• Service: Advisory, Risk Consulting, Financial Risk Management
  • Industry: Banking & Capital Markets
  • Type: Publication series
  • Date: 5/11/2011

Regulatory Practice Letter #11-08 

Proposed Restrictions on Incentive- Based Compensation Arrangements
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In accordance with section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), on April 14, 2011, the Office of the Comptroller Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration, Securities and Exchange Commission (“SEC”), and Federal Housing Finance Agency (“FHFA”) (collectively, the “Federal Financial Regulatory Agencies”) jointly proposed rules that would limit the structure of incentive-based compensation arrangements at covered financial institutions (as defined by the Dodd-Frank Act) and covered entities (as defined by the FHFA). Specifically, covered financial institutions and entities would be prohibited from establishing compensation arrangements that provide excessive compensation to covered persons or expose the institution to activities that could lead to a material financial loss.

Such institutions would also be required to maintain policies to ensure compliance with the proposed rules and submit to their appropriate Federal regulator an annual report disclosing the structure of any incentive-based compensation arrangements. In general, compensation practices established by covered financial institutions and entities would be expected to balance risk and reward, be compatible with effective controls and risk management, and be supported by strong corporate governance. Interested parties are requested to submit their comments to the Agency that is the primary Federal regulator for the type of covered financial institution or entity addressed in the comments. All comments are requested by May 31, 2011.