American Banker: The Next Sheriff of Wall Street Should Learn to Play Nice
The sheriff of Wall Street is moving on much to the elation of the financial services sector. Benjamin Lawsky, superintendent of the New York Department of Financial Services, is departing from his position this June. But he is likely to leave a lasting impression on the culture and mission of the department. Having set a precedent of a strict but innovative approach to regulation, examination and enforcement, Lawsky is likely to have a successor who shares his zealous approach to Wall Street oversight. However, the next head of NYDFS could arguably benefit from better industry relations.
Lawsky has been with the NYDFS since the department was created in May 2011 to better monitor the financial system and avoid future financial crises. Nearly 4,000 firms are supervised by the department, including domestic and foreign banks, insurance companies and nonbank financial companies. Lawsky was tasked with the mission of better policing Wall Street, protecting consumers and regulating financial markets.
A quick look at his résumé of enforcement actions, penalties and rulemakings reveal that he certainly fulfilled his job requirements.
During his time at NYDFS, Lawsky raised the bar for regulation and enforcement, sometimes implementing rules and requirements that exceeded federal standards. He led the department in assessing $6 billion in penalties, in addition to dozens of high-profile lawsuits and forced resignations. Under his leadership, NYDFS has carried out an unprecedented crackdown on violations of terrorist financing rules, with enforcement actions against Standard Chartered, BNP Paribas and Bank of Tokyo Mitsubishi-UFJ. Last December, Lawsky mandated strict cybersecurity standards exceeding those set by the Federal Financial Institutions Examination Council. The department was also at the head of the pack in regulating virtual currencies, particularly Bitcoin, by proposing a unique licensing program.
Lawsky brought an aggressive yet forward-looking approach to the department's enforcement actions, going beyond the norms for state and even federal regulators. NYDFS was the first financial regulator to successfully bring enforcement actions against "Big Four" consulting companies. The department was also the first state regulator to bring legal actions under Section 1042 of the Dodd-Frank Act to enforce consumer protection requirements. Following a growing trend among financial regulators, NYDFS brought successful actions against individuals responsible for wrongdoing, as opposed to solely against corporations. And although the department does not possess the authority to bring criminal charges, it was successful in requiring several senior executives to resign. Expect to see the department carry on this culture of inventive enforcement.
Most of Lawsky's (unofficial) potential successors share a background similar to him. A handful of current and former federal prosecutors are reportedly under consideration, including Michele Hirshman, Hector Gonzalez and Marshall Miller. There are very few candidates with extensive private industry experience. However, Jonathan Schwartz, a former executive from JPMorgan Chase is said to be under consideration for the position. All this suggests the next superintendent could wind up looking a lot like Lawsky.
While Lawsky's successor will likely continue to pursue the agency's unique brand of enforcement, the new superintendent is likely to branch out from Lawsky's more focused agenda to take on emerging areas of concern. These include high-frequency trading and misconduct in the insurance markets. It will be interesting to see how the NYDFS tackles these issues and whether the new superintendent will be as effective in aggressively enforcing its mandate and penalizing wrongdoers.
Mandate aside, it's clear that the next sheriff of Wall Street should learn to play nice. The new department head could serve to benefit from some of the lessons of Lawsky's tenure. Winning nicknames such as cowboy "Johnny Lawsky," and "King Lawsky" and drawing opposition from Silicon Valley and Wall Street, Lawsky was a polarizing figure. This impacted his ability to work collaboratively with the firms NYDFS regulates. Lawsky's successor would benefit from reengaging the companies the agency oversees. A better working relationship with the financial services industry could help the new sheriff improve information-sharing and deliver more informed rulemakings.
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