I strongly believe that robust risk management with respect to compensation practices is critical to promoting the safety and soundness of FHFA's regulated entities. For that reason, FHFA has joined the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) in releasing a renewed proposal to implement section 956 of the Dodd-Frank Act.
Section 956 requires FHFA, together with the OCC, the Board of Governors of the Federal Reserve System, FDIC, the National Credit Union Administration, and the U.S. Securities and Exchange Commission (collectively, the “Agencies") to jointly adopt regulations or guidelines to prohibit incentive-based payment arrangements that may encourage inappropriate risk taking by covered financial institutions by providing excessive compensation, or incentives that are structured in a way that could lead to material financial loss.
The Agencies issued a notice of proposed rulemaking (NPR) in 2016 that established standards by which compensation might be determined to be excessive or encourage inappropriate risks. FHFA approved the 2016 proposal due to the strength of the policy provisions to reduce risk in incentive compensation plans. In fact, since 2016, FHFA has used its existing, broad statutory authority over compensation at its regulated entities to implement many of the provisions included in the 2016 proposal, specifically as they relate to mandatory deferrals for incentive compensation.
As a testament to the continued strength of the provisions in 2016 proposal, today I am approving the release of a renewed NPR that includes the proposed rule text issued in 2016, which was supported by all the Agencies, along with certain alternatives for consideration.
To publish this NPR in the Federal Register, all six Agencies must jointly approve. While that is not expected to happen at this time, interested parties are invited to share comments on the NPR. We hope to renew the dialogue around reducing the risk related to incentive compensation at financial institutions as we work towards a final rule. We look forward to engaging with stakeholders to further inform these efforts.
###
The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac, and the 11 Federal Home Loan Banks. These government-sponsored enterprises provide more than $8.4 trillion in funding for the U.S. mortgage markets and financial institutions. Additional information is available at www.FHFA.gov, on Twitter @FHFA, YouTube, Facebook, and LinkedIn.
Contacts: