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UK Removes Cap on Banker Bonuses

UK Removes Cap on Banker Bonuses

by Starling Insights

Starling Insights Editorial Board

Nov 06, 2023


The Bank of England and the Financial Conduct Authority (FCA) have formally lifted the cap on banker bonuses, a rule the EU introduced after the 2008 financial crisis.

The cap, which was put in place in 2014, limited banker bonuses to twice their annual salaries. The move to scrap it was initiated by the UK government to attract investment and shed EU regulations post-Brexit. The decision followed a lengthy consultation process.

Removing the cap theoretically allows for higher bonuses, but these are expected to be phased in over time. The FCA said the rules would apply to "current and future performance years." The regulator intends to emphasize that pay packages should support a healthy culture and positive outcomes for consumers in its communication with banks' pay committees.

Some have expressed disappointment at the decision to remove the cap. "This is an obscene decision," said Paul Nowak, the General Secretary of the Trades Union Congress. "City financiers are already enjoying bumper bonuses. They don't need another helping hand from the Conservatives."

However, the cap faced opposition from politicians and regulators who argued that it would deter skilled bankers and potentially drive them to other financial hubs. The Prudential Regulation Authority (PRA) has argued that eliminating the cap will enhance the safety and soundness of banks and incentivize staff to meet targets related to risk management and good conduct. This change is seen as an effort to revitalize the competitiveness of the City of London, which had been losing ground to other financial centers, offering incentives to banking professionals post-Brexit.

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