N.Y.'s Vullo Maintains Low Profile While Policing Big Banks

By Victoria Finkle

New York’s top banking regulator Maria Vullo attracted national attention for the first time this year as a leading critic of the U.S. Comptroller of the Currency’s proposed federal charter for fintech companies.

Since becoming head of the New York Department of Financial Services last year, the former Paul Weiss litigator has generally stayed under the radar relative to her predecessor, Benjamin Lawsky. He often found himself in the spotlight for his tough talk and billion-dollar cases against big banks.

“Lawsky had a penchant for taking actions that were gut punches to executives and investors,” Edward Mills, a policy analyst at FBR Capital Markets, told Bloomberg BNA. “It seems like Vullo, while still fully willing to pursue regulation and enforcement actions, has not packed the same punch.”

That’s not to say that Vullo has avoided big issues altogether. In addition to opposing the OCC’s proposed fintech charter, she has finalized a wide-ranging cybersecurity rule and levied substantial penalties against several major foreign banks for anti-money laundering violations.

But Vullo feels no need to hog the spotlight. In fact, when the Conference of State Bank Supervisors filed suit against the OCC challenging its fintech charter on April 26, Vullo simply put out a brief statement in support of the lawsuit.

In an interview last month, the matter-of-fact native New Yorker suggested that her agenda is less political than it is practical. Rather than charting a legacy, she said, she wants to ensure that the department follows rational processes and makes fair decisions.

“I look at whatever issues are presented to me while I’m here and I make decisions based upon the information before me,” Vullo told Bloomberg BNA at the agency’s high-rise office at the southern tip of Manhattan, in a conference room overlooking the Statue of Liberty.

In many ways, Vullo’s leadership can be seen more as a return than it is a departure.

“Her tenure is what you generally would have expected from any person leading NYDFS,” said Mills.

He noted that her efforts are consistent with the work of her predecessors who oversaw banking and insurance in New York before the two offices were combined in 2011, back when the agencies were often considered “effective, but less known.”

“It was Lawsky that was the outlier,” he added.

Feds on Notice

For Vullo, the idea of a federal fintech charter is both legally unjustifiable and impractical.

“I don’t think the OCC has the legal authority to do it,” she said in her interview with Bloomberg BNA. “As an impact matter, we also don’t believe that the OCC should do it. They’re proposing to preempt states in an area where the states have on-the-ground experience and the ability to respond on the ground. We’ve been doing this for years. The OCC has not.”

Vullo may find herself facing off with the feds yet again as President Donald Trump and congressional Republicans pursue a deregulatory agenda at the national level and state officials take on a bigger role overseeing the financial industry.

Still, the superintendent said that she’s taking a wait-and-see approach to any changes that might be coming out of Washington, including cuts to the Dodd-Frank Act. If those changes impact the safety and soundness of New York banks or limit consumer protections, she warns that she’ll look to fill those gaps.

“You can’t just throw something out — you have to look at it, and I’m hopeful that the process that has been started to actually think about these things in a substantive way will result in rational decisions. And I’ll respond if I need to,” she said.

Those worried about the growing deregulatory climate in the nation’s capital said they’ll be watching closely to see how Vullo and others respond to changes in federal oversight.

“Aggressive state regulators, like Superintendent Vullo, are absolutely critical in not just being a watchdog of the industry, but also in being a watchdog of the other regulators,” said Dennis Kelleher, president and chief executive of advocacy group Better Markets.

Fintech Turf War

Vullo fired her first shots against the OCC’s plan to grant “lite” charters to fintech companies in December — and she’s grown increasingly outspoken as the federal agency signals it will move forward with its effort.

In an April 14 letter responding to the OCC’s proposed manual for issuing fintech charters, the superintendent for New York’s Department of Financial Services called the charter push “hasty and misguided.” She accused the agency of ignoring concerns raised by state regulators and others.

In her interview, she expressed frustration that the agency appears to be moving forward with its plans, despite critical feedback from her office, the CSBS and several members of Congress. The OCC released the draft supplement to its licensing manual in March, following on its December white paper on the same topic.

“It’s unfortunate,” she said. “There were a lot of comments received in response to the white paper, and I was dismayed to see that the OCC, notwithstanding those comments, has gone forward with this manual, which indicates that the OCC intends to proceed.”

The OCC argued in March, in response to comments received on December’s white paper, that it does have the necessary authority to issue fintech charters under the National Bank Act. It also downplayed concerns about preemption, underscoring that state laws related to fair lending, discrimination and other issues would still be in place.

The agency said at the time that it “shares commenters’ concerns about predatory lending and has taken significant steps to eliminate predatory, unfair, or deceptive practices in the federal banking system.”

A spokesman for the OCC declined to comment further about the concerns raised by New York.

Collaboration Urged

Some in the rapidly growing fintech industry argue that Vullo could do more to collaborate with federal regulators to improve upon their plan, rather than dismissing the charter concept altogether.

“In one sense, the DFS response to the OCC was somewhat predictable, because of the threat — or perceived threat — of the OCC charter on the ability of states to continue to license and supervise,” said Richard Neiman, head of regulatory and government affairs for Lending Club and a former New York banking superintendent. “On the other hand, I really do think it’s a missed opportunity for the states to respond in an innovative way in order to promote responsible innovation, as the OCC is doing.”

Neiman added that states like New York, in pursuing innovation, could find ways to “create their own fintech charter or interstate passporting system or pursue harmonization of state laws.”

But the opportunity for collaboration with the OCC has been limited, Vullo told Bloomberg BNA.

“They’re saying they’re going to give lite-charters when they don’t have the authority to do it and to utilize a pre-existing regulation issued under the National Bank Act that doesn’t apply here to then preempt states — that’s supposed to be a negotiation?” she said. “When my phone rings, I answer it. So, I’m always open to it, but they haven’t indicated an inclination to change their point of view.”

She added that the patchwork of state-based rules “is not a new thing that all of a sudden puts fintech companies at a disadvantage.” Still, Vullo noted that she’s open to finding more ways to simplify licensing at the state level, an effort that she says New York pursues regularly.

“We as state regulators are very cognizant of streamlining processes and ensuring that we coordinate, that there’s not a redundancy — we do this all the time through the CSBS,” she said.

Less Fanfare

Outside of her frequently cited criticisms of the OCC, Vullo’s early work at the agency has captured limited public attention relative to the political fights in Washington centered on Dodd-Frank.

Vullo was a longtime private sector attorney at Paul, Weiss, Rifkind, Wharton & Garrison, who previously worked under New York Gov. Andrew Cuomo when he served as attorney general. She joined NYDFS in February 2016 as acting superintendent before being confirmed by the state legislature in June.

Roughly a decade has passed since the housing bubble began to burst, and Vullo faces a different set of concerns than Lawsky, her predecessor who first oversaw the combined banking and insurance agency and who won considerable media attention for taking big banks to task.

The last several years have been marked by countless bank settlements at the national and state levels, some worth billions of dollars, and the populist demand for large, public recriminations of big financial institutions has dimmed somewhat.

“There’s still a considerable amount of anti-Wall Street sentiment, but it’s nowhere near as vitriolic as it was just five years ago,” said Isaac Boltansky, an analyst at Compass Point Research & Trading.

Though some speculated that she might take a softer touch with banks relative to Lawsky, Vullo has overseen a handful of settlements adding up to more than $1 billion in fines against major foreign banks, including Deutsche Bank, Intesa Sanpaolo based in Italy, Agricultural Bank of China and Mega Bank of Taiwan. Those cases focused on failures to comply with U.S. anti-money laundering and sanctions requirements, issues she says she takes seriously.

“I’m both a regulator and a law enforcement agency, and where you see an institution that just does not have systems to prevent money laundering transactions, terrorist transactions, you can’t turn your eye from that — that’s serious conduct,” she said. “You need to both punish the conduct and deter it from happening again.”

Holding Management Accountable

She has also introduced new cybersecurity and anti-money laundering regulations for the state. The agency oversees state-charted banks and foreign banks licensed to operate in New York, along with the state’s insurers, money transmitters, mortgage brokers and others.

“The superintendent has taken a very strong leadership role in terms of a couple of really compelling issues in the banking industry today, cutting-edge issues,” said Mike Smith, president and chief executive of the New York Bankers Association. He added that his group maintains an “open dialogue” with Vullo on a number of issues.

In the wake of the Wells Fargo fake accounts scandal, Vullo said that improving bank culture remains a priority. Though New York does not supervise Wells’ banking unit, she issued guidance in October aimed at the use of incentive compensation at financial firms that she does oversee.

Similarly, both her cybersecurity and transaction monitoring regulations require a certification of compliance to be signed by a firm’s top executives.

“The message I’m giving there is forward-looking — we want to prevent bad transactions and we want to prevent cyberattacks. And you, top management, are responsible,” she said.

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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