New York could soon start holding bank executives personally responsible for their institutions' anti-money-laundering controls, the state's top financial regulator said Wednesday.
The state may begin requiring senior executives to attest to the adequacy of their banks' systems for monitoring customer transactions, just as they have to verify financial statements, said Benjamin Lawsky, superintendent of New York's Department of Financial Services. The rule would be modeled on the Sarbanes-Oxley Act, which makes top executives personally responsible for accounting fraud, Lawsky said.
Speaking at Columbia Law School in New York City, Lawsky argued that the change is necessary to address pervasive weaknesses in banks' transaction-monitoring and filtering systems.
"A whack-a-mole approach simply bringing enforcement actions when we find problems is not, by itself, enough," he said, according to a copy of his prepared remarks. "Particularly because we believe there are likely widespread problems with transaction monitoring and filtering systems throughout the industry."
In addition, Lawsky's agency may also begin randomly auditing companies' AML systems to test whether they successfully identify suspicions transactions. These audits would involve running a company's transactions through the regulator's filtering system, and comparing its results with the company's.
That is the approach the department's independent monitor used to detect weaknesses with Standard Chartered's AML systems, which led to a $300 million fine and other penalties last summer.
"We expect to move quickly on these ideas and to the extent they are effective we hope that other regulators will take similar steps," he said.
Despite holding only state-level authority, Lawsky's agency has become one of the country's most aggressive financial regulators in particular, by seeking to hold executives personally responsible for their companies' failings. Last year the agency forced France's BNP Paribas to fire 13 employees, including its chief operating officer, over sanctions violations, and required the chairman of Ocwen Financial to step down due to servicing violations.
Lawsky defended this approach in his speech Wednesday, arguing that individual accountability is the only way to prevent future violations.
"Real deterrence, in our opinion, means a focus not just on corporate accountability, but on individual accountability," he said.
Lawsky also laid out his plans to include cybersecurity preparedness in his agency's regular exams of institutions it regulates.
The Department of Financial Services supervises New York-chartered banks and insurance companies as well as foreign banks headquartered in New York.