Photographer: Simon Dawson/Bloomberg

Banker Bonus Curbs Work, But Too Onerous for Small Lenders

Updated on
  • EU sees scope for less burdensome rules for some firms
  • European Commission plans assessment of possible changes

Tough bonus curbs for bankers in the European Union have helped to tame excessive risk-taking and a focus on short-term results in the financial industry but may be too burdensome for smaller firms, according to EU regulators.

“The EU rules on remuneration brought in after the financial crisis are working,” European Justice Commissioner Vera Jourova said in a statement. “They have proven useful tools to curb excessive risk-taking by staff and to ensure their focus on longer-term interests of credit institutions and investment firms, thereby contributing to financial stability.”

Rules could be made “more proportionate and less burdensome,” especially for smaller firms, Jourova said. The Brussels-based commission plans to carry out an impact assessment on possible adjustments as part of a broader review of capital rules planned for the end of the year.

A limit on bonuses at twice fixed pay, which has been around since 2014, was intended to rein in behavior blamed for causing the global financial crisis. It wasn’t yet possible to draw final conclusions on that part of the bonus rules, because it “was recently introduced and has yet to show its full effects,” according to the statement.

The EU measures have been roundly criticized by the industry and officials in some countries, notably the U.K. The Bank of England earlier this year defied EU regulators by retaining an exemption for smaller U.K. financial firms.

In December, the European Banking Authority said the bonus cap “should not be subject to any exemption,” even as it called for EU law to be changed so that rules on “deferral arrangements and pay out of instruments” could be put aside for “small and non-complex institutions and for staff that receives only a small amount of variable remuneration.”

Jourova cited the EBA’s work in concluding that “some of the rules may be too costly and burdensome to apply, compared to their prudential benefits.”

“This is particularly the case when the rules on deferral and pay-out in instruments are applied in small and non-complex institutions or to staff with low levels of variable remuneration,” according to the statement. “This is also the case when listed institutions are required to use shares to remunerate their staff.”