Bankers who make more than their bosses could be ensnared by European Union bonus curbs even if their total pay is less than 500,000 euros ($644,000), under proposals from the bloc’s top regulator of the industry.
The European Banking Authority also targeted the best paid 0.3 percent of staff in a bank, and some bankers with bonuses higher than 75,000 euros, in plans published today that seek to identify which employees should be caught by an EU law banning bonuses greater than twice fixed pay.
The proposals will “significantly widen the category of employees subject to pay regulation,” Stefan Martin, a lawyer at Allen & Overy LLP, said in an e-mailed statement. “It will have a disproportionate effect on London as compared to other European centers 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.”
The EU brokered a deal in February to outlaw banker bonuses that are more than twice fixed pay, a move lawmakers said would prevent excessive payouts and curb irresponsible risk-taking. U.K. Chancellor of the Exchequer George Osborne opposed the curbs, saying they would harm the competitiveness of the nation’s finance industry.
“The banks’ failure to put their own house in order has resulted in these tough new rules,” Arlene McCarthy, a U.K. Labour lawmaker at the European Parliament said last month.
Banks would be able to exclude some employees only if they could show the workers have “no material impact on the institution’s risk profile,” the EBA said in an e-mailed statement from London.
Martin Wheatley, the top U.K. markets regulator, criticized the cap telling an audience of London financial executives that it would drive up base salaries and limit regulators’ ability to “punish poor behavior.”
“I’m not sure it’s a good thing,” Wheatley said yesterday. The last time U.K. regulators “focused on bonuses, banks increased the salary of their VPs by 100 percent,” he said.
Before the latest version of the EBA rules, the U.K. had 1,300 so-called code staff that would have been affected by the cap, Andrew Bailey, chief executive officer of the U.K.’s Prudential Regulation Authority, said on March 13.
The bonus rules, part of an EU law to apply Basel bank standards in the bloc.
The measures would probably cover “less than 2,000” bankers, Philippe Lamberts, one of the EU parliament’s lead lawmakers on the banker bonus rules, said in a phone interview from Strasbourg, France. “That is my gut feeling,” Lamberts said.
“I do not believe that expanding the scope like the EBA recommends makes any material change to that,” he said. “It’s much ado about nothing, I think.”
The London-based EBA set a deadline of August 21 for outside comment on today’s proposals, which must be endorsed by the European Commission before they can become binding.