The British Bankers Association (BBA) has dismissed moves by a European body to curb the use of fixed allowances as an alternative to traditional bonuses as “counterintuitive”.
Today, banks were hit with the news that more stringent checks could be introduced to the pay of senior staff after an investigation found that several institutions were “circumventing” the new legislation designed to limit bankers' bonuses.
According to the European Banking Authority (EBA), 39 institutions across the EU had been using fixed allowances, and “in most cases” this was being used as a loophole to get around the bonus cap, which is 100 per cent of the fixed salary.
This can rise to 200 per cent with shareholder approval.
As a result, the EBA has called for the European Union and the European Commission to introduce supervisors to ensure the new rules are being met.
But the move was not greeted warmly in London.
A spokesman for the BBA insisted the industry had “made great strides in recent years to reform the way in which highly paid staff are remunerated”.
Measures have included “deferring bonuses, paying more in shares and being able to claw back bonuses if it subsequently emerges that they were not deserved”.
The spokesman added: “Variable pay also provides flexibility in the cost base making banks more financially secure.
“Any move which increases fixed costs and reduces the ability to use these tools which UK regulators have rightly put in place in recent years seems counterintuitive.”
British banks including RBS, Barclays and HSBC are among several institutions to have said they plan to or are already paying allowances to staff. Around 10,000 people working in the sector are expected to receive this form of payment.
Others have taken the ruling as a sign that the bonus cap was flawed.
Oliver Parry, corporate governance adviser at the Institute of Directors, said it "should be seen as an admission of failure by the EBA" and its "flawed" bonus cap.
"Public trust in banking is at an all-time low following the high-profile failures of the last few years," he said.
"We agree that regulators must look at the issue of excessive pay in the banking sector, and support the Financial Conduct Authority’s review of the Remuneration Code. However, the credibility of the EU bonus cap as a solution has been fatally undermined."
Treasury committee chair Andrew Tyrie MP agreed.
"The EU bonus cap is a fundamentally flawed approach. The parliamentary commission on banking standards rejected it as a crude tool. It will encourage banks to increase fixed pay rather than embed incentive structures that improve standards,” he said.