European Union bank watchdogs fleshed out on Friday what amount to the world's toughest and most far-reaching curbs on bonuses, prompting a warning that financial firms are now more likely to set up shop elsewhere.
Bonuses will be capped on the basis of earnings and liable for repayment if shown to have been awarded for unduly risky actions, according to the guidelines from the Committee of European Banking Regulators (CEBS) which are scheduled for EU-wide adoption next year following consultations.
The 84-page set of rules implements a new EU law that curbs excessive bankers' pay from January and go beyond global principles on remuneration agreed by the world's top 20 leading developed and developing economies.
"The CEBS guidance makes the European regulation of banking pay among the most stringent and it confirms the extension of the provisions to the world-wide operations of European banks," said Jon Terry, a partner at PwC.
"Unfortunately this deviation from global trends in banking remuneration could make it more likely that banks move operations, or at least expand, outside of the European Union," Terry added.
Parts of the guidelines are less restrictive than some in the industry had feared.
CEBS said banks will have to fix an "appropriately balanced" maximum ratio of bonuses to fixed salaries for top staff, stopping short of imposing a set ratio across the board.
It also said it has applied "proportionality" to all aspects of the guidelines, a step analysts said would be welcomed by smaller, less risky firms.
But many are in line with expectations as CEBS must operate within a new EU law known as the amended capital requirements directive or CRD III.
Only a portion of a bonus will be payable upfront, with 40 to 60 percent deferred over 3-5 years, and banks should not award "golden parachutes" — payments to people who are leaving — that are unrelated to performance.
After a public consultation, CEBS will forward a final version of the guidelines to the EU's executive European Commission for approval. There will be a public hearing in London on Oct 29.
