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Compliance Concepts

Financialish Take Aways: Holding CCOs Responsible for Inadequate WSPs

February 27, 2018

When reading cases where FINRA sanctions a firm for failing to establish, maintain, and enforce a reasonable supervisory system designed to ensure the review of ( ….. ), my first inclination is to question whether that firm’s Chief Compliance Officer, or CCO, was responsible. My suspicions grow stronger when, further into the case, FINRA contends in its findings that “the firm did not have written procedures reasonably tailored to address” the inherent risks of the specific product(s) and/or behavior central to the case.


Such was the scenario in Monday’s case study involving Capital City Securities (“CCS”). FINRA fined CCS for its failure to adequately supervise as many as half its registered reps who, over a 3-year period, sold unsuitable Non-Traditional ETFs to firm customers. What made these transactions particularly troublesome was the fact that many of the firm’s customers held these highly volatile products for long periods of time. Such longer holding periods run counter to industry standards, which is that retail investors should typically not hold these products for more than one trading session.  [See FINRA RegNote 09-31 - “Non-Traditional ETFs.]


And throughout the Relevant Period in this case - from July 2011 through November 2014 – while CCS registered reps were buying and holding these Non-Traditional ETFs for their customers, one individual served as the firm’s president and CCO - Todd Crawford. Mr. Crawford began serving in those positions in October 2007, and continues to hold the positions to this day - according to FINRA CRD records. Yet, Mr. Crawford was never disciplined for any related failures or alleged violations.


►   As CCO, was Mr. Crawford responsible for “establishing, maintaining and enforcing” reasonable and adequate supervisory procedures related to Non-Traditional ETFs?

►   As president, was Mr. Crawford responsible for certifying the firm’s internal controls and supervisory procedures?

►   And, if Mr. Crawford was not responsible, then then was or should have been?


Without intending to be mean-spirited, and without bearing any ill-will toward Mr. Crawford, I simply am trying to identify the stakeholders in such cases. And while I seek answers to these questions, I also wonder how and if FINRA will revise its disciplinary process - so as to assign appropriate responsibility while ensuring that imposed penalties or sanctions are not all-too-severe.


After all, FINRA seeks to partner with its member firms and their associated persons, and not disenfranchise them. Thank you, FINRA CEO Robert Cook.