In recently-issued guidance, the
The directive, issued in January, applies to
The guidance includes actual questions to pose to executives at the time of hiring that hit a range of issues—indebtedness, lobbying activities, lawsuits, and past regulatory queries. This list also includes questions on payment of taxes, judgments and liens, and prior employment terminations. The agency suggests additional questions that address past or ongoing litigation, criminal convictions, and relationships with outside auditors. The guidance recommends periodically repeating the vetting process after people are already in their role for a while.
The guidance represents a regulatory recognition that tone starts at the top. It would be easy to view the guidance as a continued focus by DFS on its seizure of
Politicians and regulators may seek to impose stricter compliance requirements on corporate America given these recent insolvencies, coupled with the prospect of a recession in a presidential election year. The recent high-profile federal criminal prosecutions of FTX CEO,
Most mature financial institutions likely already have in place similar policies and extensively vet senior executives and board members. But those banks, crypto exchanges, and other financial institutions with vetting gaps should take to heart the DFS guidance. A financial institution should ensure, for example, that vetting is appropriately in-depth, given the overall risk profile of the institution's operations.
Financial institutions should also ensure that initial vetting assessments are reviewed periodically and not viewed as required only at the time of an executive's hiring. Corporate transactions such as mergers and acquisitions should likewise trigger vetting of newly onboarded executives.
Admittedly, the DFS guidance does not have the same effect as a binding regulation or law and therefore is merely advisory in nature. At the same time, financial institutions would do well to cast a critical eye over their vetting policies and address any deficiencies they find when compared to these new guidelines.
By taking the DFS guidance to heart today, a financial institution could avoid finding itself in regulatory crosshairs tomorrow.
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.
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