A European watchdog may crack down on banks using loopholes in rules that restrict big bonuses, amid ongoing controversy over remuneration practices.
The European Banking Authority (EBA) said it found a "huge dispersion" in the way banks across the European Union (EU) applied bonus rules and tried to manipulate the laws, in a report released on Friday.
Rules clamping down on bonuses were introduced following the financial crisis of 2008, amid a public backlash towards bankers who were seen by many as being responsible for the meltdown.
EU laws require 40-60 percent of a bonus be deferred for at least 3 years. Authorities tightened the rules further last year, restricting bonuses to 100 percent of an employee's fixed salary, or double that amount with shareholder approval.
But the EBA raised concerns about the introduction of so-called "position or role-based allowances" by some companies, which are paid monthly and boost base salaries, but do not qualify as bonuses.
"In general, these allowances… are considered by institutions as fixed remuneration. However, these allowances are discretionary, as they are paid to selected members of staff and in most cases only for limited periods of time. Under exceptional circumstances, they can also be cancelled," the EBA said in a statement.
"The EBA is currently analysing this emerging practice and will set guidance criteria to correctly assign these elements to either variable or fixed remuneration, so as to ensure that these practices do not lead to a circumvention of the newly introduced cap between the variable and fixed component of remuneration."
In 2012, top bankers received an average of 172,379 euros ($233,341) in base salary and 187,441 euros in bonuses, representing a 31 percent increase in fixed pay and a 30 percent drop in bonuses compared with 2010, according to the EBA.
The watchdog's review will be put to public consultation by the end of 2014 and recommendations will be outlined at the beginning of next year.
Bonus caps have been an especially thorny issue in the U.K., which has taken Brussels to the EU's top court arguing the rules will make financial institutions more risky by pushing up basic pay. The British Treasury argued the laws go beyond the EU's power and will threaten London's status as a global financial hub.
Britain had the highest number of bankers in the EU earning over 1 million euros in 2012, according to the EBA, at 2,714.
HSBC became the first lender earlier this year to reveal its plans to circumvent EU pay rules. Top employees at the bank will receive fixed-pay allowances as well as shares to boost their income.
- By CNBC's Arjun Kharpal