Surveillant and Counselor: A Reorientation in Compliance for Broker-Dealers

Citation data:

BYU Law Review, Vol: 2014, Issue: 5, Page: 1121-1184

Publication Year:
2014
Usage 313
Downloads 282
Abstract Views 31
Repository URL:
https://digitalcommons.law.byu.edu/lawreview/vol2014/iss5/5
Author(s):
Fanto, James A.
Publisher(s):
J. Reuben Clark Law School
Tags:
Banking and Finance Law; Business Organizations Law; Law
article description
This Article argues that the compliance officer should play a major role in the ongoing reform of broker-dealers and other financial firms. This role is facilitated by the fact that compliance is now well established and accepted and compliance officers are close to decision making at all levels of a firm. The contention is that the role of compliance must be rethought and reoriented if it is to contribute fully to the reform. Compliance officers now ensure that the firms and their employees comply with the numerous laws and regulations governing them and their activities, primarily by producing and then revising detailed compliance procedures and policies, and monitoring compliance with them. The policies and procedures direct the conduct of employees by surrounding them with a web of detailed instructions, procedures, supervisory review, reporting, oversight, and investigation, where necessary. This approach, which is based on a well-established “external” model of direction, discipline, and surveillance, is necessary to prevent self-interested and opportunistic conduct by financial firm employees. However, there is a risk that employees follow only the letter of compliance and at times ignore it altogether because they understand that the rules are different from, and secondary to, the actual securities business. Moreover, the external approach “crowds out” another model that is necessary to achieve the most effective compliance: Ideal brokerdealer compliance would promote “internal,” in addition to external, compliance. The goal of the internal approach is to have firm employees internalize the policies of the laws and regulations and the professional and ethical standards so that they come into the foreground when the employees are making business decisions. In psychological terms, the internal model of compliance would ensure that the policies and standards do not “fade” in employee decision making. Thus a compliance officer, rather than being only a transcriber of rules and monitor of their enforcement, would be an educator about policies, standards, and the appropriate firm and industry culture, as well as an advisor and counselor concerning how they should inform daily employee decisions.