UPDATE 1-EU bankers pay row flares over treatment of allowances

* EU regulator said to take firm line on defining allowances

* Move could curb bonus payouts at London banks

* EU officials deny snub to Britain over Commission roles (Adds reaction from EBA, European Commission)

By Steve Slater and Robin Emmott

LONDON/BRUSSELS, Sept 25 (Reuters) - A row over how strictlynew rules on bankers pay are enforced in Britain and acrossEurope flared on Friday after the European Union bankingregulator was reported to be preparing to clamp down onallowances being paid to staff.

The European Banking Authority (EBA), which has beeninvestigating such allowances, is poised to take a much stricterstance than British regulators on how fixed pay is defined, theFinancial Times reported, citing two sources familiar with draftrecommendations made by the EBA. (http://on.ft.com/1vjmB9S)

Such a step would strengthen controls on payouts and couldforce banks with big London operations - including HSBC, Barclays and Goldman Sachs - toreevaluate pay for this year and beyond.

The European Commission also denied that a decision toremove supervision of bankers' pay from its financial servicesportfolio was a snub to Britain.

The decision to shift oversight of pay to the EU's justiceportfolio was made before Briton Jonathan Hill was appointed tothe financial services role, officials said.

According to the Financial Times report, allowances wouldhave to be awarded for a defined period and include noforfeiture provisions if a person hands in their notice in orderto be excluded from the bonus cap. They would also have to beassigned to specific positions rather than individuals.

The EBA said media coverage should be considered as aninterpretation 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 theEU and decide whether allowances should be classified as fixedor variable remuneration, an EBA spokesman said.

BONUS CURBS

Many banks which have this year introduced allowances havebeen asked to submit templates to the EBA of how their pay isstructured as part of the consultation, industry sources said.

The EU's bonus cap is one of the most high-profile rulesapproved by the 28-country bloc following public anger over highpay at banks, many of which were propped up by taxpayers in thewake of the 2008 financial crisis.

The rule limits bonuses to no more than an employee's fixedsalary, or twice that level if approved by the bank'sshareholders, and will affect 2014 awards to be handed out earlynext year.

A spokesman for the British Bankers' Association, whichrepresents UK and international banks operating in London, said:"We're not in favour of any limits on bonuses; we thinkdetermining bankers' remuneration is a matter for shareholdersand not for politicians."

The European Commission has made it clear it is concerned athow banks have introduced role-based allowances. It showed bankshad not learnt the lessons of the financial crisis and had notadapted their cultures, a spokesperson said.

The bloc's Financial Services Chief Michel Barnier thismonth asked the EBA to investigate.

The Commission said it would expect banks to take fullaccount of the EBA's recommendations, although industry sourcessaid 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 costsquickly in rocky markets.

(Additional reporting by Francesco Guarascio in Brussels andRicha Naidu in Bangalore; Editing by Keith Weir)