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Chase Who Matters
It may not be one of the great public debates in the popular culture. It will never achieve the public recognition of a beer commercial ("tastes great . . . less filling"). But it's certainly big in the world of in-house lawyers. In this corner are those who believe that the chief compliance officer should report to the company's general counsel. And in that corner are those who argue that it should be management, or the board of directors.
Our website has had a field day (or week or month) running stories and columns on this subject. A recent event that spurred a good deal of conversation was JPMorgan Chase & Co.'s move to hire a new global head of compliance and have her report to top executives rather than to the general counsel.
It shouldn't have come as much of a surprise. Federal regulators, as well as officials who wrote the U.S. sentencing guidelines, clearly prefer a compliance officer independent of the general counsel's office. So it is no coincidence that Chase made the switch while it is still under federal scrutiny for its various missteps.
The company's explanation hinted at this connection without really saying anything. "The compliance function is a critical component of how we manage risk across our firm," says Chase spokesman Mark Kornblau.
"While it remains closely tied to legal, given their complementary missions, we feel it makes most sense to place compliance and oversight and control under the same umbrella," he continues. "This structure is consistent with the reporting within our lines of business, and we believe it is also consistent with regulatory expectations."
Cynthia Armine, formerly a compliance chief at Citigroup Inc., moved to the new post in January and reports to Chase's cochief operating officers. She replaced Martha Gallo, who had held the CCO job for two years and reported to general counsel Stephen Cutler.
Gallo, who remains at the bank, faced a bevy of compliance issues, ranging from the infamous "London Whale" trade debacle to enforcement actions over the bank's antimoney laundering controls. The compliance problems and their multibillion-dollar fallout were well documented earlier this year in Chase's report of a review committee of the board, in another report of a management task force, and in its January 8-K and 10-K filings with the Securities and Exchange Commission. They were also the focus of a Senate permanent subcommittee on investigations report that accused the nation's largest bank of hiding the high-risk derivatives trading, causing $6.2 billion in losses by inflating trade values, and avoiding and misleading federal regulators.
Donna Boehme hailed the reporting switch in a column she wrote for our website. And we've run a robust debate in recent months about the pros and cons of such moves. Tod Reichert, general counsel and chief compliance officer at MCG Capital Corporation in Arlington, Virginia, has tried it both ways.
"The spirit of the sentencing guidelines is to have an autonomous compliance function with as little conflict within the organization as possible," Reichert told CorpCounsel.com. He noted that some smaller companies have economic restraints that force them to combine the roles of GC and CCO.
His preference? "My personal opinion is that all things being equal, it would be great to have the segregation of those duties in every organization. The compliance role requires an incredible amount of time, energy, and effort, and would benefit from a dedicated person in that job."
Chase's changes came none too soon. In April, SEC Commissioner Luis Aguilar stressed renewed federal enforcement efforts in a speech to the Regulatory Compliance Association. "The SEC efforts are on multiple fronts," Aguilar said. "One such effort has resulted in enhanced coordination between the SEC's division of risk, strategy, and financial innovation to provide support and data analytics to various segments of the SEC, including the enforcement division."
The commissioner concluded, "In the end, it's important to do what's right according to the letter of the law, but it's better to think in terms of doing what's right because it is in the best interest of the clientand that is the real foundation of a culture of compliance."