On October 11, 2016, the New York State Department of Financial Services (“NYDFS”) issued guidance to its regulated banking organizations regarding incentive compensation practices.  The guidance is intended to address recent concerns over compensation practices that may incentivize employees to engage in inappropriate sales practices.

NYDFS’s guidance advises all banking organizations regulated by NYDFS – including New York State-chartered banks and licensed branches and agencies of foreign banks – that no incentive compensation may be tied to employee performance indicators without effective risk management, oversight, and control.  In particular, the guidance draws attention to the “inherent risk” associated with cross-selling and referral bonus arrangements and the use of performance indicators that are tied to the number of accounts opened or number of products sold per customer.

The guidance notes that NYDFS will take enforcement action against misaligned incentive compensation arrangements and unacceptable corporate or individual conduct that results in consumer harm or other unsafe and unsound practices.  NYDFS will conduct supervisory reviews of incentive compensation practices as part of its regular examination procedures, and expects banking organizations to maintain records that document the structure, approval process, risk management, and oversight of their incentive compensation arrangements.

The guidance also restates principles from the federal banking agencies’ 2010 Interagency Guidance on Sound Incentive Compensation Policies.  These principles already apply to federally-regulated banking organizations.

Photo of Randy Benjenk Randy Benjenk

Randy Benjenk is a partner in Covington’s industry-leading Financial Services Group and focuses his practice on regulatory advice and advocacy. He represents domestic and foreign banks, fintech companies, and trade associations on compliance issues, corporate transactions, and public policy matters.

Chambers USA says…

Randy Benjenk is a partner in Covington’s industry-leading Financial Services Group and focuses his practice on regulatory advice and advocacy. He represents domestic and foreign banks, fintech companies, and trade associations on compliance issues, corporate transactions, and public policy matters.

Chambers USA says Randy has received “widespread praise” from clients, who describe him as “excellent” and say that “the quality of his legal work and his writing abilities were incredible” and “he’s very easy to work with, knowledgeable and efficient.”

Randy regularly advises clients on a wide range of regulatory matters, including:

  • Bank Activities and Prudential Regulation. Complex bank activities, structure, licensing, and prudential matters, often involving issues of first impression at the federal and state banking agencies.
  • Corporate Transactions. Mergers and acquisitions, spinoffs, charter conversions, debt and equity issuances, investments, strategic partnerships, de novo bank formations, and related regulatory applications and disclosures.
  • Private Equity Investments. Private equity investments in banks, bank investments in private funds, and fund structuring related to the Volcker Rule and Bank Holding Company Act.
  • Public Policy Matters. Regulatory and legislative policy matters, with an emphasis on changes arising out of U.S. banking legislation and international standards.
  • Crisis Response. Navigating extraordinary events, such as the COVID-19 pandemic and related governmental responses, and firm-specific matters.
  • Supervisory and Enforcement Matters. Compliance and safety and soundness issues that arise in the examination and enforcement contexts.