Out-Law News | 21 Nov 2014 | 12:11 pm | 1 min. read
Under the EU's capital requirements directive (CRD IV), bankers' variable pay, or bonuses, must not exceed 100% of their fixed remuneration, or salary, in any given year, or 200% of fixed remuneration with the agreement of shareholders.
The UK had argued that the requirements were a disproportionate way of achieving EU legislators' aims and that bankers' pay was an issue for shareholders rather than the EU to regulate.
The UK also challenged the proposals on the grounds that they undermined the legal certainty of existing contracts and on the grounds that disclosure of pay would undermine bankers' right to privacy and their data protection rights.
Advocate general of the Court of Justice of the EU (CJEU) Niilo Jääskinen said yesterday that the Court should reject the UK's challenge.
UK chancellor George Osborne conceded that the opinion, which is not binding, made it likely that the challenge would fail.
“I’m not going to spend taxpayers’ money on a legal challenge now unlikely to succeed," he said. "The fact remains these are badly designed rules that are pushing up bankers’ pay not reducing it. These rules may be legal but they are entirely self-defeating, so we need to find another way to end rewards for failure in our banks.”
“The main significance of this decision is that it removes any lingering hope that the European courts will remove the cap, which means the banking industry now knows for sure that it must continue to work within it," said banking remuneration expert Matthew Findley. "It would have been difficult for government and industry to be lobbying against the bonus cap while this challenge was not resolved. This takes away that delay to allow people to focus on implementing other more effective ways to regulate pay."
A Treasury statement said that it would join efforts to find other ways of linking pay to accountability for bankers' decisions.
"We will … look at other ways of building a system of pay in global banking that encourages rather than undermines responsibility," it said. "For example, it may be necessary to develop standards that ensure non-bonus or fixed pay is put at risk, maximise claw back, or pay senior staff in performance-related bonds. Ideas like this have recently been floated by Bank of England governor Mark Carney and president William Dudley of the Federal Reserve Bank of New York. The ongoing work of the Financial Stability Board is uniquely well-placed to do that, as any solution must be international in nature.”