Britain challenges bonus cap on bankers
Legal bid argues that cap on bonuses a contravention of European Union laws
Britain has launched a legal challenge to the European Union's cap on bankers' bonuses, which London fears will hurt its financial industry.
British finance minister George Osborne has long argued that Brussels has gone too far with reforms aimed at preventing a repeat of the financial crisis. But EU financial services chief Michel Barnier says the bonus cap is legal.
The EU law will limit a bonus to no more than a banker's fixed salary, or twice that level with shareholder approval.
The British Treasury said the EU cap had been rushed through without any assessment of its impact and would push up bankers' fixed pay, making the banks riskier rather than safer.
"Regulation of pay in this manner goes beyond what is permitted in the EU treaty," a Treasury spokesman said.
Britain has made changes to defer bonuses over several years to discourage short-term bets that could go bad.
Barnier, who will have to defend the bonus curb in Europe's top court, said the reform was based on solid legal ground and was necessary to bring stability to Europe's banking system.
"Above all, our intention has been to ensure that it is the shareholders who assume their responsibilities and play a determining role when it comes to the remuneration packages for risk-takers in banks," Barnier said.
The cap, the world's toughest curb on banker pay, was approved at a time of public anger at bankers after they were bailed out with taxpayer money in the financial crisis, ushering in years of austerity. It will take effect on bonuses awarded from next year. Most of the bankers it will hit are based in London.
Arlene McCarthy, the EU lawmaker from Britain's opposition Labour Party who proposed the cap, accused Osborne of defending big city bonuses and privileges of an industry "that provided 40 per cent of the Conservative Party's donations in 2012".
The Conservative-led government is trying to renegotiate powers back to London from the EU before a referendum on Britain's EU membership in 2017.
Alexandria Carr, a regulatory lawyer at Mayer Brown, said EU treaties prohibit it regulating pay as part of social policy.
"The counter-argument, however, is that the provisions do not regulate total pay and are a risk-management tool which build upon the unchallenged remuneration provisions" in existing EU law, Carr said.