By Steve Slater and Robin Emmott
LONDON/BRUSSELS (Reuters) - A row over how strictly new rules on bankers pay are enforced in Britain and across Europe flared on Friday after the European Union banking regulator was reported to be preparing to clamp down on allowances being paid to staff.
The European Banking Authority (EBA), which has been investigating such allowances, is poised to take a much stricter stance than British regulators on how fixed pay is defined, the Financial Times reported, citing two sources familiar with draft recommendations made by the EBA.
Such a step would strengthen controls on payouts and could force banks with big London operations - including HSBC (L:HSBA), Barclays (L:BARC) and Goldman Sachs (N:GS) - to reevaluate pay for this year and beyond.
The European Commission also denied that a decision to remove supervision of bankers' pay from its financial services portfolio was a snub to Britain.
The decision to shift oversight of pay to the EU's justice portfolio was made before Briton Jonathan Hill was appointed to the financial services role, officials said.
According to the Financial Times report, allowances would have to be awarded for a defined period and include no forfeiture provisions if a person hands in their notice in order to be excluded from the bonus cap. They would also have to be assigned to specific positions rather than individuals.
The EBA said media coverage should be considered as an interpretation of its work as it had not finalised the report, which will be delivered in the next few weeks.
The report will aim to harmonise practices in pay across the EU and decide whether allowances should be classified as fixed or variable remuneration, an EBA spokesman said.
BONUS CURBS
Many banks which have this year introduced allowances have been asked to submit templates to the EBA of how their pay is structured as part of the consultation, industry sources said.
The EU's bonus cap is one of the most high-profile rules approved by the 28-country bloc following public anger over high pay at banks, many of which were propped up by taxpayers in the wake of the 2008 financial crisis.
The rule limits bonuses to no more than an employee's fixed salary, or twice that level if approved by the bank's shareholders, and will affect 2014 awards to be handed out early next year.
A spokesman for the British Bankers' Association, which represents UK and international banks operating in London, said: "We're not in favour of any limits on bonuses; we think determining bankers' remuneration is a matter for shareholders and not for politicians."
The European Commission has made it clear it is concerned at how banks have introduced role-based allowances. It showed banks had not learnt the lessons of the financial crisis and had not adapted their cultures, a spokesperson said.
The bloc's Financial Services Chief Michel Barnier this month asked the EBA to investigate.
The Commission said it would expect banks to take full account of the EBA's recommendations, although industry sources said it could be fraught with legal issues.
Britain is challenging the bonus cap in the EU's top court, arguing it goes beyond EU powers and will push up fixed pay, making banks riskier as they will not be able to trim costs quickly in rocky markets.
(Additional reporting by Francesco Guarascio in Brussels and Richa Naidu in Bangalore; Editing by Keith Weir)