At a glance
The EU banker bonus cap will likely be limited to senior management and certain “material risk takers” upon implementation in 2014.
In May 2013, the European Banking Authority (EBA) published draft regulations greatly expanding the number of bankers impacted by the EU bonus cap, which limits bonuses to a banker's fixed salary (or twice that level with shareholder approval). The EU bonus cap passed the EU Parliament in April 2013 as part of CRD IV (which implements Basel III in Europe) and goes into effect on January 2014.
However due to delay in finalizing the EBA’s draft regulations, it is now highly likely that the cap will not impact an expanded number of bankers until 2015. Instead, in January 2014 the bonus cap will be limited to senior management and certain “material risk takers” (MRTs).
Further complicating matters, the UK government, which is concerned about the impact of the bonus cap on London’s financial services market, recently challenged the draft regulation in the European Court of Justice. The UK’s legal action may make it more difficult politically for the UK to gain concessions from the rest of the EU to pare back the draft regulation’s broad definition of MRTs. As a consequence, it is more likely that the draft regulation will be adopted with little amendment, if the legal challenge is unsuccessful.