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:
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