LONDON/BRUSSELS Feb 6 The European Commission
has asked the Bank of England to explain how new allowances in
British bankers' pay comply with an EU bonus cap, an official at
the bloc's executive said, a new flashpoint of friction over the
reach of financial control.
Under EU rules, from 2015 bonuses cannot be more than fixed
salary, or double this amount with shareholder approval, and
most of the bankers affected are based in London.
Banks including Barclays, HSBC and Goldman Sachs are
expected to raise the non-bonus part of remuneration with, for
example, monthly or quarterly "allowances".
The European Commission official said the executive has
asked the European Banking Authority (EBA), an EU watchdog, to
seek an explanation on such extra payments from the BoE's
Prudential Regulation Authority (PRA).
"A report is expected next week," the official said.
The EU executive has powers to fine countries that fail to
apply its rules properly.
The PRA said bank remuneration policy is frequently
discussed but it would not comment on any ongoing discussions.
Britain is challenging the bonus cap in the EU's top court,
arguing it goes beyond EU powers and will push up fixed pay,
making banks riskier as they will not be able to trim costs
quickly in rocky markets.
The EBA could not be reached immediately for comment.
It will publish guidelines this year with a more precise
definition of what constitutes variable and fixed pay, the
Commission official said.
"We will encourage the EBA to take a strict approach in this
exercise," the official said.
A spokeswoman for EU financial services chief Michel
Barnier, who is responsible for enforcing EU financial services
rules, said the Commission has no detail yet from banks about
allowances so it was hard to reach a firm position on them.
"We will monitor very closely with EBA that rules are
correctly implemented and applied," she said.
Banks say they are not trying to circumvent the cap as they
consider allowances to be part of fixed pay while offering the
lender more flexibility to cut costs if markets turn sour.
A person familiar with the PRA talks said the EU watchdog is
meeting bank regulators from all member states individually to
see how they are complying with the new rules. Banks are mulling
similar allowances for staff elsewhere in the EU.
The remuneration plans for the coming year presented by
banks in Britain will affect bonus payouts next year and the
person said that the PRA views them as complying with EU rules.
The PRA considers allowances part of fixed pay under the EU
rules and hence they affect the bonus calculation, the person
said. The allowances relate to a banker's job description and
cannot be changed over the coming year, the person said.
Barnier's spokeswoman said under the EU rules pay is either
fixed or variable with "no third form" permissible.
"One would expect banks to interpret this in a common sense
and straightforward way without trying to circumvent it by
including in fixed remuneration elements which actually vary in
level," the spokeswoman said.
Martin Wheatley, chief executive of the UK Financial Conduct
Authority, which is also scrutinising bank pay plans, said on
Tuesday the cap was creating "peverse" effects by bumping up