Last week, the New York Department of Financial Services (NYDFS) issued final guidance on how banks and other financial institutions in New York State should review the character and fitness of their directors and executives.
"New York consumers and businesses should feel confident that their money is being managed by ethical and law-abiding individuals," said Superintendent Adrienne A. Harris. "Entities have a responsibility to assess the character and fitness of executives not just upon hiring, but on an ongoing basis to protect consumers and ensure the safety and soundness of the institution."
The final guidance includes expectations that financial firms:
- Update their policies and procedures to require vetting of Designated Persons at onboarding and on a regular ongoing basis;
- Inform the NYDFS promptly if they determine that a previously vetted Designated Person is no longer fit to perform their current function;
- Vet each Designated Person at the time that they become a Designated Person; and
- Define indicators that warrant additional scrutiny; for example, if the individual held a senior position at an institution subject to a regulatory action or proceeding.
The NYDFS also provides suggested questions that firms can use when assessing character and fitness. The proposed questions range from asking about the person's professional history to inquiring about their personal indebtedness and legal problems.
"Protecting the safety and soundness of regulated entities is core to the Department's mission and mandate, and a compromised director, officer, or manager can threaten an organization's safety and soundness at any time during that individual's service," the NYDFS writes in its guidance. "Regular and rigorous character and fitness assessment of key personnel is an important tool for regulated institutions to control and mitigate this risk."