Banks operating in New York would have to step up their vetting of executives and senior officers, including chief compliance officers, under new guidance proposed by the New York State Department of Financial Services (NYDFS).
The NYDFS proposed banks chartered or licensed in New York provide more information to the department regarding the character and fitness of directors and senior officers upon onboarding and regularly after, the department said Tuesday in a press release.
The proposed requirements are necessary because while senior officers are generally investigated during onboarding, certain standards might be outdated and include only a criminal background check and not a check for conflicts of interest, the NYDFS said.
Also, one initial review is not enough. Institutions need “a robust process” for ongoing reviews to make sure there haven’t been any changes that would make the person’s designation as an officer “inappropriate or improper,” the NYDFS said.
According to the proposal, banks must use modern review criteria of senior employees to ensure they aren’t engaged in any conflicts of interest that could “compromise the organization.” Covered institutions should use a risk-based approach that matches their business operations and risks, the NYDFS said.
The NYDFS would expect all relevant employees to receive heightened character reviews, even if they were previously reviewed at other institutions. This would include during mergers and acquisitions.
Those who would be subjected to enhanced reviews include all paid or unpaid officers who participate in policymaking at the bank, whether they have an official title or not, the regulator said.
If a designated individual is found to have conflicts of interest or determined not to be fit for his or her current position, the NYDFS said it expects to be informed “promptly.”
The regulator would review banks’ character and fitness assessment policies as part of its normal examinations.
The NYDFS is seeking public comments on the proposal through June 30.
“As part of my broader review of the department’s regulations, guidance, and processes, I identified character and fitness standards as a policy priority,” said NYDFS Superintendent Adrienne Harris in the release. “In light of recent events, this updated guidance takes on even greater relevance as we work to ensure New Yorkers can have confidence in the management of our state’s financial institutions.”
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