Bonus cap consultation puts Bank of England on collision course with Europe

Dunce's Cap

The Bank of England remained on collision course with Europe over the bonus cap as a consultation was launched that would rule out the use of top-up payments to side step the clampdown on City pay.

The European Banking Authority ruled in Ocotober that these extra payments should be regarded as variable components of pay, like a bonus, and that banks using them are breaching the ratio set out by the EU to limit bonuses to one times salary or twice if shareholders if approve.

The pan-European banking regulator has begun a three-month consultation that would turn this opinion into formal guidelines. All banking regulators in the EU would then have to comply or risk being taken to the European court of justice.

But the Bank of England’s Andrew Bailey has spoken out against the bonus cap, saying it forces up fixed pay. There is no evidence that his views have changed. The UK’s major banks are among those using these allowances as third payments alongside salaries and bonuses.

Jean-François Gerard of law firm Freshfields said: “Not much has happened since the October opinion so apart from the peer pressure, the only way to force countries to act on allowances would be the [European] commission-led breach of EU law procedure which is highly unlikely.”

The EBA did not elaborate on its ruling in October, when if found that 39 banks in six EU states started paying allowances, or “role-based” sums alongside traditional salaries and bonuses after the bonus cap was introduced this year.

Its consultation also raises the possibility of the bonus cap being applied to insurance and fund management subsidiaries of banks. It could also lead to the cap not covering smaller banks that are less reliant on bonuses to pay staff.

A public meeting will held on 4 May on the consultation document, which is the first major update to guidelines on pay that was published in 2010 when clawback of bonuses was introduced.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Wednesday 4th March 2015 13.30 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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