Would You like a feature Interview?
All Interviews are 100% FREE of Charge
The cap on bankers’ bonuses is to be removed next week as part of a shake up of City rules, finance regulators have confirmed.
The decision will remove the limit on bankers’ annual payouts from the end of October, the Financial Conduct Authority (FCA) and Bank of England’s Prudential Regulation Authority (PRA) said.
Under current rules, which were introduced by the European Union following the 2008 financial crisis, bonuses are limited to 100 per cent of the salary for employees of banks or building societies, or double with shareholder approval.
In its assessment, the PRA, which sits within the Bank of England, said that the limit on bankers’ bonuses was making the UK less competitive when attracting international talent, as many places outside the EU do not have such caps.
“The bonus cap has been identified as a factor in limiting labour mobility,” it concluded.
It also claimed that the current system was causing salaries to be driven up in a manner not linked to their performance within the company.
In a statement on the changes, the Financial Conduct Authority said the current rules simply meant bankers were given higher fixed pay and didn’t reward performance.
“The bonus cap does not limit total remuneration but limits the variable remuneration a firm can pay relative to an individual’s fixed pay,” the FCA said.
“This has the effect of limiting the proportion of remuneration that can be adjusted by risk and performance measures.
“The removal of the bonus cap gives firms the freedom to restructure their pay over time, within the framework of the regulators’ rules on variable remuneration which aim to better align remuneration with prudent risk-taking.”
A Treasury spokesman said: “Decisions on renumeration in the banking sector are for the PRA (Prudential Regulation Authority) as the independent statutory regulator.”
The decision comes a year after former chancellor Kwasi Kwarteng first revealed plans to change the bonus rules, which he said would encourage global banks to create jobs, invest and pay taxes in the City.
He said the bonus limit was pushing up basic salaries and driving activity outside Europe.
In his controversial mini-Budget, Mr Kwarteng said last year that the plans would “unleash the power of the private sector”.
“A strong UK economy has always depended on a strong financial services sector,” he told the Commons last September.
“We need global banks to create jobs here invest here and pay taxes here.”