Financial Regulator Bans Firm From Doing Business In New York

The New York Times reported earlier this week that Promontory Financial Group, a respected and influential consultant to large banks on regulatory matters, has been effectively banned by New York State’s financial regulator from doing business in the future with banks licensed in New York State.

The regulator would accomplish this by denying the firm confidential documents that consultants need to advise banks.

Previously, the newspaper reported that six Promontory employees were called in for depositions as part of a two-year investigation by New York’s financial regulator. The investigation was focused on an assignment the firm completed for Standard Chartered, a British bank that was suspected of processing billions of dollars on behalf of Iran. The bank hired Promontory to review transactions related to entities in question and then submit its findings to regulators. The regulator has accused Promontory of sanitizing its report to paint Standard Chartered in a more positive light.

Promontory has promised a legal battle, representing the first significant challenge to the regulator’s authority.

insideARM Perspective

The New York Department of Financial Services is the same regulator that has recently imposed strict, far-reaching – and some would argue unclear – new rules regarding the sale and collection of charged off receivables. These rules, unlike the FDCPA, clearly encompass actions by original creditors as well as debt buyers and third party collectors.

Adding to the on-going implementation of Dodd-Frank, this is another example of nationwide muscle-flexing by regulators and lawmakers in the arena of financial services.

Contributing to the intrigue of this trend is the string of former regulators who have started or joined consulting firms that claim special access or understanding of government agencies.  Benjamin Lawsky who recently stepped down as head of the New York DFS, started his own firm, which Promontory has called a direct competitor. Earlier this summer, Promontory announced the acquisition of Fenway Summer, a consulting firm started by Raj Date, the former deputy director of the Consumer Financial Protection Bureau.