European banking watchdog delays bonus cap as it recommends scrapping bonus deferral for smaller lenders

Lauren Fedor
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Andrea Enria, Chairman of the European B
Andrea Enria chairs the European Banking Authority (Source: Getty)

Smaller banks should be exempt from some regulations relating to bankers’ bonuses, the European Union banking regulator said today as it pushed back the start date for a controversial cap on remuneration.

The European Banking Authority said while “smaller and non-complex” financial institutions would still be hit with a so-called bonus cap, they should not have to defer large percentages of their bonuses over multiple years.

The bonus cap, intended to discourage bankers from taking excessive risks, limits annual bonuses to twice an employee’s salary. Under existing legislation, at least 40 per cent of a bonus must be deferred for at least three years – a move the watchdog says allows bonuses to be slashed if misconduct is revealed after the initial payout.

But the EBA said today that the start of new remuneration rules would be delayed by one year, until January 2017, while EU lawmakers consider amending the regulation to “explicitly support specific exemptions on the application of deferral arrangements”.

“It is the EBA’s opinion that the disapplication of these requirements should be possible for small and non-complex institutions and for staff that receives only a small amount of variable remuneration,” the EBA said.

Smaller lenders have said the deferral requirements are not “proportional” because they force big costs on banks paying out relatively small bonuses.

The British Bankers’ Association (BBA) welcomed the EBA’s move, with Simon Hills, the group’s executive director of prudential capital and risk saying: “Small and non-complex institutions will rightly be excluded from the scope of the new guidelines...This is a course of action the BBA very much supports.”

Hills nevertheless added the BBA opposes the bonus cap, citing a recent Bank of England paper arguing that the bonus cap is counterproductive because it leads to higher fixed costs.

A survey out this week from recruiting firm Astbury Marsden found that 61 per cent of City workers are prepared to move jobs if they are not satisfied with their bonuses this year.

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