New York’s Lawsky Says Punishing Individuals Is Essential to Deterrence

By | September 23, 2014

Punishing executives for misconduct at banks is essential to deter wrongdoing on Wall Street, New York’s banking regulator said.

“Just damning the entire firm is often times counterproductive,” Benjamin Lawsky, superintendent of the New York Department of Financial Services, said Monday at the Bloomberg Markets Most Influential Summit in New York. “If you’re not holding individuals accountable, you’re not going to get the full effects of deterrence.”

Lawsky, 44, has become increasingly influential in policing Wall Street and had a central role in BNP Paribas SA’s record penalty for violating U.S. sanctions against Iran and Sudan. On top of paying the $9 billion fine, Lawsky insisted that BNP dismiss executives and suspended the bank’s ability to do transactions in U.S. dollars.

Preet Bharara, U.S. Attorney for Manhattan, also speaking at the event Monday, said that while bringing cases against individuals is important, legal action against firms can mobilize shareholders to force change at the company.

“That’s a kind of deterrence also,” he said. “Ultimately, you want to prevent bad things from happening, not just hold accountable people who have engaged in bad conduct in the past.”

‘Armageddon-Like’

Lawsky said that cyberterrorism is the most significant issue that DFS will work on in the next year, saying the possibility of an “armageddon-like” cyberattack is one of his primary concerns as a financial regulator.

“I worry that we’re going to have some sort of major cyber-event in the financial system that’s going to cause us all to shudder,” Lawsky said.

Lawsky said DFS is working on ways to give market participants an incentive to defend themselves from hackers, including encouraging insurance companies to raise the standards for firms to qualify for protection against cyberattacks.

The department, which also regulates insurers, contacted companies this month about sales of universal life policies, which combine a death benefit with an investment component. His staff is seeking information about possible returns that the companies highlight to prospective clients.

“The department’s concern is that indexed universal life insurance products be presented to prospective purchasers in an appropriate manner with respect to the product’s future performance,” according to a letter sent to the companies.

The letter, which was sent to 134 companies, was reported Sunday by the Wall Street Journal. Lawsky’s office asked insurers to submit their responses by Oct. 1.

With assistance from Zachary Tracer in New York.

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