Senior Lib Dem MEP Sharon Bowles has criticised the FCA for failing to include the cap on bankers’ bonuses in its consultation on the implementation of new European banking rules.
The European Capital Requirements Directive IV sets new, tougher capital, liquidity and leverage requirements based on Basel III. While the rules were under debate in Europe, MEPs secured the inclusion of a 1:1 salary to bonus ratio, rising to 2:1 with the consent of shareholders. Under the rules up to 25 per cent of a bonus can be discounted if deferred by up to five years.
Last week, the FCA published a consultation on parts of the mammoth directive which relate to its brief but it did not include the cap. It said the regulator was “considering” the cap with the Treasury in light of the Parliamentary Commission on Banking Standards’ view that even though remuneration reform is necessary the “crude” cap is not the best way forward. A separate consultation is likely to follow in the future.
Speaking to Money Marketing, economic and monetary affairs committee chair Sharon Bowles says: “It is basically saying what the banking commission has come out with is taking precedence over the rules from Europe, which of course is the wrong way around. The banking commission’s report said it did not like caps, but that is just too bad. They have to have it because it is in directive.”
The European Banking Authority is currently consulting on who will be hit by the cap. Bowles was one of the lead negotiators on the directive. She says the cap may not have been included in the consultation because the UK Government is still hoping to secure a narrowing of those caught by it through negotiations with the EBA.
She adds: “But, they cannot water it down. They cannot get away from the basic 1:1 or 1:2 cap and that 25 per cent can be discounted if deferred, so this is a missed opportunity to get started.”
A Treasury spokesman says: “The Parliamentary Commission on Banking Standards made a number of recommendations on remuneration, and it is right for the government and regulators to consider these recommendations, alongside other reforms, in a coherent way.”
The PCBS’s final report says: “We are not convinced that a crude bonus cap is the right instrument for controlling pay, but we have concluded that variable remuneration needs reform. It is for banks to set remuneration levels, but it is for regulators to ensure that the costs and benefits of risks in the long term are properly aligned with remuneration.”
Earlier this week, HSBC chairman Douglas Flint said the bank may increase its pay levels as a result of the cap. Referring to the bank’s quarterly results, he said: “You can see from these results that 80 per cent of the profit comes from outside Europe. We have to be competitive. The cap on variable pay as a proportion of fixed pay is very uncomfortable when we make our money where these restrictions are not faced by our competitors.”