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
Start Quote
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.