LONDON, July 3 (Reuters) - Bankers voiced frustration at a European Union cap on their bonuses on Thursday, telling regulators it will catch too many of them and could bump up risks.
But mindful of public anger with a sector rescued by taxpayers in the 2008/9 financial crisis, they avoided challenging the principle of what will be the world’s toughest curb on top bankers’ pay.
Bankers crammed into the over-subscribed hearing at the European Banking Authority (EBA) on the 18th floor of an office tower overlooking London’s financial district where many of them work.
They were trying to persuade the EU’s banking supervisor to tweak the details of a draft rule to limit bonuses to no more than fixed pay for those earning over 500,000 euros ($648,600).
The EBA wants to rein in financial incentives for bankers to avoid a repeat of the excessive risk-taking seen in the run-up to the crisis.
The Association for Financial Markets in Europe (AFME), representing the world’s top banks, said the cap could crimp the free movement of labour, a basic EU tenet, and was unfair for some staff such as highly-paid analysts who don’t take risks for the bank, or lower-paid junior bankers.
“We seen some tendency to apply an overly prescriptive and simplistic approach,” AFME director for advocacy, Stefano Mazzocchi said.
A simple way round the rule would be to bump up fixed pay. But increasing basic pay for many junior staff would increase a bank’s costs and, as a result, the risks to the broader financial system, the AFME said.
The bonus cap can be doubled with shareholders’ approval and financial lawyers say big banks are already increasing the basic pay of their star employees.
The limit will capture far more staff than existing EU restraints on remuneration which restrict how much of a bonus can be paid upfront in cash, with the rest deferred over several years.
The EBA said it will publish data soon to show that in some countries few if any staff are hit by the existing restraints, justifying the wider net.
“We have a problem with the fact that up to one third earning more than a million euros were not considered identified staff,” said Jo Swyngedouw, who heads EBA’s remuneration working group and is a senior Belgian central bank official.
Bernd Rummel, EBA principal policy expert, said the cap will apply to awards for 2014, meaning the bonus round of early 2015.
The EBA cautioned that its ability to make its new rule more flexible by adding exemptions is restricted because the cap is now enshrined in EU law.
The EBA’s director of regulation, Isabelle Vaillant, said the bonus cap will bring more consistency to the region’s banking market and will ensure fairness.
Some speakers worried about the broader impact on the competitiveness of EU banks and their risk management.
Lex Verweij of staff consultancy Aon Hewitt said he was “increasingly worried” that risk-taking, now concentrated in larger institutions, will go to boutique firms, which fall outside the rules, or pass out of the banking sector to insurance companies. “We are already seeing that trend, going to insurance firms,” he said.
The United States and Asia don’t cap bonuses but the EU curb will be imposed on top staff in overseas branches of an EU headquartered bank.
“I worry that we could introduce more risk into the system by not being able to attract or retain the right quality people outside of Europe,” said Steven Ward, Deutsche Bank’s managing director of human resources in London. ($1 = 0.7709 euros) (Reporting by Huw Jones; Editing by Erica Billingham)