Top Regulators Spoke at the New York City Bar Association’s Compliance Institute

On October 23, 2024, the New York City Bar Association hosted its third annual Compliance Institute. The all-day conference hosted key regulators and top legal and compliance professionals who discussed topics ranging from how to get compliance programs to work in practice, regulator expectations for compliance programs, and the impact of the upcoming election and recent Supreme Court decisions on compliance to key takeaways from high-profile cases involving alleged compliance failures and DE&I issues in the compliance field. The event was headlined by noteworthy keynote remarks from SEC Commissioner Hester Peirce and DOJ Principal Associate Deputy Attorney General Marshal Miller.

Commissioner Peirce’s Proposed Compliance Advisory Committee and Views on Off-Channel Communications and Whistleblower Protection

In response to compliance officer personal liability concerns and growing SEC regulations, Commissioner Peirce endorsed the creation of a compliance advisory committee, which would bring together SEC regulators and in-house compliance personnel from investment advisers and other regulated entities to foster the exchange of useful insights and feedback. Commissioner Peirce stated that “everyone would benefit from hearing from this set of people, which is really uniquely situated within this regulated environment.”

Commissioner Pierce described a compliance-focused committee akin to the SEC’s existing advisory committees, which cover the areas of investment and small businesses. Regarding the feasibility of creating such a committee, Commissioner Peirce said that while the existing advisory committees were created by statute, the SEC has previously established committees on its own, referring to the ones focused on equity market structure and asset management as examples.

Commissioner Peirce continued that a compliance advisory committee would be “hugely beneficial” for obtaining real time feedback from the compliance professionals implementing the rules, pointing to the marketing rule as an example. She noted that the SEC has a “real interest in making sure implementation goes smoothly” and “it could be a way of collecting and filtering concerns about these rules and raising issues where people see problems in the industry that we might not be aware of.”

Commissioner Peirce also discussed the recent off channel communications actions, and the need to potentially provide guidance or examples on what could potentially be deemed an off-channel communication. She raised modernizing the rules regarding recordkeeping requirements, and potential differences in rules regarding broker dealers and registered investment advisors.

With respect to whistleblower protection, Commissioner Peirce discussed non-disclosure and confidentiality agreements and confidentiality provisions with third parties and left the question open as to whether these agreements would be viewed as violations of the SEC’ s whistleblower protection rules.

PADAG Miller on the DOJ’s “Overhauled” Corporate Criminal Enforcement Program

PADAG Miller detailed the DOJ’s “overhaul” of its corporate criminal enforcement program over the past few years and how that should empower compliance leaders “with stronger tools and greater sway” to promote effective compliance programs at their companies.

PADAG Miller discussed the DOJ’s refinement of its enforcement efforts through a balance of consequences and incentives. While Miller noted that prosecutions have “the greatest deterrent impact by changing behavior and preventing misconduct,” the DOJ has “also clarified the rules of the road for corporate enforcement.” Miller pointed to each DOJ component now having a Voluntary Self-Disclosure Policy that sets forth what a company needs to do to self-report misconduct, and what it can expect if it does. Miller noted that corporate voluntary self-disclosures to the Criminal Division are increasing every year, with more than twice as many last year as compared to 2021.

PADAG Miller discussed the DOJ’s assessment of incentive compensation systems as part of every Criminal Division resolution. In addition to incentive compensation schemes to promote ethical behavior, Miller emphasized that companies that claw back compensation from executives involved in wrongdoing can reduce their penalties by the claw back amount.

PADAG Miller also talked about the DOJ’s new, two-part whistleblower regime. For whistleblowers who did not participate in the misconduct they report, on August 1, 2024, the DOJ launched a pilot monetary awards program that provides such individuals with an opportunity to receive a percentage of any forfeiture resulting from the reported information. For whistleblowers who were involved in the wrongdoing, beginning in early 2024, the DOJ launched pilot programs in the Criminal Division and many U.S. Attorneys’ Offices seeking to encourage those individuals to report information in the hopes of receiving a non-prosecution agreement. According to Miller, since the beginning of the monetary awards program, the DOJ has already received 200 tips. Miller also noted that U.S. Attorney’s Offices have reported that individual voluntary self-disclosures have resulted in promising ongoing investigations.

PADAG Miller also described the DOJ’s “surge of resources” to address the expansion of corporate crime related to national security and emerging technology. Miller referenced the DOJ’s addition of prosecutors to the Criminal Division’s Bank Integrity Unit and National Security Division and its various enforcement initiatives to address national security threats, including Task Force KleptoCapture and the Disruptive Technology Strike Force. Miller also discussed the Criminal Division’s recent updates to its Evaluation of Corporate Compliance Programs, “in part to ensure that companies are focused on mitigating risks associated with the use and misuse of AI and other emerging technologies.”

Both Commissioner Peirce and PADAG Miller described the critical role those in legal and compliance positions play in helping to maintain ethical standards and building a culture of accountability. Events such as the New York City Bar Association’s Compliance Institute assist professionals in these fields to stay informed about evolving regulatory standards, compliance challenges, and industry best practices.