European regulators release details on bank bonus levels

A tourist take a picture of the skyline of the banking district from the roof of a building in Frankfurt am Main, western Germany in July 2010. European banking regulators on Friday released the definitive version of rules setting strict limits on European banker bonuses.

AFP - European banking regulators on Friday released the definitive version of rules setting strict limits on European banker bonuses.

The Committee of European Banking Supervisors (CEBS), which groups regulators from the 27 EU members, had been directed to draft guidelines on implementing bonus restrictions on traders and bank executives adopted in July by the European Parliament.

The bonuses are seen as having encouraged imprudent, high-risk trading activities that contributed the 2008-2009 financial crisis.

The new rules, to take effect in January, stipulate that bonuses must be "proportional" to an employee's fixed salary, spread out over three years, with the cash component limited to 50 percent of the total bonus and 30 percent of the initial installment.

The text published Friday largely embodied proposals made by the CEBS in October, which sparked criticism from the European banking sector.

Banking leaders charged that the committee had applied too strict an interpretation to the measures adopted by the parliament.

The CEBS is insisting that the rules take effect on January 1 and that banks should generally apply them from that date. Critics had pressed for a transition period.

The regulations will in addition apply to all subsidiaries of European banks, including those operating outside Europe. The committee however said it had added "clarifications" to respond to criticism of the text.

The British Bankers' Association said in a statement it recognised that "the reform of pay structures plays a significant part in restoring confidence in the industry."

But it added: "We maintain that reform of the remuneration system in financial services must be globally coordinated. A global industry needs to conform to global standards, as any jurisdiction which takes a lighter approach will attract business and staff.

"We now need other jurisdictions, notably the United States and emerging markets, to coordinate their reforms with the EU rules."

Simon Lewis, chief executive at the Association for Financial Markets in Europoe, warned that "these requirements will mean that banks operating in Europe and European banks operating elsewhere in the world will be at a competitive disadvantage unless there is recognition of the need for a global agreement on compensation practices."