Philadelphia, PA (July 25, 2016) —
The Risk Management Association (RMA) has filed a comment
letter with the Federal Reserve Board, OCC, FDIC, and other regulatory agencies
regarding the proposed rule restricting Incentive-based Compensation Arrangements,
saying the proposal is overly prescriptive and warning of harmful unintended consequences.
In addition to causing a flight of bank talent to fintech
and other unregulated areas, RMA notes that the proposed rule could cause
liquidity dampening, credit market tightening, and the stifling of innovation. The
agencies released the proposed rule on a staggered basis despite a Dodd-Frank
Act directive that they issue regulations or guidance jointly, the letter says.
The agencies then adopted the same expiration date for the comment period, July
22, 2016, creating an “exceedingly narrow comment window.” RMA is seeking that
the period be extended so that it ends 90 days from the June 10, 2016, publication
of the proposed rule in the Federal Register.
Despite the limited time to review the proposed rule, RMA
suggested several improvements, including making the rule more principles-based
rather than prescriptive, and allowing institutions to interpret definitions as
appropriate given their size, scale, complexity, risk profile, and business
model.
RMA commented that incentive-based compensation programs are
an important tool used by the financial services industry to retain talent,
inspire better performance, and foster innovation that is key as banks compete
with fintechs and other disruptors. As written, RMA says, the proposed incentive
compensation rule would harm banks’ efforts in those areas through language
that is overly broad and overly prescriptive, and would go beyond the
Dodd-Frank Act’s goal of discouraging inappropriate risks.
The letter notes, for example, that the proposed rule would
apply to incentive-based compensation for executives “in the position of
risk-mitigating, not risk-taking.” Among other concerns, the RMA letter calls
the clawback period, which could extend to 11 years from the vesting date,
“excessive” and “unduly burdensome.” RMA argues instead for a period in the
range of 5 ½ to 7 years from the beginning of the performance period, which is
consistent with the length of the typical business cycle.
In closing, the letter says “institutions should have the
flexibility to determine how to address inappropriate risk-taking in a manner
consistent with their respective needs and applicable state laws.”
The letter was filed with the following agencies:
- The Board of
Governors of the Federal Reserve System
- The Federal
Deposit Insurance Corporation
- The Federal
Housing Finance Agency
- The National
Credit Union Administration
- The Office of the
Comptroller of the Currency
- The Securities and
Exchange Commission
About RMA
Founded
in 1914, The Risk Management Association is a not-for-profit, member-driven
professional association whose sole purpose is to advance the use of sound risk
management principles in the financial services industry. RMA promotes an
enterprise approach to risk management that focuses on credit risk, market risk
and operational risk. Headquartered in Philadelphia, Pennsylvania, RMA has
2,500 institutional members that include banks of all sizes as well as nonbank
financial institutions. They are represented in the Association by 18,000
individuals located throughout North America, Europe, Australia, and
Asia/Pacific.
Media Contacts
Stephen Krasowski, skrasowski@rmahq.org, 215-446-4095
Frank Devlin, fdevlin@rmahq.org,
215-446-4137