EU bank remuneration needs stricter transparency rules
BASEL: Bankers' pay should be more transparent to investors to prevent lenders from hiding policies that encourage irresponsible risk taking, global regulators said in draft proposals.
International rules on the disclosure of pay "will allow market participants to assess the quality of a bank's compensation practices and the incentives towards risk taking they support," Fernando Vargas, chairman of the Basel Committee on Banking Supervision's task force on remuneration, said in a statement published on the group's website today. The proposals will "support effective market discipline," the Basel committee said.
Countries are imposing rules on bankers' pay to prevent a repeat of the excessive risk taking that they say contributed to the global financial crisis. European Union regulators ear- lier this month imposed limits on cash payouts and the size of bonuses in the industry.
The Basel committee said it's seeking views on its proposals, which concern the transparency of lenders' pay polices, until Feb. 25. Banks should disclose information including the "parameters" used to decide the size of bonus awards, and to decide the proportion of bonuses that are paid in stock rather than cash, the committee said. Lenders should also reveal how they determine what proportion of bonus payments should be deferred, and what criteria they have for clawing back payments that have been made.
"It's hard to see what benefits, in terms of making the financial system more efficient or reducing risk, would be achieved by requiring firms to publish further information" than already required by regulators, Rob McIvor, a spokesman for the Association for Financial Markets in Europe, said in a telephone interview before the publication of the Basel committee's proposals.
AFME's members will "fully" implement rules on the payment of bonuses that have been agreed by EU regulators, McIvor said. AFME represents banks including Switzerland's UBS AG, Deutsche Bank AG of Germany and France's BNP Paribas SA.
Lenders should reveal the "number and total amount of guaranteed bonuses paid during the financial year" and what adjustments have been made to a bank's remuneration plans because of "weak performance," the Basel committee said. They should also release information on the total amount of deferred bonus payments on the banks' books, and reductions that have been made to these awards. -PB News