NSCP Releases Revised NSCP Firm and CCO Liability Framework

February 14, 2023

The National Society of Compliance Professionals (NSCP), the premier organization that educates and advocates on behalf of financial industry compliance professionals, has released an updated version of the NSCP Firm and CCO Liability Framework (NSCP Framework). Through this guidance, NSCP seeks to (1) alleviate regulatory uncertainty faced by certain chief compliance officers (CCOs), (2) provide a framework consistent with the industry’s perception of the role of compliance, and (3) promote investor protection and market integrity.  NSCP issued the original Framework in January 2022 because many of its members, including CCOs and other financial industry professionals, perceived the need to provide guidance to regulators, CCOs, and firms regarding potential CCO liability.

Since January 2022, NSCP’s Regulatory Advisory Committee has met with multiple regulators, including those with the U.S. Securities and Exchange Commission and FINRA, as well as industry professionals, for feedback on the NSCP Framework. 

In a statement from Lisa Crossley, NSCP Executive Director, she said:

“We believe the NSCP Framework should be a living document, which will be modified over time as the industry changes, and as regulators, firms, and CCOs alter their practices.  We are thankful that we received such an enthusiastic response to the initial Framework.”

The revised NSCP Framework has been modified to address the comments from regulators and industry professionals, including emphasizing the following points:  first, compliance is ultimately a firm responsibility; second, CCOs in their compliance capacity do not supervise business functions; and finally, it may be appropriate not to charge a CCO with a rule violation if the CCO acted reasonably, but violative conduct still occurred by the firm. 

Patrick Hayes, partner at the law firm of Calfee, Halter & Griswold LLP and one of the NSCP Framework’s co-authors, stated:

“The Framework has been used by many firms and CCOs to assess the compliance function within their organizations. This update will provide additional guidance to help firms focus their compliance efforts and empower CCOs managing the compliance program.” 

Although the NSCP Framework has not been adopted by any regulators, Brian Rubin, partner at the law firm of Eversheds Sutherland (US) LLP and a co-author of the Framework, stated:

“I believe firms and regulators have been using the Framework in exams and during enforcement investigations to examine the practical challenges faced by CCOs and to provide context for their conduct. With this update, the Framework has been enhanced to assist regulators when they are assessing potential liability.” 

Special thanks to Regulatory Advisory Committee members Patrick Hayes, Steven Hansen, Brian Rubin, Robert Saperstein, Heather Traeger, and Ed Wegener for their leadership on this project.

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