How Tough Will New York's Bank Regulator Be?

New York banks are still sizing up their new (acting) sheriff.

Nearly a year has passed since the hard-charging Benjamin Lawsky stepped down as superintendent of the New York State Department of Financial Services — perhaps the industry's highest-profile state regulatory post — and it is on its second acting leader, Maria Vullo.

Gov. Andrew Cuomo in January tapped Vullo, a former aide, for the job, but her nomination — which requires approval from the state Senate — has run into roadblocks as lawmakers deal with a packed schedule and a slew of scandals, observers said.

The ongoing delay has raised questions about what the once-aggressive department will look like under new leadership. Lawsky shook up some of the biggest firms on Wall Street, levying more than $6 billion in bank fines during his four years on the job.

Vullo, currently the acting supervisor, is expected to take a more conciliatory approach on enforcement matters, observers said. But with her confirmation in limbo, she has so far been unable to set a definitive tone for the agency.

"I think it's taking a little longer than anybody was expecting," said John Witkowski, chief executive of the Independent Bankers Association of New York State. The timing of her confirmation is entirely up to lawmakers in the state capital of Albany, he added.

Until Vullo is confirmed, it will be tough for her to make her mark, according to industry experts.

"There is an impression that the interim leader lacks the power" of a confirmed agency head, said Denver Edwards, a financial services attorney with the New York law firm Bryant Rabbino.

The department did not make Vullo available for an interview by deadline. But several observers said her resume — which includes stints in government and the private sector — suggests she will take tough stands on enforcement and consumer protection, and have less of an appetite for aggressive, headline-grabbing bank settlements.

Vullo most recently worked at the law firm Paul, Weiss, Rifkind, Wharton & Garrison, where she defended businesses — including some big banks — in complex legal cases, according to a profile on the firm's website. Some of her cases involved litigation stemming from the financial crisis, including representing Citigroup when federal authorities charged several banks with making false claims on foreclosed properties in Nevada.

She previously worked as a deputy to Cuomo while he was attorney general from 2006 until 2010, in the office that handles consumer fraud, investor protection and antitrust cases.

"I don't get the sense that she wants to appear on the 6 o'clock news," said Edwards, who previously worked for the Office of the Comptroller of the Currency and the Securities and Exchange Commission. "She wants to work with the banking community."

Vullo is expected to win confirmation before the state legislature adjourns in June. In her new role, she will be in charge of supervising nearly 1,700 New York-licensed financial firms, including commercial banks and foreign banks with offices in the state. The companies under her purview include major Wall Street players, such as Goldman Sachs and Deutsche Bank.

Following Firebrands

Vullo arrived after a tough year for the department.

It drew a series of unflattering headlines in the months following Lawsky's departure. Media reports last year detailed high-level staff turnover, as well as infighting between the governor's office and senior department leaders.

After Lawsky stepped down, his chief of staff, Anthony Albanese, took over as acting superintendent.

Under his watch, the department took a number of high-profile actions, such as making Promontory Financial Group pay $15 million, and banning it from accepting certain new consulting work in New York for six months, in connection with charges that Promontory filed misleading reports on anti-money-laundering problems at Standard Chartered. He also issued new rules governing the use of high-tech instant messaging products.

Albanese resigned last fall amid reports that he had clashed with Cuomo, who reportedly tried to exert more control over the agency.

Lawsky earned a reputation as a renegade during his four years as superintendent. In some cases — including a 2012 fine against Standard Chartered — he struck out on his own, bucking attempts by federal regulators to pursue private negotiations.

After he left, a number of prominent industry executives — including Rodgin Cohen, an attorney at Sullivan & Cromwell — began pushing Cuomo to take a softer approach to bank enforcement, according to media reports.

If confirmed, Vullo has an opportunity to restore a sense of stability to the agency, and perhaps shift its tone, observers said.

"That's what we're all waiting to see," said Joseph Simon, an attorney at Cullen and Dykman, who works with a number of thrifts that have recently converted to state charters.

But the path forward for Vullo's confirmation remains unclear.

The state Senate has not formally received the nomination from the governor's office, Barbara O'Neill, spokeswoman with the chamber's banking committee, said Friday. The Senate cannot act until that happens, she said.

Cuomo announced Vullo as his pick to lead the department on Jan. 21.

"Whatever the holdup is, it's not specific to Acting Superintendent Vullo," Richard Loconte, a department spokesman, said in an email. He noted that the state currently has a backlog of unconfirmed nominations.

The New York Bankers Association declined to comment on Vullo's nomination. Several bankers either declined to comment for this story or did not respond to requests for comment.

Asked to explain the delay in confirming a permanent leader, several observers said that a number of pressing legislative matters, including passing a state budget, have dominated the agenda in Albany.

"There are a lot of important issues going on in the state," Witkowski said.

Federal probes have consumed Albany over the past year, leading to resignations — and convictions — of leaders of the Assembly and Senate. More recently, prosecutors have launched an investigation into improper lobbying by one of Cuomo's former aides.

Still, the holdup on confirming Vullo hasn't created any significant delays in the everyday business of the department, observers said.

It remains to be seen if Vullo plans to advance some of Lawsky's key priorities.

Before stepping down last year, Lawsky established a framework for regulating digital currency companies. He also pushed forward a controversial plan to hold senior executives liable for money laundering violations; the proposal is pending.

Notably, the department announced Thursday it has given Gemini Trust its blessing to trade Ether, a cryptocurrency similar to bitcoin, on its exchange platform.

Regardless of how Vullo's confirmation process shakes out, cybersecurity will remain a key issue for the agency, according to Dana Syracuse, an attorney with BuckleySandler. Syracuse worked at the department and was involved in developing the agency's BitLicense framework.

"I think cybersecurity is going to be a priority for any new administration," he said.