A proposed rule on Incentive-based compensation at financial institutions with total assets of $1 billion or more – and which was reissued by banking regulators in May – was issued for comment Thursday by the federal regulator of credit unions.
The National Credit Union Administration (NCUA) Board issued its proposed rule during its open meeting Thursday in Alexandria, Va. The proposal was issued on a vote of 2-1, with the two Democratic members of the board – Chairman Todd Harper and Member Tanya Otsuka – both voting in favor. The remaining board member is Kyle Hauptman, a Republican and currently the board’s vice chairman.
By the agency’s own count, the proposal would affect fewer than 500 federally insured credit unions.
The proposal, which revives a proposed rule from 2016, defines a “covered institution” generally as one with total consolidated assets of $1 billion or more. It would create three categories of covered financial institutions, applying separate requirements to each group:
- Level 1: institutions with assets of $250 billion and above;
- Level 2: institutions with assets of at least $50 billion and below $250 billion; and
- Level 3: institutions with assets of at least $1 billion and below $50 billion.
The NCUA noted that as of the end of the first quarter of 2024, there were no federally insured credit unions in Level 1, two credit unions in Level 2, and 441 credit unions in Level 3. “Most federally insured credit unions would be exempt from this rule,” the agency said.
Much of the proposal, it said, focuses on requirements for the structure of incentive-based compensation arrangements for “senior executive officers” and “significant risk takers” at Level 1 and Level 2 institutions. Still, all covered institutions (including Level 3) would be required annually to create and retain for seven years records documenting the structure of incentive-based compensation arrangements; and receive appropriate oversight of the institution’s incentive-based compensation arrangements from its board of directors.
The proposed rule was issued May 6 by the Federal Deposit Insurance Corp. (FDIC), the Federal Housing Finance Agency (FHFA), and the Office of the Comptroller of the Currency (OCC). The NCUA noted that the Federal Reserve Board and the Securities and Exchange Commission (SEC) have yet to approve the joint rulemaking.
The NCUA noted that once all agencies have joined in, the proposal will be published as a joint agency rulemaking in the Federal Register with a comment period of 60 days. It said that until then, each agency acting on the proposed rule will make it available on their respective websites and accept comments.
It also said agencies will consider comments received in response to the 2016 proposed rule as well as any comments received in response to this re-proposal when determining how to implement section 956 (dealing with affiliates) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
NCUA Board Approves Proposed Rules on Incentive-based Compensation, Succession Planning