- within Wealth Management, International Law and Insolvency/Bankruptcy/Re-Structuring topic(s)
"Financial institutions and their legal counsel may be surprised to learn that the New York State Department of Financial Services (DFS) asserts that financial institutions are prohibited from disclosing confidential supervisory information (CSI), such as reports of examination, to their outside counsel absent DFS' prior written authorization," Pinchus D. Raice and Dustin N. Nofziger wrote in a recently-published Expert Analysis in Law360.
"Even more surprising," the authors wrote, "the source of DFS' proclaimed authority — Section 36.10 of the New York Banking Law — does not appear to support its contention. As a result, DFS' interpretation of Section 36.10 appears to be ripe for judicial challenge."
In their analysis, Raice, who co-heads Pryor Cashman's Financial Institutions Group, and Nofziger examined the plain meaning of the statute, its legislative history, the problems caused by DFS' untenable interpretation and the corresponding implications for financial institutions. The authors concluded with practical advice for counsel representing these clients: "If financial institutions do decide to continue to request authorization from DFS prior to disclosing CSI to counsel, they should keep in mind that, in the event of a denial or a delay, DFS' interpretation of Section 36.10 appears to be highly vulnerable to legal challenge. In addition, financial institutions considering potential intra-agency appeals through the federal agencies' intra-agency appeals processes should request extensions from those agencies, where possible, while awaiting CSI authorization from DFS."
As for broader advocacy, Raice and Nofziger explained, "Given DFS' disregard of the plain meaning and history of Section 36.10, industry groups and bar associations should lobby the New York State Legislature to insert a provision in Section 36.10 explicitly stating that it does not restrict financial institutions from disclosing reports of examination and other CSI to their counsel on a confidential basis. New York would not be the first state to modernize its financial regulatory statutes in this fashion."
To read the full analysis, please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
