Top ECB official wants to give risk managers more power on bank bonuses

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A top European Central Bank official wants to give risk managers more power to keep banker bonuses in check, just as senior industry executives are calling for Europe to follow the UK in loosening restrictions introduced after the financial crisis.

ECB supervisory board member Elizabeth McCaul told the Financial Times that the central bank was keen for senior risk management staff to “ensure that compliance with the risk appetite framework is used as an input of . . . variable remuneration” including setting the bonus pool and performance targets.

“I think we could do more to strengthen the hand of risk managers,” she said.

Her comments come in the week that Deutsche Bank’s chief executive called for the EU to lift rules capping bonuses at twice salary and Santander’s chair welcomed the UK’s decision to do so. But McCaul said regulators were “very happy” with how the rules were operating in Europe.

The ECB directly supervises 109 of the eurozone’s biggest banks, which oversee more than 80 per cent of their countries’ banking assets, making it the most powerful banking watchdog in Europe.

The supervisor was launched in November 2014, the same year that the EU introduced rules restricting bonuses to twice base pay, with the aim that top executives would not be motivated to take excessive short-term risks that could ultimately damage their institutions.

Freed from the EU’s rules by Brexit, the UK removed the bonus cap in October, with regulators describing it as “limiting labour mobility” and banks’ flexibility.

Deutsche’s chief Christian Sewing this week said EU banks now faced an “unlevel playing field” and urged Europe to also abandon the restrictions. Santander’s Ana Botín said the UK’s decision “made a lot of sense” and that it would be “positive” if Europe took similar action.

Asked how the ECB could give risk managers more power to oversee pay, McCaul said regulators would not need new rules but could use existing tools such as “peer benchmarking, targeted stocktakes and deep dives, sharing good practices and ongoing industry dialogue, with appropriate supervisory escalation where key weaknesses are identified”.

She did not say what any escalation would involve, beyond that the regulator would use “all available supervisory tools”. The ECB’s toolkit includes setting capital requirements and granting licences.

The spokesperson for the European Commission, which is responsible for the EU legislation that put the banker bonus cap in place, said it was “closely monitoring [the] latest developments in other jurisdictions, in particular in the UK with regard to the removal of the bonus cap and its potential impact on the competitiveness of EU subsidiaries and branches in the UK”.

Additional reporting by Henry Foy in Brussels