Administrative Report to the Governor
1998-1999
Agency Mission | Statutory Responsibility | Public Service
Improvements/Achievements | Reducing Waste
Strategic Planning | Equal Employment Opportunity/Affirmative Action
Department At A Glance:
Commissioner - John P. Burke
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 - 145
Recurring operating expenses, 1998-99 - $12,692,890
Organization Structure:
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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 make Connecticut business friendly.
As a basic, fundamental part of its mission, the department is committed to protecting Connecticut citizens in transactions with financial institutions, as directed by state statutes, and in assisting with complaints and dispute resolution. Consumers are urged to contact the department whenever they may need assistance in dealing with financial institutions. Individual divisions stand ready to 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, the department maintains a web site on the Internet. During 1998-99, the department significantly expanded the web site's content to over 900 linked files and continued to update site information on a daily basis. Traffic to the site, correspondingly, increased substantially. The department’s webmaster also played an active role as a sub-committee chairman for the ConneCT Management Advisory Committee (CMAC) which manages the State of Connecticut web site.
The Bank Examination Division devoted considerable effort during 1998-99 to providing the public with meaningful information regarding the Year 2000 date change and its potential to affect computer systems used by the banking industry. Division personnel spoke to many groups, often at senior citizen centers in recognition that seniors may be targeted by Y2K-related scams.
Division examiners continued to receive training in effective manual and automated examination techniques, both to improve examinations and to reduce the regulatory burden faced by Connecticut institutions.
The Bank Examination Division developed extensive information for the agency’s web site, including an outline of the chartering process for new banks, background information on the nation’s banking system and significant Year 2000-related information.
During fiscal year 1998-99, the Business Office processed over 360 contracts with a total dollar figure of approximately $2 million. This activity included a major EDP upgrade of systems technology, accompanied by agency-wide training for new software applications.
In the last fiscal year, the Consumer Credit Division’s complaint function showed continued improvement in the area of adjustments and reimbursements to consumers. During the period, reimbursements and adjustments to consumers from the complaint handling process grew from $690,359 to $989,078, an increase of over 40 percent from the previous fiscal year.
The Credit Union Division intensified its oversight of credit unions' work during 1998-99 to remediate and test computer systems for the Year 2000 date change. An examiner was assigned to work full-time on the issue. At mid-1999, the division was pleased with the progress of state-chartered institutions in their preparations for Y2K.
The Legal Division continued to provide the public and regulated entities with compilations of the statutes and regulations within the jurisdiction of the Department of Banking and certain other related statutes. The compilations are periodically revised as necessary to reflect legislation enacted by the General Assembly or changes in regulations. They are available for free access on the department's web site.
As a source of information for consumers and investors, the Legal Division continued to post copies of administrative orders, consents and stipulations related to consumer credit or securities and business investments matters on the Internet.
In addition, the Legal Division created an index of its business opportunity advisory interpretations for use by the public in researching business opportunity issues. The index cross-references the Commissioner’s opinions by subject matter with a brief description of the position taken, statute and public act referenced.
The agency’s security deposit investigator resolved 285 landlord tenant disputes during fiscal year 1998-99 and recovered $48,459 for Connecticut residents who had complained that landlords had unjustly withheld their refundable rental security deposits.
A major goal of the Securities and Business Investments Division is to foster 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 1998-99, re-focusing resources in light of The National Securities Markets Improvement Act of 1996 (NSMIA). Among other things, NSMIA preempted state regulation of larger investment advisers that have assets under management in excess of $25 million. In doing so, NSMIA ceded to the states the primary regulatory responsibility for all other investment advisers. These advisers generally conduct business on a more regional or local level. As a result of NSMIA, the division renewed its emphasis on licensing, examination and enforcement.
The Securities Division increased its accessibility to the Connecticut investing public, the securities industry and other groups during 1998-99. A Securities Advisory Council, composed of industry representatives, academics and members of the bar, all of whom served without compensation, offered insight on new regulatory initiatives. The division also continued to work with companion regulators at both the state and federal levels to ensure a consistent, even-handed approach to regulation.
Personalized attention was provided to new applicants for broker-dealer and investment adviser registration based in Connecticut 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.
The Securities Division partnered with Southern Connecticut State University in publicizing the Access to Capital Electronic Network, or ACE-NET, a dynamic, Internet-based means for investors and entrepreneurs to find each other through listings of securities offerings of small, growing companies located throughout the country. ACE-NET makes 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.
Following NSMIA, the Securities Division rededicated itself to 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 $10.5 million being offered and/or returned to Connecticut investors. In addition, monetary sanctions imposed by the division for violations of state law totaled $687,600. The division also continued to encourage dialogue with broker-dealers experiencing compliance and operational difficulties, and required that they file periodic status reports until the problems were resolved.
The division strives to keep its personnel apprised on key regulatory developments through internal and external training programs, frequent staff meetings and staff input into the decision-making process. Cross-training efforts have enabled division 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 1998-99, this effort concentrated on the Year 2000 date change and financial institutions. Department spokespersons addressed community groups, news releases and op-ed articles were submitted to the media, and a comprehensive directory of information was posted on the department web site, including interactive pages with information on Y2K contacts at banks and credit unions.
The department also undertakes educational efforts to help the public understand services provided in the financial marketplace and 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.
Improvements/Achievements 1998-99
Commissioner John P. Burke held the prestigious position of Chairman of the Conference of State Bank Supervisors (CSBS) from May 1998 to May 1999. 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. Commissioner Burke was the first banking commissioner from Connecticut to serve as chairman of the national group, which was created in 1902.
The Bank Examination Division continued its program to ensure that all state-chartered banks are prepared for the Year 2000 date change. This effort involved special examinations, stringent time lines and intensive follow-up. Banks were required to review and test all critical systems for Y2K readiness. During 1999, each bank was examined twice as the focus of the examination program shifted from remediation to testing. Banks are required to have compliant hardware and software that will operate normally through the century date change. While preparatory efforts completed by the banking industry have been very extensive, it is still possible that problems may occur. Nevertheless, the division feels that any Y2K problems will be short-lived and financial business will not be disrupted.
In March 1999, the Bank Examination Division began using the General Examination System (Genesys), an examination software product developed by the FDIC, Federal Reserve and CSBS. The software is an automated workstation that performs many of the routine functions that previously took examiners long periods of time to complete. With this automation, examiners can now concentrate their focus more specifically on those areas considered to pose significant risks to banks.
One proposal, Public Act Number 99-158, allows Connecticut banks to engage in activities permitted under federal law for federally chartered banks and to engage in certain closely related activities. Giving our banks powers equivalent to those of national banks will enhance the state bank charter. These additional powers will enable Connecticut banks to meet the demands of an ever-changing marketplace and provide a wide array of services to consumers. This proposal will also expand the state banking system by permitting a new form of Connecticut bank, known as an uninsured bank.
Another proposal, Public Act Number 99-18, gives the Commissioner the authority to take enforcement action against a bank or credit union that is not reasonably expected to avoid or protect itself against a failure of its computer-based information systems relating to the Year 2000 date change. This legislation is vitally important to clarify the Commissioner's enforcement powers in order to protect the public.
The Business Office’s purchasing unit achieved the state’s highest percentage use of minority vendors on contracts – 19.3% or $458,692 – during 1998-99. The Commission on Human Rights and Opportunities published this statistic in its annual report to the legislature, "Minority and Women Business Enterprises in State Contracting."
Over the past fiscal year, the Business Office participated with the MIS unit in designing a new financial module for recording and charging revenues to accounts and functions correctly. The new module has been installed and is undergoing final testing.
The Business Office enhanced its budget iteration process to include the use of revenue collections and projections to match against expenditures. This has allowed the agency to determine at the division level which programs and functions are generating surpluses and deficits.
During the year, the Consumer Credit Division revised its license renewal process. Previously, licensees were required to resubmit information that already existed in the division’s database on renewal applications. Entities are now being sent a renewal application that is nearly complete and licensees need only provide the changes that occurred from the previous filing. The new process is less labor intensive for applicants and will make the application process more efficient by eliminating technical errors and delays caused by the need for corrections.
The Department, working closely with the Department of Information Technology (DOIT), completed the process of upgrading its computer hardware, system software and application software systems to be Year 2000 compliant. In achieving Y2K compliance, the department also completed the initial phase of developing a Department of Banking Integrated Information System (DBIIS). The Management Information Systems Division will now begin expanding and enhancing agency applications to provide additional services.
The Personnel Office continued to offer training to department employees to improve their skill and job performance. During 1998-99, employee courses were offered in computing skills training.
Three department employees, Michael Buchas and Richard Lalor, of the Consumer Credit Division, and Eustacia Williams, of the Management Information Systems Division, received Governor’s Service Awards for exceptional customer service during 1998-99. Messrs. Buchas and Lalor work as bank examiners, dedicated exclusively to assisting consumers with complaints related to credit card transactions, mortgage processing, vehicle repossessions, debt collection, credit reporting and more. Eustacia Williams, an Automation Systems Specialist, directs and maintains an Information Technology Help Desk.
The Securities Division continued to cooperate with other jurisdictions in combating the high-pressure sales tactics and unlicensed activity frequently associated with low-priced, micro-cap stock sales. The division's rigorous investigative process resulted in several administrative actions against brokerage firms and their agents, and heightened public awareness of improper practices in the stock market.
Throughout 1998-99, the division continued its active role in the North American Securities Administrators Association, thus ensuring that Connecticut securities regulation was responsive to new developments and uniform with that of other jurisdictions. The department's participation with other agencies and self-regulatory organizations in enforcement database systems proved instrumental in enhancing agency enforcement efforts.
During 1998-99, the division continued to rely on the Internet as an enforcement and research aid. Particular emphasis was placed on "chat rooms" and Bulletin Boards where low-priced securities were commonly touted with little or no accurate disclosure. The division's investigative use of the Internet resulted in several administrative actions against persons allegedly hyping an issuing company's stocks or financial prospects. The division also continued its cooperative effort with the Federal Trade Commission in "surfing" the Internet for business opportunity frauds.
The division also continued its active participation with other states in developing uniform standards for the regional review of certain securities offerings. Those offerings consisted of small issues of up to $5 million registered via the Small Corporate Offering Registration (SCOR) or made pursuant to federal Regulation A. The department also adopted an accredited investor exemption from securities registration which greatly facilitated the ability of venture capitalists to find investors through traditional avenues and electronic means such as ACE-NET.
On October 19, 1998, the Securities Division sponsored its tenth annual Securities Forum. Approximately 330 securities industry professionals and others attended the daylong conference. Through a series of breakout seminars and general session presentations, Securities Forum '98 fostered an open dialogue with regulated individuals and entities and encouraged the free interchange of ideas.
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, procedures and practices, with the goal of identifying any inefficient or redundant operations and simplifying government.
One of the major tasks facing government is to optimize the use of technology to improve operations and provide more efficient public services. The Bank Examination Division has posted the majority of its forms on the department’s web site to improve their accessibility. The division is also using the most advanced automation tools available to complete examinations in a timely fashion.
During fiscal year 1998-99, the Business Office initiated new procedures and controls in the department mailroom. The measures serve to effect a stricter accounting of parcels and mail items both sent out and received. In addition, the measures now allow the Business Office to generate monthly management reports that quantify mailroom activity.
The Consumer Credit Division recently obtained the ability to print two-sided license applications. By duplex printing applications, the amount of paper used in the license renewal process has been significantly reduced. The reduction in paper usage saved money both on the cost of supplies and in postage.
In 1998, the Legal Division instituted a process of reviewing publications to determine whether the continued subscription to such publications is warranted. The process, which involves the circulation of a publication subject to renewal among attorneys for their review and interest in continuing the subscription, realized a saving of $2,200 in 1998-99.
The Securities Division continued to explore ways automation might be used to increase efficiency and eliminate waste. Through the agency's MIS Division, an in-house investment advisory and securities registration database was developed. In addition, the Securities Division began preparing for the August 1999 debut of Web-CRD, an Internet-based platform that would replace the current Legacy-based Central Registration Depository System (CRD). CRD provides a means by which broker-dealers and their agents can file for registration in multiple states and with the NASD by using a centralized depository.
The division also encouraged greater use of e-mail and reliance on the department's web site in its communications with the securities industry and the investing public. By posting forms on the department's web site, the division decreased paper mailings by 50%. Through its participation in NASAA, the division was also in a position to closely monitor discussions with the Securities and Exchange Commission concerning the development of a nationwide electronic registration depository for investment advisers. The division has also continued its practice of establishing informal benchmarks to ensure that there are no unnecessary delays in the processing of registration and licensing applications.
In the securities registration area, reviewed material is sent to off-site storage promptly after critical data has been entered in the computer system, minimizing the need to create and maintain paper file folders in-house.
In striving for continued excellence in regulation, the agency devotes considerable effort to strategic planning.
Senior managers and key department employees during 1998-99 continued a comprehensive process of analyzing agency work flow and activity as part of the development of a Department of Banking Integrated Information System ("DBIIS").
Bank Examination Division managers prepared a 1998-99 strategic plan and met monthly to discuss progress in achieving its goals. Division goals include:
- to investigate innovative types of state bank charters that would benefit the public;
- to make prudent and useful investment and activity powers available to institutions;
- to encourage out-of-state banks (domestic and international) to locate or relocate in Connecticut;
- to lessen the regulatory burden whenever possible;
- to work with the Management Information Systems Division to develop new automated business systems;
- to increase available public information; and
- to ensure institutions successfully prepare for the Year 2000 date change.
While results may vary, each goal has the potential to increase efficiency or raise revenues.
Consumer Credit Division management meets regularly with division staff to discuss ways to improve division workflow procedures and the manner in which staff members perform their duties. In addition, staff members are encouraged to submit suggestions regarding possible changes to business processes to increase the effectiveness and efficiency of the division.
Securities and Business Investments Division management proactively views strategic planning as an ongoing process, and regularly meets to discuss operational improvements. General objectives are periodically established and re-evaluated by management to ensure their success.
During 1998-99, the Securities Division became more attuned to regulatory issues raised by advances in technology. Such issues included stock promotions over the Internet; Y2K awareness; and use of technology to improve the division's enforcement and examination efforts. In addition, the division focused its examination efforts more extensively on local advisers within the state, continuing to shorten the examination cycle for such registrants. Evolving federal policies and procedures continue to present challenges, as the financial services industry becomes more homogenized and global in scope. The division will continue to work with other states in developing a more uniform system governing investment adviser registration and participate in shared enforcement databases.
Equal Employment Opportunity and Affirmative Action
The Department of Banking is totally 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 continues to pursue aggressive outreach strategies through use of student internships that provide a meaningful entry into the workforce and exposure to state service. As part of this process, the Personnel Office attended an April 1999 career fair at Western Connecticut State University. The agency also hired summer workers from "Mayor Mike’s Working Wonders" program sponsored by the City of Hartford.