More bonus curbs could be on way

BRITISH firms could be subject to an even more restrictive bonus regime under the terms of a new EU directive published yesterday.

The Capital Requirements Directive 4 (CRD IV), which is the EU’s version of Basel III, suggests that financial institutions could have to endure yet more interference in their remuneration practices following a tome of regulations on pay introduced in January.

PricewaterhouseCoopers partner Tom Gosling says: “The [current rules are] unlikely to be the last word on pay regulation… Perhaps most worrying for relevant firms is the possibility of further prescription around the ratio of variable to fixed pay.”

Already, the rules require that no more than 30 per cent of most bonuses are paid in cash up-front, but the changes under consideration could see financial institutions forced to cap the proportion of an employee’s pay that consists of a variable bonus.

That would raise fixed costs at a time when many brokers are already struggling.

Governments will now enter negotiations over the directive, with the UK Treasury intending to fight CRD IV’s “maximum harmonisation” requirement, which would prevent national regulators from beefing up EU rules.

KPMG’s Giles Williams says: “This marks a significant shift in power away from national regulators. From a UK financial stability perspective, this flies in the face of recent moves to empower the new regulatory architecture.”