EU warns banks of possible action over the payment of allowances

Banks use of allowances to soften a European Union cap on bonuses could face a “coordinated policy response”, the EU’s financial services chief Michel Barnier warned, prompting bankers to argue politicians should steer clear of pay.

The EU imposed controls on banker bonuses, blamed for encouraging risk-taking by staff whose pay was linked to their revenue-generating record, after taxpayers were forced to shore up lenders whose shaky finances were suddenly exposed in the financial crisis.

The controls limit payouts to the equivalent of an employee’s fixed salary, or twice that amount with shareholder approval.

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Mr Barnier has asked the EU’s banking watchdog to wrap up by the end of September its probe into whether quarterly and monthly role-based allowances being paid by banks such as HSBC, Barclays and Citi should be allowed under the bonus cap rule.

But banks insist allowances are part of fixed pay and reject accusations from some European Union lawmakers and others that they are simply stealth bonus payments.

“Ultimately, we think that decisions about pay is a matter for shareholders and not politicians,” the British Bankers’ Association said.

The EBA had said that it would complete its probe into allowances and report back by the end of the year, with possible new guidance for banks before the cap takes effect on awards handed out early in 2015 for performance covering 2014.

But Mr Barnier published a letter in which he asked the EBA to speed up its timetable for the probe.

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