Focus on bad bankers, not just their banks, New York’s Lawsky says

May 13, 2014

By Stuart Gittleman, Compliance Complete

NEW YORK, May 13, 2014 (Thomson Reuters Accelus) – Banks don’t do bad things – people do – so the people behind the alleged violations should face more regulatory scrutiny and personal accountability, said Benjamin Lawsky, Superintendent of the New York State Department of Financial Services.

Focusing on individuals could better deter misconduct , and could also stop sending signals that the bank where the individuals worked – and the banking industry overall – are bad, Lawsky told reporters at a Reuters financial services regulatory summit in Manhattan.

The penalties against individuals need not be severe in every case, Lawsky added. A loss and claw-back of bonuses and compensation can be as appropriate as suspension and discharge in certain cases, with the goal being to “hopefully change conduct going forward,” he said.

In his appearance at Reuters, Lawsky ran down a list of priorities for his department, which was created in 2011 in a merger of the state’s banking and insurance regulators. With five divisions – banking, insurance, capital markets, real estate finance and consumer fraud – the staff is focusing on:

  • The sale of annuity businesses by life insurance companies “with reputations for surviving over the long haul” to private equity firms that plan to run the business for only a few years and are willing to accept losses in their portfolio companies can put policy holders at risk. The DFS is scrutinizing applications, “but we don’t have to say no to every deal,” and has approved three sales by requiring the PE buyers to set aside additional reserves as a cushion in case of trouble, Lawsky said. The DFS is considering regulations to replace case-by-case conditions with clearer outcomes.
  • Consumer rip-offs, payday lenders – which are illegal in New York – and “unfair, deceptive and abusive practices” in the words of the Dodd-Frank Act. The DFS is working with state regulators and the federal Consumer Financial Protection Bureau – CFPB Director Richard Cordray “has been a real star,” Lawsky said – in a “not uncoordinated” but not necessarily parallel path to protect consumers. In this respect, he and Illinois Attorney General Lisa Madigan have recently brought claims in federal court alleging violations of Dodd-Frank and state laws.
  • Monitoring the monitors hired by financial services firms as part of enforcements to ensure that they are not being captured by the companies they are supposed to oversee. “Very active and ongoing investigations” may yield headlines soon, Lawsky said.
  • Cutting archaic layers of unnecessary costs without putting insurance customers at higher risk. Lawsky is at odds with a National Association of Insurance Commissioners proposal to let each insurer develop a “principles-based reserving” model for their claims reserving needs, but he said the current levels can be too high. He does not want to solely rely on the companies’ “black boxes,” but the DFS on a case-by-case basis is lowering the reserve requirements for the safest insurers, he said.
  • Preventing regulatory arbitrage when insurers create out-of-state or offshore subsidiaries.
  • Developing a model for virtual commerce. “Regulators don’t want to squelch [virtual currency like bitcoin] because they are scared of it or don’t understand it,” he said. But exchanges must adhere to similar know-your-customer, consumer disclosure and financial stability regimes as other money-transfer businesses, Lawsky said.

Lawsky said he hopes the DFS has rules ready over the summer.

(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 400 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see