Readers likely have already seen the articles in The Wall Street Journaland other sources indicating that the recent regulatory agendas of the SEC and other agencies have dropped references to work on the proposed or final rules under the Dodd-Frank Act Section 956. I was not going to blog on this because it has been so widely discussed in the popular press, but I figured I had better, since I have blogged on this topic so many times in the past (Clawbacks: Can a New Statute or Regulation Override an Existing Employment Agreement? and Are You a Significant Risk Taker?, among others).
This is a godsend not just for financial institutions, but for the rest of corporate America. The onerous and prescriptive proposed rules issued in April 2016 would have wreaked havoc on the affected institutions by substantially increasing their compliance and compensation costs and reducing their ability to compete for talent in the marketplace. The proposed rules exceeded the mandate of Section 956 and would have undermined the financial industry’s ongoing risk-based modifications to incentive compensation arrangements (more on this next week).
Equally important, however, is the fact that once rules like this appear in one industry (usually financial services), they tend to pop up again in future legislation—applied to all companies (cf. TARP), as I have noted in the past.