DFS Requires Enhanced and Ongoing Vetting

Perhaps not surprisingly after the recent collapses of Silicon Valley Bank and Signature Bank, on January 22, 2024, the New York Department of Financial Services ("DFS") released its final guidance on vetting key personnel at state-chartered banks and non-depository institutions.  DFS has made clear that it expects the institutions it oversees to carry out “regular and rigorous character and fitness assessment” of its directors and senior officers.  And, significantly, DFS has made this is a continuing obligation:  to ensure the safety and soundness of the institution, a bank must vet an official upon appointment and on an on-going basis.  

DFS, which expects banks to update their policies to include this process, indicates that it expects the institutions to take a risk-based and proportionate approach to vetting, tailoring the nature, depth, and frequency of such assessments to address the complexity and risk profile of the institution.

What seems clear is that DFS is expecting more than a "cookie cutter" approach to the vetting of its senior officers and board members. Institutions will need to look for “sensitive issues, warning signs and other indicators.”  Banks may well already undertake some due diligence, but DFS is likely going to expect more.  When a red flag is identified, a well-run bank will conduct a thorough inquiry since disclosure to DFS is mandated.

In addition to updating their procedures, DFS-supervised banks should consider engaging experienced external due diligence providers who are trained to ferret out the types of concerns raised in DFS' guidance.