SIFMA Proposes Guiding Principles for Re-Proposals to Regulate Incentive-Based Compensation

SIFMA proposed a set of "overarching principles" that should guide future revisions and re-proposals regarding incentive-based compensation arrangements at covered financial institutions. In a comment letter, SIFMA stated that the responsibility for promulgating these revisions and re-proposals would fall on the Office of the Comptroller of the Currency, the Federal Reserve, the FDIC, the National Credit Union Administration, the SEC and the Federal Housing Finance Agency (collectively, the "Agencies") pursuant to Dodd-Frank Act Section 956 ("Enhanced Compensation Structure Reporting"). The comment letter focused on three principles for any re-proposal: i) that the cost and benefits be considered; ii) that provisions should not be vague; and iii) that it does not confer general authority to re-design compensation arrangements.

Specifically, SIFMA recommended that the Agencies:

• evaluate the rules' economic impact, including whether they might encourage "inappropriate risks";
• consider the competitive burden that the rules will impose on covered institutions relative to their domestic and foreign competitors, which will not be subject to the same regulation;
• make compliance with the reproposal simpler and less burdensome by specifying the regulator to which members of a controlled group should report, and by avoiding multiple definitions of the same term (e.g., "executive officer" and "material risk-taker");
• avoid promulgating "vague and open-ended regulations" that can be interpreted later as the Agencies see fit;
• avoid redesigning compensation arrangements based on perceived best practices, emerging international norms or beliefs about the ideal alignment of compensation, shareholders' interest and public policy goals at the Agencies' own discretion; and
• base the "entirety" of the rules under Dodd-Frank Section 956 on the standards in Section 1831p-1 of the Federal Deposit Insurance Act.