The US Securities and Exchange Commission (SEC) Wednesday adopted compensation recovery listing standards and disclosure rules which will “require issuers to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers.” The SEC stated that the rule applies even if the public company executive is not responsible for the error.

Congress required this new SEC rule in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The addition of Section 10(d) of the Act requires exchanges to adopt the required listing standards, which “will apply the disclosure and compensation recovery policy requirements to all listed issuers, with only limited exceptions.” These rules also “specify requirements for investment advisers designed to ensure that advisers’ outsourcing is consistent with their obligations to clients.” If an issuer does not adopt and comply with the SEC’s new rules and the listing standards’ requirements, it will be delisted.

SEC Chair Gary Gensler believes these rules will “better protect investors by requiring that investment advisers take steps to continue to meet their fiduciary and other legal obligations regardless of whether they are providing services in-house or through outsourcing, whether through third parties or affiliates.”

The SEC provided a fact sheet detailing background on the new rule and its requirements. The effective date is 60 days after the rule’s publication in Federal Register.