EU to Punish Banks That Ignore Caps on Bonuses

Written by | Friday, September 12th, 2014

The European Union is going to punish banks that ignore a cap on pay bonuses that were introduced by EU authorities earlier this year. Internal Market Commissioner, Michel Barnier, said that major Britain-based banks were using the so-called “cash allowances” as a reward to more senior employees in order to avoid caps. Commissioner Barnier said that this only confirmed his strong concern regarding the supervision of such allowances. “It is important to show a collective, proactive stance on this important matter and address the claims made that the spirit of Union law is being disregarded,” he added.

EU set the rules, which limit bonuses for bankers at 100 percent of annual salary or 200 percent with shareholder approval, to decrease the volume of risk taking. However, in Britain, banks are the crux of the economy, which is why the British government resisted the EU-imposed limitations and thus ended up fighting for the cause in European courts. The financial institutions themselves have warned that the limit on bonuses would seriously complicate recruitment and re-direct talents to banking at the Wall Street, in Asia, and in the Middle East. As a result of the bonus cap, some major global banks, such as HSBC or Goldman Sachs, have introduced cash allowances in their European operations to reward key employees.

Commissioner Barnier has urged the EU to reconsider the importance and role of these practices through a review that would then lead to an appropriate policy response. Mr Barnier believes in a quick action followed by a tangible policy proposal by the end of September so that he can deal with this issue before he leaves and the new Commission takes over on November 1. The Commission chief-to-be, Jean-Claude Juncker, is at the moment in the process of allocating portfolios for his team.

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