EU court to throw out UK's bank bonus challenge
By Benjamin Fox
The UK is set to lose its legal battle to overturn EU rules capping bank bonuses after a top legal officer in the European Court of Justice (ECJ) said London's case had "no legitimate grounds".
The rules, which came into force this year, limit bankers' bonuses to the equivalent of their salary. Payments worth up to two times salary may be permitted but only on the basis of a vote by shareholders.
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In an opinion released on Thursday (20 November), Advocate General Niilo Jaaskinen stated that the bonus cap rules were "valid" since they "affect the stability of financial institutions who can operate freely across the EU, and in consequence that of the financial markets of the EU".
Jaaskinen also added that the new regime could not be classified as a 'cap' because it imposes no limit on the basic salary paid to executives.
"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," he said.
"As there is no legal limit to the basic salary that can be paid there is no limit to the total level of pay," added Jaaskinen.
Having been alone in opposing the bonus regime, which was included as part of the EU's revamped capital requirements legislation increasing the amount of capital banks must hold on their balance sheets, the UK government launched a legal challenge in September 2013.
The UK asserted that the cap was in breach of Treaty provisions concerning the freedom of establishment and the freedom to provide services, and that it gave too many powers to the European Banking Authority, the pan-EU regulator.
For their part, EU lawmakers argued that an excessive bonus culture in the bloc's financial sector encouraged greater risk-taking among executives, playing a part in causing the financial crisis that brought a number of the world's largest banks to their knees in 2008 and 2009.
The case is the third the UK lodged against EU financial regulations in the last legislative term following challenges to rules on short selling and the proposed financial transactions tax. In both other cases, the court threw out the UK's challenge.
Jaaskinen's opinion is not legally binding on the Luxembourg-based court but opinions form the basis for future court judgements and are seldom over-ruled by the judges.
The final court ruling on the case is not due until early 2015.