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I blogged yesterday about the anticipated timing for the most high-profile rulemaking on the SEC’s Spring 2023 Reg Flex Agenda. I also did a quick side-by-side comparison against the Fall 2022 Reg Flex Agenda to see whether there was anything new on the proposed list and noticed one notable rule that wasn’t in the earlier agenda — but has been on the SEC’s radar for quite some time.

As it turns out, Dave’s blog from mid-March on Dodd-Frank Act stragglers was prophetic. He suggested that the recent reminder of what it’s like to have major bank failures may renew focus on an unfinished piece of Dodd-Frank rulemaking, and here it is in the Reg Flex Agenda, slotted for April 2024.

Dave was referring to Section 956 of the Dodd-Frank Act, which directs multiple regulators to jointly prescribe regulations or guidelines for incentive-based compensation practices at covered financial institutions (specific types that have $1 billion or more in assets) and specifically prohibit any types or features of incentive-based compensation arrangements that encourage inappropriate risks by a covered financial institution:

(1) by providing an executive officer, employee, director, or principal shareholder of the covered financial institution with excessive compensation, fees, or benefits; or

(2) that could lead to material financial loss to the covered financial institution.

Under Section 956, a covered financial institution also must disclose to its appropriate regulator the structure of its incentive-based compensation arrangements sufficient to determine whether the structure provides excessive compensation, fees, or benefits or could lead to material financial loss to the institution.

As you might expect (or remember?), the SEC and six other regulators jointly proposed rules twice in the past. Dave’s blog has more details on the history here to refresh your memory.

– Meredith Ervine