Administrative Report to the Governor
Department At A Glance:
Commissioner - John P. Burke
Deputy Commissioner - Alan J. Cicchetti
Established - 1837
Statutory Authority - Titles 36a and 36b,
Connecticut General Statutes, and Related Laws
Central Office -
260 Constitution Plaza
Hartford, CT 06103-1800
Average number of full-time employees - 143
Recurring operating expenses, 1999-00 - $12,405,194
The mission of the Department of Banking is to ensure the safety and soundness of the depository institutions it regulates, and to administer and enforce the state's banking and related laws, with the ultimate goal of protecting Connecticut's consumers.
The Department of Banking is responsible for the regulation and examination of financial institutions and various related entities chartered, licensed or registered by the state. The banking commissioner is charged with administering the banking and credit union laws of the state as well as the laws regarding securities, tender offers and business opportunities. The banking commissioner also administers the Truth-in-Lending Act and other consumer credit laws and a major portion of the law concerning rental security deposits.
Specific regulatory functions are assigned to divisions within the department.
The Bank Examination Division is responsible for the supervision of state-chartered bank and trust companies, savings banks and savings and loan associations. This division also supervises bank holding companies, licenses money forwarders and check cashing services, and has responsibility for analyzing applications for new charters, acquisitions, mergers, branches and changes in corporate structure.
The Credit Union Division supervises state-chartered credit unions. It has responsibility for analyzing applications for new charters, mergers, requests for field of membership expansion and changes in corporate structure.
The Consumer Credit Division is responsible for the enforcement of Connecticut’s laws concerning small loan companies, sales finance companies, debt adjusters, first mortgage lenders and brokers, secondary mortgage lenders and brokers, consumer collection agencies, Truth in Lending and other consumer credit laws.
The Securities and Business Investments Division is responsible for the registration of securities and business opportunity offerings for sale in Connecticut; the registration of broker-dealers and investment advisers, along with their agents and branch offices; the examination of broker-dealer, investment adviser and branch office registrants; and enforcement of the state’s securities, business opportunity and tender offer laws.
The department’s customers include the general public, representatives of the public, regulated entities and consultants. The public at large, including depositors, borrowers, investors, landlords and tenants, and others who use the services of regulated financial entities, benefits broadly from agency activities. Agency services help protect public funds in depository institutions, offer important investor and consumer protections, assist in dispute resolution and provide valuable public information.
Representatives of the public, including the Governor and the General Assembly, other elected and appointed officials and federal, state and municipal agencies, receive information, advice, proposed legislation, case referrals and other important services from the department.
Financial entities are subject to regulatory oversight.
Consultants, including laws firms, accounting firms, consumer advocacy groups, trade associations and others, receive information, advice, policies and guidelines from the department.
The Department of Banking is strongly committed to maintaining a standard of excellence in meeting its regulatory responsibility, while being responsive to Governor Rowland’s desire to promote a business friendly climate in Connecticut.
As a fundamental part of its mission, the department is committed to protecting Connecticut citizens in transactions with financial institutions, as directed by state law, and in assisting with complaints and dispute resolution. Consumers are encouraged to contact the department whenever they need assistance in dealing with financial institutions. Agency employees will promptly assist consumers with issues involving banks, credit unions, mortgage lending and other consumer credit matters, rental security deposits, and matters relating to securities and business opportunity investments.
As a means to provide the public with convenient access to information and resources, the department maintains a web site on the Internet at www.ct.gov/dob. During 1999-00, the department significantly expanded the web site's content, while ensuring with daily postings that all its information was timely and current. Web site usage grew strongly through the year (June 1999 versus June 2000). Monthly user sessions, or visits, increased 110% to nearly 16,000, while monthly page views increased 160% to nearly 44,000. The department’s webmaster served as chair of the ConneCT Management Advisory Committee’s (CMAC) public relations sub-committee. (CMAC manages the State of Connecticut web site).
In April 1999, the Bank Examination Division sponsored a Directors’ Forum to help new bank directors better understand and meet their fiduciary responsibilities. Although the program was geared toward directors of newly-chartered institutions, approximately 100 directors from both new and existing Connecticut banks attended the program which featured presentations from regulatory officials, attorneys and industry consultants. The Directors’ Forum received so many positive comments from attendees that the Division plans to offer it again in 2001.
The Business Office effectively supported the department’s Y2K contingency plans and played a key role in the agency’s successful preparations for the millennial rollover. The purchasing unit efficiently coordinated efforts to procure emergency equipment and agency supplies, while the accounting unit accurately tracked and reported all Y2K-related financial costs.
The Credit Union Division worked closely with state-chartered institutions during 1999-00 to ensure that institutions were prepared for the Year 2000 date change. An examiner was assigned to work full-time on the effort.
The Legal Division continued to prepare current compilations of the statutes and regulations within the jurisdiction of the Department of Banking, and certain other related laws, for use by the public and regulated entities. The division revises the compilations as necessary to reflect new legislation or changes in regulations. Current compilations are available for free download on the department's web site.
Additionally, the Legal Division created an index of securities advisory interpretations to assist the public in researching securities issues. The index cross-references the Commissioner’s opinions by subject matter with a brief description of the position taken, statute, public act and regulation referenced.
The Personnel Division now posts agency job openings on the Internet at the Department of Administrative Services web site.
The agency’s security deposit investigator resolved 211 landlord tenant disputes during fiscal year 1999-00 and recovered $69,450 for Connecticut residents who had complained to the department that landlords had unjustly withheld their refundable rental security deposits.
A major goal of the Securities and Business Investments Division is to promote a healthy, competitive business environment by protecting the public from securities and business opportunity-related frauds and other abuses that hinder legitimate enterprises in raising needed capital. The division continued to pursue this goal in 1999-00 as the market reached new heights, with many investors opting to experiment with more novel investment products.
Continuing national efforts to redefine the role of state securities regulation lead to a renewed focus on local enforcement, examination and registration issues, particularly in the area of financial planning and investment adviser regulation. When appropriate, the division provided comments to federal regulatory agencies on proposals that might have compromised the business environment in Connecticut and the interests of Connecticut investors.
The division was assisted by a Securities Advisory Council, comprised of industry representatives, academics and members of the bar, all of whom served without compensation, which offered insight on new regulatory initiatives. The division also worked closely with companion regulators at both the state and federal levels to ensure a consistent, even-handed approach to regulation.
During 1999-00, the Securities Division, continuing a longstanding commitment, maintained its accessibility to Connecticut investors, the securities industry and other groups.
Personalized attention was provided to new Connecticut-based applicants for broker-dealer and investment adviser registration through tailored "pre-registration meetings." Potential registrants were briefed on their compliance responsibilities, advised on what to expect during a division examination and afforded an opportunity to question staff. Similarly, small issuers seeking to raise capital in the state were encouraged to meet with staff to walk through the process of complying with securities law requirements.
When the Access to Capital Electronic Network (or ACE-NET), sponsored by Southern Connecticut State University, explored plans to privatize in 1999-00, Securities Division staff was there to listen and to discuss the impact such an action would have on Connecticut small businesses. ACE-NET, an Internet-based listing service, historically has made it easier for entrepreneurs to obtain equity financing from accredited investors (called "angels") in amounts typically too small - $250,000 to $3 million - to attract most venture capitalists.
The Securities Division also focused on enforcement and fraud prevention. Division intervention in ensuring that Connecticut investors receive rescission and restitution remained a primary objective, as did the disgorgement of ill-gotten gains by violators of the state’s securities laws. During the fiscal year, informal Securities Division intervention resulted in $1,570,036 being offered and/or returned to Connecticut investors. In addition, monetary sanctions imposed by the division for violations of state law totaled $626,100. The division encouraged dialogue with broker-dealers experiencing compliance and operational difficulties, and required that they file periodic status reports until problems were resolved.
The Securities Division strives to keep its personnel apprised on key regulatory developments through internal and external training, frequent staff meetings and staff input into the decision-making process. Cross-training efforts have enabled staff to be flexibly assigned to critical work tasks.
The Banking Department places a high priority on outreach to the public. The banking commissioner and staff frequently address consumer, industry, student and other groups.
During 1999-00, this public outreach effort largely concentrated on the Year 2000 (Y2K) date change and financial institutions. The Commissioner, Deputy Commissioner, Bank Examination Division staff and other department spokespersons widely addressed senior citizen groups, clubs and other community groups, making over 50 presentations around the state. In addition, the department prepared various educational publications, submitted news releases and op-ed articles to the media, and posted a comprehensive directory of information on the department’s web site, including interactive pages with links to Y2K contacts at every bank and most credit unions in the state.
The department further undertakes educational efforts to help the public understand services provided in the financial marketplace and to recognize fraudulent investment offers. A report on the financial condition of depository institutions is published annually; a weekly Bulletin provides information on applications before the agency and intended changes in regulations; a Securities Bulletin is published quarterly to update industry on regulatory developments; and investor education and other publications are produced as needed.
Commissioner John P. Burke served on the Board of the Conference of State Bank Supervisors (CSBS), as Immediate Past Chairman, during 1999-00. CSBS is the professional association of state officials responsible for chartering, regulating and supervising the nation’s state-chartered banks and state-licensed branches and agencies of foreign banks.
The banking department devoted a very significant effort during 1999-00 to ensuring that the Year 2000 date change would not adversely affect Connecticut financial services consumers or regulated entities. All internal department systems were thoroughly tested, and remediated where necessary, allowing the agency to earn a "green" rating from the State Department of Information Technology for its Y2K readiness.
The agency was also judged to be a critical participant in the state’s Y2K emergency response plan. As part of a year-end mobilization, department offices remained open for emergency response and personnel were stationed at the State Emergency Operations Center (EOC) on a 24-hour basis from December 29, 1999 through January 3, 2000. Extensive in-house contingency plans were formulated as well, including back-up communications and information technology procedures and arrangements to temporarily relocate to the Department of Correction headquarters in the event of a power failure, to ensure that there would be no interruption in public service.
The department also worked very closely with industry and fellow regulators to ensure that financial institutions were adequately prepared for the Y2K date change. A rigorous program of bank examinations culminated in close monitoring of institutions during critical dates, in cooperation with federal authorities. Banks were required to make status reports to the department regarding their business functions, computer systems, security systems and other areas of concern on September 9, 1999, on January 1, 2000 and again on January 3, 2000, the first business day of the new year. In addition, the department conducted a monitoring program for state-chartered institutions on February 29, 2000 to guard against potential leap year problems. As a result of the extensive preparations made by industry and its regulators, the public did not experience any significant Y2K-related banking problems.
The Bank Examination Division continued to refine its risk-focused approach to regulating state-chartered institutions. Beyond an annual on-site examination, the approach utilizes year-round monitoring of a bank’s overall condition, using updated financial information filed quarterly with the division. In addition, the division closely monitors regional and national economic factors to assess how they may affect the condition of depository institutions. The risk-focused approach to bank regulation effectively allows the division to comprehensively analyze all the factors that may pose problems for institutions.
Each year the department, with the coordination of the Government Relations and Communications Division, conducts an active legislative program. During the 2000 legislative session, five department proposals concerning banks, credit unions and consumer credit were enacted into law.
One proposal, Public Act 00-61, concerned the banking commissioner’s enforcement and examination authority. Among its various sections, Public Act 00-61 provides a balanced approach to foreign bank assessments by specifying certain factors that the commissioner must consider before setting the annual assessment for foreign banks. The public act also makes a failure by a first or secondary mortgage broker or lender to perform an agreement with a borrower a basis for the imposition of a civil penalty.
Public Act 00-61 also lessened the administrative burden on persons licensed as sales finance companies by providing them with flexibility as to where they may keep company books and records. The public act further clarified that the prohibition against making false and misleading statements to the Commissioner extends to oral statements. While previous law prohibited persons from engaging in fraudulent conduct in connection with the offer and sale of securities (Title 36b), there was not a prohibition against licensees under Title 36a engaging in fraudulent conduct. By prohibiting such conduct, Public Act 00-61 gives the Commissioner the ability to take enforcement action against licensees who engage in such conduct.
The department’s 1999-00 set-aside goals with small contractors formulated by the Business Office were approved with all requested exemptions by the Department of Economic and Community Development. The approval reflects well on the ability of the Business Office’s purchasing unit to establish and meet set-aside goals with small and minority contract vendors.
The Consumer Credit Division revised its application forms to create a more efficient licensing process. Under the revised procedure, rather than submit a separate application for each location, applicants seeking more than one license would submit a "master application" that would contain "home office" information. The "master application" would then include attachments for the applicant to provide more limited information for each branch office. The change eliminates the duplicative filing of information when multiple applications are submitted and saves applicants time in completing forms. A streamlined application process will also beneficially impact division operations.
The Credit Union Division worked closely with state-chartered institutions during the year to ensure that they were thoroughly prepared for the Year 2000 date change. As part of this effort, the division conducted institution call-in programs on September 9, 1999, on January 1, 2000 and again on January 3, 2000, the first business day of the new year. In reflection of their hard work, Connecticut credit unions entered the New Year in great shape, without any serious Y2K glitches.
The Personnel Office offered in-service training to employees during 1999-00 to improve their skill and job performance. Employees attended a wellness seminar offered by the department’s employee assistance provider, and agency managers took part in a training session on strategies to prevent violence in the workplace.
A department employee, David Tedeschi of the Government Relations and Communications Division, received a Governor’s Award for exceptional customer service during 1999-00. Mr. Tedeschi, employed as a Communications Specialist, is responsible for the agency’s media relations program and for handling various other high profile assignments. In making the nomination, the Commissioner cited the exceptional job Mr. Tedeschi does at the difficult task of balancing requests for information with the agency’s need for confidentiality in sensitive examination or investigative matters.
The Securities Division cooperated with other jurisdictions in policing the operation of "boiler rooms" pushing low-priced micro-cap securities with high pressure sales tactics. The division also made investigative headway in cases involving promissory notes, offshore entities and more novel products such as payphone investments. With financial services modernization inviting more newcomers, such as insurance salespersons, to the securities industry, the division, through staff presentations, provided education on the risks of offering untested securities products. The division’s enforcement program also raised the public’s awareness regarding investing pitfalls.
Throughout 1999-00, the division played an active role in the North American Securities Administrators Association (NASAA), ensuring that Connecticut securities regulation was responsive to new developments and uniform with that of other jurisdictions. The department's participation with other regulatory organizations in shared database systems enhanced enforcement efforts.
Also during 1999-00, the division continued to rely on the Internet as an enforcement and research aid. Emphasis was placed on "chat rooms" and Bulletin Boards where low-priced securities are commonly promoted with little or no accurate disclosure. The division participated with the Federal Trade Commission in organized efforts to "surf" the Internet for business opportunity frauds.
The division strengthened its ties with other New England states in developing uniform standards and procedures for reviewing securities offerings of $5 million or less.
On October 25, 1999, the Securities Division sponsored its eleventh annual Securities Forum conference. Approximately 325 securities industry professionals and others attended the daylong event in New Haven. Through a series of breakout seminars and general sessions, Securities Forum '99 fostered an open, productive dialogue and a free interchange of ideas between regulators and industry participants.
The Department of Banking continually reviews agency operations to improve efficiency, reduce costs and foster innovation. The Banking Commissioner encourages employee suggestions regarding the department's policies and practices, with the goal of simplifying government and identifying any inefficient or redundant operations.
The Business Office continued to improve the agency’s budget iteration process during 1999-00. With cooperation from senior managers, the budget process is now more responsive to the agency’s forecasted operational requirements.
Revisions made to application forms used by the Consumer Credit Division will reduce the amount of paper used in the licensing process, resulting in reduced costs for office supplies and postage.
The Legal Division critically reviewed subscriptions to determine whether renewal of various publications was warranted. The review allowed the division to realize a savings of $518 in 1999-00, and a cumulative savings of more than $3,300 over the past three years.
The Securities Division relied much more heavily on technology to improve efficiency and eliminate waste. By August 1999, all broker-dealers firms and agents seeking new or renewed registration in Connecticut used Web-CRD, a national Internet-based system. Web-CRD provides a means by which broker-dealers and their agents can file for registration in multiple states and with NASD by using a centralized depository.
By making commonly requested forms and other documents available electronically, the division reduced mailing costs through greater use of email to distribute such items. In addition, industry and the public can access forms "on demand" at the agency’s web site, minimizing the need for staff assistance.
Through participation in key NASAA committees, the division provided critical input into the design of new, simplified investment adviser registration forms. The new forms would be used by investment advisers filing with individual states or with the Securities and Exchange Commission.
The forms revision project went hand-in-hand with development of an Investment Adviser Registration Depository ("IARD") that would promote "one stop filing" nationwide by investment advisers and their agents. The IARD is scheduled to become operational in the third quarter of 2000. Use of the IARD will eliminate the paper filing of investment adviser registration materials; cut staff processing time; and reduce paper storage costs. The Securities Division also continued to establish informal benchmarks to ensure that there are no unnecessary delays in the processing of registration and license applications.
In the securities registration area, reviewed material is promptly sent to off-site storage after data has been entered in the division’s computer system, minimizing the need to create and maintain in-house paper files.
In striving for continued excellence in regulation, the agency devotes considerable effort to strategic planning.
The Bank Examination Division developed a division strategic plan for 2000-02. Although the plan is dynamic, and may change to reflect new business developments, a constant goal will be to improve efficiency through use of technology and automated systems. Management will periodically review the plan and progress made in meeting its benchmarks.
Additionally, division staff must become knowledgeable regarding insurance and securities products that banks may offer in the future. The federal Gramm-Leach-Bliley Act allows banks, insurance companies and securities firms to affiliate with far less restriction than previously permitted. As a result, banks offering insurance or securities products will be subject to functional regulation by the most appropriate agency. A key goal of the Bank Examination Division will be to form effective alliances with insurance and securities regulators to foster close cooperation in the supervision of Connecticut institutions.
Management of the Consumer Credit Division regularly meets with staff to discuss ways to improve workflow and division procedures. Staff are encouraged to submit suggestions regarding possible changes to business processes to increase the division’s effectiveness and efficiency.
To assist in researching and responding to inquiries, the Legal Division has embarked on a three-year project to make all of its documents issued since 1976 available electronically, allowing for computer text searches and efficient document management. This substantial effort will allow the division to streamline its workflow and to improve inquiry response time, while realizing savings in photocopying expenses and staff time spent on research. The division plans to then post certain of these documents on the agency’s web site, greatly increasing their availability and reducing opinion and Freedom of Information requests.
Management of the Securities and Business Investments Division proactively engages in strategic planning and regularly meets to discuss operational improvements. General objectives are periodically established and re-evaluated by management to ensure their success.
Financial services modernization, the increasing federalization of securities regulation and technological change present unique challenges for the Securities Division. As more financial services firms enter the securities business, the division’s mission will be one of education and even-handed enforcement. As federal and state regulatory schemes become more seamless, the division will adopt a more interdisciplinary approach to regulation. At the same time, the division recognizes that its primary allocation of resources will be to Connecticut-based activity, including more frequent examinations of in-state investment advisers.
During the next year, the division anticipates dedicating resources to implementing the new IARD registration database and to exploring new ways to rely on technology to increase enforcement and examination efficiency.
The Department of Banking is very committed to providing equal employment opportunity on the basis of merit; to assuring nondiscrimination; and to implementing affirmative action and contract compliance, as required by sections 46a-60, 46a-68, 46a-70 and 46a-71 of the Connecticut General Statutes. The department’s annual Affirmative Action Plan, approved by the Commission on Human Rights and Opportunities, reflects significant achievement in attaining a diverse workforce reflective of the institutions the agency regulates and the customers the agency serves.
As a regulatory agency, the Department of Banking takes every appropriate action within its statutory authority to promote equal opportunity in mortgage lending, consumer credit and other financial services.
The department pursues an aggressive outreach strategy through use of student internships that provide exposure to state service and a meaningful entry into the workforce. During 1999-00, the Personnel Office participated in a career fair at Central Connecticut State University and sponsored an agency orientation tour for Granby High School students. Summer workers from a City of Hartford program have been employed.