The New York State Department of Financial Services (DFS) was formed in 2011 when the state’s Banking Department and Insurance Department were combined. The NYS DFS has been an extremely active and effective investigator of financial misconduct, collecting over $7.5 billion in fines. 

The NYS DFS may soon get a power boost, courtesy of proposed legislation by Governor Andrew Cuomo, which would meaningfully expand DFS’s powers to enforce its decisions on its own in the state courts and to increase penalties on insurers.

SEPARATE &  APART FROM THE ATTORNEY GENERAL.    When DFS assumed the powers of the Banking and Insurance Departments, it took on those agencies’ functions and regulatory authority over institutions like banks, credit unions, and life insurance companies and continues to exercise that power today. At the same time, the Attorney General, a separately elected state official, maintains the authority to bring civil enforcement actions in the courts on behalf of the state.

But Cuomo’s proposal would muddy the waters between the 2 regulators.  One provision would authorize the DFS on its own initiative to prosecute actions to recover civil penalties or enforce administrative orders.  That’s a power now reserved to the Attorney General. 

Another provision would increase the authority of the DFS to place insurers into administrative supervision proceedings, an action that currently requires a court order. Even putting aside the uptick in these difficult proceedings for insurers that might result, removing this procedural element gives the DFS more leeway to take such actions without a meaningful check.

The objective of these changes would be to expand the regulatory powers of the DFS and through it, the Governor himself.   

It remains to be seen how this power grab plays out.