EU to Tighten Bank Bonuses Rules

The European Union may be imposing stricter rules on how banks pay the bonuses of their executives. The move is in response to criticisms that the exorbitant bonuses have encouraged risk-taking behaviors, which may have led to the global financial crisis.

The provisional agreement is pushing for a cap on the annual salaries that bankers receive. The agreement was reached through the collaboration between the European Commission, European Parliament and national representatives.

British Prime Minister David Cameron said the regulations must be flexible enough that would provide banks room to continue competing and succeeding in the UK.

Some industry observers are worried that the agreement may be a blow to Britain. London is the biggest financial center in the continent and many executives rely on generous remuneration packages when working in London. Some of the world’s biggest banks are also headquartered in London.

The cap on bonuses is to help balance the different interests of Europe. The bonus cap would also be applicable to bankers working for EU banks but are also working outside the bloc. Rules are also being drafted to cover private equity firms and hedge funds.

Some quarters, however, are not keen with the proposal, saying this may force banks to move their offices to Asia and the US. The bonus cap may also lead to salary raises, an undesirable move because banks are trying to reduce fixed costs.