NY DFS focuses on bank incentive compensation

Authored by: Brian Lane

New York Department of Financial Services (DFS) announced yesterday an initiative to focus on banks’ incentive compensation agreements aimed at cross selling additional products to existing consumers. This appears to be in response to recent revelations that a large bank exerted significant pressure on their employees to cross sell additional products and services. DFS draws parallels between this recent scandal with the mortgage meltdown of 2008 – pointing to loose internal controls and governance which allows consumers to be harmed.

One has to assume that this is a shot across the bows for banks under DFS supervision. The announcement is not the release of a new regulation, rather it is presented as guidance for banking institutions. While relatively high level, the DFS guidance does paint a bright line in stating that “…no incentive compensation may be tied to employee performance indicators, such as the number of accounts opened, or the number of products sold per customer, without effective risk management, oversight and control.” The notice states that this will be an area of focus for future regular risk focused examinations. 

There are several clear takeaways for banking institutions under DFS’ supervision:

  • Each banking institution needs to take a hard look at its compensation plan to see if employees are being pushed by volume driven incentives as discussed above.
  • If these types of volume driven plans have existed, they need to be modified. The institution needs to also determine whether any individual consumers have been harmed and remediate the situation if they have. 
  • Review internal and external complaint files to determine whether employees or customers have raised these issues already and ensure that they have been addressed. 

For more information on this topic, or to learn how Baker Tilly’s specialized professionals can help, contact our team.