities,” she said Nov. 2.

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