Recent developments about the New York State Department of Financial Services
(Not affiliated with NYDFS; just a blog.)
NYDFS WATCH: Governor Hochul has nominated Adrienne Harris, a former economic advisor in the Obama White House and Treasury Department, to be the next NYDFS Superintendent. While the press release does not specify, each of the past two Superintendents became Acting Superintendent while their Senate nomination was pending.
The link to the nomination announcement is here: https://www.governor.ny.gov/news/governor-hochul-announces-nomination-adrienne-harris-superintendent-department-financial
Fulfilling a FY 2021 budget initiative, NYDFS today announced establishment of its Office of Financial Inclusion and Empowerment. The office is intended to protect and empower New York consumers and advance economic justice. According to a recent NY Times article, economists believe government support is a crucial element in narrowing the nation’s racial wealth gap. The new office will:
• Maintain a centralized list of financial services counseling providers across housing, student loan, debt and general financial literacy throughout the State.
• Coordinate state and local services aimed at expanding access to credit and opportunities for wealth building.
• Incubate new programs to expand access to safe and affordable banking services, credit and financial education; coordinate public-private partnerships.
• Foster provision of high-quality, low-cost financial products statewide.
Former State Assembly member Tremaine Wright has been appointed as the first Director of this Office.
The press release announcing this can be found here: https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202104131
On March 12, 2020 NYDFS issued an “Order Granting Temporary Relief to COVID-19 Affected Regulated Entities and Persons.” This rather extraordinary order specifically acknowledges that “COVID-19 may present compliance challenges” and includes several significant provisions for regulated entities adversely impacted:
● Extends by 45 days the date by which regulated entities or persons must file certifications of compliance with the Cybersecurity Regulations (Part 500) and Transaction Monitoring/Filtering Regulations (Part 504).
● Extends by 45 days the date by which virtual currency licensees must file a Quarterly Financial Statement;
● Facilitates remote workforce activity by specifically acknowledging that individuals conducting “licensable activities from their personal residences” remain subject to the full supervision of the Department and must ensure compliance with required controls, such as for cybersecurity and data protection; and
● Waives the required advance notice where a regulated entity seeks to temporarily relocate an authorized place of business or close a branch office.
The emergency Order may be found here: https://www.dfs.ny.gov/system/files/documents/2020/03/ea20200312_covid19_relief_order.pdf
The New York Department of Financial Services and Governor Cuomo and have issued two extraordinary orders dealing with loan forbearance to mitigate the impact of COVID-19.
● Executive Order 202.9 declares that any “bank” subject to DFS jurisdiction shall be deemed to be engaged in an “unsafe and unsound business practice” under Banking Law Section 39(2) if it fails to grant a 90-day forbearance to any person or business with financial hardship as a result of the pandemic. This is a broad and apparently unprecedented application of the rarely-used cease and desist authority set forth in Section 39(2). The Executive Order also directs the Superintendent to ensure “any licensed or regulated entities provide to any consumer in [] New York an opportunity for a forbearance of payments for any mortgage for any person or entity facing a financial hardship due to the COVID-19 pandemic.”
● NYDFS issued an emergency regulation implementing this Order, requiring that certain “New York State regulated institutions” provide residential mortgage forbearance on property located in New York, for a period of 90 days, to any individual residing in New York who demonstrates financial hardship as a result of the COVID-19, subject to the usual safety and soundness requirements.
Executive Order 202.9 is here: https://www.governor.ny.gov/sites/default/files/atoms/files/EO_202.9.pdf
The NYDFS emergency regulation can be found here: https://www.dfs.ny.gov/system/files/documents/2020/03/re_new_pt119_nycrr3_text.pdf
Continuing its focus on consumer protection enforcement, the New York State Department of Financial Services (“DFS”) announced an investigation into alleged price spikes for six drugs connected to treatments of COVID-19 medical conditions.[1] According to DFS, its newly-formed Office of Pharmacy Benefits (“OPB”) commenced the investigations under Insurance Law § 111 into what it characterizes as “anomalously large spikes” in the prices of the six drugs, occurring since the onset of the COVID-19 pandemic. These medications are Ascor, Budesonide, Dexonto, Mytesi, Duramorph and Chloroquine phosphate, each of which has some actual or claimed therapeutic use for COVID-19 conditions. More detail on this investigation can be found on my blog post for the NYU Program on Corporate Compliance and Enforcement, here:
New York State Department of Financial Services (“DFS”) Uses New Powers to Investigate Alleged Price Spikes in COVID-19 Medicines, Where Targeted Pharma Manufacturers Are Not DFS Licensees
A lengthy declination letter: What happens when a regulator conducts an investigation and finds no wrongdoing? For its fair lending inquiry of Goldman Sachs co-branded credit card, the Apple Card, NYDFS issued a report on March 23, 2021 that resembles a lengthy declination letter. The report makes clear after “exhaustive review of documentation and data” NYDFS failed to uncover “evidence of deliberate or disparate impact discrimination.” Other notes:
– The investigation commenced following a viral Tweet from a tech entrepreneur alleging his wife received less favorable terms under the Apple Card.
– Tweets and other social media are increasingly visible sources for investigations (worthy or not)
– NYDFS undertook a massive statistical analysis as part of its investigation, finding no wrongdoing
– Goldman Sachs offered strong cooperation and a consumer-oriented program to assist people with inadequate credit ratings to improve their credit, a program it called “Path to Apple Card”
– 70,000 consumers enrolled in “Path to Apple Card” and about 5,000 of them have been approved for an Apple Card
– The report contains valuable guidance on the agency’s current thinking on fair lending
The report is here: https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202103231
Matthew Levine joined Trish Sullivan of Deutschebank and Chris Boehing of Paul Weiss Rifkind Wharton & Garrison to discuss the new anti-money laundering amendments to the Bank Secrecy Act for theis episode of the International Institute of Banker’s podcast “Bank Talk.” The podcast can be found here:
What is a regulator’s favorite snack? Low hanging fruit: the recent Risk Alert from the SEC’s Division of Examinations concerning Suspicious Activity Reporting (SAR) for Broker-Dealers indicates a cornucopia. Some examples found by the Division:
– Firms failing to report as suspicious large deposits of low-priced securities that were immediately followed by liquidation of those positions and wiring out of the proceeds
– Firms failing to report noticeable customer sales of shares occurring simultaneously with explicit promotional activity
– Firms failing to tailor red flags to address risks associated with trading activity commonly engaged in by customers
– For cyber-intrusions, firms failing to include in a SAR known details concerning the nature of the scheme, including theft of assets or funds
Periodic check ups on policies, procedures, governance and systems surrounding SAR reporting are a key means of avoiding the consequences of a deficiency letter or enforcement action. The alert is here:
https://www.sec.gov/files/aml-risk-alert.pdf