Europe News

EU to Ask Banks to Reveal Compensation Packages

Nikki Tait, Financial Times

Banks in Europe will be required to disclose more information about the number of their employees earning more than 1 million euro ($1.4 million) under proposals put forward by Brussels.

The European Commission has proposed that national authorities should collect information on the number of individuals per bank who are paid at least 1 million euro, and the make-up of those sums in terms of salary, bonus, long-term awards and pension.

The information would be forwarded to the new European Banking Authority, which would publish it on an aggregate country basis, in a common format for all 27 member states of the European Union.

The idea was included in wide-ranging proposals put forward by EU officials in Brussels last Wednesday as part of the draft plan to overhaul regulation in the banking sector.

A large part of these proposals is concerned with implementing the new, internationally-agreed Basel III guideline, which aim to beef up the amount and quality of the prudential capital banks must hold. Most of these proposals are contained in a regulation which, if approved, would be binding on member states and institutions.

But the package also contains a proposed directive which – besides introducing the remuneration reporting requirement – aims to harmonize and toughen sanctions against banks that step out of line. It includes various corporate governance measures for the sector and aims to reduce bank reliance on external credit ratings, throwing the focus instead on internal assessments.

Also included in the draft directive are proposals on capital buffers and bank supervision.

Both parts of the package would need the approval of member states and the European parliament before they could come into force. In addition, once the wording of the directive has been approved by those parties, member states would need to transpose it into their respective national laws.

Elements from both parts of the package – the draft regulation and the draft directive – are likely to prove contentious, spurring intense debate among MEPs and member states before a final package is hammered out. Some member states, for example, would like more flexibility to implement capital standards and ratios in excess of those proposed in the regulation, while some of the definitions of what counts as top-quality capital have been disputed.

As a result, it seems unlikely that the final shape of the legislation will be resolved until the second half of 2012.

The EU is the first jurisdiction globally to start implementing the Basel III guidelines in law.