EU watchdog backs softer bonus regime

LONDON: Staff at smaller banks in the European Union should not have to defer large chunks of their bonuses over several years, the bloc's European Banking Authority (EBA) watchdog said on Monday.

After the 2007-09 financial crisis, the European Union introduced rules to stop bankers from taking excessive risks to win bigger bonuses and because state bailouts of failed banks had angered taxpayers.

The rules apply to senior management and so-called material risk takers at banks, many of whom are based in London.

At least 40 percent of a bonus must be deferred for at least three years, with half of the deferred portion paid in shares or bonds rather than cash.

This means that if misconduct is uncovered after the bonus is awarded, the bank can stop some being paid out.

Smaller banks have complained that the rules are not "proportional" as the bonuses they pay are very modest and the deferrals create administrative headaches.

The European Banking Authority said the EU should consider amending its law to "explicitly support specific exemptions on the application of deferral arrangements".

"It is the EBA's opinion that the disapplication of these requirements should be possible for small and non-complex institutions and for staff that receives only a small amount of variable remuneration," the watchdog said.

It offered no definition for small and non-complex institutions.

The deferred portion of a bonus is paid in a bank's shares or bonds but the EBA said for savings and cooperative banks who have not issued shares, this is difficult and they should get more flexibility.

It will be up to the EU's executive European Commission whether to propose an amendment to the law. Any change would need approval from member states and the European parliament.