A recent issuance from the OCC, FDIC, NCUA and FHFA attempting to resuscitate a long-stalled proposal on incentive compensation practices under section 956 of the Dodd-Frank Act does not include the full set of financial regulatory agencies required to propose such a rule and therefore has no legal effect, the American Bankers Association, Bank Policy Institute, Financial Services Forum and SIFMA wrote in a joint letter.
Moreover, the document largely mirrors the 2016 proposal and, like that proposal, exceeds the agencies’ limited legal authority under Section 956. Section 956 permits the agencies to prohibit incentive-based compensation arrangements that encourage two types of “inappropriate” risks, but the 2016 proposal is largely styled as a rule that would affirmatively require all covered financial institutions to incorporate specific, universal requirements into their compensation arrangements.
Doubling down: The recent issuance ignores industry comments on the 2016 proposal that highlighted the agencies’ limited authority under Section 956, and describes compensation restrictions under consideration that would be even more prescriptive than those in the 2016 proposal.
Lack of research: While compensation practices in the financial services industry have evolved considerably over the past eight years, the proposal contains no analysis of that experience.
Inflexible: Moreover, this document, like the 2016 proposal, would establish a rigid approach to compensation that deprives banks of the flexibility needed to ensure compensation practices are sensitive to the institution’s particular risk profile.
To read the full letter, click here.
