London banks device ways to go around EU bonus rules

A report by the New York Times' the DealBook said that several big banks in London had been implementing strategies to circumvent European Union's attempts to rein in bonuses.

The regulator has set up a new legislation called the bonus cap law, which limits bankers to bonuses to up to two times their normal salaries. The EU said that this rule is a precaution to stave off further risk-taking by traders and banks. However, as a response to the limit, the top banks in the world, which include Goldman Sachs, Bank of America Merrill Lynch and Barclays, are seen attempting to avoid the law by redefining or restructuring bonuses into pay packages to satisfy both regulators and their expensive talent.

Some of the names given to banker bonuses are "role-based pay," "allowances," and one had relabeled it to "reviewable salary."

Belgian member Philippe Lamberts of the Green Party in the European Parliament said, "These are bonuses in disguise. I wonder how they will hold up in a court of law."

As a response, bank regulators are not backing off with their fight to implement the bonus cap and avoid another financial collapse in the future. These reclassified bonuses, said DealBook, are now being told to be paid off to bankers in staggered payments, or deferrals, with the hope that the money paid to bankers could be taken back by the banks in essence should risk-taking went bad.

On the other hand, some financial experts said that the regulators' move was still inefficient, as it could only recover less than the massive amount of pay the financial institutions pay to bankers. Moreover, bank executives said that the move will only drive fixed compensation costs by paying their banker and traders in yearly salaries. Also, the bonus cap law is said to have created an unfair playing field for the EU when compared to other financial markets who does not face similar constraints.

Tags

European Union, EU bonus cap law, Goldman Sachs, Bank of America Merrill Lynch, Barclays

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