The Gulf is no longer a sanctuary from the banking bonus clampdown

The regulatory crackdown on banker pay in Europe is finally likely to impact bonuses in the Middle East, which could create something of an uneven playing field among different international institutions.

The final interpretation of the European Union's bonus rules being drawn up by the Committee of European Bank Supervisors is due to be issued next month, but it's currently looking likely to be fairly punitive.

The rules will only apply to 'code staff', or senior managers and risk takers, but those who usually receive a bumper bonus can expect the majority of it to be deferred.

For example, someone receiving a $1m bonus will receive just 20% up front in cash, with 60% deferred over three years and a further $200k to be paid in stock or other instruments. As we point out on our UK site, even smaller bonuses will be subject to deferral and potential clawback.

So, how will this affect the Middle East? Well, if a bank is headquartered in Europe, the code will be applied to all of its subsidiary offices anywhere in the globe. Dubai may still be a tax haven, but within international organisations, it's no longer a sanctuary from the European regulatory crackdown on bonuses.

One obvious effect of this is that it seemingly gives domestic banks in the Middle East - which are not hampered by international bonus legislation - the edge. In reality, though, international banks still remain more appealing to investment bankers.

"Some international investment banks in the region have raised base salaries by as much as 20%, even at the junior end," says Jonathan Gould, manager - financial services at Morgan McKinley in Dubai. "And even with a reduced capacity to pay big cash bonuses, local banks' packages still fail to match those of the bulge brackets."

However, there is the chance that US-headquartered banks, which are exempt from the rules could become a more appealing option, suggests Jon Terry, head of the reward and compensation practice at PwC.

"There's the chance that certain big US players that aren't caught under the rules could gain an advantage in attracting talent over a UK or European bank in the Middle East," he says.

So, in theory working for the Dubai office of, say, BarCap or RBS could become a less appealing prospect than signing up to the likes of Citi, Goldman Sachs or Morgan Stanley.

But, as ever, these things have a way of evening themselves out. Most investment banks have been increasing base salaries in London, particularly among high earners, to compensate for reduced bonus potential. With fixed compensation costs increased, bonus payments are likely to be reduced accordingly.

"When multinational banking organisations have taken this course of action, it's being applied globally," says Terry.