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 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 added. 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.
Banks say they are not trying to circumvent the cap as they consider allowances to be part of fixed pay.