On 15 October 2014 the European Banking Authority (“EBA”) issued a report on the use of role-based fixed allowances by various financial institutions within the European Union (“EU”) affected by the EU bonus ratio cap. Role-based fixed allowances are essentially payments based on an individual’s role, responsibilities or seniority which are treated by the institution as fixed rather than variable remuneration for the purposes of the EU bonus ratio cap. The EBA is taking a very strict view as to when such allowances can properly be categorised as fixed remuneration. Assuming that regulatory authorities amend local rules to reflect the EBA’s views, financial institutions which have already implemented such allowances may need to revisit the structure of such allowances and make adjustments as necessary. The EBA expects regulators to ensure that institutions have updated their remuneration policies to reflect the report by 31 December 2014.

Background – the EU Bonus Cap and the Use of Allowances -

EU Directive 2013/36/EU (known as “CRDIV”) came into effect on 1 January 2014. One of the most controversial aspects of CRDIV was the limit on variable remuneration that could be paid to certain key staff. Financial institutions are prohibited from paying such staff any amount of variable remuneration that exceeds 100% of fixed remuneration, although this limit can be increased to 200% with shareholder approval.