Compliance Blog

Posted by Anthony Demangone

Yesterday, the FDIC issued a proposed rule that addresses incentive based compensation.  If you look at the proposal, you'll see that NCUA's name is on the rule as well.  NCUA's board has not proposed this rule...yet.  They may do so during this month's NCUA board meeting. Here's what the rule is all about, from the regulator's perspective:

The proposed rule would require the reporting of incentive-based compensation arrangements by a covered financial institution and prohibit incentive-based compensation arrangements at a covered financial institution that provide excessive compensation or that could expose the institution to inappropriate risks that could lead to a material financial loss.

Here's an article that appeared in NAFCU Today that provides a brief overview of the proposal.

You always have to be careful when looking at joint rules. NCUA hasn't published its rule yet, but I'll make the following comments based on the FDIC's regulation and the commentary section of the proposal.  But, we won't know anything for sure until we see the proposal as approved by NCUA's board.  

In short, covered credit unions (those with more than $1 billion in assets) would have to file an annual report to NCUA that details the structure of the credit union's incentive-based compensation plans. The plan would have to be sufficient to allow NCUA's assessment of whether the structure or features of the compensation plan provides (or likely provides) covered persons with excessive compensation, fees, or benefits to covered persons or could lead to material financial loss to the credit union.  Those credit unions (more than $1 billion) will also have to provide a description of any specific incentive compensation policies for the credit union's executive officers, and others who individually have the ability to expose the credit union to possible losses that are substantial in relation to the credit union's size, capital, or overall risk tolerance. The FDIC rule has some provisions that would mandate deferred compensation in some instances.  It isn't 100% clear whether NCUA will build in similar provisions.

Here are a few things to note:

• This is just a proposal. When NCUA issues its proposal, NAFCU will prepare a comment letter and a handy dandy Regulatory Alert.  All credit unions will have the ability to comment as well.
• There's no requirement to disclose any specific compensation levels based on my reading of this rule. In addition there's no public disclosure at all.  Any required disclosure would go to NCUA.  The issue, as I see it, is this: NCUA will now be able to second-guess your compensation policy if it feels it creates undue risk to your credit union.
• If the rule goes into effect as written, it very well may require your credit union (assuming it is covered) to rework its compensation policies and practices. 

Stay tuned!  As I've stressed above, this post is based on the FDIC's regulation.  We'll have to wait to see what NCUA writes.  But this should allow us to prepare for their proposal. 

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Interchange.  Here's a humorous and sarcastic letter of support (The Raddon Report) for the Durbin Amendment interchange restrictions.  I laughed out loud. But Apple and iTunes may not be chuckling.

New Name, Same Great Report.  NAFCU has updated the name of the Flash Report to the NAFCU Economic & CU Issues Monitor.

Congressional Caucus.  Speaking of new...  If you haven't noticed, NAFCU's Congressional Caucus is moving to a new location this year: The Mayflower Renaissance Hotel. That's a nice facility. 

NCUA Report.  The February NCUA Report is available.