LONDON – The European Commission adopted rules on Tuesday that finalize the details for limits on banker bonuses, and a top official cautioned against efforts that have cropped up to circumvent the new restrictions.
Michel Barnier, the commissioner responsible for overseeing financial services, warned banks against pushing too far with new payments, called “allowances,” that they have devised to skirt the limits and increase fixed pay. The 2013 European law limits the bonuses of certain bankers to 100 percent of an employee’s fixed salary, or two times salary if shareholders approve it.
“Some banks are doing their utmost to circumvent remuneration rules,” Mr. Barnier said. He said that the new rules would be enforced by the European Banking Authority and local regulators. “The commission will remain vigilant to ensure that new rules are applied in full.”
The European Commission adopted the so-called Regulatory Technical Standards, a 61-page document that identifies the employees to whom the rules will apply, including anyone earning more than 500,000 euros, heads of divisions including human resources, and those who trade certain amounts of capital.
Britain is suing to block the law, saying the European Commission has overstepped its authority. A similar suit challenging rules banning short-selling in extreme circumstances failed earlier this year.
Separately, Mark J. Carney, head of the Bank of England, indicated that the Prudential Regulatory Authority, which is part of the bank, would consider expanding the amount of pay that can be clawed back by banks in cases of misconduct, poor performance and failures of risk management.
British pay rules, the so-called remuneration code, allow banks to claw back pay that has been deferred. The Parliamentary Commission on Banking Standards recommended that banks also be able to claw back vested pay, or bonuses that have already been paid. Mr. Carney, in a letter to the chairman of the Treasury Select Committee, Andrew Tyrie, said the authority would start a two-month consultation period to examine expanding clawbacks. If necessary, the authority would put in place rules for the 2014-2015 financial year.
The Treasury Select Committee also asked Mr. Carney to report back about the banking sector’s exposure to China. Mr. Carney wrote that the claims of British banks on China stood at $184 billion in the second quarter of 2013. That figure has increased about 2.5 times since the end of 2009, compared with an increase of 1.5 times for all banks that report their exposures to the Bank for International Settlements, an international organization of central banks.
“Despite this growth, claims on China are still only the fifth-largest component of U.K. banks’ external exposures,” Mr. Carney wrote. He noted that Chinese exposure was much smaller than the exposure to the United States.