ALEXANDRIA, Va.–With NCUA saying it plans to take action on the issue in the near future, the FDIC, Office of the Comptroller of the Currency (OCC), and the Federal Housing Finance Agency (FHFA), have adopted a Notice of Proposed Rulemaking (NPR) to address incentive-based compensation arrangements, as required under section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (section 956).
The U.S. Securities and Exchange Commission (SEC) has included a rulemaking to implement section 956 on its rulemaking agenda, and the NPR is intended to advance stakeholder engagement needed to develop a final incentive-based compensation rule, according to the agencies.
What’s Being Re-Proposed
The agencies said the NPR re-proposes the regulatory text previously proposed in June 2016, and seeks public comment in the preamble on certain alternatives and questions.
The agencies further noted Section 956 requires the appropriate Federal regulators, which also include the Federal Reserve, NCUA and the SEC, to jointly prescribe regulations or guidelines with respect to incentive-based compensation practices at certain financial institutions that have $1 billion or more in assets.
Once the NPR is adopted by all six agencies, it will be published in the Federal Register with a comment period of 60 days following publication. Until then, each agency acting on the NPR will make it available on their respective website, and will accept comments, according to a joint statement.
What’s Included
The proposed rule includes:
- Prohibitions intended to make incentive-based compensation arrangements more sensitive to risk, including a prohibition on incentive-based compensation arrangements that do not include risk adjustment of awards, deferral of payments, and forfeiture and claw back provisions.
- Emphasis on the important role of sound governance and risk management control mechanisms. “These prohibitions would help safeguard covered institutions from the types and features of incentive-based compensation arrangements that encourage inappropriate risks,” the agencies said.
- The recordkeeping and disclosure requirements in the proposed regulatory text would assist the appropriate Federal regulator in monitoring and identifying areas of potential concern at covered institutions.
NCUA Reschedules Meeting
Separately, NCUA said it has rescheduled its May open meeting, originally set for Thursday, May 16, to Wednesday, May 22. It will begin at 10 a.m. E.T.
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