Goldman Sachs 2015 Annual Report Download - page 33

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
In December 2015, the SEC also proposed a new rule
regulating the use of derivatives by registered funds. Under
the proposed rule, a registered fund would be required to,
among other things, comply with one of two alternative
portfolio limitations designed to impose a limit on the total
amount of leverage the fund can obtain through derivatives
transactions; maintain a minimum amount of “qualifying
coverage assets” (generally limited to cash and cash
equivalents) to support payment obligations for each
derivative transaction; establish a derivatives risk
management program if derivative use meets specified
thresholds; and comply with new recordkeeping, disclosure
and reporting requirements related to its use of derivatives.
Certain of our European subsidiaries are subject to the
Alternative Investment Fund Managers Directive and
related regulations, which govern the approval,
organizational, marketing and reporting requirements of
EU-based alternative investment managers and the ability
of alternative investment fund managers located outside the
EU to access the EU market.
The European Commission has published a proposal
relating to money market funds, including provisions
prescribing minimum levels of daily and weekly liquidity,
clear labeling of money market funds, a 3% capital buffer
for constant net asset value funds and internal credit risk
assessments.
Compensation Practices
Our compensation practices are subject to oversight by the
Federal Reserve Board and, with respect to some of our
subsidiaries and employees, by other financial regulatory
bodies worldwide. The scope and content of compensation
regulation in the financial industry are continuing to
develop, and we expect that these regulations and resulting
market practices will evolve over a number of years.
The U.S. federal bank regulatory agencies have provided
guidance designed to ensure that incentive compensation
arrangements at banking organizations take into account
risk and are consistent with safe and sound practices. The
guidance sets forth the following three key principles with
respect to incentive compensation arrangements: (i) the
arrangements should provide employees with incentives
that appropriately balance risk and financial results in a
manner that does not encourage employees to expose their
organizations to imprudent risk; (ii) the arrangements
should be compatible with effective controls and risk
management; and (iii) the arrangements should be
supported by strong corporate governance. The guidance
provides that supervisory findings with respect to incentive
compensation will be incorporated, as appropriate, into the
organization’s supervisory ratings, which can affect its
ability to make acquisitions or perform other actions. The
guidance also provides that enforcement actions may be
taken against a banking organization if its incentive
compensation arrangements or related risk management,
control or governance processes pose a risk to the
organization’s safety and soundness.
The Financial Stability Board has released standards for
implementing certain compensation principles for banks
and other financial companies designed to encourage sound
compensation practices. These standards are to be
implemented by local regulators. In the EU, CRD IV
includes compensation provisions designed to implement
the Financial Stability Board’s compensation standards.
These rules have been implemented by EU member states
and, among other things, limit the ratio of variable to fixed
compensation of certain employees, including those
identified as having a material impact on the risk profile of
EU-regulated entities, including GSI.
The EU has also introduced rules regulating compensation
for certain persons providing services to certain investment
funds. These requirements are in addition to the guidance
issued by U.S. financial regulators described above and the
Dodd-Frank Act provision described below.
Goldman Sachs 2015 Form 10-K 21