Bankers' bonuses to face limits in Europe
The new rules may encourage some City workers to quit London for other financial centres
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Remuneration shuffle
Banks in talks over bonuses cut
European regulators are set to reveal tough new restrictions on the bonuses that banks can pay their staff.
The limits are expected to be finalised and announced on Friday by the Committee of European Banking Supervisors (CEBS).
The rules are likely to be much tougher than those agreed by the G20 countries, raising fears that bankers may emigrate to more lightly regulated countries.
The bonus limits are expected to apply to the global staff of European banks.
However, non-European banks will probably only face restrictions on what they pay staff working for subsidiaries based in the European Economic Area.
Relocation threat
The rules may create an added incentive for bankers to relocate to Asian cities such as Singapore that have looser bonus rules, as well as lower tax rates and access to Asia's booming economies.
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HSBC and Standard Chartered are finding it increasingly difficult to retain their best people or to hire new ones”
Robert Peston
Business editor, BBC News
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Moreover, according to the BBC's business editor, Robert Peston, British banks HSBC and Standard Chartered have voiced concerns that they may lose Asian staff to non-European competitors if the UK's Financial Services Authority applies the bonus rules to their global staff - including those in Asia - as expected.
And although they have made no such threat, the rules may encourage the two banks to move their corporate headquarters to Asia in order to avoid having to apply the rules outside Europe.
The rules will not apply to Switzerland, a major international banking centre that is not part of the European Economic Area.
However, the Swiss imposed their own minimum pay standards on banks at the beginning of this year, although their rules do not contain any explicit limit on how much bonus can be paid upfront in cash.
The CEBS has already published a draft set of guidelines, which recommended making banks:
appoint an independent remuneration committee
defer 40-60% of bonuses for three to five years, and pay 50% of bonuses in shares (rather than cash)
set a maximum bonus level as a percentage of an individual's basic pay
exclude any "award for failure" from severance pay packages
publish pay details for "senior management and risk takers"
The rules would mean that bankers receive only 20-30% of their bonuses in immediate cash.
Stressed out
Meanwhile the Committee is also preparing a new and much more rigorous round of stress tests for Europe's banks.
They follow the near-collapse of the Irish Republic's banks, despite the fact that they passed a previous round of stress tests held over the summer.
The new tests will be used to determine how much additional capital banks must take on to absorb potential losses on their investments.
Several international figures, including former UK Prime Minister Gordon Brown, have called on European leaders to massively recapitalise their banks in order to avoid the risk that the European sovereign debt crisis could trigger a banking collapse.
The original stress tests were heavily criticised for failing to consider the possibility that a European government may default on its debts.
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