On February 1, New York Governor Andrew Cuomo released his Executive Budget proposal. As part of the budget, the governor proposed merging the Banking Department, Insurance Department and Consumer Protection Bureau into a new Department of Financial Regulation (DFR).

This new agency would have all of the existing powers of the Banking and Insurance Departments, but also would have substantially greater powers to investigate and sanction financial institutions. The DFR’s enforcement of these powers would be delegated to a newly created investigative and prosecutorial unit, titled the Financial Fraud and Consumer Protection Unit (FFCPU). This suggests that the new Department will aggressively pursue certain types of financial transactions and instruments. The FFCPU’s jurisdiction clearly applies to any insurance company or bank subject to the current Insurance and Banking Departments, including any financial institution selling annuities or other similar products in New York.

Broad Investigatory Powers. Under the proposed statute (the Financial Regulation and Protection Law), the FFCPU, similar to the Attorney General’s Office, will be able to investigate any financial fraud or misconduct where the unit has a reasonable suspicion that this activity has occurred. The definition of what constitutes financial fraud is extremely broad. It includes any “fraud, intentional misrepresentation or deceptive act or practice involving a financial product or service or involving any person offering to provide or providing financial products or services.” Moreover, the statute specifically references as financial fraud conduct that would violate the Martin Act. This was the statute used extensively by Attorneys General Spitzer and Cuomo in their highest profile financial industry cases. As with other state investigatory units, the FFCPU will be able to issue broad subpoenas and take testimony, as well as conduct public hearings and seek injunctions.

Enhances Penalty for violations. What particularly distinguishes the power of this statute is that, in addition to restitution and damages for harmed individuals and the ability to assess disciplinary action, it allows the Superintendent to collect penalties of up to $5,000 for each violation by any person and any such regulated person’s employee. In this manner, it goes beyond the Martin Act, which has no similar penalty provision, and mirrors the consumer fraud penalty provisions of General Business Law § 350-d, which has rarely been applied to financial institution frauds.


If enacted, the creation of the FFCPU would represent a substantial expansion of regulatory authority because the new enforcement unit will have significant power with regard to many financial institutions. Whereas the Attorney General’s Office previously had exclusive jurisdiction for Martin Act conduct, many financial institutions will now have to contend with a new enforcement unit with overlapping subject matter jurisdiction and an increased ability to fine violators.