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By Sarah Taaffe-Maguire, Business reporter @taaffems
The cap on bankers’ bonuses is to be abolished, the financial services regulatory body has announced.
From 31 October, EU rules that limit bonus payments to twice a banker’s salary will be removed in the UK, the Prudential Regulatory Authority (PRA) said.
The policy change was initially announced by former chancellor Kwasi Kwarteng in the infamous September mini-budget of the Liz Truss premiership.
It was one of the few announcements to be retained when Chancellor Jeremy Hunt took charge of the Treasury.
City executives had complained that the cap was a barrier to recruiting and retaining quality workers, and London was losing out on talented staff as a result.
The head of the London Stock Exchange had in May called for company bosses to be paid more.
“The alternative is we continue standing idly by as our biggest exports become skills, talent, tax revenue and the companies that generate it,” Julia Hoggett said.
From next week there will be no legislative barriers on bonus payments for employees of banks, building societies and major investment firms that are regulated by the PRA.
The move is being made to deal with what the PRA and Financial Conduct Authority (FCA) said are “unintended consequences” of the cap, namely that salaries have been increased.
Having high fixed yearly payments, rather than variable bonus sums, makes it harder for firms to adjust to times when financial performance is poor or to react to potential misconduct by a senior executive, a statement by the bodies said.
The announcement follows a period of consultation conducted by the PRA and will apply to the current and future financial years.
The law had been enacted in 2014 in the wake of the 2008 global financial crash. It was associated with incentivising bankers to take outsized risks, which the EU sought to discourage.
Not everyone has welcomed the removal of the cap.
“This is an obscene decision,” the Trades Union Congress (TUC) said.
“City financiers are already enjoying bumper bonuses. They don’t need another helping hand from the Conservatives,” TUC secretary general Paul Nowak said.
“At a time when millions up and down the country are struggling to make ends meet – this is an insult to working people.
A spokesperson for the Treasury said, “Decisions on remuneration in the banking sector are for the PRA as the independent statutory regulator.”
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