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Blow to UK's bankers' bonus cap challenge

2014-11-20 10:18:30

The Advocate General of the EU Court of Justice has rejected the UK's challenge

to its cap on bankers' bonuses.

The cap restricts bonuses to 100% of banker's pay or 200% with shareholder

approval.

Advocate General Niilo J skinen gave an opinion that the EU legislation

limiting the ratio was valid.

The cap on the ratio is designed to reduce incentives for bankers to take

excessive risks but critics say it will push up basic pay and banks' costs.

The UK government challenged the legislation asking the Court of Justice in

Luxembourg to consider six arguments challenging both the scope and the legal

basis for the new rules.

Advocate General J skinen said: "Fixing the ratio of variable remuneration to

basic salaries does not equate to a 'cap on bankers bonuses', or fixing the

level of pay, because there is no limit imposed on the basic salaries that the

bonuses are pegged against."

Non-binding

A spokesman for the British Bankers' Association said: "We believe that

shareholders should be given powers to determine staff pay - not politicians.

That's why banks consult with investors before setting staff pay and

shareholders also have the power to vote on the pay of senior bankers.

Continue reading the main story

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We believe that shareholders should be given powers to determine staff pay -

not politicians.

British Bankers' Association

"We believe this law runs counter to recent reforms and will make the system

less robust by incentivising firms to increase fixed pay. It also puts European

banks at a disadvantage when competing with firms in other parts of the world."

The Advocate General's opinion is not legally binding, but the Luxembourg court

may consider his reasoning in reaching its verdict.

He rejected all the UK government's legal and technical arguments against the

EU legislation.

A final ruling is not expected until next year.

UK and EU banking regulators have also clashed over attempts by British banks

to sidestep the bonus cap by awarding banking executives "allowances", paid

alongside salaries to bolster their pay.