EU banking watchdog to target banks avoiding new bonus cap

Oliver Smith
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THE EUROPEAN Union’s banking regulator is planning next month to clamp down on banks whose pay policies are designed to sidestep the EU’s incoming bonus cap.

The European Banking Authority (EBA) is poised to take a much stricter stance than British regulators on what can count as fixed pay, the Financial Times said yesterday, citing draft proposals.

According to the draft, fixed allowances would be expected to be assigned to specific positions rather than individuals, so bankers in the same role would receive the same allowance regardless of performance.

As City A.M. reported on Monday, lawyers from banks in Britain, Germany, Swe­den and the Netherlands are adamant that paying a regular allowance in cash or shares, based on the recipient’s role and reassessed annually, does not count as a bonus and so is allowed under the EU directive.

Regulators at the Bank of England are also confident that this is allowed, and the Treasury is already fighting a legal battle to have the bonus cap scrapped altogether.

If banks fail to stop the new rule, they face hiking base rates of pay – increasing their costs each year – regardless of performance, and likely leading to heavy redundancies the next time the economy slows down.