The European Banking Authority has said more firms in Britain will have to apply its bank bonus cap, affecting hundreds of extra companies.
The EU watchdog said the UK may face action if it does not come into line with new proposed rules.
An EBA cap, which was not legally binding but which the watchdog expected to be adhered to, came into effect in October and limited bonuses to no more than twice a person’s fixed salary.
But banks have been able to circumvent the rules by making discretionary role-based “allowance” payments.
But now the EBA said the allowances, handed out to many bankers working in London aimed at keeping top talent in the City, must fall into the category of either salary or bonus.
The “allowance” classification was used by HSBC to pay 15 senior executives a combined share allowance of £7.1m and RBS to pay 10 staff £3.5m. The EBA identified 39 institutions across Europe using the fixed allowances.
If there is any failure to comply then the offending nation will be asked to explain itself, and if the explanation is felt to be without merit then the EBA could name and shame the national regulator.
Further sanctions would allow it to take a member state to the EU’s top court, which would then have the power to issue fines.
The Prudential Regulation Authority which is charged with enforcing the rules or explaining to the EU why British banks are not complying with them, urged banks to respond to the EBA.
It said: “The consultation provides guidance for firms about the EBA’s interpretation of the remuneration rules. We encourage firms to study the consultation carefully and to respond to the EBA.”
The EU wants to formalise the cap, with fixed rules by the end of 2015. All EU states will then have to apply them to bonuses paid from early 2016.