The New York State Department of Financial Services (NYDFS) released final guidance Monday on how banks and non-depository financial institutions should vet executives, including chief compliance officers, before and during their employment.
The guidance expands upon an NYDFS proposal in May that cited outdated standards in hiring senior officers, such as only conducting a criminal background check and not a check for conflicts of interest.
Regulated entities are expected to report recruitment-related findings to their board of directors and CCO, according to the final guidance.
NYDFS Superintendent Adrienne Harris stressed the importance of ongoing and consistent vetting throughout employment, according to a press release.
“New York consumers and businesses should feel confident that their money is being managed by ethical and law-abiding individuals,” she said. “Entities have a responsibility to assess the character and fitness of executives not just upon hiring but on an ongoing basis to protect consumers and ensure the safety and soundness of the institution.”
Potential candidates with a history of “regulatory action or proceeding, including an enforcement action, receivership, or conservatorship,” should be subject to heightened scrutiny, the NYDFS said. This includes candidates who paid regulatory sanctions or civil penalties or agreed to consent or enforcement orders, supervisory agreements, or other administrative penalties, per the guidance.
Other potential red flags could include professional disciplinary actions; denials; suspensions; or revoked charters, licenses, mergers, or notice of change applications.
For conflicts of interest, the NYDFS flagged immediate family working for a covered institution or having a relationship with the auditor of a covered institution, along with any lobbying efforts done in a personal capacity.
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