On July 6, 2011, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) adopted final regulations[1] to implement Section 210(s) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which authorizes financial regulatory authorities to recoup compensation when a current or former senior executive or director is “substantially responsible” for the failed condition of a covered financial company.
This summary looks at some of the common questions about these rules:
While these regulations apply only to financial institutions covered by the FDIC regulations, other public companies would do well to keep an eye on these rules. Why? It is my opinion that lawmakers have had an easier time pushing reforms for financial institutions given the current environment. However, once implemented, these new rules have influenced the regulations applicable to public companies more broadly, as was the case with the implementation of the Say on Pay vote requirement which was first introduced at financial institutions that received assistance under TARP. So, it is possible that some of the concepts applicable to clawbacks for financial institutions covered by the FDIC regulation will end up being applied to public companies more broadly.
[1] Available at: http://www.fdic.gov/news/board/06july2011no7.pdf