Thursday

29th Jun 2017

EU rules clamp down on bank 'risk takers'

  • The fall of Lehman bank in 2008 marked the start of years of woe for the EU economy (Photo: sachab)

The European Commission has published rules aimed at making it easier to identify financiers involved in their bank's riskiest trading activities, as part of reforms aimed at capping bank bonuses.

Drafted by the European Banking Authority, the bloc's regulator, and adopted by the EU executive on Tuesday (4 March), the Regulatory Technical Standards, set out 15 criteria to define “material risk takers” in a bank. These cover all senior management staff and those with the power to authorise deals with high credit risk exposure.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

The new rules will also hit executives who earn at least €500,000, or who are in the highest 0.3 percent pay bracket in their firm.

The rules are an attempt to close a loophole which has seen a number of banks award “fixed pay allowances” to their top staff in a bid to dodge an earlier EU bonus cap.

Last month a report by German bank watchdog Bafin found that only four out of 15 banks surveyed had in fact applied the cap.

"Some banks are doing their utmost to circumvent remuneration rules," said financial services commissioner Michel Barnier in a statement on Tuesday.

"These standards will provide clarity on who new EU rules on bonuses actually apply to, which is key to preventing circumvention."

However, millionaire bankers could continue to be exemp from the cap, provided regulators agree they are not involved in any of bank's riskier functions.

"The burden of proof will rest squarely on the institutions to demonstrate that, despite the very high remuneration, the staff member in question does not in fact have any material impact on the institution's risk profile," the new rules say.

EU lawmakers backed the bonus cap reform, which formed part of new rules increasing the amount of capital which banks must hold on their balance sheets, in April 2013. As a rule, bonus payments would be capped at 100 percent of salary, with payments up to 200 percent of salary allowed on the basis of a vote by shareholders.

Legislators argue that a rampant bonus culture encouraged risky trading which resulted in the 2008-9 financial crisis.

But big banks claim the bonus cap risks driving top financiers out of the EU to the US or the Far East. Meanwhile, the UK issued a legal challenge against the legislation last September, claiming it was in breach of the EU treaties and would put European banks at a competitive disadvantage.

The UK is home to more than 75 percent of the 3,500 EU bankers who were paid more than €1 million in 2013.

MEPs and ministers now have up to three months to comment on the rules before they enter into force.

MEPs confirm bank bonus cap

Bank bonuses in the EU will be capped from 2015, as part of banking sector reforms backed by MEPs on Tuesday.

EU mulls post-Brexit budget options

EU seeks novel ways to plug a Brexit-based budget hole of up to €11 billion, but income from fines, such as the one on Google, cannot be relied on.

Slovenia and Croatia reignite border dispute

Croatia said it would not apply a ruling to be delivered by the international arbitration court on Thursday. Slovenia appeals to the EU to pressure its neighbour.

Slovenia and Croatia reignite border dispute

Croatia said it would not apply a ruling to be delivered by the international arbitration court on Thursday. Slovenia appeals to the EU to pressure its neighbour.

Stakeholders' Highlights

  1. EU2017EEGet the Latest News from the 2017 Estonian EU Council Presidency @EU2017EE
  2. International Partnership for Human RightsEU-Kyrgyzstan Human Rights Talks Should Insist on Ending Reprisals Against Critical Voices
  3. European Free AllianceEFA Is Looking for a New Intern
  4. Malta EU 2017Conservation of Atlantic Tunas: International Measures Become EU Law
  5. European Healthy Lifestyle AllianceCan Statin Therapy Interfere With a Physically Active Lifestyle?
  6. EPSUOn Public Services Day, Stop Austerity! Workers Need a Pay Rise!
  7. EGBAOnline Gambling: The EU Court Rejects Closed Licensing Regimes In Member States
  8. World VisionFaces of Today, Leaders of Tomorrow: Join the Debate on Violence Against Girls - 29 June
  9. ECR GroupThe EU Must Better Protect Industry from Unfair Competition
  10. Malta EU 2017Better Protection for Workers From Cancer-Causing Substances
  11. EPSUAfter 9 Years of Austerity Europe's Public Sector Workers Deserve a Pay Rise!
  12. UNICEFEU Trust Fund Contribution to UNICEF's Syria Crisis Response Reaches Nearly €200 Million