While this incentive system likely will pass regulatory muster (since it will not result in payments over $25 for referrals), we recommend revising the spreadsheet to expressly state that the portion awarded for brokerage referrals will not exceed the permissible “nominal” amounts for brokerage referrals. (It also is important to note that referral fees for brokerage services cannot be contingent on a referral resulting in a sale.) 

Regulation R includes a number of exemptions from the general prohibition on paying referral fees to bank employees who are not licensed securities brokers. One exemption applies in the case of a “nominal one-time cash fees of a fixed dollar amount,” which commonly is set at $25 (although this cap also could be set based on average wages at your institution or on the employee’s actual wages). 

From what you have told us about your bank’s spreadsheet for incentive payments, it has no specific cap on incentives paid for brokerage referrals (although, in practice, it may be impossible for those payments to exceed $25). We recommend amending your incentive calculation spreadsheet to expressly state that your institution will not exceed the “nominal” payments permitted for brokerage referrals. 

For resources related to our guidance, please see:

• FRB, Regulation R Compliance Guide to Small Entities (“The networking exception in Section 3(a)(4)(B)(i) of the Exchange Act permits bank employees that are not registered representatives of a broker-dealer to refer customers to a broker-dealer subject to several conditions. One of these conditions generally prohibits a bank employee that refers a customer to a securities broker-dealer from receiving ‘incentive compensation’ for a securities brokerage transaction other than a ‘nominal’ one-time cash fee for making the referral that is not contingent on whether the referral results in a securities transaction. Rule 700 includes four different alternatives for satisfying the requirement that a referral fee be ‘nominal.’ These alternatives include a flat $25 standard (to be adjusted for inflation) and other standards based on the employee’s actual base hourly or annual compensation or the base hourly or annual compensation associated with the employee’s job family. . . .”)