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EU urged to boost controls on bankers’ pay as investigation finds 39 institutions “circumventing” new rules
European regulators have been urged to bring in more stringent checks on bankers' pay after an investigation suggested a number of institutions were "circumventing" new European Union rules.
The European Banking Authority (EBA) has called for the EU and the European Commission to introduce supervisors to ensure banks keep within the EU Capital Requirements Directive.
It noted that, across the bloc, 39 institutions were using “role-based” or “market value” allowances to pay their employees.
This is classified by banks as fixed remuneration but the EBA investigation found that “in most cases institutions had topped up the fixed remuneration of their staff and had introduced discretionary role-based allowances, which have an impact on the limit of the ratio between variable and fixed remuneration”.
From this year onwards, the EU has limited this at 100 per cent of the fixed component, or 200 per cent with shareholders approval.
According to the EBA, to be classified as fixed remuneration the allowances have to be:
* Permanent – maintained over a period tied to the specific role and organisational responsibilities for which they are granted;
* Pre-determined, in terms of conditions and amount;
* Non-discretionary, non-revocable and transparent to staff.
“Most” of the allowances that were subject to the EBA investigation did not fulfill these conditions, the watchdog said.
It added:
Institutions making use of such allowances should change their remuneration policies and reclassify the ratio between the fixed and the variable component so as to comply with EU legislative requirements.
Also, EU competent authorities that are aware of role-based allowances with the above characteristics being used in their jurisdictions are expected to take all the appropriate supervisory actions to reflect the findings of the EBA Opinion.
They should ensure that these are correctly classified as variable remuneration, so as to make certain that institutions are not circumventing the bonus cap and other requirements laid down in the EU Capital Requirements Directive.
Although it did not name any of the 39 institutions, London banks are squarely in the frame.
RBS, Barclays, HSBC, Standard Chartered, JPMorgan, Goldman Sachs and Deutsche Bank have all said they are among those paying allowances or planning to, and around 10,000 people working in the sector are expected to receive this form of payment.
EU authorities have until 31 December to use “all necessary supervisory measures” to ensure banks meet this criteria.
The EBA is currentlyreviewing its guidelines to remuneration policies and practices, which will be consulted upon by the end of 2014 and finalised by the first half of next year.
Nicholas Stretch, a partner with law firm CMS, said the toughened stance was "not as bad as it could have been".
He explained: “The EBA has not shut the door completely on role-based allowances, saying that they can be used to form part of fixed pay with appropriate conditions.
"No doubt PRA confirmation will be needed that allowance arrangements are compliant. If they’re not it will be a real challenge to work out what has to happen to arrangements which have already been put into place and already paid.”