Spitzer Changes Course On Finance Review Rules

Governor Spitzer is once again looking to shake up the financial services industry in New York, and this time businesses are cheering him on.

Mr. Spitzer, who rose to political stardom while attorney general through high-profile investigations into improper business practices by major Wall Street firms, has formed a special panel to recommend changes to financial service regulations and statutes that the administration says are outdated and hurting New York businesses.

The panel includes a formidable roster of figures from the insurance, banking, and securities industries — including some from the leading firms previously targeted by Mr. Spitzer — as well as an array of civic leaders. Among the panel's members are the chief executive officer of the Goldman Sachs Group, Lloyd Blankfein; the CEO of Bank of New York, Thomas A. Renyi, and the CEO of American International Group, Martin Sullivan.

Leading the commission will be the superintendent of the state Insurance Department, Eric Dinallo, a former prosecutor who ran the investor protection bureau when Mr. Spitzer was attorney general. It was Mr. Dinallo who first had the idea to examine potential conflicts of interests in stock research and who first appreciated the potential of the state's Martin Act to aid in investigations.

The governor's "job under the Martin Act was essentially an enforcement function. Now his job is to create an environment that protects the citizens of the state, including business, and makes them want to be sited here," Mr. Dinallo said in an interview. He said the panel "demonstrates" to the financial industry that "this administration gets what's important now that he's governor, as opposed to being attorney general."

A leading business advocate described Mr. Spitzer's initiative a different way.

"It's kind of like Nixon goes to China," said Kathryn Wylde, the president of the Partnership for New York City and a member of the panel.

The panel, which is being called the New York Commission to Modernize the Regulation of Financial Services, follows on the heels of a number of efforts by politicians and private and public institutions to streamline financial service regulations.

Fueling the anti-regulatory campaign is a business backlash against the federal Sarbanes-Oxley financial reporting regulations and a growing concern that New York is at risk of losing its status as the financial capital of the world. The Treasury Department, Mayor Bloomberg and Senator Schumer, and a group leading investors and business academics have each proposed different sets of sweeping changes to the "SarbOx" rules, but they all have focused their concern on the federal level.

Mr. Spitzer's panel is strictly concerned with state regulations and statutes, which also have a major impact on firms. The state has tremendous oversight powers over insurance companies, state-chartered banks, and has an overlapping authority with the federal government over the securities industry.

Spitzer officials said the key problem is the unwieldy structure of state oversight over the industry as a whole. Four different agencies regulate the financial services industry: the Insurance Department, the Banking Department, the Department of State, and the Attorney General's office. Regulations, the bulk of which were developed more than a century ago, have become burdensome and inconsistent while financial services companies have grown more alike in the services they offer, in their financial structures, and in their methods of managing risk, officials said.

For example, as Mr. Dinallo points out, banks issue certificates of deposit and life insurers issue guaranteed investment products, but each investment is governed by different financial and consumer disclosure rules.

Companies also often have to get approval from multiple state regulators for a single business transaction, such as a merger, which causes delays and makes the transaction more expensive, Mr. Dinallo said.

Spitzer administration officials said the aim of the panel is not to release another report but to spark substantial changes in regulations and statutes related to the financial services industry. Officials indicated that the administration would likely implement new regulations and submit new statutes to the Legislature for passage before the commission completes its report.

"I want to come out of this with a real work product," Mr. Dinallo said.