(Updates with lawyer comment in 13th paragraph.)
Jan. 14 (Bloomberg) -- Bonus-cap exemptions championed by the European Union’s banking regulator may be vetoed by EU lawmakers who said they’ll fight a weakening of curbs on excessive payouts.
Members of the European Parliament said they’ll be on the hunt for loopholes when they examine draft European Commission measures to implement a law to cap bankers’ bonuses at twice their salary. The European Banking Authority last month advised the commission to allow waivers to some staff earning more than 1 million euros ($1.4 million) a year.
“Parliament has been serious about capping the bonuses,” Othmar Karas, vice president of the EU assembly, said in an e- mailed statement. “If the draft on the technical details proposed by EBA leaves loopholes open, parliament is going to make use of its right to object.”
The EU assembly scored a political victory last year when it clinched a deal with governments on rules curtailing the bonus culture that lawmakers blamed for fueling the 2008 financial crisis. The U.K. government challenged the caps at the EU’s highest court in September, saying the measures were flawed.
The EU legislation setting out the banker-bonus curbs called on the EBA to develop guidance on who should be covered by the measures. The commission is, in turn, responsible for assessing the EBA’s advice, and then deciding how to proceed.
Once the commission makes its proposal, the parliament and governments have a three-month window to raise objections, or request more time, before the standard becomes law.
“The draft rules have been highly contentious and a number of banks have looked at ways of avoiding the cap, exactly what the European Parliament wants to clamp down on,” Stefan Martin, a partner at Mayer Brown LLP, said in an e-mailed statement today. “But there are no clever ways around the cap and employers are resigned to its implementation.”
Banks could ask national regulators to exempt staff earning as much as 1 million euros from rules that cap bonuses at twice their salary, under last month’s EBA proposal. For compensation greater than 1 million euros, the EBA would have to approve any waiver. Senior managers aren’t eligible.
Banks must show that any excluded staff “have indeed no material impact on the institution’s risk profile,” the EBA said in December’s policy document.
“If the EBA is going to give them a kind of leeway, or more flexibility, the issue for us would be to look at the details of how they are identifying ‘material risk takers,’” said Arlene McCarthy, a deputy head of the parliament’s Economic and Monetary Affairs Committee.
“If they are saying someone has no material impact on the risk profile, we’d need to know how they intend to define that, how they are assessing this,” McCarthy said.
Banks must “identify all material risk takers even if they don’t meet the criteria which are laid down” in the rules, Chantal Hughes, a spokeswoman for the commission, said in an e- mail.
The EBA “is right as a matter of general principle” to allow the cap to be suspended for bankers that don’t “pose a threat to the risk management of the bank,” Stuart Willey, a financial regulation lawyer at White & Case LLP in London, said in an e-mail.
The strongest opposition to capping bonuses has come from the U.K. government, which said the rules breach treaties protecting the “rights and interests of employed persons,” in a statement in September.
“There is still an ongoing challenge to the rules by the U.K., but given the widespread political support for the rules, the likelihood of the rules disappearing is low,” Martin said.
The highest-paid bankers in the U.K. had an average bonus- to-salary ratio of 370 percent, the EBA said last month. In France, the ratio was 495 percent.
Britain was home to 2,188 investment bankers earning more than 1 million euros in 2012, the highest amount in the EU, while Spain had 37, the London-based EBA, set up in 2011 to harmonize banking rules in the EU, said in the survey last month. France and Germany had 117 and 100.
Franca Congiu, EBA spokeswoman, didn’t immediately respond to a call seeking comment.
--Editors: Peter Chapman, Patrick Henry