London removes cap on bankers’ bonuses

Britain's Chancellor of the Exchequer Kwasi Kwarteng in the House of Commons, London, 23 September 2022.

Brexit pioneers dreamed of it, British Prime Minister Liz Truss did it. On Friday, September 23, the British government announced a first step towards further financial deregulation by removing the cap on bankers’ bonuses. “A strong UK economy has always required strong financial services, explained to the House of Commons Kwasi Kwarteng, Chancellor of the Exchequer. We need international banks to create jobs here, invest here and pay their taxes here in London, not Paris, Frankfurt or New York. »

Also read: Article reserved for our subscribers Between a freeze on energy bills and steep tax cuts, the UK government’s huge budget gamble

The bonus cap was decided by the European Union (EU) in 2013, after the great financial crisis of 2008. The stated objective was not to reduce bankers’ remuneration, but to limit their risk-taking. The rule sets bonuses at a maximum of 200% of the base salary. With Brexit, the UK could choose to walk away from it. Now it’s done. This is just a first step. Mr Kwarteng, a former financial analyst at JPMorgan, a major US bank, promises to use the flexibility that Brexit offers to continue deregulating the City.

“To cement the UK’s status as a global financial services hub, I will introduce a series of regulatory reforms in the autumn”Mr. Kwarteng continued in his speech. “This decision will certainly reinforce the idea, firmly anchored in the EU, that the post-Brexit UK wants to become a kind of Singapore on the Thames.”says William Wright, director of New Financial, a think tank specializing in financial services. In banking circles, but also among many regulators, this cap was widely criticized as being counterproductive.

“Symbolic and quick gesture”

To keep salaries at the same level as before, the banks had to… increase base salaries and reduce bonuses. Large financial institutions are therefore facing an increase in their fixed costs. “The cap has never limited total compensation, let’s not pretend otherwise”says Mr. Kwarteng. However, not many people in the City called for such a reform. If you caused a lot of complaints during its installation, the ceiling is now an acquired thing that everyone has adapted to.

at 31me floor of a high-rise tower in London’s Canary Wharf shopping district, two high-profile investment bankers shake their heads: “There was certainly no lobbying to remove it. » Now that fixed salaries have increased, going back would be difficult. “This would force to lower wages initiallysays one of them. What are we going to do ? Ask our teams to move to Birmingham, where life is cheaper, while they wait for their bonuses? »

You have 25.77% of this article left to read. The following is for subscribers only.

Leave a Comment

Your email address will not be published. Required fields are marked *