Andrew Donohue, SEC Chief of Staff, recently commented on what a person needs in order to be a competent CCO; he identified nine things. The overarching theme from this list is experience. According to Donahue, in no particular order, a CCO must:
- Have a “first hand knowledge” of the regulatory environment.
- Have a detailed understanding of the firm, its operations and structure.
- Be able to readily identify conflicts of interest, report and resolve them.
- Have an understanding of the firm’s business model, including knowledge of firm available products and their profitability.
- Have an understanding of the compliance and technology platforms at the firm.
- Have an understanding of the firm policies and procedures, including how the firm deploys and monitors them.
- Have an understanding of the applicable markets in which the firm transacts business.
- Have the ability to create an atmosphere that puts the client first.
- Have an ability to identify firm gaps and to determine what needs to be done to resolve those gaps.
The key takeaway is that firms must hire those who have a highly developed skill set in the industry. By having such a skill set, that person will be best able to understand the firm and to create policies and procedures to best serve the firm and its clients. This explains why firms typically handle former regulators to serve as CCO.
Depending on the size of the firm, the CCO should have some staff who can learn the ropes so to speak and be able to assist the CCO in carrying out his/her duties. With data security and elder issues garnering ever increasing attention from the SEC and FINRA, having people with honed subject matter skill sets can only make the CCO that much more effective.
Stated another way, don’t go cheap when it comes to hiring your CCO and his/her staff. Those people may ultimately save the firm from regulatory purgatory and civil liability.