City bankers may soon be able to receive unlimited bonuses after the Bank of England announced plans for a consultation on scrapping the so-called ‘bonus cap’.
The Bank and the Financial Conduct Authority (FCA) are proposing to scrap EU rules, brought in after the financial crisis, which limited bankers’ bonuses to two times their annual salary.
The move was initially suggested by Kwasi Kwarteng during his brief time as chancellor earlier this year.
The Bank of England and the Financial Conduct Authority are proposing to scrap EU rules which limited bankers’ bonuses to two times their salary
He claimed that a thriving financial services sector was key to economic growth – and that the cap meant the UK was losing talent to the US.
The Bank and the FCA have backed Kwarteng’s plan, pointing out that rules meant lenders had effectively pushed up bankers’ fixed pay in order to reward their staff and stay within the rules.
This meant that when times were tough, and bonuses would usually have been slashed, bankers were still being paid eye-watering sums because their fixed pay was so high.
Setting out their plans in the consultation paper, to which City firms and individuals can now respond, the regulators said the bonus cap ‘can place upward pressure on salaries and allowances that may not be linked to longer-term performance and cannot be reduced or clawed back in the event of later failure’.
In a research paper, two analysts at the Bank of England – Ieva Sakalauskaite and Qun Harris – said the bonus cap ‘did not reduce bankers’ total remuneration but rather shifted it from the variable to the fixed part of the package’.
Richard Gnodde, boss of Goldman Sachs’ international arm, said ridding the UK of its bonus cap would make London ‘a more attractive place for sure’.
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