Chancellor George Osborne has filed a legal challenge at the European Court of Justice in a bid to stop EU attempts to bring in a cap on bankers bonuses, arguing that such a move would make it harder to ensure banks behave responsibly.
The document, which was lodged last week, attacks the remuneration provisions within CRD IV, a European Commission directive designed to raise levels of regulatory capital across Europe's banking system. CRD IV calls for a 2:1 cap on bonuses, meaning bankers can only receive up to 200% of their base salary. The measures would start impacting on 2014's bonuses to be paid out at the start of 2015.
The Treasury argues that if this becomes law, banks would simply to raise base salaries in order to meet compensation demands, making it harder to maintain the current link between performance and pay. The cap would also increase fixed costs and make it more difficult to rein in or claw back payments if banks fail to perform.;p>
A Treasury spokesman said: 'Britain has been at the forefront of global reforms to make banking more responsible, including big reductions in upfront cash bonuses and linking rewards to long-term success. These latest EU rules on bonuses, rushed through without any assessment of their impact, will undermine all of this by pushing bankers' fixed pay up rather than down, which will make banks themselves riskier rather than safer. In other words, as the Chancellor has said, they may undermine responsibility in the banking system rather than promote it.'
The Chancellor's challenge rests six key points, including that the cap is unfit for purpose, that is based on invalid legality, and that it is an unlawful delegation of tasks to the European Banking Authority. The Treasury claims that regulation of pay in this manner goes beyond what is permitted in the EU treaty.
However, EU internal markets commissioner Michel Barnier said that the cap was legal and was necessary in order to establish and sustain stability to Europe's banking system.
In a statement, Barnier said: '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.'
