On October 11, the New York Department of Financial Services (NYDFS) issued new guidance regarding incentive compensation arrangements, advising “all regulated banking institutions that no incentive compensation may be tied to employee performance indicators, such as the number of accounts opened, or the number of products sold per customer, without effective risk management, oversight and control.” At a minimum, the guidance requires that a bank’s incentive compensation arrangement address the following principles: (i) balance between risks and rewards; (ii) effective controls and risk management; and (iii) effective corporate governance. NYDFS stated that a bank’s lack of compliance with the guidance will be reflected in its regulatory examination rating and may result in additional regulatory action.

The NYDFS’s recently released guidance comes in the wake of a September action taken jointly by the OCC and the CFPB over a bank’s alleged sales practices under which, in an effort to meet sales goals and earn financial rewards under the bank’s incentive compensation program, employees purportedly opened deposit and credit card accounts for consumers without obtaining those consumers’ consent.