Yesterday was a sad day for American citizens. Benjamin Lawsky, the Superintendent of the New York State Department of Financial Services, announced that he was resigning in June.
Lawsky demonstrated, decisively, that a determined regulator can be effective, even from an unlikely, historically not influential position as a state regulator. The New York attorney general had always been the power player by virtue of wielding New York’s securities law, the Martin Act. But Lawsky was willing to use the weapon that other regulators were too craven to deploy, that of threatening to pull the license of a regulated entity. His first target was Standard Chartered, a bank that had flagrantly, repeatedly violated money laundering laws, with its US general counsel rejecting the advice of outside counsel and presiding over a regime of doctored wire transfers. Lawsky used the power of the threat to revoke Standard Chartered’s license to secure a vastly bigger fine than Federal regulators originally contemplated, in large measure because they were prepared to accept the Promontory Group cover story that hardly any wires were out of compliance. The bank eventually ‘fessed up that the Promontory report came up with a figure that was over four orders of magnitude too low.
Even though Federal regulators howled at being upstaged by a mere state-level player, and worse a newbie, Lawsky arguably paved the way for regulators seeking much bigger fines, particularly against foreign players in money laundering. How much that was due to them being politically safe targets, and how much to Lawsky having purview over foreign banks that operated through New York branches remains to be seen. But Lawsky also sought, and increasingly won, having individuals punished as part of his settlements. Although the DFS lacked prosecutorial powers, he insisted that responsible individuals leave their institutions. In his campaign to rein in Standard Chartered, he took a zero tolerance attitude towards the bank’s open resistance to his order, calling CEO Peter Sands on the carpet for making dismissive remarks about the US sanctions. Sands continued to cross swords with Lawsky and failed to clean up the bad conduct (Sands tried to blame it on IT issues, which at that juncture was not exactly credible). That paved the way for his ouster. Lawsky also secured high-level resignations at other banks, the latest at Barclays.
Lawsky cut new grounds on other important fronts. He went not only after miscreant institutions but also their enablers. He fined PriceWaterHouse Coopers $25 million for issuing an unduly favorable report on behalf of its client, Bank of Tokyo-Mitsubishi UFJ. PWC was engaged to provide a supposedly objective report on the extent of money laundering of clearing dollar transactions in the US on behalf of blacklisted countries. Laswky also aggressively pursued servicing abuses aggressively at Ocwen. It was no surprise to anyone who knows the industry that the rot was pervasive, proof of the abject failure of the Obama mortgage settlements to clean up the industry. The one-time darling went into meltdown, eventually transferring its mortgage servicing rights to JP Morgan.
To his credit, Lawsky is not going the revolving door route but instead is starting a new firm. From the Financial Times:
Some law firms that represent global banks would not hire Mr Lawsky, but he was not seeking to go to those firms, people familiar with the matter said. Other law firms, in addition to private equity and hedge funds, approached Mr Lawsky but he decided to strike out on his own, they added.
His law and consulting firm will partly focus on subjects he is interested in such as technology and cyber issues, and will cater to companies in the financial sector and other industries, people familiar with his plans said. The firm will be based in New York City.
The New York Times’ Dealbook gave a gracious recap of Lawsky’s tenure at DFS but also provided a mainly depressing list of his potential successors:
Mr. Lawsky’s departure will set off speculation about whom Gov. Andrew M. Cuomo will select as his successor. Although those discussions are in their infancy, people briefed on the matter said, names of possible contenders are circulating: Michele Hirshman, a former federal prosecutor and a partner at Paul Weiss; Hector Gonzalez, another former prosecutor who is a partner at Dechert; Marshall L. Miller, a senior Justice Department official; and Jonathan Schwartz, a former JPMorgan Chase executive who is now the general counsel of Univision. Bridget M. Healy, ING’s top lawyer in the United States, is also thought to be in the mix.
The fact that Jonathan Schwartz and Bridget Healy are under consideration should send alarms.
I urge all readers in New York to call Andrew Cuomo’s office at 518-474-8390. Thank him for appointing Lawsky and tell him how disappointed you are to see Lawsky leave. State clearly how important you think it is for New York to have a tough financial regulator, and that Lawsky’s efforts against Ocwen and big banks were important to you. Make it clear that you want Cuomo to appoint a new superintendent that is as capable and aggressive, and that putting in a former big bank executive would send a big message that the foxes are again running the henhouse.
And let’s hope that Lawsky can continue to make trouble for miscreants in his new role.