How to Avoid Legal Problems and Foster a Culture of Regulatory Compliance

You’re the CEO and are about to onboard a new advisor at your financial advisory firm. You want to make a lasting impression and set the proper tone.

“Make certain you treat every client with courtesy and respect and fulfill your duty as a fiduciary to act in their best interests at all times.” … Check!

“Be punctual. But remember, what you put into the hours is just as important as the hours you put in.” … Check!

“When it comes to courtesy and respect, that policy applies to your internal colleagues as well as our clients. Our firm has zero tolerance for harassment or discrimination of any kind.” … Check!

Nothing out of the ordinary, right?

The U.S. Commodity Futures Trading Commission (CFTC) would like your firm to add another important item to your orientation checklist that’s often understated or overlooked. The following example is based on language in the CFTC’s most recent annual report.

Tolerate No Regulatory Misconduct of Any Kind

The CFTC suggests that CEOs tell employees that it is essential to comply with company policy because the firm’s culture demands employees always follow the rules. This helps to set the proper tone and emphasize a culture of compliance from Day One. Employees need to know that if anyone breaks the law, the firm’s problems won’t stop with compliance, ethics, or human resources.

As the CFTC emphasizes, the firm’s problems will come to light from regulatory agencies like the Securities and Exchange Commission (SEC) and perhaps even the U.S. Department of Justice (DOJ), and the Federal Bureau of Investigation (FBI). It can mean lawsuits, ruined professional careers, and even prison time.

In closing, the CFTC encourages corporate leadership to establish the firm’s commitment to identifying misconduct, and to reporting it to the relevant authorities. By establishing this expectation, firms want to make it clear about their behavior you seek to foster. That’s the commitment that creates a culture of regulatory compliance that benefits both your firm and your clients.

Sound advice, indeed.

The CFTC’s mission is to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets through sound regulation. One of its areas of focus in 2019 was promoting individual accountability, a practice every financial advisory firm should follow.

Promoting Individual Accountability

The CFTC believes Individual accountability must sit at the center of any effective enforcement program. It’s not enough simply to hold the responsible companies accountable. The responsible individuals also must be held accountable.

“Individual accountability ensures that the person committing the illegal act is held responsible and punished and, when appropriate, banned from the market,” the CFTC states in its most recent annual report. “It deters others, fearful of facing individual punishment, from breaking the law in the future. It incentivizes companies to develop cultures of compliance and to report to regulators when they find bad actors.”

To see the full CFTC Annual Report, click here.

It also promotes the public’s confidence that the system is working to achieve justice. In pursuing these goals, a firm must consider the entire organizational chart including lower-level employees, supervisors, and others in control who may be culpable.


JLG assists firms and individuals through the numerous complicated and nuanced considerations relating to investment adviser or registered representative transitions. For more information, contact our team of attorneys today.

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