World-wide financial institutions take notice – New York has a new regulator on the scene. Newsweek describes him as “body-slamming” one of the world’s largest banks, “the man the banks fear most.” The Wall Street Journal has labeled him “one of Wall Street’s most dogged pursuers.” American Banker characterizes him as “pushing the envelope” of bank regulation. In three years on the job, this regulator and the new agency he rules have extracted more than $3 billion in fines from global banks. In all likelihood, these headline-grabbing events are just a sign of things to come.
I’m speaking about Benjamin M. Lawsky, New York State’s Superintendent of Financial Services. In 2011, New York Governor Andrew Cuomo merged the New York State Insurance and Banking departments into a single financial services regulator titled the Department of Financial Services or DFS. Governor Cuomo tapped Lawsky, his former Chief of Staff, to lead the agency. Numerous examples demonstrate Lawsky’s quick start out of the gate in 2011. In his first year, DFS imposed a $340 million fine on the British bank Standard Chartered for money laundering violations (as compared to the feds settlement of the same claims for $227 million). A year later, Lawsky obtained a $250 million penalty from the Bank of Tokyo Mitsubishi UFJ for similar violations involving countries subject to U.S. economic sanctions, including Iran, Sudan and Myanmar.
Lawsky, however, did not rest on his laurels once these impressive settlements were obtained. The settlement agreements in both the Standard Chartered and Bank of Tokyo cases required the banks to remediate anti-money laundering compliance problems. Unlike other regulators, who usually engage in little follow up and then simply move on after monitoring the banks’ efforts for a few years, Lawsky viewed the banks’ reforms as insufficient. In November 2014, Lawsky announced that Standard Chartered would pay an additional $300 million fine and the Bank of Tokyo Mitsubishi would pay another $315 million in penalties for failing to comply with their respective settlements. According to Lawsky, “If a bank fails to live up to its commitments, there should be consequences.”
Or, in other words, once Lawsky sinks DFS’s teeth into something, do not expect them to let go. In another innovative approach, DFS recently has sought the placement of monitors into a financial institution before the resolution or determination of any investigation of wrongdoing by the bank. An institution’s willingness to do so is a clear signal that DFS has become a formidable regulator.
As Superintendent of DFS, Lawsky has authority not only over New York State chartered banks and insurance companies, mortgage brokers and bankers, check cashers, money transmitters and providers of financial services, but also all foreign banking institutions with United States branches located in New York. Given Manhattan’s role as the financial center of the nation and, in many cases, the world, Lawsky’s jurisdiction likely extends to many significant foreign banking institutions. According to the DFS website, the agency supervises more than 3,800 entities with assets of more than $7 trillion.
DFS has wielded its ability to pull an institution’s license to do business in New York to become a formidable player in the world of international finance. One private practitioner who’s gone up against Lawsky told Newsweek, “The ability to fight him is very constrained. He can pull your charter; then you’re screwed.” Time and again, DFS has sought to impose penalties far beyond those imposed by federal regulators such as the Treasury and Justice departments, which has resulted in some not so quiet conflicts between it and federal regulators who felt upstaged by Lawsky’s aggressive approach.
Most recently, in a joint investigation with federal and state authorities, DFS aimed its guns at BNP Paribas. In June 2014, the French Bank settled federal and state criminal charges related to the bank’s movement of money through American financial systems on behalf of sanctioned countries including Iran, Sudan and Cuba. BNP agreed to pay $8.9 billion, $2.2 of which resolved charges brought by DFS. At DFS’s direction, the bank, the world’s fourth largest, also agreed to terminate or separate 13 individuals employees, including the bank group’s COO, and to suspend its United States dollar-clearing operations through its New York branch for one year.
The $2.2 billion recovery was the largest in DFS history. Just as Lawsky seems to be settling into his position at DFS and ramping up the agency’s enforcement, rumors are he may be exploring opportunities in the private sector. What this means for DFS remains to be seen – is the agency’s successful start a reflection of Lawsky’s singular approach or has Lawsky established the agency as a force to be reckoned with? Although Lawsky’s approach has occasionally alienated federal and other New York State regulators, his tenure at DFS has made a lasting impact on the international financial community.