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NY's top bank regulator promising oversight of consultants using old statute

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(Globalpost/GlobalPost)

ALBANY, N.Y. - New York's top financial regulator has promised more oversight of bank consultants, including large accounting firms, citing an old, ignored state law that gives his office "the power to drive reform."

Addressing a conference on corporate responsibility this week in Binghamton, Superintendent of Financial Services Benjamin Lawsky said consultants are hired by banks to straighten out problems but can be conflicted taking tough stands with the clients who pay them.

"What we realized as we were starting to look not only at Standard Chartered but at other banks who have especially anti-money-laundering problems, what we realized is consultants they were hiring to try and clean this up and to try and expose what went wrong were often almost as compromised as the banks themselves," Lawsky said. They found nobody was actually regulating the consultants, but he said Department of Financial Services lawyers unearthed a century-old New York banking statute that requires DFS approval for consultants to access confidential bank information.

"We held the keys to the kingdom as to whether the consultant could go in and work at particular banks. We held the power to drive reform in the industry," he said. Other regulators around the country can probably do the same for the banks they oversee, he said.

In June, DFS used that provision in a settlement with Deloitte Financial Advisory Services to pay $10 million and cease new consulting for one year at state-regulated banks to settle an investigation into its work for the New York branch of Standard Chartered Bank in 2004 and 2005. The company said it entered the agreement voluntarily and would work with the state's regulators to establish best practices.

The same month, the Bank of Tokyo Mitsubishi-UFJ Ltd. agreed in another DFS settlement to pay $250 million to the state for laundering billions of dollars in transactions that violated economic sanctions against countries including Iran, Sudan, and Myanmar. Lawsky publicly outlined the law his office can use in enforcement strategy toward consultants a few days later at an American Bar Association forum in Manhattan.

The DFS has declined to publicly identify other consultants under investigation.

However, a state official briefed on the inquiry said the DFS has sent subpoenas to Promontory Financial Group, which has done work for Standard Chartered, and Pricewaterhouse Coopers, which did work for the Japanese bank. The state official spoke to The Associated Press on condition of anonymity because the person wasn't authorized to discuss it publicly,

Both firms have declined to comment, though Promontory acknowledged sometimes getting document requests from regulators.

"I am sad to say what we found at Deloitte in terms of a consultant being compromised and being willing to water down a report at behest of the bank before it gets to the regulators ... it is not isolated," Lawsky said this week. "We're seeing it in other areas with other consultants, and I think we have a lot more work to do, not only at DFS but with other, federal regulators as well, to really clean that up and have a powerful deterrent."

In Deloitte's case, New York investigators said they found no evidence the consultant helped Standard Chartered illegally launder money, though they said Deloitte failed to show autonomy and objectivity. The British bank agreed last year to pay $340 million to settle New York allegations that it processed billions of U.S. dollar transactions for Iranian interests, despite U.S. economic sanctions against Iran.

In Washington, Ohio Sen. Sherrod Brown, a member of the Senate Banking Committee, in June called on federal regulators to start providing oversight of consultants, which followed reports that three of them, Promontory, PricewaterhouseCoopers and Deloitte were paid almost $2 billion to review home foreclosures as part of federal enforcement actions.

http://www.globalpost.com/dispatch/news/the-canadian-press/131101/nys-top-bank-regulator-promising-oversight-consultants-using