Eric Schneiderman and Maria Vullo (Rick Kopstein/NYLJ)
ALBANY – A turf war appears to be developing between Gov. Andrew Cuomo and state Attorney General Eric Schneiderman over the governor’s proposal to enhance the regulatory powers of the state Department of Financial Services.
Schneiderman this week sent a letter to legislative leaders saying several of the governor’s proposals were a “wholly unnecessary overreach,” which he urged the legislature to reject.
“The proposals, which were drafted without any consultation with my office, would alter the enforcement arrangement the legislature established when creating DFS, resulting in unnecessary and harmful overlapping state enforcement authority, which could jeopardize ongoing and future investigations,” Schneiderman wrote in a letter dated Tuesday.
Schneiderman said that while it is not uncommon for federal and state agencies to experience some “overlapping” jurisdictions because they enforce different legal codes, he called it “extremely rare” for two state agencies to come into conflict that way.
“DFS and OAG [Office of Attorney General] could, inadvertently or otherwise, commence duplicative enforcement actions of the same matter, generating additional burdens not only for the targets of the investigations, but also for the victims and witnesses involved,” Schneiderman continued.
Cuomo’s proposals include giving the financial services department superintendent the power to prohibit bank and insurance company employees who engage in “egregious and deceptive” practices from working in New York, after they get a state hearing (NYLJ, Jan. 9).
The governor is also proposing to increase from $1,000 to $10,000 the fines the financial services department can impose when those in regulated industries make inaccurate statements in official filings with the state.
Legal experts say President Donald Trump’s stated intention to reduce federal regulation over various industries will shift the regulatory spotlight onto state regulators, especially those in places like New York where Democrats dominate state government (NYLJ, Nov. 15).
For instance, New York’s DFS recently proposed sweeping cybersecurity requirements for financial institutions in the absence of comprehensive federal lawmaking, which take effect on March 1.
On Thursday, Financial Services Department Superintendent Maria Vullo, appearing in Albany before a joint Senate-Assembly on the next state budget, said she regretted Schneiderman’s objections to the Cuomo proposals for the department and said none of the new authority being sought for her agency would come at the expense of powers traditionally held by the attorney general.
She stressed that Cuomo is not asking for the financial services department to get the same powers to prosecute wrongdoing in the securities industry that the attorney general’s office has had for generations under the state’s Martin Act, a proposal that Cuomo favored for a time when DFS was formed in 2011 through a consolidation of the state banking and insurance departments. Cuomo, who was attorney general himself before becoming governor, has not renewed that proposal.
In fact, Vullo said the department is content to continue referring cases to the attorney general or to county district attorneys around the state when it discovers possible illegalities.
“I do not have, and am not seeking criminal prosecutorial authority,” she told legislators.
Vullo said proposals to allow her to ban employees in the insurance and banking industries from working in New York and to raise the limits of the fines that she can impose are common-sense extensions of the regulatory powers the state gave the superintendent when the financial services department was formed.
Vullo elaborated on comments she sent in a letter Wednesday to legislative leaders in which she made a point-by-point rebuttal of Schneiderman’s objections to the Cuomo proposals.
Richard Azzopardi, a Cuomo spokesman, said Thursday there is room for both a strong Department of Financial Services and a strong attorney general where oversight of the complex banking, insurance and financial services industries is concerned.
“DFS has proven itself to be a powerful and widely respected financial regulator and we believe we should have more cops on the beat, not less,” he said. “Turf battles are counterproductive to effective policing of the market.”
Schneiderman and Cuomo are both Democrats, though relations between the two have been strained at times since they assumed their current offices in 2011. Schneiderman is widely thought to be interested in someday advancing to the governor’s office.
The Cuomo proposals on enhancing DFS authority are included in the governor’s 2017-18 budget proposal to the state legislature for the fiscal year beginning April 1.