Britain, home of Europe’s biggest financial center, is challenging a recent decision by European lawmakers to begin capping banker’s bonuses in 2014. The cap affects bankers with a salary of 500,000 euros a year or more. Bonuses would be limited to a banker’s fixed pay, or twice that amount with the approval of a majority of the shareholders.
The British Banker’s Association, which requested the caps on bonuses be postponed, projected that about 35,000 bank employees around the world would be affected by the new rules—the vast majority located in London.
In response to widespread public anger over the financial crisis, European legislators moved to rein in outsize banker’s bonuses with the proposed cap. A spokesman for the Treasury objected to the cap, saying that it will actually push banker’s fixed pay upward, ultimately making the banking system riskier and failing in the original objective of limiting banker’s compensation. Britain has also repeatedly warned that tighter regulation could push banks toward moving their business to the U.S. or Asia.
Britain’s opposition to the cap is a politically risky showing of support for bankers, given public anger over the financial crisis and a recent string of industry scandals. But the U.K. is riding the upswing in anti-EU sentiments and attempting to regain some powers that were limited by EU regulations.
The Treasury said Britain would follow European law and implement the cap, while also challenging the cap at the European Court of Justice in Brussels, the EU’s top court. The EU’s executive body, the European Commission, will defend the cap in court. This latest case could take up to 2 years to resolve, by which time the cap will be common practice across the EU.
Currently, Britain is also challenging EU rules for a tax on financial transactions, new rules on short-selling and a policy of locating clearing houses in the euro zone.