Financial Services Industry Group Update: $30M Fine Issued To NY Bank For Misuse Of Confidential Information: What Happened?

• Published date: 20 March 2024
• Subject Matter: Finance and Banking, Employment and HR, Financial Services, Discrimination, Disability & Sexual Harassment, Whistleblowing
• Law Firm: Littler Mendelson
• Author: Mr Philip Berkowitz

The New York Department of Financial Services imposed a $30 million penalty on the New York branch of a foreign bank. The fine had nothing to do with employment discrimination or wage-and-hour issues'but it was the outcome of an internal transfer of a single New York-based employee to an overseas affiliate, and is a lesson in how financial services clients are at risk of penalties going far beyond those that are normally imposed by employment law regulators.

By Philip M. Berkowitz| March 13, 2024

Employment lawyers know that juries can issue substantial awards in whistleblower, discrimination, harassment and other retaliation cases'particularly when these cases are brought under state or local statutes that, unlike Title VII or the ADEA, impose no caps on damages.

But juries and courts are not the only entities that can impose penalties on companies for inappropriate employment practices. Government entities that regulate the financial services industry have authority to issue substantial penalties, which may even include shutting down the company's business, whether temporarily or otherwise.

On Jan. 19, 2024, the New York Department of Financial Services (DFS) imposed a $30 million penalty on the New York branch of a foreign bank. The fine had nothing to do with employment discrimination or wage-and-hour issues'but it was the outcome of an internal transfer of a single New York-based employee to an overseas affiliate, and is a lesson in how financial services clients are at risk of penalties going far beyond those that are normally imposed by employment law regulators such as the EEOC and NLRB.

What happened? The New York branch's affiliate had requested that, before effectuating the transfer, the branch provide the affiliate with documentation regarding the employee's involvement in any internal investigations of regulatory or disciplinary matters. The branch provided the documents and the affiliate, in turn, provided them to its own local regulator.

What could be wrong with an innocuous request like this, which likely was compelled by the overseas entity's need to conduct due diligence of the transferring employee?

Confidential Supervisory Information

The answer is that, in the view of the DFS, providing this information violated the New York Banking Law, which prohibits a financial services institution from releasing to any third-party documents reflecting reports of examinations and investigations, and any related documents. This information is...