At an open meeting this morning, the SEC approved, by a 3-2 vote, proposed rules on incentive compensation under Section 956 of the Dodd-Frank Act, following up on proposed rules jointly issued by the FDIC, the Fed, OCC, OTS and other agencies in February. As of this moment, the SEC has not yet published the proposed rules. Generally, today's proposed rules only apply to registered broker dealers and investment advisers with assets of at least $1 billion.
Like the rules proposed for "covered financial institutions" by the SEC and six other agencies last month [See "Proposed Rules on Incentive Compensation for Financial Institutions Mandate the Deferral of Compensation"], the proposed rules have three main sections:
- Prohibitions on incentive-based compensation arrangements that could encourage inappropriate risk taking by covered persons at registered broker dealers or investment advisers.
- A requirement of annual reporting to the SEC by registered broker dealers or investment advisers with respect to incentive-based compensation arrangements for covered persons.
- A requirement that the board of directors develop and maintain certain policies and procedures for the adoption and administration of incentive-based compensation arrangements.
As with the rules proposed last month for covered financial institutions, the SEC's proposed rules would mandate the deferral of compensation by some executives at firms with $50 billion or more in total consolidated assets. These firms must provide the deferral of at least 50% of the annual incentive-based compensation of any executive officer for at least three years.
The SEC Commissioners and Staff seem particularly interested in comments as to whether rules similar to those proposed for financial institutions were appropriate for registered broker dealers and investment advisers.