By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter and Bank Digest.
Democrats in the House of Representatives have introduced legislation that would stop officers, directors and employees of financial firms from purchasing insurance designed to shield them from having to pay a compensation clawback or civil penalty if their actions result in illegal, unsafe or unsound conduct.
“The creation of insurance policies to insulate financial executives from clawbacks is one more effort by some in the industry to perpetuate a lack of accountability,” said bill sponsor Rep. Barney Frank, D-Mass., ranking member of the House Financial Services Committee.
The Executive Compensation Clawback Full Enforcement Act of 2012 states that a company employee who is required to repay previously earned compensation or a civil penalty, must be held personally liable for the amount owed. Frank said the aim of the bill is to protect the intent of provisions in the Dodd-Frank Act, the Sarbanes Oxley Act, and other federal financial regulatory laws that give regulators the ability to require clawbacks or impose civil penalties.
“Executives who preside over billions of dollars in losses should not be protected from the results of their decisions, especially if those decisions run afoul of our securities laws or involve inappropriate risk-taking,” said bill co-sponsor Rep. Henry Waxman, D-Calif.