By Huw Jones
LONDON, March 11 The Bank of England is
scrutinising allowances awarded to top staff by banks in an
effort to establish whether they are a covert way of avoiding a
new European Union cap on bonuses, a senior official at the
central bank said on Tuesday.
From next year bankers' bonuses in the 28-country EU can be
no higher than fixed salary, or twice that amount if a bank's
shareholders give their approval. However, HSBC, Lloyds
and Barclays are all considering giving top
staff monthly or quarterly allowances to boost fixed pay.
About 80 percent of the bankers affected by the rule are
based in London.
The Bank of England is toughening its stance on excessive
compensation in response to public and investor criticism of a
bonus culture blamed for contributing to the financial crisis
and has asked its supervisory arm, the Prudential Regulation
Authority (PRA), to study the proposed allowances.
"We haven't looked at role-based allowances in enough detail
to be able to give a house view on whether they comply or not.
Our job is to work with the European authorities," Katharine
Braddick, a director of policy at the PRA, told reporters on the
sidelines of a financial conference.
The European Parliament, meanwhile, is considering whether
its bonuses rule needs tightening and the European Banking
Authority has asked the PRA to confirm whether proposed
allowance payments comply with the cap.
Braddick said that the PRA will have to gauge whether the
role-based allowances are what they say they are or merely a
means to skirt the bonus cap.
The Bank of England is due to publish a consultation on
Thursday on a proposed rule to allow the clawing back of bonuses
up to six years after they are paid, Braddick said.
The change would require banks to rewrite staff contracts
from January 2015.
The aim is to punish bankers whose behaviour is later proven
to have put a bank at severe risk or whose conduct turns out to
have fallen short of the standards required.
Bankers would be legally liable to return the money, if
requested, even if they have left the bank.
"You can't claim you've never had it. If you've had it and
you've spent it and you can't get anything back, then you have
to think about how you would liquidiate some of your other
assets," Braddick said.
Another measure likely to be considered is a lengthening of
deferral periods for bonuses. Most of a bonus is deferred for
three to five years, but some UK lawmakers have called for this
to be extended.
Braddick said the PRA believes there is a strong case for
There is already a rule to allow a bank to claw back those
parts of a bonus a banker has yet to receive.