The UK faces a showdown with Europe after being found to have breached the directive which introduced a crackdown on bankers’ bonuses.
The European Banking Authority reached the conclusion as the regulator delayed the final guidelines on how the pay rules should be implemented across the EU by a year to January 2017.
“The guidelines will come into force on January 1 2017 to allow sufficient time for institutions to adjust their remuneration policies during 2016,” the EBA said. It proposed a change to EU law to bring clarity to the treatment of smaller, less risky firms’ bonuses.
Britain could now face a battle with Europe over the cap – which the Bank of England and the UK government fiercely oppose – after the EBA found the UK had excluded hundreds of firms from the restrictions on bonuses on the grounds that they were too small to be covered by the capital requirements directive.
The cap, which limits bonuses for senior staff to 100% of salary or 200% if shareholders approve, is a long-running source of conflict between the UK and the EBA. It affects the UK more than other European countries because London is the continent’s financial centre and hosts many highly paid investment bankers.
Bonuses paid in cash for short-term gains were identified as one of the causes of the financial crisis because they rewarded traders and bank bosses for taking risks that could endanger their company. But the Bank of England has repeatedly warned that the EU’s bonus cap increases risk in the system by prompting increases in salary and making it harder to claw back bonuses if things go wrong.
Previous rulings by the EBA have already forced changes on pay deals in the City after the regulator said that some top-up payments granted by banks – with the approval of the Bank of England – breached the bonus cap. These top-up payments, often known as role-based pay, can only be excluded from the rule if they are not variable in any way. Barclays is one of the banks which had to change the terms of its role-based pay to comply with the rules.
The EBA said it would support amending the EU directive to exclude small firms and employees paid bonuses that are insignificant relative to salary but that the cap itself should remain intact. It suggested the rules that require bonuses to be deferred over a number of years and the types of financial instruments in which bonuses can be paid should not be applied to small firms.
France is also offering exemptions to the bonus cap in terms of a firm’s size, the EBA said.
This article was written by Jill Treanor and Sean Farrell, for theguardian.com on Monday 21st December 2015 10.28 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010