N.Y. Flexes Muscle Again with Proposal to Banish Bankers
New York Gov. Andrew Cuomo is using the phony account-opening scandal at Wells Fargo as justification to further expand the enforcement powers of his state's banking regulator.
Over the weekend, Cuomo unveiled a proposal that would to give the state Department of Financial Services — widely viewed as one of the nation's most-aggressive state regulators — the authority to ban from the industry individual bankers who have harmed consumers through "egregious and deceptive" behavior. Though the agency has no jurisdiction over Wells, a federally chartered institution, Cuomo said that the Wells fiasco is an example of why regulators need to be even more vigilant in enforcing consumer protection laws.
"The excesses and abuses at the center of the Wells Fargo scandal is unacceptable and New York, in its role as a regulator, is seeking to take bold steps…and ensure these bad actors are barred from working in this industry once and for all," Cuomo said in a news release Sunday.
Industry experts said the proposal shows the New York regulator once again positioning itself to take a more aggressive approach to financial regulation than its federal counterparts.
Federal regulators currently have the authority to ban bankers from the industry, at both state and nationally chartered banks. Cuomo's proposal would give the state of New York the power to act on its own accord, stepping in to ban bankers where federal agencies choose not to act.
"The state is taking a little more activist approach," said Joseph Simon, partner at the New York law firm Cullen and Dykman.
Simon noted that he was "surprised" by the proposal, given that the legal process for banning bankers is clearly spelled out at the federal level.
"New York has a very aggressive — or wants to be a very aggressive financial services regulator," said Denver Edwards, an attorney at Bressler Amery Ross in New York. "I think many states including New York are frustrated by the federal government or federal agencies not bringing cases against culpable parties."
The proposal was part of a broader legislative agenda unveiled by Cuomo, which will be discussed in a series of State of the State speeches across New York this week.
The state's Superintendent of Financial Services Maria Vullo has taken a muscular approach to financial regulation, following in the footsteps of her predecessor, Benjamin Lawsky.
The agency this fall unveiled ambitious new cyber security rules, which include provisions aimed at strengthening data encryption that go beyond what federal agencies have proposed. It has also taken a tough stance on anti-money laundering, and last year approved the first U.S.-based exchange of Ether, an emerging crypto currency.
The state agency oversees a number of major Wall Street players, including Goldman Sachs and Deutsche Bank. It also regulates a number of regional players, including M&T Bank in Buffalo, New York Community in Westbury, N.Y., and Signature Bank in New York City.
An official legislative proposal on giving the Department of Financial Services the authority to ban individual bankers has not yet been submitted in the state legislature.
According to a press release from the governor's office, the proposal would the give agency the ability to ban bankers from working in New York, following an administrative hearing. No other details were provided.
"It is still in the early stages," said Richard Loconte, a spokesperson for the agency.
Bankers are expected to fight the measure. "I have no doubt that there will be a lot of lobbying to curtail this or further define what kind of activities would be considered 'egregious' activities," Edwards said.
A spokesperson for the New York Bankers Association declined to comment because an official legislative proposal has not yet been submitted.
One key area to watch as the legislative debate develops is how the law would apply beyond New York. Though New York regulators only have authority over New York-chartered banks, it's an open question whether other states would recognize a ban as well.
"I don't think that's necessarily clear," Edwards said.
Also at important to watch is how, exactly, the state sets up the legal processes for bankers to appeal and contest their state-level bans.
The move shows the agency putting consumer protection at the top of its agenda, Edwards said.
He added that the timing of the announcement is significant, in that it comes as federal agencies are expected to take a lighter touch on enforcement matters under President-elect Donald Trump.
As part of its broader legislative agenda, the Cuomo administration also unveiled new protections for curtailing abusive practices on foreclosures and reverse mortgages for elderly consumers. Under the proposal, the agency would create a training program for bank employees, to help them recognize fraud and signs of financial abuse.
"Exploitation of seniors is a particularly heartless and heinous crime and this administration is committed to doing everything in its power to stop this abuse," Cuomo said in a press release Monday.