The National Society of Compliance Professionals (NSCP) has announced that it is advancing efforts to support the creation of a Compliance Advisory Committee within the US SEC.

GRIP spoke to Lisa Crossley, Executive Director of the NSCP, about her organization’s visions for the committee in bringing stakeholders together and addressing regulatory priorities in a more targeted, thoughtful way.

Who could be involved

We had spoken recently to SEC Commissioner Hester Peirce about the committee – since the idea for the group originated with she and her colleague, SEC Commissioner Mark Uyeda – and Peirce had placed the word “Officer” into the name. So we asked Crossley about the name of the committee.

Crossley said it could be called anything the SEC wanted, but she and her regulatory advisory committee figured “officer” was a bit limiting, and certainly “chief compliance officer” was. She preferred something that had more breadth, since senior compliance professionals can have a variety of titles.

Crossley sees the regulator as the sponsor of the committee, with the aforementioned compliance professionals participating, and she said the NSCP is suggesting that other industry organizations such as the Investment Adviser Association, Managed Funds Association, Investment Company Institute, etc, that have members regulated by the SEC, also have a role; plus academics and legal advisers for their unique perspectives.

“There is a strong argument within our regulatory advisory committee that consultant should also be considered because of the breadth of their client base and the compliance challenges they are seeing and working on that could be of great interest to the regulator,” she said.

When we asked her about how the committee will communicate its deliberations and action items with the public, Crossley said that she certainly hopes the NSCP will have a seat at this committee’s table, and if it does, it would seek to have committee discussion points and action items advertised to the compliance community and the general public. This could happen through social media, its website, and other platforms, subject to certain issues requiring confidentiality.

Offering practical solutions

The value of the committee and what it would solve are plentiful, but intertwined. Crossley said it would review regulatory priorities and processes and provide recommendations for improvements, first and foremost. That would include noting unintended consequences of rulemaking, inconsistency across regulatory regimes, unexpected costs or technical impediments, among other trends we are seeing.

“We have seen a lot of new regulations over the past three-plus years or so and, going forward, we’d want to have a discussion about where a new rule and old rule conflicted. But we also want to identify new and merging compliance trends, plus locate new risks that might require new rules or guidance, and evaluate (beyond just the current comment letter process) what implications new rulemaking will have on the compliance function and what could impede practical implementation of those requirements,” Crossley said.

She added that the NSCP also seeks to help facilitate stakeholder engagement, ensuring that all participants on the committee are giving a broader perspective on how new regulations are going to affect small, medium and large firms and different business models per se.

“The recordkeeping rule is outdated, so we are just seeing enforcement cases layering on top of an outdated rule without solving the real issue.”

Lisa Crossley, Executive Director of the NSCP

Although the NSCP has always had conversations with the SEC’s examinations and enforcement divisions, she said she wants to make sure they hear directly from other constituents too so they can hear from them what firms are dealing with at the time.

“You can put out a rule, and it’s going to affect businesses differently, and the SEC should hear how and to what extent from these stakeholders,” Crossley said. “The agency needs to be mindful when it is issuing rules and bringing enforcement actions, that it needs to consider whether the implementation is reasonable – that word ‘reasonable‘ being one that Commissioner Hester Peirce has focused on in some of her dissenting statements,” she said.

And when it comes to the NSCP’s framework for tackling CCO liability with greater clarity and guardrails, Crossley clarified that the CCO liability initiative would operate alongside this Compliance Advisory Committee. “We keep this issue toward the top of our agenda, although we have not seen any real cases or pattern of cases that have concerned us recently, like we did in the past, when we thought the SEC was creating disincentives to join or stay in the profession,” she said.

Crossley said the committee would like to offer training for SEC staff members in the examinations, enforcement and investment management divisions, at their request. “And we’d like to help with their surveys and other forms of information gathering,” she added.

Off-channel comms recordkeeping cases

We asked Crossley about the value of self-reporting and offering timely and fulsome cooperation to the SEC staff, and she brought up the many recordkeeping cases that have been issued for violations of SEC recordkeeping rules.

“The recordkeeping rule is outdated, so we are just seeing enforcement cases layering on top of an outdated rule without solving the real issue,” she said.

“We just had a meeting with FINRA’s executive management and one of the things they always say to us at the NSCP is ‘are there regulations that you would like us to review because they’re outdated because of technological improvements or other reasons?’”

“FINRA’s retrospective reviews work in that exact way, and this is the type of review we want to prompt the SEC to do, with this committee’s assistance. Let’s look at this rule as it applies to the off-channel communications and see how it can best be amended to cure some of the issues we’ve seen in these cases,” Crossley said.

“Again, it’s what is ‘reasonable’ here in terms of compliance in this area. What I might think is reasonable as a compliance officer might not be to an SEC examiner, but I need to know specifically what that means from them.”

Timing

Crossley said January 2025 will see the kick-off of the Compliance Advisory Committee, letting the SEC’s new leadership get acclimatized first. “One of the issues we have is how the committee will get formed. “Will it go through FACA [the Federal Advisory Committee Act] process or will it go through legislation?” she wondered.

The FACA process could be much shorter, since that process is just two years [FACA-formed committees have a life of two years, while those committees formed through legislation are longer] and, regardless, the committee would want to see what Congress has on its agenda regarding anything concerning the SEC and financial services, she noted.

Crossley said that what bodes well for the committee and its launch are the unswerving compliance officer champions inside the securities watchdog, like Commissioners Peirce and Mark Uyeda, plus Natasha Vij Greiner, Director of the SEC’s Division of Investment Management, and Marshall Gandy, the agency’s Investment Company Program Director.