Dodd-Frank Financial Services Incentive Compensation Restrictions Potentially Back on Regulators’ Agenda
March 16, 2019
Last week news stories surfaced that financial services regulators were contemplating reviving and completing regulations mandated by the Dodd-Frank Act on incentive compensation at financial services institutions. The rules under “Section 956” of the Dodd-Frank Act required six financial regulators-- The Federal Reserve, FDIC, Office of the Comptroller of the Currency, SEC, Federal Housing Finance Agency and the National Credit Union Administration – to develop rules that require longer-term deferrals especially for employees or groups of employees that are deemed “higher risk takers.” The rules have been proposed twice and both times the six regulators were unable to agree on a unified approach. However, thanks in part to greater restrictions by the regulators, financial institutions have adopted pay approaches that require greater deferral of compensation that is adjusted for losses on longer term products during the deferral period.
The Center has filed comments on both sets of proposed rules. One of the Center's primary themes in our comment letter to the six regulators charged with jointly implementing the provision in 2016 was that the April 2016 re-proposed rule eschewed a focus on risk-potential in favor of regulating based on asset size as well as compensation quantity and form. The assumption that high asset size and high pay necessarily correlate to risk potential, we argued, is flawed because most typically, greater risk is affiliated with more complex activities, rather than merely size.
Following the initial reports that regulators were starting to talk about proposal, the American Banker reported that both the FDIC and the SEC expresses skepticism that regulators would make the rules a priority. Earlier this week, FDIC Chair Jelena McWilliams said, “I don't know that there is that much movement on it," and SEC Chair Jay Clayton said he was open to thinking about it, but ““I would put more certainty around the SEC-only items that are on our agenda.”