EU Concerned Banks Are Ignoring Rules on Bonus Limits
Internal Markets Commissioner Michel Barnier Cites Banks' Use of 'Allowances' for Some Staff
The European Union's financial-services czar is stepping up the pressure on banks to obey rules limiting bonuses for key employees, just as the bloc's top court begins its examination of the caps' legality.
In a letter addressed to Andrea Ernía, the chairman of the European Banking Authority, the EU's banking supervisor, Internal Markets Commissioner Michel Barnier, said he was concerned about banks introducing so-called "allowances" for some staff and stressed the need to ensure that the law wasn't being disregarded.
These allowances, which the EBA identified in a report on banks' pay practices published in June, are paid as fixed amounts on top of a banker's base salary. Although allowances are considered to be fixed—not performance-related like bonuses—the EBA pointed out that they could be canceled under some circumstances. It said at the time that it would further investigate the payments and check whether they are in line with the EU's bonus caps.
The EU passed new rules in 2013 that block banks from paying bonuses that are higher than a bankers' base salary. With shareholders' approval, bonuses can be double the fixed salary.
In his letter, dated Sept. 4, Mr. Barnier said he was concerned by the continuing reports of the use of these allowances and asked Mr. Ernía to keep him informed on the results of the EBA's investigation, whose results he said he expected "very shortly."
"It is important to show a collective proactive stance on this important matter and to address claims made that "the spirit—if not the letter—of Union law is being disregarded," he said.
The caps, which came into force on Jan. 1, were embedded in a broader law on banks' capital requirements. Lawmakers in the European Parliament, which insisted on the caps, said high payouts linked to short-term profits encouraged excessive risk-taking and had contributed to the global financial crisis.
The law was vehemently opposed by the U.K., home to Europe's largest financial hub, which warned repeatedly that it would lead banks to move their operations outside the EU. On Monday, the European Court of Justice will hold a hearing in a suit filed by the U.K. against EU institutions, in which London claims that the bonus rules go beyond what is permitted by the EU's treaties and won't make the financial system any safer.