Have banks found a way round EU bonus Directive?
The financial collapse of 2008-09 brought Europe's banks under greater scrutiny and there was a particularly strong public outcry about bankers' bonus payments.
Many people felt banks should have scrapped these financial perks altogether during the recent economic downturn. In late 2013, the European Commission unveiled plans to restrict bankers' bonuses and this announcement is still causing controversy.
Are the EU rules fair?
Leading financial institutions have questioned the legality of bonus caps and European Commissioner for Internal Markets Michel Barnier was forced to defend the legislation, which came into effect at the start of the year. There was especially strong opposition from UK-based banks.
In a statement published on March 13th 2014, Mr Barnier said that in the interest of fairness, it is vitally important these rules are applied across the entire EU.
"The development of the single rule book in banking is a vast undertaking," he commented.
"Its objective is to ensure all banks comply with one set of rules across the single market. This ensures good regulation and a level playing field wherever banks are based."
The European Commission has adopted nine Regulatory Technical Standards to ensure the Capital Requirements Regulation and Directive can be enforced effectively. Under the terms of the new regulations, bankers' bonus payments will be a better reflection of the overall performance of the financial institution that they work for. This will help to appease campaigners who have questioned the morality of paying huge lump sums to employees who have not performed especially well.
Can banks bypass these new laws?
There have already been signs to suggest some European banks have found loopholes and ways of avoiding these rules.
For example, HSBC - the biggest bank in Britain - has sidestepped the laws by introducing "fixed pay allowances", which enable the organisation to make sizeable payments to Chief Executives and other senior figures.
David Hillman, a spokesperson for the Robin Hood Tax campaign - a lobby group calling for greater financial transaction taxation - was one of many people to criticise the move, labelling HSBC's latest round of bonus payments as "outrageous".
"HSBC haven't so much circumvented rules on bonuses as driven a coach and horses through them," he remarked.
"The only way to rein in bankers' remuneration is to make banks pay their fair share to society."
According to the EU Directive, bankers cannot receive more than 100 per cent of their annual salary as a bonus payment, although this can be upped to 200 per cent with the approval of shareholders. Despite this, HSBC is not the only bank to exploit a loophole, as two other UK banks - Lloyds and Barclays - have given out shares in order to reward senior bankers without breaking the rules.
Long-term impact?
The ease in which some banks have escaped these EU-wide rules has concerned European leaders.
According to Reuters, lawmakers are considering overhauling the new regulations to ensure they are not being exploited. Udo Bullmann of the European Parliament's Economic Affairs Committee told the news provider that he has reservations about the way the the European Banking Authority has devised the rules.
The EU must now decide whether to adjust the laws quickly or make more rigorous changes. If the European Commission opts to completely rewrite the rules in order to remove any areas of ambiguity, it could mean that regulations are not enforced in time for the next round of bonus payments in 2015. This would obviously mean banks are able to pay their employees whatever they want - something that would anger the public.
Legal challenges have also been issued from financial organisations that argue the current laws will make it harder for banks to cut costs when necessary, as the rules will encourage firms to offer higher rates of fixed pay in order to attract the best talent from across the industry.
Whatever the European Commission decides to do, it is clear that the controversial debate surrounding bankers' bonus payments will continue for a long time yet.
