Incentive Compensation Document Invalid, Even More Prescriptive Than Prior Version

Washington, D.C. — A recent issuance from the OCC, FDIC, NCUA and FHFA attempting to resuscitate 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, the Bank Policy Institute, American Bankers Association, Financial Services Forum and SIFMA wrote in a joint letter
Moreover, the document largely mirrors the 2016 proposal and, like that proposal, 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, but the 2016 proposal is largely styled as a rule that would affirmatively require all covered financial institutions to incorporate specific, universal requirements into their compensation arrangements.
Doubling down: The recent issuance ignores industry comments on the 2016 proposal that highlighted the agencies’ limited authority under Section 956, and describes compensation restrictions under consideration that would be even more prescriptive than those in the 2016 proposal.
Lack of research: While compensation practices in the financial services industry have evolved considerably over the past eight years, the proposal contains no analysis of that experience. 
Inflexible: Moreover, this document, like the 2016 proposal, would establish a rigid approach to compensation that deprives banks of the flexibility needed to ensure compensation practices are sensitive to the institution’s particular risk profile.

To read the full letter, click here.


About Bank Policy Institute.

The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.

About the American Bankers Association.

The American Bankers Association is the voice of the nation’s $24 trillion banking industry, which is composed of small, regional and large banks that together employ approximately 2.1 million people, safeguard $19 trillion in deposits and extend $12.4 trillion in loans.

About the Financial Services Forum.

The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.

About SIFMA.

SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).

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