EU parliament backs tough bonus rules

(News Today) - Tough new rules restricting bankers' bonuses were approved by European Union lawmakers on Wednesday and could take effect in much of the 27-country bloc in time for this winter's pay season.

Banks will be required to defer 40 to 60 per cent of bonuses for three to five years, and half of any immediate bonus must be paid in shares or in other securities linked to the bank's performance. As a result, bankers will only be able to receive between 20 and 30 per cent of any bonus in upfront cash -- the toughest restriction worldwide of this kind.

While the new bonus rules are broadly in line with global recommendations endorsed by the Group of 20 leading nations, bankers say the EU may have put itself at a competitive disadvantage by staking out such a firm position.

The US has opted for guidelines rather than legislation and banks there are hopeful they will be able to exploit the difference when competitive recruiting pressures return.

"We will be competing on a global basis for talent and we have to know what the rules are elsewhere," said Stuart Fraser, policy chairman of the City of London.

The EU measures, part of a broader set of amendments to bank capital rules, were agreed between member states and EU parliamentarians last week. The legislation approved on Wednesday calls for national regulators to implement the bonus portion by January 2011.

City professionals said the practical impact would depend on how quickly and strictly national regulators applied the legislation and whether they exercised powers to fine banks that flouted the bonus rules.

Most banks have already changed their pay structures. A survey of 39 financial firms by consulting firm Mercer found that 94 per cent have cut use of cash bonuses and over 65 per cent have a mandatory deferral programme.

Supporters say the rules are designed to prevent backsliding.

Arlene McCarthy, the British MEP who steered the new rules through the parliament, told fellow lawmakers this week that the regime should help address "fundamental flaws in the banking system" and discourage excessive risk-taking.

"Since 2008, banks have failed to reform their structures -- we are now doing the job for them," she said.

Michel Barnier, the EU's internal market commissioner, also said he believed the new regime would "restrict remuneration policies which have only encouraged excessive risk-taking".

He said that Brussels was now considering rules for other parts of the financial services industry "but taking into account the specific nature of those sectors".

Source : CNN

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