Chief Compliance Officers: How Your CCO Saves the Day (and Your Firm)

In the complex world of broker-dealers and Registered Investment Advisors (RIAs), the role of the Chief Compliance Officer (CCO) is crucial to maintaining the integrity and success of the firm. The CCO’s responsibilities are broad, ranging from implementing compliance programs and training to collaborating with other management to foster a culture of compliance. It is vital that your CCO be a leader within your firm and actively engaged with your other business leaders.

As rules and regulations adapt to the changing wealth management environment, the CCO role requires a dynamic and proactive approach to managing compliance risks. CCOs must not only develop, maintain and supervise their firm’s compliance program; they must also be great communicators.

The Broker-Dealer Regulatory Environment

Broker-dealers are heavily regulated. A CCO’s primary responsibility is to ensure that the firm has a reasonably designed system for complying with these regulations, which can include those from the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), MSRB, and other regulatory bodies.

FINRA Rule 3130 requires all broker-dealers to designate a Chief Compliance Officer. The CCO must be able to:

• pass the Series 14 exam
• understand the products and services that need to be the subject of written compliance policies and written supervisory procedures (WSPs)
• identify the relevant rules, regulations, and standards of conduct
• develop or advise other team members charged with developing policies and procedures that are reasonably designed to achieve compliance
• evidence the supervision by the line managers who are responsible for the execution of compliance policies
• develop programs to test compliance with the firm’s policies and procedures.

The CCO must also stay informed of any changes in the regulatory environment, which can be challenging given the pace at which new regulations are introduced. This requires a deep understanding of the regulatory framework and the ability to interpret and apply these rules to the firm’s specific operations.

The RIA Regulatory Environment

The SEC regulates investment advisors (RIAs) who manage $110 million or more in client assets. Advisors with less than $100 million in assets under management (AUM) must register with the state regulator for the state where the advisor has its principal place of business. 

CCOs for RIAs must comply with rules and regulations from the SEC and other regulatory bodies that address specific areas such as advertising, custody of client assets, privacy, and recordkeeping. RIAs must also stay informed about guidance from these regulatory bodies, which often provide insight into best practices for compliance.

SEC Rule  206(4)-7 or, the Compliance Rule, requires RIAs to designate a chief compliance officer to administer its compliance policies and procedures.

Building and Maintaining a Compliance Program

At the heart of a CCO’s role is developing and maintaining a robust compliance program. This program serves as the blueprint for how the firm manages its compliance obligations and addresses potential risks.

The compliance program typically includes policies and procedures reasonably designed to prevent and detect violations of regulatory requirements. These policies must be clearly articulated and communicated to all employees within the firm, ensuring that everyone understands their role in maintaining compliance.

The CCO is also responsible for ensuring that the compliance program is effectively implemented and regularly reviewed. This may involve conducting periodic audits, testing the effectiveness of controls, and making necessary adjustments to address emerging risks.

Risk Management: Identifying and Mitigating Compliance Risks

Risk management is a critical component of the CCO’s role. In wealth management, risks can arise from various sources, including market volatility, operational challenges, and regulatory changes. The CCO must identify these risks and develop strategies to mitigate them.

This involves conducting risk assessments to determine the likelihood and impact of potential compliance breaches. The CCO must then implement controls to manage these risks, which may include employee training, enhanced monitoring, and the use of technology to automate compliance processes.

In addition to managing existing risks, the CCO must also be proactive in identifying emerging risks. This requires staying informed of industry trends and regulatory developments, as well as maintaining open lines of communication with other key stakeholders within the firm. The CCO should work closely with other members of the firm’s leadership team to ensure that compliance considerations are integrated into the firm’s overall strategy and decision-making processes.

Anti-Money Laundering (AML) and Know Your Customer (KYC)

Money laundering and manipulative trading continue to be a regulatory focus, previously for broker-dealers, and, effective in 2025, for RIAs. 

The significance of an AML compliance program goes beyond mere regulatory compliance; it serves as a fundamental component in safeguarding firms against the reputational, operational, and legal repercussions associated with money laundering activities. The formulation of an effective program demands an acute understanding of the underlying risks and the implementation of comprehensive internal controls and procedures. The CCO is responsible for implementing policies to prevent financial crimes and verify customer identities.

Data Privacy and Security

Financial services firms in the US are subject to numerous cybersecurity regulations, including Reg S-P, which requires firms to adopt written policies and procedures that address administrative, technical, and physical safeguards for the protection of customer records and information, as well as having and maintaining an incident response plan. The SEC has also proposed specific cybersecurity rules for broker-dealers and registered investment advisors. CCOs must ensure the firm is compliant with Reg S-P and other data privacy and security regulations to avoid potential fines and reputational damage.

Licensing and Registration

Another CCO responsibility is to ensure that the firm and its associated persons meet the necessary requirements to operate.For RIAs, individual investment adviser representatives generally must be registered in states where they have a place of business. Some jurisdictions base registration on the number of clients. This applies to both state and SEC-registered advisers.

For broker-dealers, at the representative level, the CCO must ensure all representative Form U4s and state license registrations are current. At the firm level, the CCO is a crucial part of the Continuing Member Application process.

CCO Leadership: Fostering a Culture of Compliance

A successful compliance program relies on a firm-wide commitment to ethical behavior and adherence to regulatory requirements. The CCO plays a crucial role in fostering this culture of compliance by providing ongoing training and education to employees.

This training should cover a range of topics, including the firm’s compliance policies, regulatory requirements, and the importance of ethical conduct in wealth management. The CCO must ensure that training is tailored to the specific roles and responsibilities of employees, providing them with the knowledge and skills they need to comply with regulations.

In addition to formal training programs, the CCO should also encourage open communication and provide employees with the resources they need to address compliance concerns. This may include establishing a confidential reporting system for employees to report potential violations without fear of retaliation.

Monitoring and Reporting: Ensuring Accountability

Effective monitoring and reporting are essential to the success of a compliance program. The CCO is responsible for overseeing the firm’s compliance activities and ensuring that any issues are promptly identified and addressed. This may involve conducting regular reviews of the firm’s operations, monitoring employee activities, and analyzing data to detect potential compliance breaches. The CCO must also ensure that any violations are promptly reported to the appropriate regulatory authorities and that corrective actions are taken to prevent future occurrences.

In addition to internal monitoring, the CCO is also responsible for ensuring that the firm complies with external reporting requirements. This may include submitting periodic reports to regulatory authorities, responding to regulatory inquiries, and participating in examinations and audits.

Broker-Dealer Supervision: FINRA Rules 3110 and 3120

Aside from developing the proper policies and procedures, the CCO must determine how the firm will assess whether the policies and procedures are being implemented properly. Having a robust supervision structure in place, controls testing and verification are vital components to this process.

FINRA Rule 3110, one of FINRA’s most important rules and a rule that factors in nearly every one of its examinations, requires a member firm to establish and maintain a system to supervise the specific activities of its associated persons that is reasonably designed to achieve compliance with the applicable laws and regulations and FINRA rules.

The rule details requirements for a firm to have reasonably designed written supervisory procedures (WSPs) to supervise the activities of its associated persons and the types of business in which it engages.

RIA Annual Reviews

SEC Rule 206(4)-7 requires registered investment advisors to document in writing an annual compliance review of their compliance program and compliance policies and procedures. RIAs must assess compliance programs to ensure they are designed to prevent violations, meet compliance requirements, and address any deficiencies found during the review process.

Managing Exams and Investigations

Consequences sound like a vague concept until the regulatory examiner is sitting across the table. When facing regulatory challenges, swift and effective remediation is crucial to safeguarding the firm’s reputation and financial well-being. An effective CCO proactively addresses compliance issues, demonstrating the firm’s commitment to compliance and minimizing the risk of enforcement actions. The CCO must craft regulatory responses, manage remediation projects, and interact with regulators to address inquiries and enforcement actions effectively. 

CCOs and Technology: Adapting to Industry Changes

In addition to regulatory changes, the CCO must also be prepared to stay informed of emerging trends and manage the associated risks of new challenges arising from technological advancements, such as the increasing use of digital platforms, the use of artificial intelligence, and the growing reliance on data analytics.

The Strategic Importance of the Chief Compliance Officer

As the industry continues to evolve, the CCO role will become increasingly important in navigating the complex and always changing regulatory landscape. By staying proactive and adaptable, the CCO can help the firm to not only meet its compliance obligations but also to thrive in a competitive marketplace.

Outsourced CCO and compliance support professionals provide the unique benefit of getting a multi-disciplined professional without having to interview, negotiate, hire, onboard and maintain another employee.

Oyster Consulting provides outsourced and compliance support experts who are right-sized for your organization – no more having to wonder if your candidates are qualified to meet the daily challenges of regulatory compliance for your firm. At Oyster, our consultants provide superior support and  for RIA and broker-dealer compliance, backed by an entire company of industry professionals.