Federal Regulators Re-Propose Joint Rule on Incentive-Based Compensation Arrangements at Large Financial Institutions

Six federal financial regulators are seeking comment on a joint re-proposed rule implementing Section 956 of the Dodd-Frank Act relating to incentive-based compensation arrangements and practices at certain regulated financial institutions satisfying specified asset size thresholds. In general, the rule would prohibit covered institutions from awarding incentive-based compensation that is believed to encourage inappropriate risks and would impose mandatory deferral and clawback provisions. It would require such institutions to disclose certain information regarding the structure of their incentive-based compensation arrangements to the applicable regulator. 

The rule would apply to any covered institution with average total consolidated assets greater than or equal to $1 billion that offers incentive-based compensation to covered persons, with more rigorous requirements applying to covered institutions with $50 billion or more of average total consolidated assets. In the case of investment advisers, only proprietary assets would count towards these thresholds.

The rule was initially proposed in April 2011 by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration and the Securities and Exchange Commission. Comments on the proposed rule are due by July 22, 2016. 

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