New York Gov. Andrew Cuomo’s proposed state budget contains slightly more money for the new agency he wants to create by combining existing banking and insurance regulatory departments than they now get.
Cuomo’s proposed 2011-2012 budget recommends $564 million for the new Department of Financial Regulation, reflecting a net increase of approximately $6.4 million (1.1 percent) over the combined 2010-11 budgets of the banking and insurance departments.
The new DFR would consolidate the functions, operations and staff of the banking and insurance departments, along with related segments of the Consumer Protection Board.
The funding increase reflects expenses related to the consolidation plus some additional resources to allow the DFR to perform more onsite examinations of insurance companies, which the budget projects will result in savings to the insurance industry by reducing direct-pay examinations that insurers currently pay outside vendors to do.
The DFR’s operations will be primarily funded through assessments charged to regulated insurance and banking institutions and organizations. The remainder of the operating budget will be derived from licensing and other fees. Of the recommended $564 million, the department’s operating budget totals $550 million while the remaining $14 million is an appropriation for the State Transmitter of Money Insurance Fund, which protects funds that New Yorkers electronically transfer via commercial third parties.
“This consolidation satisfies the dual public policy objectives of better serving the consumers, businesses and investors in the state and making government more cost-effective,” the Cuomo Administration says in supporting documents.
The administration says that all of the existing supervisory, regulatory and enforcement powers contained within the state’s banking and insurance laws will remain intact.
A new Superintendent of Financial Regulation will assume the responsibilities of the superintendents of the banking and insurance departments, as well as expanded responsibilities for consumer and investor protection over financial products, services and transactions. The superintendent also will administer a newly-created Financial Frauds and Consumer Protection Unit (FFCPU), which is supposed to be a central repository for consumer financial complaints. This unit will have “broad authority to investigate activities that may constitute financial fraud or misconduct,” including the authority to impose civil penalties and recover restitution for consumers who are harmed by financial frauds.
Under Cuomo’s proposal, the superintendent will be someone appointed by the governor, with the consent of the Senate.
DFR’s main offices will be located in Albany and New York City with smaller offices located throughout the state.
Cuomo first proposed the DFR in his State of the Union message in January. In the speech, Cuomo said that the current state bureaucracy is ill-structured to police Wall Street and a changing financial services industry. “Our current organization is not effective because it is not organized the way Wall Street works any more,” Cuomo said. “These divisions of insurance and banking and consumer protection don’t exist in the marketplace and much of the activity is falling between the cracks of our regulatory entities.”
He said combining the agencies will improve their ability to protect consumers while also reducing administrative costs.
A key trade group for insurers has said it supports the attempt to reduce costs.
“We applaud Governor Cuomo for his efforts to reduce state spending,” said Ellen Melchionni, president of the New York Insurance Association (NYIA). “Since the insurance and banking departments are funded by the respective industries these entities regulate, we look forward to a reduction in the assessments levied on New York businesses.”
The banking and insurance consolidation is one of several proposed by Cuomo. The governor has proposed to merge or consolidate 11 separate state entities into four agencies. In addition to his proposal to merge banking, insurance and consumer protection into DFR, he is also asking lawmakers to approve the merging of the Department of Correctional Services and the Division of Parole into a new Department of Corrections and Community Supervision; consolidating the Office for the Prevention of Domestic Violence, the Office of Victim Services and the State Commission of Correction into the Division of Criminal Justice Services; and consolidating the New York State Foundation for Science, Technology and Innovation into the Empire State Development Corp.
“New York is at a crossroads, and we must seize this opportunity, make hard choices and set our state on a new path toward prosperity,” Cuomo said in announcing his budget. “We simply cannot afford to keep spending at our current rate. Just like New York’s families and businesses have had to do, New York State must face economic reality. This budget achieves real, year-to-year savings while restructuring the way we manage our state government. This is the first step toward building a new New York.”
Cuomo said his proposed 2011-2012 budget eliminates a $10 billion deficit without raising taxes or borrowing.
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