UK launches court challenge against EU bank bonus deal
26.09.13 @ 09:13
BRUSSELS - The UK launched a legal challenge to EU rules capping bank bonuses on Wednesday (25 September), claiming that limits on pay would do nothing to make the financial sector safer.
The rules, which are set to be introduced next year and would apply to over 8,000 banks across the EU, would limit bankers' bonuses to the equivalent of their salary.
Payments worth up to two times salary could be permitted on the basis of a vote by shareholders.
UK chancellor George Osborne was isolated in March when the new rules were agreed by finance ministers in Brussels as part of legislation increasing the amount of capital banks must hold on their balance sheets.
The appeal to the Luxembourg-based European Court of Justice (ECJ) is the third that the UK has lodged against EU financial regulations in the last two years following challenges to rules on short selling and the proposed financial transactions tax.
Supporters of the bill say that the pay limits would discourage excessive risk taking and short-termism. Internal market commissioner Michel Barnier, who drafted the proposal, said he is "crystal clear" that the bonus cap would not be re-opened.
UK officials claim that the bonus cap provisions breach the EU treaty and that the powers delegated to the European Banking Authority go beyond its remit of setting technical standards for the bloc's banks.
The UK, which has the largest financial sector in the EU, has also expressed concern that the rules would apply to employees working for Europe-based banks in other financial centres such as Singapore and Hong Kong.
“Britain has been at the forefront of global reforms to make banking more responsible, including big reductions in upfront cash bonuses and linking rewards to long-term success,” the UK treasury said in a statement.
A UK official said the rules would lead to a rise in fixed salaries and do little to curb reckless trading in the financial sector.
He added that the UK had already imposed tough tax rates on bank bonuses at national level.
“This is not about protecting bank bonuses,” he said, adding that the measures had “consistently reduced bonus pots”.
The Centre for Economic and Business Research, a London-based think-tank, has estimated that bonuses in the UK capital in 2012/13 were over 60 percent lower than 2011/12, at £1.6 billion (€2 billion) – and over 85 percent lower than the £11.5 billion (€13.7 billion) estimated to have been paid in 2007/08.