Bad news for January's bonus season: the European Banking Authority (EBA) has made the controversial ruling that role-based allowances do count as bonuses – and therefore must be subject to a cap.
In a paper published today, the EBA ruled that role-based allowances, which many UK institutions have used to sidestep bonus cap rules set out by Brussels in 2013, are the same as bonuses.
The EBA originally set out this "opinion" in 2014, saying allowances should be capped.
However, in a report published today it said role-based allowances "that are not predetermined, are not transparent to staff, are not permanent, that provide incentives to take risks or, without prejudice to national law, are revocable, should be classified as variable remuneration in line with the letter and intent of [the bonus cap]."
"In accordance with CRD, institutions’ remuneration policies have to make a clear distinction between ‘fixed’ and ‘variable’ remuneration. A clear distinction of the remuneration components is paramount when calculating the ratio between the variable component and the fixed component of remuneration," it added.
The UK's bank regulator, the Prudential Regulation Authority (PRA), is tasked with ensuring the criteria set out in the original opinion to this year's remuneration policies.
"In the UK, where the most frequent use of [allowances] was observed, the [regulator] will ensure institutions’ remuneration policies and practices reflect the criteria set out in the EBA. Opinion on the use of allowances for the performance year 2015 and onwards."
In 2013 the EBA implemented rules capping bankers' bonuses at 100 per cent of their annual salary, or 200 per cent with shareholders' approval. But the report suggested a "number" of institutions across the EU had changed their remuneration policies by introducing "role-based allowances", which are treated as part of fixed remuneration.