FCA removes cap on bankers' bonuses to mixed reactions
Originally the rules placed limits on bonuses for employees to two times base salary in an attempt by the EU to deter the risky behaviour that led to the 2008 Global Financial Crisis.
The Financial Conduct Authority approved the changes as part of its joint review with the Prudential Regulation Authority to examine the existing limits on the ratio between fixed and variable components of total remuneration — ‘the bonus cap'.
The current policy cap was first introduced in 2014 and former chancellor of the exchequer Kwasi Kwarteng vowed to overhaul the rules in the government's Mini Budget.
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The revision will also apply to bonuses in building societies and PRA-designated investment firms.
Originally the rules placed limits on bonuses for employees to two times base salary in an attempt by the EU to deter the risky behaviour that led to the 2008 Global Financial Crisis.
The FCA said removing the cap will «give 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».
Simon Morris, a financial services partner with law firm CMS, said removing the cap was «good news».
The revision marks a major step in the UK's divergence from the EU post-Brexit, Morris noted: «It gives the banks rather than Brussels the power to structure the proportion of fixed and variable remuneration and use this as a tool to better manage the risks they face. It also brings Britain back into line with the global banking community.»
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Adrian Crawford, employment partner at law firm Kingsley
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