Six federal agencies — the Office of the Comptroller of the Currency, Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Administration, and Securities and Exchange Commission — are seeking public comment on a proposed rule to prohibit incentive-based compensation arrangements that encourage inappropriate risks at covered financial institutions. The proposed rule was published in the Federal Register. The deadline for comments is July 22.
Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the agencies to jointly prescribe such regulations or guidelines. According to a joint news release by the agencies posted on the OCC website, there is evidence that flawed incentive-based compensation packages in the financial industry contributed to the financial crisis that began in 2007,
The proposed rules would apply to covered financial institutions with total assets of $1 billion or more. Covered institutions would be divided into three categories:
• Level 1: institutions with assets of $250 billion and above;
• Level 2: institutions with assets of $50 billion to $250 billion; and
• Level 3: institutions with assets of $1 billion to $50 billion.
Much of the proposed rules would address requirements for senior executive officers and employees who are significant risk-takers at Level 1 and Level 2 institutions, according to the release. All institutions that would be covered by the proposed rules would be required to annually document the structure of incentive-based compensation arrangements and retain those records for seven years. Boards of directors of covered institutions would be required to conduct oversight of the arrangements. All covered institutions would be subject to general prohibitions on incentive-based compensation arrangements that could encourage inappropriate risk-taking by providing excessive compensation or that could lead to a material financial loss, the release stated.
The proposed rule can be found at http://occ.gov/news-issuances/news-releases/2016/nr-ia-2016-56a.pdf.
Leave A Comment