Know the risks - Zurich

Compensation regulationsDepository institutions whose stock or the stock of their subsidiaries is publiclytraded are subject to new compensation disclosure rules adopted and enforced bythe SEC. 32 The new rules are designed to provide investors with a clearer and morecomplete picture of the compensation of executive officers and directors, refinecompensation related disclosures, expand disclosures related to beneficial ownership,improve disclosures regarding related-party transactions, and consolidate existingdisclosure requirements regarding director independence and corporate governance.A company’s annual report must now include a Compensation Disclosure andAnalysis that discusses the material factors underlying the company’s compensationpolicies and decisions for executive officers.Privacy requirementsThe Gramm-Leach-Bliley Act sets forth requirements regarding an institution’s disclosureof their consumers’ non-public 33 financial information. 34 For example, all financialinstitutions must develop a privacy policy and disclose that policy to consumers. Afinancial institution may not disclose non-public personal information about consumersto nonaffiliated third parties, unless the financial institution has previously informed theconsumer that such information may be disclosed and the consumer has been giventhe opportunity to direct that such information not be disclosed. States may enact (andenforce) even more stringent financial privacy protection.Enforcement actionsDirectors of depository institutions may be the subject of other administrative andcriminal sanctions, including:1. Cease and desist orders12 U.S.C. § 1818(b) authorizes the appropriate federal regulatory agency, afternotice and an administrative hearing, to issue a cease and desist order (which mayinclude requiring the respondent to take affirmative action to correct the violation)against any institution affiliated party who: (1) has engaged, is engaging, or thereis reasonable grounds to believe will engage, in any unsafe or unsound practice; or(2) has violated, is violating, or there is reason to believe will violate, any law, rule orregulation or any written condition imposed by the agency in connection with thegrant of an application or other request.32 SEC Release No. 33-8732.33 The privacy provisions under the Gramm-Leach-Bliley Act of 1999 do not apply to publiclyavailable information – i.e., titles to property,tax liens, bankruptcy filings and judgments– or to depersonalized information, such asdemographic data. Caution should be paid,however, when non-public information andpublicly available information are combined.34 A “consumer” is defined as an “individual whoobtains from a financial institution, financialproducts or services that are to be usedprimarily for personal, family, or householdpurposes.” 15 U.S.C. § 6809(9). The definitiondoes not extend to a financial institution’sbusiness customers.2. Removal, prohibition and suspension12 U.S.C. § 1818(e) provides that the appropriate federal regulatory agencymay initiate proceedings to remove an institution-affiliated party from office andto prohibit any further participation by that party in the affairs of any insuredinstitution. Prohibition orders may be entered even where the institution-affiliatedparty is no longer affiliated with the institution. To issue a removal and prohibitionorder, the agency must determine: (1) that the institution-affiliated party has, directlyor indirectly, committed a violation of law, regulation, written agreement with orwritten condition imposed by the agency, or final cease and desist order, or hasparticipated in an unsafe or unsound practice or has committed a breach of fiduciary13Financial institutions guide