Gov. Andrew Cuomo seems to have taken a cue from the Dodd-Frank financial oversight legislation signed into law last year.
The impending merger of New York”™s Banking and Insurance departments into a new Department of Financial Services brings to the state much of the oversight the Dodd-Frank Wall Street Reform and Consumer Protection Act brought to the federal level ”“  the consolidation intended to make the agencies accountable to each other and to the public.
Richard Neiman, New York”™s superintendent of banks, said in February he had been calling for a “renewed level of coordination at all levels of government ”“ between states, among states and federal financial supervisors, and between federal agencies.” With the new state budget, Neiman has now seen that request fulfilled.
Calling the move cooperative federalism, Neiman sees Dodd-Frank as a “reaffirmation of the state-federal dual banking system that has served this nation well for 150 years. … I also believe that agency consolidation will position New York to deal even more constructively with new federal oversight bodies that have been established under the Dodd-Frank reforms. This includes the creation of a  Financial Stability Oversight Council (FSOC), which will look at risks that cut across financial sectors and developing plans to remediate those risks.”
The consolidation will also create a Financial Fraud and Consumer Protection Unit to “conduct investigations, research, studies and analyses of matters affecting the interests of consumers of financial products and services, including tracking and monitoring complaints. It will oversee both banks and insurance companies, as well as entities covered by regulations in accordance with the new law.
It will also have to educate users of financial products and services to ensure they are provided with timely and understandable information to make responsible decisions.
The Financial Services Department will have wide-ranging enforcement and investigatory abilities. It creates a financial fraud and consumer protection unit that will be authorized to undertake an investigation if it has reasonable suspicion that fraud or misconduct is being committed. It will also have the power to subpoena compelling witnesses to attend hearings.
The Financial Fraud and Consumer Protection Unit is separate from the Consumer Protection Board, which will be replaced by a new Consumer Protection Division and run under the auspices of the Department of State. Its enforcement power will not be as wide-ranging as the FFCPU.
For those who commit financial fraud, they can be fined up to $5,000 per offense. These penalties are in addition to any other civil or criminal sanctions that regulated agencies face.
The merger allows for a whistleblower provision to protect persons who supply information about suspected violations of the banking and insurance laws in good faith.
The budget set aside $564 million to fund the combined departments, slightly more than 1 percent of the budgets of the Banking Department and Insurance Department as separate entities.
“As taxpayers in New York, our agency has to support the state in its effort to become more efficient, particularly if it is going to save taxpayer dollars,” said Timothy Dean, president of Marshall & Sterling, the largest insurance agency in the region. “Of course, there”™s always a risk that when you consolidate something it might become less responsive. On the other hand, it can be less responsive even without consolidation. Governor Cuomo is looking for ways to downsize government and find a way to cut the cost of doing business in the state. The proof will be in the actual implantation of the combined services.”
The Financial Services Department is scheduled to be fully consolidated and operational by October.
