15 October 2014

EBA discloses probe into EU bankers allowances

The European Banking Authority (EBA) published today the findings of its investigation regarding discretionary remuneration practices across the EU banking sector. The report shows that some institutions have classified the so-called ‘role-based' allowances in a way that increases the fixed component of remuneration, which may impact on the limitation of the bonus cap.

As a result of this analysis, the EBA issued an Opinion to the European Commission and EU competent authorities calling for supervisors to ensure that institutions' remuneration practices on allowances comply with EU legislation.

According to the EBA investigation, competent authorities across the 28 EU Member States have reported that 39 institutions use ‘role-based' or ‘market value' allowances, which the institutions classify as fixed remuneration.

However, the EBA found that in most cases institutions had topped up the fixed remuneration of their staff and had introduced discretionary ‘role based' allowances which have an impact on the limit of the ratio between variable and fixed remuneration required by the EU Capital Requirements Directive (CRD IV).

The report has been carried out within the framework of the EBA's market monitoring and assessment tasks and following a request by the European Commission to investigate the use of the so-called ‘role-based' allowances, which were introduced after the EU's decision to limit the variable remuneration to 100% of the fixed component (200% with shareholders' approval).

Full article on EBA's website

Bloomberg: Bank bonuses that aren’t called bonuses banned in Europe

Europe’s top banking regulator moved to close a loophole that allows banks to sidestep limits on bonuses by awarding staff payments under different names.

The European Banking Authority said 39 banks in the European Union are paying staff discretionary role-based payments, they classify as fixed pay, in addition to their salaries. These awards break EU bonus rules because they were found neither fixed nor permament in “most cases,” the London-based regulator said in a report published October 15.

EU lawmakers last year adopted the world’s toughest bonus rules in a bid to tackle what they called a gambling culture blamed for triggering the 2008 financial crisis. Royal Bank of Scotland Group Plc and HSBC Holdings Plc (HSBA) have been among European 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.

“This outcome is at the most severe end of the industry’s expectations,” Tom Gosling, a London-based partner at PricewaterhouseCoopers LLP, said in an e-mail. “There’s a risk that making pay less flexible results in bank pay getting entrenched at current levels, when regulatory, economic and commercial pressures all mean it should continue to fall.” 

Full article on Bloomberg

© EBA