Compliance is today’s slogan for upcoming law graduates, conference speakers say

February 13, 2013

By Stuart Gittleman, Compliance Complete

NEW YORK, Feb.13 (Thomson Reuters Accelus) – “I just want to say one word to you. Just one word. Are you listening? Plastics,” a business executive told a young Dustin Hoffman in the 1967 movie The Graduate.

Today’s one word of advice to a young lawyer could easily be “compliance,” Brooklyn Law School Dean Nick Allard said Friday in opening a symposium on “The growth and importance of compliance in financial firms: meaning and implications.”

The event was hosted by Professor James Fanto, who told Compliance Complete that the Center for the Study of Business Law and Regulation he co-directs is working to prepare business-savvy compliance professionals for the financial firms a subway stop away on Wall Street.

It’s vital to know how the firm makes money and where the risks are, in the increasingly complex and global business and regulatory environments, said Grace Vogel, Executive Vice President, Member Regulation, of the Financial Industry Regulatory Authority.

“Compliance needs a strong relationship with the business in order to escalate issues to the chief risk officer, not just the legal department, and to see emerging issues,” Vogel said.

Compliance must have senior management’s support in being independent of the firm’s business, and business line managers must accept that they – not the compliance function – are ultimately responsible for complying with securities laws and rules, Vogel added.

FINRA, the securities industry’s self-regulatory organization, or SRO, is working with firms to clarify compliance requirements and ensure that they address how business is being done rather than how it was done in the past, Vogel said. This includes developing best practices to improve compensation policies by soliciting comment on a proposal to require disclosing conflicts of interest relating to recruitment compensation practices.

FINRA is also seeking to help firms address the challenges of using technology to perform, not just support, trading while communicating internally, with other firms and with customers, Vogel said. This also includes supervising the use of social media and the use by firm employees of their own smartphones and tablet-type computers, not just laptops, to conduct business.

But Vogel warned against trying to evade the record-keeping requirements of the securities laws and rules by using programs such as SnapChat and Vaporstream whose communications self-destruct almost immediately after being seen or heard by their recipients. Firms must not get ahead of regulatory norms by using or allowing the use of technology that produces records, albeit ephemerally, that would be required to be maintained unless firms can preserve and supervise communications and provide them for regulatory review.

No gold rush yet

Compliance may promise opportunities, but there are risks as well as rewards ahead, the speakers said. Practitioners are unclear about the line between compliance and supervision after a Securities and Exchange Commission enforcement action against Ted Urban, the general counsel of a broker-dealer, for supervisory failings fizzled away, said Barbara Black, a law professor at the University of Cincinnati.

The line may remain officially vague, but it is much clearer that the key supervisory deficiencies are ignoring red flags and failing to take prompt corrective action, added Black, who edits the Securities Law Prof Blog.

And it’s not just knowing the law – to the extent you can – and having management’s support, Cadwalader partner Stephen Lofchie added, saying, “You can’t get away from the need for personal courage and the willingness to step up.”

Another important point is the chief compliance officer’s authority and relationship vis-à-vis the firm’s general counsel, noted Professor Deborah DeMott of Duke Law School.

The role of compliance may be further enhanced if regulators, and eventually courts, adopt “reliance on compliance” as a defense or a mitigating factor similar to “reliance on counsel,” said Rutgers Law professor Arthur Laby.

If a business line employee asked for and received advice from compliance before making a trade or recommending a transaction, Laby asked whether it’s fair to say the employee intended to violate the law.

Moreover, Laby asked, would it be better, and would it serve effective regulation, to discourage employees from bringing their concerns to compliance and going forward without any disinterested, knowledgeable advice in the first place?

A key problem facing firms and their compliance functions is the hypercompetitive atmosphere that instills a fear of losing out or being fired and may lead to cutting corners and cheating, said Georgetown law professor Donald Langevoort. This can encourage hiring high-testosterone individuals who engage in utilitarian behavior – “I must win even if I must force you to lose” – such as college athletes and fraternity presidents, and ex-military personnel.

“There is a selection bias in favor of hiring salespeople who are mentally adept at rationalizing this behavior,” Langevoort said.

“Compliance is a battle,” Langevoort said, in which its practitioners must ask whether they can “push back against these behaviors and against almost irresistible forces.”

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus ( Compliance Complete ( provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges. Follow Accelus compliance news on Twitter at:

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