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NCUA Passes Incentive Compensation Proposal
Friday, April 22, 2016 6:45 AM

The NCUA board on Thursday unanimously passed an interagency incentive income compensation proposal that will impact only a small percentage of credit unions (258 total, which is nearly 5 percent of all credit unions).

The rule prohibits incentive-based compensation arrangements that would encourage inappropriate risks by providing excessive compensation or that could lead to material financial loss. Affected institutions will be required to annually create and retain records documenting the structure of incentive-based compensation arrangements for seven years.

Further, the proposal requires board members to provide direct oversight of compensation, including approval of all senior executive compensation plans and any material adjustments.

It will apply to all financial institutions, including credit unions, divided into the following three categories based on assets: Level 1 – $250 billion and above, Level 2 – $50 billion to $250 billion, and Level 3 – $1 billion to $50 billion. Credit unions with fewer than $1 billion in assets will be exempt from the rule.

No federally insured credit unions will be required to submit their records for all new incentive compensations to the NCUA; however, Level 2 and 3 institutions will be required to allow NCUA examiners to review their records maintained onsite for all new incentive compensation plans.

Any current plans will be grandfathered under the new rule. The proposal will be made available for a 90-day comment period ending July 22.

Cornerstone Credit Union League SVP Regulatory Compliance Suzanne Yashewski said, “Cornerstone hopes to hear from large credit unions regarding concerns they may have with this proposal, since credit unions over $1 billion will be impacted.”

Read the NCUA’s full compensation rule summary here.

This joint proposal will satisfy a requirement under Section 956 of the Dodd-Frank Act. The agencies involved, in addition to the NCUA, include the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. Additionally, the proposed rule replaced a proposed rule issued by the group in 2011. The NCUA was the first financial regulator to address the rule.

Board member J. Mark McWatters cited numerous concerns he had with the proposal and asked that the board consider his list of issues, adding that he would not vote against the proposal. Among his list of concerns was whether the agency should issue a regulation or a guideline, as Section 956 provides that the agencies may consider both in the implementation of the act. He also questioned if the proposal would survive an objective, transparent cost-benefit analysis.