Wells Fargo fallout: New regulations on bank ‘incentives’

by Ryan Smith13 Oct 2016
The Wells Fargo scandal drew wide criticism for – among many, many other things – incentivizing employees, in essence, to commit fraud.

After it was revealed that the bank had opened 2 million unauthorized accounts to boost sales, many employees came forward and said the bank set sales goals that basically forced employees to cheat customers. The phony accounts opened by Wells Fargo employees generated fees and charges to existing customers. Bank employees also applied for more than half a million credit cards without customers’ knowledge or consent.

At least one state is trying to legislate a solution to the problem. New York Gov. Andrew Cuomo announced this week that the state’s Department of Financial Services has directed all state-regulated banks to “ensure any employee incentive arrangements do not encourage inappropriate corporate practices.”

“The inappropriate behavior we have seen at institutions like Wells Fargo are the same ones that led to the 2007 financial crisis, and there must be zero tolerance for reckless policies that foster greed and put New Yorkers' financial futures at risk,” Cuomo said. “State charters banks are now on notice of their obligations, and it is their responsibility to ensure their employees are acting in the best interests of their customers.”

Under the new DFS guidance, state-regulated banks can’t offer incentive compensation tied to employee performance without effective risk management, oversight and control. And any incentive compensation plan at a bank must meet, at a minimum, the following guidelines:
  • Incentive compensation must “appropriately balance” risk and reward in a way “that does not encourage employees to expose their organizations to imprudent risks.” 
  • A bank’s risk management processes “must reinforce and support the development and maintenance” of any incentive compensation programs.
  • Incentive programs “must be supported by strong corporate governance.”
“DFS will take swift enforcement action against financial institutions with misaligned incentive compensation schemes that foster improper behavior among their employees,” said DFS Superintendent Maria T. Vullo. “Board members and executive staff at regulated banks are responsible for making certain that sufficient controls are in place to safeguard against the inherent risks and conflicts of interest associated with cross-selling and referral bonus arrangements.”
 

COMMENTS

  • by Mr. Omega | 10/13/2016 11:58:29 AM

    The bottom line here, and I suspect I am on the unpopular side of this equation, is that employees accept positions requiring a specific amount of production in order to keep their job.

    That any employee would find ways to "cheat" the banking system to make themselves look good is a faulty character trait....
    and likely not the first time those employees ever cheated on other things ( like Taxes, for example).

    Meeting "quotas" is not exclusive to Wells Fargo, and other banks in cross selling services. Every business requires the sale of their products or services, and provide incentives to employees that reach their "quota". Not ONE business , with intent or malice , sets sales quota to induce any employee to cheat to get there. There are serious federal laws breached by every one of those employees that blame the bank and not themselves for their own law violating actions and THEY should face the consequences of their actions.
    Do I have empathy ? YES. Did they violate the Law ? YES Should they be prosecuted..? Wouldnt you be prosecuted if you violated Federal Law? I think YES.
    Instead however, the "law" has disregarded the employee actions and is going after the Banks..as clearly represented in this article and the incredulous "class action" filing on behalf of those cheating former employees.

    Do the banks have policies that need review? Likely, but the Banks are not the criminals here. The Media and others need to finally recognize where the real criminal acts came from..No one put a gun to those employees heads..they made the choice to violate the Law all by themselves, because they thought they could "get away" with it..
    I have been in the Banking and Financial Industry for 43 years, and I know what job pressure is. Nothing ever brought me to the conclusion to violate the law and cheat. These comments are my own and protected under the United States constitution.


  • by Mr. FormerBanker | 10/13/2016 12:14:28 PM

    Kudos to you sir! I could not have stated it better myself. The employees who committed the fraudulent acts should be prosecuted. Perhaps the bank should have had better policies in place to follow-up with their customers to determine if the accounts were opened in accordance with the customer's desires; however, the bulk of the responsibility lies with the employees who decided to break the law.

    Of course, these days it appears that nobody is personally responsible for their actions.

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