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EU rejects Britain bonus cap challenge
[LUXEMBOURG] The top EU court's advisor on Thursday rejected Britain's legal challenges to a cap on banking bonuses, dealing a blow to Prime Minister David Cameron's government.
The ruling is the latest setback to ties between London and Brussels, with Cameron pledging a referendum on leaving the EU in 2017 under pressure from eurosceptic rivals.
The EU set the rules in a bid to curb excessive risk-taking after the financial crisis, saying that bonuses cannot exceed a banker's fixed salary, or twice that if shareholders approve.
But banking is a pillar of the British economy and Cameron's government fiercely resisted the cap, fearing it could harm London's status as Europe's leading financial centre.
Britain took the case to the European Court of Justice in Luxembourg.
The court's Advocate General Niilo Jaaskinen gave a legal opinion saying that the limits were valid, and although the decision is not binding the European Union's top court mostly follows such recommendations.
"In his Opinion today, Advocate General Niilo Jaaskinen suggests that all the UK's pleas should be rejected and that the Court of Justice dismiss the action," the court said in a statement.
The opinion comes the same day as Cameron faces a local election defeat against the anti-EU UK Independence party led by Nigel Farage.
UKIP is looking to gain a second seat in the British parliament and the courtroom setback will be further ammunition for the party's arguments that Brussels encroaches on national sovereignty.
The ECJ is Europe's top court on questions of EU law and regularly publishes opinions by its senior lawyers on pending cases.
Britain put forward a series of arguments against the cap, including the argument that Brussels has no right to limit pay in a member state.
But the advocate general said limiting a bonus "does not equate" to the fixing of pay.
"As there is no legal limit to the basic salary that can be paid there is no limit to the total level of pay," the statement said.
City of London authorities have come out hard against tighter oversight of bankers' activities, despite multiple scandals.
Britain was pleased earlier this year when its man Jonathan Hill was appointed the new European commissioner for financial services, but responsibility for rules on bankers' bonuses has been removed from his portfolio.
In a statement, Britain's Treasury said it was considering the Advocate General's opinion "in detail".
The spokesman added: "The detail of the opinion also demolishes the case for the fixed ratio by pointing out that it doesn't equate to a cap on bankers' pay because there is no limit on basic salaries.
"This is precisely the reason why we, the PRA (Prudential Regulation Authority) and the Bank of England have been opposed to this policy." The British Bankers' Association backed the Treasury's position.
"We believe this law runs counter to recent reforms and will make the system less robust by incentivising firms to increase fixed pay," a spokesman said.
"It also puts European banks at a disadvantage when competing with firms in other parts of the world." The opinion lands as further scandals hit the British banking sector, including the rigging of foreign exchange rates.
Amid the misbehaviour, Bank of England governor Mark Carney said Monday that authorities may need more powers to regulate the pay of bankers as well as their bonuses.