Scale of bankers bonus cap restrictions to be proposed later this week

A spokesman for the EBA told Out-Law.com that it will propose who should be classed as a 'material risk taker', and therefore be subject to the bonus cap rules, and consult on the plans.

"The EBA is mandated by the Capital Requirements Regulation to draft technical standards on the definition of the so-called material risk taker," the EBA spokesman said in a statement. "Staff that fall in the category of 'material risk taker' will be subject to the new bonus cap rule adopted by the EU. As for all the technical standards we are drafting, an open consultation will be organised. It will be launched this week."

The EBA spokesman refused to comment on reports in the media that the EBA is to propose that bank employees earning more than €500,000 a year are made subject to the bonus cap.

In a statement, accountancy firm PricewaterhouseCoopers (PwC) said that the EBA has agreed that "employees whose total remuneration is greater than €500,000 should be deemed to be MRTs (material risk takers)" and therefore subject to the bonus cap framework.

Under the new CRD IV package of EU laws, banks have to hand over certain information about their pay and benefits policies to regulators in relation to the "categories of staff whose professional activities have a material impact on its risk profile". Regulators are required to ensure that the remuneration policies at banks do not encourage excessive risk-taking, among other things. The assessment would apply to senior bank staff, "risk takers" as well as those staff who are earning similar amounts of money and whose "professional activities have a material impact on their risk profile".

The EBA is responsible for issuing draft regulatory technical standards on what constitutes an appropriately balance between individuals' fixed and variable remuneration.

Earlier this year MEPs and EU Ministers provisionally agreed a deal which would introduce a general cap on the amount of bonuses bank staff could earn at a level not exceeding their annual salaries (1:1 ratio). Bonuses worth up to double what staff are paid in their salaries could be awarded if authorised by bank shareholders (1:2 ratio).

Employment law specialist Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com, said that London's strength as a financial centre could be undermined if bankers' bonus cap rules are triggered when staff earn more than €500,000 in salary.

"This would represent a significant escalation of the bonus capping proposals," Mordue said. "By massively extending the range of employees caught by the bonus cap, this measure would exacerbate concerns about the potential damage to the City’s global competitive position."

"The standard suggestion that the cap on variable pay can be easily evaded by increasing fixed remuneration is unlikely to be a sufficiently sophisticated response if the cap applies as extensively as seems to be on the cards – just increasing salaries would lead to a significant increase in overall fixed costs with no allowances for performance adjustments or clawback. So this proposal would also intensify the search for creative solutions which allow existing levels of overall remuneration to be retained," Mordue added.