The European Union must crack down on banks side-stepping a cap on pay bonuses that were set by Brussels earlier this year, a top EU official said. Internal Market Commissioner Michel Barnier said in a letter to the European Banking Authority, the EU watchdog, that major Britain-based banks were using so-called "cash allowances" to reward senior bankers, adding that they were bonuses in all but name.
"I would like to underline my strong concerns with regard to the continuing reports of these allowances," France's Barnier said in the letter, which was sent on Thursday but emerged on Monday. "It is important to show a collective, proactive stance on this important matter and address the claims made that the spirit - if not the letter - of Union law is being disregarded," he added.
Designed to curb excessive risk taking in the wake of the global financial crisis, the EU rules came into effect in January and limit bonuses for bankers at 100 percent of annual salary or 200 percent with shareholder approval. Banking is a pillar of the British economy, and the government, which fiercely resisted the cap, is now fighting the rules in European courts. The banks themselves warned that the limit would seriously undermine recruiting and cause a drain of talent to financial centres in Asia, the Middle East and Wall Street. Since the bonus cap, several major global banks such as Goldman Sachs and HSBC have adopted cash allowances in their European operations to pay top employees.
Like bonuses, these do not count towards pensions and can be adjusted year-to-year based on performance and other factors. In his letter, Barnier urged the EBA to accelerate an ongoing review of these practices "and share with us the result of this work as soon as possible" so that a suitable policy response can be found.
Barnier's letter does not name City of London banks by name, but Britain is by far Europe's biggest financial hub, far bigger than the centres in Frankfurt and Paris, and home to some of the world's biggest banking groups. Barnier said he hoped for a policy proposal by the end of the month, before he leaves his job and a new commission takes over on November 1. Incoming commission head Jean-Claude Juncker is currently allocating portfolios for his team with the internal market job one of the most coveted, notably by Britain.