SEC Issues Proposed Rules Regarding Incentive-Based Compensation Arrangements For Certain Financial Institutions

The Securities and Exchange Commission (SEC) released proposed rules on March 2, 2011, in connection with provisions of the Dodd-Frank Act that prohibit "covered financial institutions" from providing incentive-based compensation that encourages inappropriate risks, by providing either excessive compensation or incentives that could lead to material financial loss to the institution. The Dodd-Frank Act requires that the SEC and other regulatory agencies jointly establish rules that would require each "covered financial institution" to disclose to the applicable regulatory agency the structure of its incentive-based compensation arrangements so the regulator can determine whether such compensation is excessive or could lead to material financial loss to the firm. To the extent the agency determines that the arrangement encourages inappropriate risks (by providing excessive compensation or because it could lead to material financial loss to the institution), the