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Good morning.
Everyone's caffeinated. Feeling good? All right.
So as Ryan said this morning, there's a lot of regulatory change underway in financial services, and we couldn't have a better person to talk to some of those changes and what's going on than I'm gonna call it the most tech forward and most progressive regulator in the U.S. maybe globally.
The what? The universe. Yeah.
There we go. The universe that works.
Uh, superintendent Adrienne Harris from the New York Department of Financial Services.
Welcome Superintendent Harris.
Thanks for having me. Good to be here.
Now, before we jump in, I wanna give some context for the amazing answers that you're going to hear.
Um, Adrienne oversees the vast majority of the financial services companies in New York State, which is thousands of companies — everything ranging from trillionaire banks to the largest of the global insurance companies to ATM companies to crypto companies.
Um, and I think, did you pass the 10 trillion asset, right?
About 10 trillion in assets under management.
That's a big pile of money that you look after.
Yes. So, a couple of areas, again, for context around your background.
Um, I think it really has been a key driver of your success in that you help build and take a fintech company public.
You spent time in the Treasury Department. Mm-Hmm.
An economic advisor to President Obama in the White House.
Any overachievers out here feeling bad about themselves right about now?
Yeah. Thanks. and has also been a professor at the University of Michigan driving law policy and financial services.
So, yeah, it's a lot.
I have a short attention span. So, to kick off, it's been three years since you were appointed by Governor Hochul as the Superintendent of the New York Department of Financial Services.
Yeah. Overseeing all of these companies, what are you the most proud of?
Yeah. And, what do you think you've done that — you and your team — has really moved the needle?
Well, as you were saying to give a little bit of extra color and context, We oversee all the banks and credit unions, all the insurance companies, across life, P&C, and health, pharmacy benefit managers, cryptocurrency, money transmitters, student lenders, mortgage servicers, You name it, we regulate it.
It’s been three years but it feels like 30 'cause there's been a lot happening in the financial services system in the three years that I've been there.
I'm the first non prosecutor to sit in my seat.
So it was really a big cultural shift for the organization to say we are going to go from like a very enforcement heavy lens to being focused on writing rules, examining companies, and, engaging much more with industry.
And so there's a lot of things I'm really proud of.
We set records every year for restitution.
I've been very, very focused on kitchen table issues and when we have to do enforcement actions on those cases, that'll get us restitution for consumers.
So in my three years, we've done about two and a half billion dollars in restitution — So money back to New Yorkers.
I'm very proud of that.
We've just proposed a health equity regulation that would require commercial insurers to collect demographic information from their insured so that we can see if our people using primary care the way they should be.
Are they not using specialists the way, you know, we might want them to be?
Um, so we've just proposed that. We did updated character and fitness guidance for our institutions.
When I got there, we had a couple of applications come in with some executives and I thought, do these people really pass the character and fitness test?
Folks said, well, they haven't been convicted of a felony. And I was like, that's not good. No, that's a real low bar.
It's not really the bar we should set.
So we've revised that. We changed the way check cashing is done in New York.
Revised the fee structure there. So the team has really just been top-notch.
We've hired, in my three years, about 500 people for the staff.
We're in the midst of a $60 million technology makeover for the department.
So it is just a very different place than the one I inherited three years ago.
You've been busy. We've been pretty busy.
And I do love that health equity move, especially using data.
Yeah. That really is a great case of data for good.
Yeah, absolutely. And then just this year, we were talking about this yesterday, we've made insulin free for all New Yorkers.
We've made it so that women, like the free insulin, women can now take paid time off for pre-natal visits.
That's something we did earlier this year as well. So lots of good things.
Nicely done. Yeah. Yeah.
So as, again, the most progressive regulator, how do you feel about that the interdependency between regulation and innovation? Yeah, I mean, I think you need to have them both.
And often the narrative is...
“You have too much regulation. It's burdensome.
it's gonna stifle innovation.” And one of the things when I came into the job, I said, this is a perfect place to prove that you can protect consumers and markets and be good for business all at the same time.
These objectives don't have to be mutually exclusive.
I think that, often, that is sort of the regulatory dialogue, but what better place to prove that doesn't have to be the case than in the financial capital of the world and in a regulator that has such a broad set of things that we oversee?
We see that all the time.
So I know we're gonna talk about crypto more, but we have probably the most rigorous crypto regulatory framework anywhere in the world.
We've built a team of 60 experts.
It's the largest crypto division of any regulator in the world.
And people were like, this is terrible.
It's so onerous. It's so awful.
And yet we see more investment in New York-regulated crypto companies than any other crypto companies, right?
So this idea that regulation is just gonna squash innovation is not necessarily true.
It just has to be good, smart regulation that's built on data, that's built on engaging with all of your stakeholders.
And that’s what we seek to do every day.
So just to drill a little deeper into that, there has been a flurry of regulation around crypto, especially globally.
What are you seeing in terms of sort of this iterative process around just how to really, bring stronger frameworks?
And how do you approach your role from that perspective?
Yeah, I mean, I inherited a very strong framework, but it hadn't been operationalized very well.
So the rules were very good.
We've done now 9 pieces of regulatory guidance just to add some meat to the bones and, and flush out our expectations a little bit more.
And now what we've seen is not only states in the U.S.
but other countries start to either copy our framework wholesale or take pieces with it.
So if you look at the EU framework, it's very similar to what we do in New York.
You know, Chairman Patrick McHenry, when he proposed to stable coin legislation said, this is modeled after New York.
So it continues to be the most rigorous framework that we see people really taking pieces from it.
And then I think as other jurisdictions sort of get caught up and we can take learnings from them, it'll be a really good feedback loop.
But I say to people often, having the rules is great, but if you can't operationalize them, well, it really doesn't matter.
So we take a very iterative approach to applications when we get them.
We have to approve material changes to business.
So if you wanna list a new token, we have to approve it.
If you want to use a new protocol, we have to approve it.
So we're really all up in everybody's stuff all the time.
But, you know, it's helped really protect New Yorkers.
So when you look back to the crypto winter, right?
FTX, Celsius, Voyager, like none of those folks were licensed to operate in New York.
So when you look at the losses to New Yorkers, they're far less than they were anywhere else.
And we continue to engage internationally and around the country around our framework.
I think we've commented on every draft bill working its way through Congress.
I'm still optimistic that some of those are going to get across the finish line.
'cause I really do think it's not good for the U.S.
that we don't have a federal framework for these instruments.
Yet we need one.
Nobody, I think, pushes harder than us to get some good legislation across the finish line there. And I imagine there's plenty of people in this room that actually hold crypto, and you can't hold these two or three things to be true.
We want innovation, but once it comes to your assets and the assets, especially of constituents, it's like, yeah, they need to be protected.
Yeah. Yeah. Well, and for us too, because we regulate several international And foreign entities, including in the crypto space.
So being able to, to set that high watermark, but then work with regulators around the world, is very gratifying.
Okay. So from one hot topic to another, again, we got like 15 minutes in without talking AI.
Look at us. There you go.
But literally at every conference you go to, it's like, how do you regulate AI?
How should regulators be thinking about it? Yeah.
How have you approached it, but also what do you see as some of the potential opportunities and drawbacks of the use of AI generally within financial services?
Yeah. Well, we just did a circular letter for all of our insurers around the use of AI in pricing and underwriting.
And we decided to take a very narrow slice, because the way you might use or regulate AI for claims or customer service is very different than the way you might use it for pricing and for underwriting.
So we really wanted to get it right and do this narrow piece.
So we put that out a few months ago.
But we really took from tried- and-true principles around anti-discrimination, right?
And we said, look, we want you to use Ai.
We understand the benefits or the potential benefits of using Ai, but of course, these standard principles of anti-discrimination persist.
And we expect that you will abide by those.
So we have pretty rigorous testing requirements.
And then a lot of it is just about governance And process, right?
So people in financial services are very familiar with third-party vendor management principles.
So we said it's not enough for you to be like, “well, we hired a vendor to do the AI and we don't know what the algorithm does.
And so it's not our fault if there's discrimination, right?” Third-party vendor management is a well-trodden regulatory path in financial services.
And those principles continue, I think, with AI — making sure you have proper governance protocols in place, the right executives, the right sort of board members and committees, and again, making sure that you have good testing frameworks.
And we did get some pushback from industry say like, “well, how can we, if we're not allowed to collect certain data, then how can we test the algorithms?” Um, but as you mentioned, I, myself, had been a part of a fintech from beginning to to public that was based in AI.
And I was like, “well, I know it's possible because I've done it, and so you can do it too.” So I think it that's been+ really successful.
We're getting ready to release some guidance around AI and cybersecurit — both what you should be thinking about in terms of defending your organization but how you also might use AI to protect , you know, your organization in a little bit more of an affirmative way.
So that's forthcoming this month.
And then of course, we're also piloting some AI use cases inside the department, which I'm really excited about.
I stood up a climate division when I came into the department, so now we're piloting some AI to read climate disclosure reports.
And, my hope is that then we'll be able to use that in our examinations more broadly when we're looking at call reports or other data that we get from our regulated entities — that we'll be able To deploy AI tools in helping us to examine.
Then we're doing another really cool thing on climate where the state University of New York has 40 years of weather data from around the state, from every five minutes for like the last four decades.
That's amazing. Every corner of the state.
So we're taking that data, overlaying it with mortgage data and insurance data, homeowners data to say, how should we be thinking about climate redlining insurance issues, right?
So we've got some really exciting AI pilots of our own in the department.
That's super great. I mean, it's great to hear, and I think there is a real promise towards, you know, self-driving money for consumers and like a lot more predictive analytics around.
It's not just, here's something that you can go do but like actually getting to automation and a whole world of opportunity can be unlocked.
But I mean, one of the things we care deeply about is data privacy and data permissioning.
And if I had a dollar for every AI entrepreneur who'd said, you know, we need the MX data set to train our models.
And I'm like, what?
MX’s data set is not our data set, right?
Like, this is our customer’s data.
It's like, where are you getting data from?
And then the temperature shifts really quickly.
And I think it is an important conversation when you're being pitched AI models.
It's like, okay, the model is one thing, but where is the data coming from?
Because the model is useless unless the data is robust and non-discriminatory, right?
It's like a proper data set. Right?
Well, and that's one thing we had to grapple with too on the anti-discrimination side, is so much of the data we have is built from a society that has these systemic biases in it.
And so there's sort of these biased and discriminatory outcomes, but you can't dismiss that The data itself reflects systemic biases that are built into our society.
And so how do you sort of pull that apart and unpack it for purposes of writing regulation?
Pretty challenging.
All right. So if that wasn't a big enough question, how do you see the financial system evolving over the next, say 5, 10, 20 years?
Yeah. And you know, again, we have people who are very successful in the room already, but will more than likely, you know, continue in their careers.
And how do you see the role for people in this room playing in that evolution?
Yeah, I mean, I think we'll continue to see sort of more interdependence between government and financial services.
I sort of grew up professionally during the last financial crisis of 2008.
And for me, that was really what sparked my interest in financial services — it was seeing when you have these really big problems, you have to have government and the private sector working together to solve them.
And that's sort of why I've spent my career going back and forth.
So I think there's lots of issues around privacy and data portability and just our payment rails And the way we pay, the way we make financial decisions.
There was a number of us talking about flood insurance last night and what the federal government covers And what it doesn't.
And I think there's just so many more areas where there's going to have to be increased collaboration between the public and private sectors.
But in the U.S. especially, it's a big, complicated legacy system.
And so I always find it interesting, I mean, you go back 15 years when people talk to fintech entrepreneurs and they'd be like, in 10 years, Citibank isn't gonna exist.
And you're like, well, that's, you know, I don't know.
It turns out regulation is really hard.
It turns out customer acquisition is really hard And expensive. And, expensive, right?
Fast forward 15 years, and Citibank is still here.
Um, so the changes — despite how fast the technology moves, the change is always much slower.
And some of that is because of regulation, but some of that is just because it's a big, complicated system.
And we like to point to examples around smaller countries that move much faster because they have less complex financial systems.
Right? But I don't think the slowness is a bad thing.
I know it's often frustrating.
It's as frustrating for a regulator sometimes as it is for industry.
But when you think about the importance of the U.S. financial system globally moving slowly and methodically to a point, it's not, necessarily a bad thing.
Yeah. Yeah.
So tactically, what does that look like?
I know what it looks like for me showing up in offices like yours or some of the federal agencies, but how, especially for anyone working on emerging technology, how do you make that happen?
Bringing private and public together? Yeah, I think, you know, there's still a little bit of this allergy for industry and regulators, right?
Like, we don't wanna go talk to the regulator unless we have to talk to the regulator, unless the regulator drags us in, right?
But I think that's a mistake, right?
I think the more people sort of come to a regulator before you need something to say, here's what we're trying to accomplish.
Here's what we'd like to do with this company.
Here's where we see this going.
I think the more you'll see that the industry's objectives are often very well aligned with the regulators’ objectives.
It's one thing we did in the company that I helped start — we would, before we ever filed a piece of paper with a regulator, like I would go in, I'd walk them through the algorithm, I'd walk them through, you know, our short-term goals, our medium-term goals, our long-term goals, and inevitably we would come out and go like, yeah, like we are mostly rowing in the same direction here.
And we find that with our companies too.
So more and more I've been encouraging our regulated entities to come in and walk the team through your five-year strategic plan.
And then when they see filings for things come in, they'll know how it fits into a bigger picture.
They can ask more directed questions and hopefully get to yes more quickly.
But it's just not in the muscle memory of industry to come in when they don't need something or in a non-adversarial position.
But we just see much better, faster outcomes when people come in and we're able to have discussions about what are often, you know, hard things.
But I hear more and more from our industry now, right?
Whereas DFS before was just sort of an enforcement.
DFS is tough, but fair.
You guys are very clear about what you want and how we need to get there.
But I almost never hear somebody say like, you are being unreasonable.
Right? It's almost always like the crypto companies in an enforcement matter where “you're being unreasonable.” And I'm like, you're going to return this $2 billion to customers.
That doesn't seem unreasonable.
Right? You took it, give it back.
So getting into, sort of, moving forward, and we've seen from, especially the federal agencies, and that must be a challenge for you.
Yeah. New York state is just such a giant ecosystem, and then you've got all of the different federal agencies.
It's something that we need to be very cognizant of that.
Yes. You know, the CFPB cares deeply about consumer data, but you know what, then you've got a lot of other agencies that have innovation arms, they've got sandboxes.
Like how, again, can you regulate?
I mean, can you navigate between that state and federal when there's so many sort of aligned, but different initiatives? Yeah, It's really complicated.
And it's been interesting for me because I felt like when I was at the Treasury Department, and when I was running the financial services portfolio in the Obama White House, I felt like we were very engaged with the states.
And I think that's changed quite a bit, where the federal regulators care less about engaging with the states.
I actually had the good fortune to be elected by my fellow state regulators to be the state banking representative on the FS OCC and the Fed.
And you would think, like for New York, that's very natural, but no, New York superintendent had been elected to do that before me and I, because I have the Washington experience, I feel like we have very constructive engagement with our federal counterparts.
But to your earlier point, I think there's more of an allergy to the innovation.
It's much more ideological and has become more ideological over the last decade and a half.
You see less of that on the state level, frankly.
I collaborate with all sorts of unlikely suspects on the state level.
But because of the ideology on the federal level, sometimes it's really hard even around simple things like mergers, where I'm like, this is the law.
This is the rule. These companies meet the requirements and so therefore they should be allowed to make this acquisition or engage in this merger.
So it's, you know, always interesting, but I think it's now a much better working relationship than I think it has been historically.
'cause DFS was always sort of a lone wolf, and now we do collaborate much more, even when we, Disagree with the federal regulations.
It's a careful dance and balance that we strike.
If you could update key statutes, like key laws that have been out there for sometimes decades?
Sometimes, I think one of the investment one's gonna hit a century shortly.
Would that be a priority?
Like how could you just jam as much modern regulation and and laws through Congress?
Yeah. I mean, well, the congressional thing is really hard.
And there are lots of laws and regulations, I think that we would alll sit around and say like, this needs to be updated and modernized.
I mean, one thing we've done in New York is I went out to industry and advocates and said like, what's really outdated?
And some of them, you know, we updated some things around capital requirements for insurance companies to reflect the fact that private equity is much more engaged, especially in the life insurance industry, these days.
So we did some updates there.
The character and fitness was a needed update that we made.
You know, the check cashing fees, other things I've mentioned, but I think it does take that engagement and going to people and say like, what's really outdated?
And sometimes they are really substantive rules that impact your capital allocation or your business decision making.
Sometimes they're just operational things that slow government and business down.
So we always required fingerprints for lots of our licensing.
And I was like, well, why do we need?
What do we do with these fingerprint cards when people go and get fingerprinted and they mail us the fingerprint Cards? What do we do with them?
And of course, the answer was like, they go in a closet, and I was like, so do we need these?
Like, we can actually do background checks without, and so, on the insurance side, we got rid of that requirement.
Now is that something that hits at the core of your business?
No. But is it something that makes your engagement with government that much easier?
Yes. So we're always on the lookout for things we can improve, modernize, and do better. Nice.
Yeah. So one last quick question.
Is there anything that you wanted to cover today that we didn't get to?
No, I think, as you can tell, I'm a big proponent of cross sector engagement.
When I came into the role, we redid our mission statement and came up with a new set of core values.
And one of those was really about collaboration, engagement, and being data-driven, so that any regulatory decision we made, like I'd be perfectly comfortable making them public, right?
If I needed to, to say like, here's how we made this decision.
Here's the data we relied on, here's the analysis we did, right?
And we do that with a lot of our companies.
So I think it speaks to, um, our desire to have companies, whether they're traditional companies or innovative companies, really come in and engage with us on particular matters or on big picture topics.
I think the other thing I would say is, if you haven't, I think it's very easy to sit on the industry side.
And before I ever came to government, I was one of these people, right, who sat on the industry side, and I was like, oh, these dumb people in government.
Bureaucrats — they don't get it.
Like, they just don't understand.
And I think, you know, after I had come to government and then gone back to the private sector, I think the one thing people should take away if you haven't been in government service, is that the set of stakeholders that we have to serve as public stakeholders or as public servants and that we have to take account of are far greater than the number of stakeholders that you have to deal with in a private sector context.
And so the number of objectives that we're trying to achieve with a single decision is just far more complex.
So I would say if you're frustrated with your regulator, sometimes it's warranted.
But if you have an honest conversation with them about the things that they need to achieve through their decision making, I think you'd find that their decisions make a lot more sense than maybe you feel like they do at first blush.
Fantastic. Well, we are so thrilled that you could join us in the mountains this week.
We're happy to do it. We're bummed you can't stick around longer.
But, where can people follow what you're doing and keep up to date with what's going on?
So we do a lot of just posting on LinkedIn every time we do a new proposed reg or circular letter or guidance.
So we've been really engaged much more.
We just started a new stakeholder newsletter, so you can come to the DFS website, sign up for a variety of different updates or just our general newsletter that we've just launched.
So yeah. Well, thanks.
Becoming a more modern regulator all the time with little things like LinkedIn.
Your LinkedIn feed is amazing.
Keeps us all smarter. Yeah.
Superintendent Harris, thank you so much for joining us today. Thanks for having me.
Fireside Chat with Adrienne Harris, Superintendent, New York State Department of Financial Services
The evolution of the finanical industry is paving the way for improved technology — including AI — while continuing to require regulations that protect consumers. Adrienne Harris talks through the future of regulation and its impact of innovation.
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Transcript
Everyone's caffeinated. Feeling good? All right.
So as Ryan said this morning, there's a lot of regulatory change underway in financial services, and we couldn't have a better person to talk to some of those changes and what's going on than I'm gonna call it the most tech forward and most progressive regulator in the U.S. maybe globally.
The what? The universe. Yeah.
There we go. The universe that works.
Uh, superintendent Adrienne Harris from the New York Department of Financial Services.
Welcome Superintendent Harris.
Thanks for having me. Good to be here.
Now, before we jump in, I wanna give some context for the amazing answers that you're going to hear.
Um, Adrienne oversees the vast majority of the financial services companies in New York State, which is thousands of companies — everything ranging from trillionaire banks to the largest of the global insurance companies to ATM companies to crypto companies.
Um, and I think, did you pass the 10 trillion asset, right?
About 10 trillion in assets under management.
That's a big pile of money that you look after.
Yes. So, a couple of areas, again, for context around your background.
Um, I think it really has been a key driver of your success in that you help build and take a fintech company public.
You spent time in the Treasury Department. Mm-Hmm.
An economic advisor to President Obama in the White House.
Any overachievers out here feeling bad about themselves right about now?
Yeah. Thanks. and has also been a professor at the University of Michigan driving law policy and financial services.
So, yeah, it's a lot.
I have a short attention span. So, to kick off, it's been three years since you were appointed by Governor Hochul as the Superintendent of the New York Department of Financial Services.
Yeah. Overseeing all of these companies, what are you the most proud of?
Yeah. And, what do you think you've done that — you and your team — has really moved the needle?
Well, as you were saying to give a little bit of extra color and context, We oversee all the banks and credit unions, all the insurance companies, across life, P&C, and health, pharmacy benefit managers, cryptocurrency, money transmitters, student lenders, mortgage servicers, You name it, we regulate it.
It’s been three years but it feels like 30 'cause there's been a lot happening in the financial services system in the three years that I've been there.
I'm the first non prosecutor to sit in my seat.
So it was really a big cultural shift for the organization to say we are going to go from like a very enforcement heavy lens to being focused on writing rules, examining companies, and, engaging much more with industry.
And so there's a lot of things I'm really proud of.
We set records every year for restitution.
I've been very, very focused on kitchen table issues and when we have to do enforcement actions on those cases, that'll get us restitution for consumers.
So in my three years, we've done about two and a half billion dollars in restitution — So money back to New Yorkers.
I'm very proud of that.
We've just proposed a health equity regulation that would require commercial insurers to collect demographic information from their insured so that we can see if our people using primary care the way they should be.
Are they not using specialists the way, you know, we might want them to be?
Um, so we've just proposed that. We did updated character and fitness guidance for our institutions.
When I got there, we had a couple of applications come in with some executives and I thought, do these people really pass the character and fitness test?
Folks said, well, they haven't been convicted of a felony. And I was like, that's not good. No, that's a real low bar.
It's not really the bar we should set.
So we've revised that. We changed the way check cashing is done in New York.
Revised the fee structure there. So the team has really just been top-notch.
We've hired, in my three years, about 500 people for the staff.
We're in the midst of a $60 million technology makeover for the department.
So it is just a very different place than the one I inherited three years ago.
You've been busy. We've been pretty busy.
And I do love that health equity move, especially using data.
Yeah. That really is a great case of data for good.
Yeah, absolutely. And then just this year, we were talking about this yesterday, we've made insulin free for all New Yorkers.
We've made it so that women, like the free insulin, women can now take paid time off for pre-natal visits.
That's something we did earlier this year as well. So lots of good things.
Nicely done. Yeah. Yeah.
So as, again, the most progressive regulator, how do you feel about that the interdependency between regulation and innovation? Yeah, I mean, I think you need to have them both.
And often the narrative is...
“You have too much regulation. It's burdensome.
it's gonna stifle innovation.” And one of the things when I came into the job, I said, this is a perfect place to prove that you can protect consumers and markets and be good for business all at the same time.
These objectives don't have to be mutually exclusive.
I think that, often, that is sort of the regulatory dialogue, but what better place to prove that doesn't have to be the case than in the financial capital of the world and in a regulator that has such a broad set of things that we oversee?
We see that all the time.
So I know we're gonna talk about crypto more, but we have probably the most rigorous crypto regulatory framework anywhere in the world.
We've built a team of 60 experts.
It's the largest crypto division of any regulator in the world.
And people were like, this is terrible.
It's so onerous. It's so awful.
And yet we see more investment in New York-regulated crypto companies than any other crypto companies, right?
So this idea that regulation is just gonna squash innovation is not necessarily true.
It just has to be good, smart regulation that's built on data, that's built on engaging with all of your stakeholders.
And that’s what we seek to do every day.
So just to drill a little deeper into that, there has been a flurry of regulation around crypto, especially globally.
What are you seeing in terms of sort of this iterative process around just how to really, bring stronger frameworks?
And how do you approach your role from that perspective?
Yeah, I mean, I inherited a very strong framework, but it hadn't been operationalized very well.
So the rules were very good.
We've done now 9 pieces of regulatory guidance just to add some meat to the bones and, and flush out our expectations a little bit more.
And now what we've seen is not only states in the U.S.
but other countries start to either copy our framework wholesale or take pieces with it.
So if you look at the EU framework, it's very similar to what we do in New York.
You know, Chairman Patrick McHenry, when he proposed to stable coin legislation said, this is modeled after New York.
So it continues to be the most rigorous framework that we see people really taking pieces from it.
And then I think as other jurisdictions sort of get caught up and we can take learnings from them, it'll be a really good feedback loop.
But I say to people often, having the rules is great, but if you can't operationalize them, well, it really doesn't matter.
So we take a very iterative approach to applications when we get them.
We have to approve material changes to business.
So if you wanna list a new token, we have to approve it.
If you want to use a new protocol, we have to approve it.
So we're really all up in everybody's stuff all the time.
But, you know, it's helped really protect New Yorkers.
So when you look back to the crypto winter, right?
FTX, Celsius, Voyager, like none of those folks were licensed to operate in New York.
So when you look at the losses to New Yorkers, they're far less than they were anywhere else.
And we continue to engage internationally and around the country around our framework.
I think we've commented on every draft bill working its way through Congress.
I'm still optimistic that some of those are going to get across the finish line.
'cause I really do think it's not good for the U.S.
that we don't have a federal framework for these instruments.
Yet we need one.
Nobody, I think, pushes harder than us to get some good legislation across the finish line there. And I imagine there's plenty of people in this room that actually hold crypto, and you can't hold these two or three things to be true.
We want innovation, but once it comes to your assets and the assets, especially of constituents, it's like, yeah, they need to be protected.
Yeah. Yeah. Well, and for us too, because we regulate several international And foreign entities, including in the crypto space.
So being able to, to set that high watermark, but then work with regulators around the world, is very gratifying.
Okay. So from one hot topic to another, again, we got like 15 minutes in without talking AI.
Look at us. There you go.
But literally at every conference you go to, it's like, how do you regulate AI?
How should regulators be thinking about it? Yeah.
How have you approached it, but also what do you see as some of the potential opportunities and drawbacks of the use of AI generally within financial services?
Yeah. Well, we just did a circular letter for all of our insurers around the use of AI in pricing and underwriting.
And we decided to take a very narrow slice, because the way you might use or regulate AI for claims or customer service is very different than the way you might use it for pricing and for underwriting.
So we really wanted to get it right and do this narrow piece.
So we put that out a few months ago.
But we really took from tried- and-true principles around anti-discrimination, right?
And we said, look, we want you to use Ai.
We understand the benefits or the potential benefits of using Ai, but of course, these standard principles of anti-discrimination persist.
And we expect that you will abide by those.
So we have pretty rigorous testing requirements.
And then a lot of it is just about governance And process, right?
So people in financial services are very familiar with third-party vendor management principles.
So we said it's not enough for you to be like, “well, we hired a vendor to do the AI and we don't know what the algorithm does.
And so it's not our fault if there's discrimination, right?” Third-party vendor management is a well-trodden regulatory path in financial services.
And those principles continue, I think, with AI — making sure you have proper governance protocols in place, the right executives, the right sort of board members and committees, and again, making sure that you have good testing frameworks.
And we did get some pushback from industry say like, “well, how can we, if we're not allowed to collect certain data, then how can we test the algorithms?” Um, but as you mentioned, I, myself, had been a part of a fintech from beginning to to public that was based in AI.
And I was like, “well, I know it's possible because I've done it, and so you can do it too.” So I think it that's been+ really successful.
We're getting ready to release some guidance around AI and cybersecurit — both what you should be thinking about in terms of defending your organization but how you also might use AI to protect , you know, your organization in a little bit more of an affirmative way.
So that's forthcoming this month.
And then of course, we're also piloting some AI use cases inside the department, which I'm really excited about.
I stood up a climate division when I came into the department, so now we're piloting some AI to read climate disclosure reports.
And, my hope is that then we'll be able to use that in our examinations more broadly when we're looking at call reports or other data that we get from our regulated entities — that we'll be able To deploy AI tools in helping us to examine.
Then we're doing another really cool thing on climate where the state University of New York has 40 years of weather data from around the state, from every five minutes for like the last four decades.
That's amazing. Every corner of the state.
So we're taking that data, overlaying it with mortgage data and insurance data, homeowners data to say, how should we be thinking about climate redlining insurance issues, right?
So we've got some really exciting AI pilots of our own in the department.
That's super great. I mean, it's great to hear, and I think there is a real promise towards, you know, self-driving money for consumers and like a lot more predictive analytics around.
It's not just, here's something that you can go do but like actually getting to automation and a whole world of opportunity can be unlocked.
But I mean, one of the things we care deeply about is data privacy and data permissioning.
And if I had a dollar for every AI entrepreneur who'd said, you know, we need the MX data set to train our models.
And I'm like, what?
MX’s data set is not our data set, right?
Like, this is our customer’s data.
It's like, where are you getting data from?
And then the temperature shifts really quickly.
And I think it is an important conversation when you're being pitched AI models.
It's like, okay, the model is one thing, but where is the data coming from?
Because the model is useless unless the data is robust and non-discriminatory, right?
It's like a proper data set. Right?
Well, and that's one thing we had to grapple with too on the anti-discrimination side, is so much of the data we have is built from a society that has these systemic biases in it.
And so there's sort of these biased and discriminatory outcomes, but you can't dismiss that The data itself reflects systemic biases that are built into our society.
And so how do you sort of pull that apart and unpack it for purposes of writing regulation?
Pretty challenging.
All right. So if that wasn't a big enough question, how do you see the financial system evolving over the next, say 5, 10, 20 years?
Yeah. And you know, again, we have people who are very successful in the room already, but will more than likely, you know, continue in their careers.
And how do you see the role for people in this room playing in that evolution?
Yeah, I mean, I think we'll continue to see sort of more interdependence between government and financial services.
I sort of grew up professionally during the last financial crisis of 2008.
And for me, that was really what sparked my interest in financial services — it was seeing when you have these really big problems, you have to have government and the private sector working together to solve them.
And that's sort of why I've spent my career going back and forth.
So I think there's lots of issues around privacy and data portability and just our payment rails And the way we pay, the way we make financial decisions.
There was a number of us talking about flood insurance last night and what the federal government covers And what it doesn't.
And I think there's just so many more areas where there's going to have to be increased collaboration between the public and private sectors.
But in the U.S. especially, it's a big, complicated legacy system.
And so I always find it interesting, I mean, you go back 15 years when people talk to fintech entrepreneurs and they'd be like, in 10 years, Citibank isn't gonna exist.
And you're like, well, that's, you know, I don't know.
It turns out regulation is really hard.
It turns out customer acquisition is really hard And expensive. And, expensive, right?
Fast forward 15 years, and Citibank is still here.
Um, so the changes — despite how fast the technology moves, the change is always much slower.
And some of that is because of regulation, but some of that is just because it's a big, complicated system.
And we like to point to examples around smaller countries that move much faster because they have less complex financial systems.
Right? But I don't think the slowness is a bad thing.
I know it's often frustrating.
It's as frustrating for a regulator sometimes as it is for industry.
But when you think about the importance of the U.S. financial system globally moving slowly and methodically to a point, it's not, necessarily a bad thing.
Yeah. Yeah.
So tactically, what does that look like?
I know what it looks like for me showing up in offices like yours or some of the federal agencies, but how, especially for anyone working on emerging technology, how do you make that happen?
Bringing private and public together? Yeah, I think, you know, there's still a little bit of this allergy for industry and regulators, right?
Like, we don't wanna go talk to the regulator unless we have to talk to the regulator, unless the regulator drags us in, right?
But I think that's a mistake, right?
I think the more people sort of come to a regulator before you need something to say, here's what we're trying to accomplish.
Here's what we'd like to do with this company.
Here's where we see this going.
I think the more you'll see that the industry's objectives are often very well aligned with the regulators’ objectives.
It's one thing we did in the company that I helped start — we would, before we ever filed a piece of paper with a regulator, like I would go in, I'd walk them through the algorithm, I'd walk them through, you know, our short-term goals, our medium-term goals, our long-term goals, and inevitably we would come out and go like, yeah, like we are mostly rowing in the same direction here.
And we find that with our companies too.
So more and more I've been encouraging our regulated entities to come in and walk the team through your five-year strategic plan.
And then when they see filings for things come in, they'll know how it fits into a bigger picture.
They can ask more directed questions and hopefully get to yes more quickly.
But it's just not in the muscle memory of industry to come in when they don't need something or in a non-adversarial position.
But we just see much better, faster outcomes when people come in and we're able to have discussions about what are often, you know, hard things.
But I hear more and more from our industry now, right?
Whereas DFS before was just sort of an enforcement.
DFS is tough, but fair.
You guys are very clear about what you want and how we need to get there.
But I almost never hear somebody say like, you are being unreasonable.
Right? It's almost always like the crypto companies in an enforcement matter where “you're being unreasonable.” And I'm like, you're going to return this $2 billion to customers.
That doesn't seem unreasonable.
Right? You took it, give it back.
So getting into, sort of, moving forward, and we've seen from, especially the federal agencies, and that must be a challenge for you.
Yeah. New York state is just such a giant ecosystem, and then you've got all of the different federal agencies.
It's something that we need to be very cognizant of that.
Yes. You know, the CFPB cares deeply about consumer data, but you know what, then you've got a lot of other agencies that have innovation arms, they've got sandboxes.
Like how, again, can you regulate?
I mean, can you navigate between that state and federal when there's so many sort of aligned, but different initiatives? Yeah, It's really complicated.
And it's been interesting for me because I felt like when I was at the Treasury Department, and when I was running the financial services portfolio in the Obama White House, I felt like we were very engaged with the states.
And I think that's changed quite a bit, where the federal regulators care less about engaging with the states.
I actually had the good fortune to be elected by my fellow state regulators to be the state banking representative on the FS OCC and the Fed.
And you would think, like for New York, that's very natural, but no, New York superintendent had been elected to do that before me and I, because I have the Washington experience, I feel like we have very constructive engagement with our federal counterparts.
But to your earlier point, I think there's more of an allergy to the innovation.
It's much more ideological and has become more ideological over the last decade and a half.
You see less of that on the state level, frankly.
I collaborate with all sorts of unlikely suspects on the state level.
But because of the ideology on the federal level, sometimes it's really hard even around simple things like mergers, where I'm like, this is the law.
This is the rule. These companies meet the requirements and so therefore they should be allowed to make this acquisition or engage in this merger.
So it's, you know, always interesting, but I think it's now a much better working relationship than I think it has been historically.
'cause DFS was always sort of a lone wolf, and now we do collaborate much more, even when we, Disagree with the federal regulations.
It's a careful dance and balance that we strike.
If you could update key statutes, like key laws that have been out there for sometimes decades?
Sometimes, I think one of the investment one's gonna hit a century shortly.
Would that be a priority?
Like how could you just jam as much modern regulation and and laws through Congress?
Yeah. I mean, well, the congressional thing is really hard.
And there are lots of laws and regulations, I think that we would alll sit around and say like, this needs to be updated and modernized.
I mean, one thing we've done in New York is I went out to industry and advocates and said like, what's really outdated?
And some of them, you know, we updated some things around capital requirements for insurance companies to reflect the fact that private equity is much more engaged, especially in the life insurance industry, these days.
So we did some updates there.
The character and fitness was a needed update that we made.
You know, the check cashing fees, other things I've mentioned, but I think it does take that engagement and going to people and say like, what's really outdated?
And sometimes they are really substantive rules that impact your capital allocation or your business decision making.
Sometimes they're just operational things that slow government and business down.
So we always required fingerprints for lots of our licensing.
And I was like, well, why do we need?
What do we do with these fingerprint cards when people go and get fingerprinted and they mail us the fingerprint Cards? What do we do with them?
And of course, the answer was like, they go in a closet, and I was like, so do we need these?
Like, we can actually do background checks without, and so, on the insurance side, we got rid of that requirement.
Now is that something that hits at the core of your business?
No. But is it something that makes your engagement with government that much easier?
Yes. So we're always on the lookout for things we can improve, modernize, and do better. Nice.
Yeah. So one last quick question.
Is there anything that you wanted to cover today that we didn't get to?
No, I think, as you can tell, I'm a big proponent of cross sector engagement.
When I came into the role, we redid our mission statement and came up with a new set of core values.
And one of those was really about collaboration, engagement, and being data-driven, so that any regulatory decision we made, like I'd be perfectly comfortable making them public, right?
If I needed to, to say like, here's how we made this decision.
Here's the data we relied on, here's the analysis we did, right?
And we do that with a lot of our companies.
So I think it speaks to, um, our desire to have companies, whether they're traditional companies or innovative companies, really come in and engage with us on particular matters or on big picture topics.
I think the other thing I would say is, if you haven't, I think it's very easy to sit on the industry side.
And before I ever came to government, I was one of these people, right, who sat on the industry side, and I was like, oh, these dumb people in government.
Bureaucrats — they don't get it.
Like, they just don't understand.
And I think, you know, after I had come to government and then gone back to the private sector, I think the one thing people should take away if you haven't been in government service, is that the set of stakeholders that we have to serve as public stakeholders or as public servants and that we have to take account of are far greater than the number of stakeholders that you have to deal with in a private sector context.
And so the number of objectives that we're trying to achieve with a single decision is just far more complex.
So I would say if you're frustrated with your regulator, sometimes it's warranted.
But if you have an honest conversation with them about the things that they need to achieve through their decision making, I think you'd find that their decisions make a lot more sense than maybe you feel like they do at first blush.
Fantastic. Well, we are so thrilled that you could join us in the mountains this week.
We're happy to do it. We're bummed you can't stick around longer.
But, where can people follow what you're doing and keep up to date with what's going on?
So we do a lot of just posting on LinkedIn every time we do a new proposed reg or circular letter or guidance.
So we've been really engaged much more.
We just started a new stakeholder newsletter, so you can come to the DFS website, sign up for a variety of different updates or just our general newsletter that we've just launched.
So yeah. Well, thanks.
Becoming a more modern regulator all the time with little things like LinkedIn.
Your LinkedIn feed is amazing.
Keeps us all smarter. Yeah.
Superintendent Harris, thank you so much for joining us today. Thanks for having me.
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