- BOE will ensure EU rules outlawing allowances are observed
- European Union capped bonuses at twice bankers' annual salary
The Bank of England will bring bankers’ remuneration into line with European Union rules, the European Banking Authority said, bringing an end to a conflict between the U.K. and the bloc over so-called role-based allowances.
EU lawmakers adopted the world’s toughest bonus rules in a bid to clamp down on the gambling culture they blamed for triggering the 2008 financial crisis. Royal Bank of Scotland Group Plc and HSBC Holdings Plc are among British banks responding by giving employees cash allowances depending on seniority, known as role-based pay, to evade the restriction on bonuses of more than twice fixed pay.
“In the U.K., where the most frequent use” of the allowances was observed, the BOE’s Prudential Regulation Authority “will ensure that institutions’ remuneration policies and practices reflect the criteria” set out by the EBA, the London-based EU regulator said in a report on Thursday.
In an October 2014 opinion, the EBA banned the use of role-based allowances to boost executive pay. Thirty-nine banks in EU countries were using allowances they classified as fixed pay. In most cases, these discretionary payments to staff on top of their base salary “are not fixed, are not permanent,” violating the EU’s bonus rules, the EBA said at the time.
The regulator set a Dec. 31, 2014, deadline for authorities to “use all necessary supervisory measures to ensure institutions review their remuneration policies so as to comply with the criteria highlighted” in the report.
“The Bank of England has already made clear to all firms that it expects allowance structures to be compliant with the EBA report and opinion for the 2015 performance year,” a BOE spokeswoman said by e-mail. “All firms have either already implemented necessary changes, or committed to do so subject to shareholder approval of the remuneration policy.”
No EU country adopted relevant laws or regulations following the opinion, mainly because final EBA guidelines on “sound remuneration” haven’t been completed. The guidelines, which will set out “further criteria to identify both fixed and variable components of remuneration,” will be published by year-end, the EBA said.
“The final EBA remuneration guidelines that will address role-based allowances more authoritatively than the EBA has done so far will be much anticipated,” said Graeme Standen, a remuneration expert at law firm Pinsent Masons. If the EBA sticks to the “rigorous line” set in proposals, the final rules “will have a significant impact on smaller and ‘less risky’ firms,” he said.