EU regulators to cap bankers' bonuses
London, May 22, 2013
EU regulators confirmed they will cap bonuses of bankers earning more than 500,000 euros ($645,000) a year and added other conditions to make the pay ceiling harder to smash.
The headline figure was leaked last Friday, triggering warnings by banks in the European Union that they may lose staff to other parts of the world, and that London, the bloc's top financial centre, could be damaged.
Accounting firm PwC predicted that up to 10 times the number of bankers in London will be hit compared with current pay curbs.
The European Banking Authority (EBA) said the purpose of the draft rules, out for public consultation until August 21, is to have a common pan-EU definition for national regulators to decide which bankers will come within the pay curb net.
The EBA is fleshing out a new EU law that includes the bonus cap, which legislators say is needed to crack down on excessive risk-taking at banks. The cap will hit bonuses awarded for 2014 and due to be handed out in early 2015.
The EU already applies a tougher version of bank pay limits agreed by world leaders during the financial crisis and the cap will be the toughest curb of its kind in the world.
Lawyers said the EBA's criteria will mean far more bankers coming within the regulatory net than for existing curbs which are limited to deferring parts of a bonus over several years.
"It will have a disproportionate effect on London as compared to other European centres which have smaller numbers of people earning at this level and will further handicap London's ability to compete for talent on the world stage," said Stefan Martin, an employment lawyer at Allen & Overy.
Employee bonuses will be capped if they meet one or more of three conditions related to: actual or relative pay; whether the employee is a major risk taker; whether bank itself deems the employee's bonus should be capped.
The EBA also proposed a get out clause.
If employees come within the net only because of how much they are paid, banks can exclude them if they can show the staffer has no material impact on how much risk the lender takes on. The EBA will hold a public hearing in London on July 4.-Reuters