The European Banking Authority could take legal action against the Bank of England if it fails to prevent UK bankers being paid bonuses through a loophole that sidesteps the EU bonus cap, according to The Mail on Sunday.
The EU passed a directive this year that requires banks to limit bonus payments to 100 per cent of a banker’s salary or 200 per cent with shareholder approval.
But many UK banks are continuing to pay “allowances” – extra payments above salary that are linked to a banker’s role as opposed to the performance of the bank – which the EBA stated last week should be included in the bonus cap.
Following that ruling, EBA executive director Adam Farkas told the newspaper: “If there is a breach of law then we have the legal power to invite a breach of law action.”
The Bank of England and Chancellor George Osborne are opposed to the bonus cap, which they say could result in a flight of talent from the City.
Formal guidance on the bonus cap and allowances will be issued by the EU in December, with bank regulators expected to respond by April next year.