Hope this is the best forum for this question.

My bank has an incentive program that pays employees for referring new business to our TRUST Department. Is there a regulation that prohibits the payment of this fee to a director of the bank?

I can only speak to the requirements for a National Bank whose Trust Area is a department within the bank and not a separate subsidiary.

No. There is no prohibition that I am aware of. But I suggest that you make certain that paying an incentive to one director doesn't open a precedent to incenting others when you would rather not. Also be sure to look to your state law to be sure there are no prohibitions or limitations there. I can't speak to a Fed, FDIC, or OTS regulated institution.

The one thing that the OCC looks at with regard to incentives; is the incentive reasonable and consistent with safe and sound business practices. If your trust area is losing money, incentives are one thing that may come under close scrutiny. However if your trust area is profitable, your incentives are reasonable, the department is generally well managed, and free of significant regulatory concerns, I doubt you would have any problems.

Is the director an employee of the bank? If not, I think this may be a finder/referral fee instead of an incentive plan for employees. Both the OTS and OCC has issued guidance on how to handle referral fees.