The reintroduction of a 2016 proposed rule to create new limits on incentive compensation at certain financial institutions does not reflect any of the concerns raised by the industry when it was first introduced eight years ago, nor would it have any legal standing as it is moving forward without the participation of key federal agencies, the American Bankers Association and three associations said today in a joint letter to banking regulators.
Section 956 of the Dodd-Frank Act requires six agencies—the Federal Reserve, FDIC, OCC, National Credit Union Administration, Securities and Exchange Commission and Federal Housing Finance Agency—to jointly issue regulations or guidelines to prohibit incentive-based compensation arrangements that encourage excessive risk-taking at financial institutions with at least $1 billion in assets. A 2016 proposal to do just that was reintroduced earlier this year by four of the agencies, but not the SEC or Fed.
In their letter, the associations noted both the lack of participation of the SEC and Fed as well as the decision by the remaining agencies to request comment through press release rather than publication in the Federal Register, as required by the Administrative Procedures Act. Further, they noted that the proposal is just a copy of the 2016 rulemaking that was never finalized, incorporating none of the recommendations and concerns raised by the industry when that proposal went through the public review process. They added that even though compensation practices have changed since the rulemaking was first proposed, the new proposal contains no analysis of those trends. Finally, the proposal suggests the four agencies are considering further changes with even more prescriptive elements than first suggested.
“Given that the notice will not be sent to the Federal Register, and therefore will trigger none of the rights and responsibilities of the Administrative Procedure Act, it has no legal effect,” the associations said. “We believe that any comprehensive comment at this point would be premature and would validate an ersatz, unprecedented process.”
