BY Fraser Tennant
Every bank is to be subject to the same staff bonus cap according to new guidelines published by the European Banking Authority (EBA) this week.
The regulator’s guidelines, its final statement on remuneration policy, are designed to ensure that financial institutions correctly and consistently calculate the bonus cap by mapping remuneration components into either fixed or variable pay, as well as detailing allowances, sign-on bonuses, retention bonuses and severance pay.
The EBA does, however, recommend exemptions from certain aspects of the EU's latest Capital Requirements Directive (CRD IV) remuneration rules for smaller banks and operators, such as asset management firms.
To this end, the EBA is of the opinion that legislative action is required in order to clarify and ensure that the CRD remuneration requirements are applied consistently across the EU. At present there are a number of national rules regarding the application of proportionality, including the waiving of requirements, which has led to an uneven playing field between institutions across the EU.
“While smaller asset managers and banks will be relieved that the EBA believes the deferral rule should not apply to them, for larger asset managers the situation is particularly concerning," asserts Jon Terry, a reward partner at PwC. “The EBA appears to be suggesting that they should no longer be able to avoid remuneration requirements on deferral and payment in instruments.”
However, the EBA’s attitude does not constitute a legal basis and the guidelines are essentially “neutral” on this particular aspect. For the moment, the CRD general principle of proportionality determines how waivers are applied – a scenario very much subject to change.
"Many assets managers and smaller banks will be very concerned that the EBA is proposing changes to the Directive that would require that all firms, regardless of size, will be subject to the bonus cap. It appears current practices will apply for 2016, and the guidelines have simply provided a stay of execution until 2017. Although the situation is not yet certain - changes will need to go through the European legislative process, which can be lengthy.”
The EBA Guidelines, based on the so-called ‘comply or explain’ principle meaning that Competent Authorities have two months to state whether or not they will comply with them, are due to come into force across the EU on 1 January 2017.