In a move to curb reckless banking practices, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Federal Housing Finance Agency (FHFA) have jointly issued a Notice of Proposed Rulemaking (NPR) targeting incentive-based compensation arrangements at banks with over $1 billion in assets.
The proposal, which seeks public comment, aims to re-propose regulations previously introduced in 2016 and address concerns over risk-filled compensation packages. The regulators intend to advance stakeholder engagement and develop a final rule that will better align with the spirit of Section 956 of the Dodd-Frank Act.
The proposed rule includes prohibitions on incentive-based compensation arrangements lacking risk adjustment, deferral of payments, and forfeiture and clawback provisions. These measures aim to safeguard covered institutions from risk-filled compensation packages that encourage reckless behavior.
The Federal Register will publish the NPR with a 60-day comment period following adoption by all six agencies involved. The National Credit Union Administration (NCUA) is expected to take action on the NPR soon, while the U.S. Securities and Exchange Commission (SEC) has included a rulemaking to implement Section 956 on its agenda.
The regulators have made it clear that the proposed rule is a crucial step towards reining in the types of incentive-based compensation arrangements that have led to financial crises in the past. By emphasizing sound governance and risk management mechanisms, the regulators hope to prevent similar disasters from occurring in the future.
Comments received on the NPR and those previously submitted on the 2016 NPR will inform efforts to address incentive-based compensation arrangements. The regulators are intent on ensuring that the final rule strikes a balance between rewarding performance and promoting responsible risk-taking.
The proposed rule is a significant step towards addressing the risks associated with incentive-based compensation arrangements. As the regulators move forward with this proposal, it is clear that they are committed to creating a safer and more stable financial system.
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Key Facts
- Agency: FDIC
- Category: Fraud & Financial Crimes
- Source: Official Source â†â€â€ÂÂÂ
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