May 22, 2013
Yesterday saw the opening salvo of what is sure to become a heated debate over the new ‘technical standards’ for the EU’s banker bonus rules.
Why is this so important? Well, these rules will essentially determine how far reaching the EU’s already controversial bankers’ bonus cap will be. But this decision also encapsulates a range of other issues that will have a defining impact in the way Europe is governed in future – and whether there’s a future for the UK in there somewhere.
With that in mind, the first draft produced yesterday to launch a period of public consultation on the standards would have been particularly worrying. The key points are:
Standard quantitative criteria: related to the level of variable or total gross remuneration in absolute or in relative terms. In this respect, staff should be identified as material risk takers if:
(i) their total remuneration exceeds, in absolute terms, €500,000 per year, or
(ii) they are included in the 0.3 % of staff with the highest remuneration in the institution, or
(iii) their remuneration bracket is equal or greater than the lowest total remuneration of senior management and other risk takers, or
(iv) their variable remuneration exceeds €75,000 and 75% of the fixed component of remuneration.
As the numerous press reports today have highlighted, these are far more wide ranging than many expected and are likely to further raise concerns that these rules will have a substantial negative impact on the City of London (and therefore the UK economy). (For background on these concerns see here and here). There are several different things going on here:
Are the EU agencies already exceeding their mandate? As we flagged up at the time of their creation, there’s a substantial risk of mission creep under the EU’s three supervisory agencies – EBA, ESMA, EIOPA – due to the fluid nature of these bodies. Remember, under the ECJ court case which allowed these agencies to be established under the EU single market (via QMV and co-decision), they should be blocked from having any type of decision-making powers. But EBA’s standards on remuneration comes worryingly close to legislation.
Politicisation of ‘technical standards’: Related to this, and as we also flagged up at the time, technical standards have a worrying tendency to become politicised – which clearly is the case here. This type of stuff should be decided through political negotiations and defined within the regulation. Any necessary technical background and info should be provided for and incorporated, even is this means delaying the legislation slightly.
Need for non-eurozone safeguards ASAP: Though this isn’t strictly a eurozone vs non-eurozone issue, it does illustrate just how vulnerable the UK and other outs could be to eurozone caucusing in banking / financial rule-making. This is also exactly why the UK and other non-eurozone countries need to ensure that the agreement in principle for double majority at the European Banking Authority – that Open Europe first floated – are held up and pushed through.
Trade-off between “single rulebook” and control: The UK says it likes the EBA since it contributes to a single rulebook for the single market, and can, for example, contribute to stamping out protectionist implementation of banking rules in Europe. This is all true. However, it does, of course, assume that the UK itself is writing the single rulebook, which may or may not be the case.
Democratic accountability: As the Times noted today, with central banks such as the Bank of England (BoE) and the ECB taking over financial supervision they must become more transparent and accountable. In this case it is unclear what role the BoE played in drafting the rules or whether they raised the concerns pushed by the government and firms in the UK.
Again, this is only a first draft. The public consultation is open until August, after which the EBA will review the evidence and provide a new draft – so a lot of the issues we highlight below should be considered with this in mind. There will then be a vote in the EBA with the final standards needing to be submitted to the Commission (which will approve or reject them) in March. One final interesting point here is that any vote in the EBA could come close to coinciding with the introduction of any double majority rules, although there are a lot of hurdles to overcome before then.
Expect a summer of furious lobbying and behind the scenes discussions as the UK and others make a final push to water down these proposals.Open Europe blog team