A recent issuance from the OCC, FDIC, NCUA, and FHFA attempting to revive 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, according to a joint letter from the Bank Policy Institute, American Bankers Association, Financial Services Forum, and SIFMA.
The document largely mirrors the 2016 proposal and 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. However, the 2016 proposal is styled as a rule that would require all covered financial institutions to incorporate specific, universal requirements into their compensation arrangements.
"The recent issuance ignores industry comments on the 2016 proposal that highlighted the agencies’ limited authority under Section 956," stated the letter. It also describes compensation restrictions under consideration that would be even more prescriptive than those in the 2016 proposal.
Despite significant evolution in compensation practices within the financial services industry over the past eight years, "the proposal contains no analysis of that experience," noted the letter. The document would establish a rigid approach to compensation that deprives banks of necessary flexibility to ensure their practices are sensitive to each institution’s particular risk profile.
The Bank Policy Institute represents universal banks, regional banks, and major foreign banks operating in the United States. The American Bankers Association speaks for small, regional, and large banks employing approximately 2.1 million people and safeguarding $19 trillion in deposits. The Financial Services Forum consists of CEOs from eight large financial institutions providing extensive lending and investment services across the country. SIFMA advocates for broker-dealers, investment banks, and asset managers in U.S. and global capital markets.
For further information:
Tara Payne - Bank Policy Institute: tara.payne@bpi.com
Josh Britton - American Bankers Association: jbritton@aba.com
Barbara Hagenbaugh - Financial Services Forum: bhagenbaugh@fsforum.com
Katrina Cavalli - SIFMA: kcavalli@sifma.org