New York Regulator Warns Banks on Wells Fargo-Style Compensationby
DFS’s Vullo faults incentives that lead to ‘bad behavior’
Wells Fargo says bonus system fed fraudulent-account scandal
New York’s financial regulator urged state-chartered banks not to align their incentive compensation with performance metrics such as the number of newly opened accounts unless they have effective risk management controls in place.
The guidance, issued Tuesday by New York’s Department of Financial Services, comes after several regulators, including the U.S. Consumer Finance Protection Bureau, fined Wells Fargo & Co. for rewarding employees who opened fraudulent checking accounts on behalf of customers who never asked for them. Wells Fargo has said the employees were encouraged by bonuses based on the cross-selling of products to existing customers.
“Incentive compensation arrangements that encourage or foster inappropriate corporate practices or bad behavior should have no place in our banking system,” DFS Superintendent Maria Vullo wrote in a letter.
The DFS supervises insurance companies, banks and other financial institutions that operate in the U.S. though a New York state charter -- a list that includes Goldman Sachs Group Inc., Barclays Plc, BNP Paribas SA, Deutsche Bank AG and Societe Generale SA.
Like many other large U.S. banks, Wells Fargo is a nationally chartered bank regulated by the federal Office of the Comptroller of the Currency.