For some time, New York State Department of Financial Services (DFS) staff have contended – informally – that Section 36.10 of the New York Banking Law requires supervised financial institutions to obtain the Superintendent's prior written authorization before disclosing reports of examination and other "confidential supervisory information" to their legal counsel. Financial institutions will be pleased to learn that under DFS Superintendent Linda A. Lacewell, the agency is poised to take a more transparent, streamlined, and efficient approach to financial institutions' disclosures of confidential supervisory information to their legal counsel (as well as to their independent auditors).
The wheels were set in motion when New York County Lawyers Association Banking Committee chair Dustin Nofziger sent a letter concerning confidential supervisory information to DFS Superintendent Linda A. Lacewell. In his letter, Nofziger, a member of Pryor Cashman's Financial Institutions Group, requested that Superintendent Lacewell provide a written response clarifying whether the Superintendent interprets Section 36.10 of the New York Banking Law to prohibit a supervised financial institution from disclosing DFS reports of examination and other confidential supervisory information in the financial institution's lawful possession to its legal counsel on a confidential basis. The letter noted that Banking Law Section 36.10 is limited to prohibiting a supervised financial institution from making confidential supervisory information "public," and that the word "public" is commonly understood to mean "exposed to general view"; "of, relating to, or affecting all the people or the whole area of a nation or state"; or "of or relating to people in general."
In apparent response, Superintendent Lacewell announced on November 14, 2019 that she is proposing a new regulation that would allow supervised financial institutions to disclose confidential supervisory information to their legal counsel and independent auditors without the need for the Superintendent's prior written approval. This proposed regulation would require that the legal counsel or independent auditor agrees in writing to certain conditions, such as that it will keep the information confidential and that it will use the information only for the purpose of providing legal representation or auditing services, as applicable, to the supervised financial institution. It would also require the supervised financial institution to keep a written record of all confidential information disclosed pursuant to the regulation along with copies of the corresponding legal counsel and independent auditor written agreements for DFS's inspection and review. The proposed regulation was published in the New York State Register on November 27th and is subject to a 60-day public comment period.
Partner Pinchus Raice, Co-Chair of Pryor Cashman's Financial Institutions Group, and Nofziger previously published an expert analysis in Law360 in November 2017 opining that Banking Law Section 36.10 did not appear to support the contentions of DFS staff that a supervised financial institution is required to obtain the Superintendent's written authorization before disclosing confidential supervisory information in its lawful possession to its legal counsel. The Pryor Cashman attorneys' Law360 article concluded: "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."
Partner Jeffrey Alberts, Co-Chair of Pryor Cashman's Financial Institutions Group, commented on Superintendent Lacewell's proposed regulation as follows: "We have long argued that it is improper for bank regulators to use restrictions on confidential supervisory information to interfere with attorney-client relationships and to deny or delay the advice of counsel. Superintendent Lacewell's proposed regulation, which would allow the immediate disclosure of confidential supervisory information to counsel conditioned on counsel's written agreement to abide by certain conditions, is a significant step in the right direction."
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