BoE lashes out at EU bonus cap rules
The Bank of England has launched a full-blooded counter-attack on the EU cap on banker bonuses, calling it the “wrong policy” just one day after European regulators tried to stop banks from dodging the rule.
In a sign of mounting tension between EU countries over pay, Andrew Bailey, the chief of the BoE’s Prudential Regulation Authority, said the debate over bonuses was “misguided” and that variable pay should play a significant role in banker remuneration.
His criticism comes after the European Banking Authority on Wednesday set a December 31 deadline for EU watchdogs to crack down on the use of role-based “allowances”, which are being used by investment banks to circumvent the bonus cap.
Mr Bailey said: “Let me be blunt, the bonus cap is the wrong policy, the debate around it is misguided, and the best thing I can say about allowances is that they are a response to a bad policy. They are not a good solution.
“I will not win friends in some places for saying this, but it dismays me to see a debate which is at times so divorced from the heart of the matter, which is setting appropriate incentives by putting a meaningful amount of pay at risk.”
The EU capital requirements directive mandates that bonuses should be no more than 100 per cent of salary – or 200 per cent with shareholder approval.
British chancellor George Osborne has launched a legal challenge to the cap in the European court. The BoE has previously said it opposes the bonus cap, fearing that it will make it harder to align pay with performance.
The EBA said on Wednesday that a review of 39 banks had suggested that allowances were being widely used to circumvent the bonus cap. It called on EU national regulators to take “all necessary measures” to ensure allowances were adjusted to comply with the law.
Source: FT- BoE lashes out at EU bonus cap rules
