FSA Imposes Fine and Statutory Ban on Compliance Officer of Investment Advisory Firm for Failure to Safeguard Client Assets

Serving as the compliance officer of a hedge fund manager is becoming increasingly challenging, particularly considering the growing list of regulatory responsibilities being imposed on such compliance officers and the ominous prospect of personal liability for the failings of a manager’s compliance program.  The U.S. Securities and Exchange Commission (SEC) has made it clear that compliance officers can be held personally liable for the failings of their firms’ compliance programs in certain circumstances, as evidenced by the SEC’s enforcement action brought against Wunderlich Securities, Inc.  However, the exact scope of such personal liability continues to be a moving target.  See “Scope of Supervisory Liability of Senior Legal and Compliance Professionals at Hedge Fund Managers Remains Uncertain after SEC Dismissal of Urban Action,” Hedge Fund Law Report, Vol. 5, No. 5 (Feb. 2, 2012).  Like the SEC, the U.K.’s Financial Services Authority (FSA) is also flexing its muscles in this area, as it recently levied fines against an advisory firm and its compliance officer and imposed a statutory ban on the compliance officer for his and the firm’s failure to safeguard client assets.  The statutory ban prohibits the compliance officer from serving as a compliance officer in the future and from having responsibility for client assets.  The FSA action is noteworthy in at least two respects, both described in this article.  More generally, this article discusses the factual allegations, compliance violations and sanctions imposed against the firm and the compliance officer.

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