The Bank of England will discuss how banks in the U.K. sidestep the European Union bonus cap at a meeting this month with other regulators, three people with knowledge of the talks said.
The BOE’s Prudential Regulation Authority, the unit that supervises U.K. lenders, will share information on so-called role-based pay at a meeting at the European Banking Authority’s London headquarters, said the people, who asked not to be named because the meeting is private. Other domestic regulators from the EU’s 28-nation bloc will also review how they are applying the bonus cap, two of the people said.
Under EU rules, banks are banned from paying bonuses more than twice an employee’s salary. Some lenders with U.K. operations have created a sliding scale of staff seniority to avoid the restrictions on pay. The practice is a “perverse outcome” of an EU ban on bonuses that exceed salary, Martin Wheatley, the U.K.’s top markets watchdog, told lawmakers in London this week.
The EU will monitor “very closely” that the EBA’s capital requirements, known as CRD IV, that include rules on bonuses are “correctly implemented,” Chantal Hughes, a spokeswoman for Michel Barnier, the EU’s financial services commissioner, said in an e-mail.
“We expect all banks to comply strictly with CRD IV,” she said. “Continuous talk about how to circumvent the rules is disturbing.”
The EU clinched a deal last year with member governments on rules curtailing the bonus culture that lawmakers blamed for fueling the 2008 financial crisis. The U.K. government challenged the caps at the EU’s highest court in September, saying the measures were flawed.
An EBA spokeswoman declined to comment on the agency’s technical work. A PRA spokeswoman declined to comment. The Financial Times reported the news yesterday.