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Samantha: Hello, this is Samantha Shares.

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This episode covers N C U A’s Proposed
Incentive-based Compensation Rule

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The following is a summary
of that 200 page proposal.

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This podcast is educational
and is not legal advice.

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We are sponsored by Credit Union
Exam Solutions Incorporated, whose

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team has over two hundred and
Forty years of National Credit

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Union  Administration experience.

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We assist our clients with N C
U A so they save time and money.

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If you are worried about a recent,
upcoming or in process N C U A

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examination, reach out to learn how they
can assist at Mark Treichel DOT COM.

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Also check out our other podcast called
With Flying Colors where we provide tips

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on how to achieve success with N C U A.

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And now the summary.

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The proposed rule implements Section
956 of the Dodd-Frank Act, addressing

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concerns about flawed incentive-based
compensation practices that contributed

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to the 2008 financial crisis.

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It builds on previous proposals
from 2011 and 2016, incorporating

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supervisory experience and
industry developments since then.

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This regulation covers financial
institutions with $1 billion or

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more in assets, including banks,
credit unions, Federal Home Loan

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Banks, Fannie Mae, Freddie Mac, and
certain subsidiaries, but excludes

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functionally regulated subsidiaries like
broker-dealers and investment advisers.

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The rule establishes a tiered structure
with Level 1 institutions having $250

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billion or more in assets, Level 2
with $50 billion to $250 billion,

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and Level 3 with $1 billion to $50
billion, applying more stringent

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requirements to larger institutions.

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Key definitions in the rule include
"covered persons" (executive officers,

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employees, directors, and principal
shareholders), "senior executive

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officers" (defined roles such as
CEO and CFO), and "significant

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risk-takers" (determined by compensation
level and risk exposure ability).

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All covered institutions must prohibit
excessive compensation, ensure

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incentive-based compensation appropriately
balances risk and reward, maintain board

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oversight of compensation programs,
and comply with specific disclosure

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and recordkeeping requirements.

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Level 1 and Level 2 institutions face
additional requirements including

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mandatory deferral of a portion of
incentive-based compensation, forfeiture

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and downward adjustment policies,
clawback provisions, prohibitions on

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certain practices like hedging, and
enhanced risk management, governance,

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and policy documentation requirements.

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The rule provides regulatory flexibility,
allowing regulators to apply stricter

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standards to Level 3 institutions if
warranted and providing for modifications

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as institutions change in size.

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Implementation is proposed for 540 days
after the final rule's publication,

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with grandfathering provisions for
existing compensation arrangements.

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The proposal considers international
context, discussing related developments

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in the European Union and United
Kingdom and aiming for alignment

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with international standards.

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Extensive regulatory analysis is
included, covering economic impact,

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paperwork reduction, and regulatory
flexibility considerations.

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The agencies are seeking public
comments on numerous aspects of the

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proposal, including consideration of
alternative approaches in certain areas.

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The rule is jointly proposed by the
Office of the Comptroller of the Currency,

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Federal Deposit Insurance Corporation,
Federal Housing Finance Agency, and

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National Credit Union Administration, with
the Federal Reserve and SEC noted as not

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participating in this specific proposal.

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Enforcement provisions are included,
along with considerations for how

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the rules apply to institutions in
conservatorship or receivership.

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Overall, this proposed rule represents
a comprehensive attempt to regulate

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incentive-based compensation in the
financial sector, balancing the need

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for effective compensation practices
with concerns about potential abuse

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and systemic risk, with the ultimate
goal of promoting financial stability

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and preventing excessive risk-taking.

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This concludes the summary.

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If your Credit union could use assistance
with your exam, reach out to Mark Treichel

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on LinkedIn, or at mark Treichel dot com.

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This is Samantha Shares and
we Thank you for listening.