LONDON (Reuters) - European Union officials will next week propose capping financial sector pay above 500,000 euros, accountancy firm PwC said on Friday, suggesting the world’s most stringent curbs for the industry will affect far more bankers than previous rules.
The European Banking Authority will next week for the first time put a number on where it would like its planned bonus cap to start and PwC said in a statement that the threshold would be set at 500,000 euros.
The EU watchdog’s board met on Thursday and a spokeswoman declined to comment before the paper is released formally for public consultation.
Banking pressure groups and bank officials also all declined to make any comment but at least one major financial sector law firm said it had already had numerous inquiries from banking clients on the issue.
Jon Terry, a partner at PwC, said the 500,000 euro threshold would increase the number of staff subject to bonus capping perhaps by as much as 10 times for some investment banks operating in London in comparison with current UK rules.
“This will create a major challenge for banks as to how they reward their staff,” Terry said. “Bringing more people into the stringent pay rules again further widens the gap between pay practices in Europe and the rest of the world.”
At Barclays, for example, at least three times as many staff would be caught by a 500,000-euro bar than under a stricter definition of people in key risk positions.
Barclays designated 393 people as “code staff” in 2012, defined as employees whose activities could have a material impact on the bank’s risk. But 1,338 staff were paid 500,000 pounds or more last year, according to the bank’s annual report in 2012.
Peter Snowdon, a financial services lawyer at Norton Rose in London said clients had already been calling him up to ask about the implications of the 500,000 euro threshold.
“It is obviously something that has significant implications for European business and will certainly lead some people to wonder if they can be bothered,” Snowdon said.
The European Union is looking at several ways to make banks pay for the billions in help they have received from governments and central banks to stay afloat in the financial crisis, including a possible tax on financial transactions being considered by 11 member states.
In March the EU approved a new law barring bankers from awarding themselves payouts worth more than their salary, by far the world’s most stringent curb on financial sector pay.
The moves are in response to public anger at big bonuses at lenders rescued by taxpayers and as part of broader efforts to dampen excessive risk taking.
The EBS is now fleshing out the law by setting out a pan-EU definition of who should be subject to the bonus cap. Currently there is no common definition of who must comply with the bloc’s existing remuneration curbs.
Christopher Mordue, a specialist employment lawyer at Pinsent Mason in London said the “massive” extension to the bonus net will raise concerns about damage to the competitiveness of London as a financial centre.
“So this proposal will also intensify the search for creative solutions which allow existing levels of overall remuneration to be retained.”
Additional reporting by Steve Slater; editing by Patrick Graham