Brexit pioneers dreamed of it, British Prime Minister Liz Truss did it. On Friday, September 23, the British government announced a first step towards more financial deregulation, by removing the cap on bankers’ bonuses. “A strong UK economy has always required strong financial services, explained to the House of Commons Kwasi Kwarteng, the Chancellor of the Exchequer. We need international banks to create jobs here, invest here, and pay their taxes here in London, not in Paris, Frankfurt or New York. »
The bonus cap was decided by the European Union (EU) in 2013, after the great financial crisis of 2008. The stated objective was not to reduce the remuneration of bankers, but to limit their risk taking. The rule sets bonuses at a maximum of 200% of base salary. With Brexit, the UK could choose to walk away from it. It is now done. This is only a first step. Mr. Kwarteng, himself a former financial analyst at JPMorgan, a major American bank, promises to use the flexibility offered by Brexit to continue to deregulate the City.
“To cement the UK’s status as a global financial services centre, I will introduce a series of regulatory reforms over the autumn”continued Mr. Kwarteng in his speech. “This decision will no doubt reinforce the idea, firmly anchored in the EU, that the post-Brexit United Kingdom wants to become a kind of Singapore-on-the-Thames”, says William Wright, director of New Financial, a think tank specializing in financial services. In banking circles, but also among many regulators, this cap was widely criticized for having been counterproductive.
“Symbolic and rapid gesture”
In order to keep salaries at the same level as before, the banks had to… increase base salaries, while reducing bonuses. Large financial institutions therefore find themselves with an increase in their fixed costs. “The cap has never limited total compensation, let’s not pretend otherwise”, says Mr. Kwarteng. However, not many people in the City asked for such a reform. If it caused a lot of grumbling during its installation, the ceiling is now something acquired to which everyone has adapted.
At 31e floor of a tall tower in London’s Canary Wharf business district, two high-profile investment bankers shake their heads: “There was certainly no lobbying to remove it. » Now that the fixed salaries have been increased, going back would be complicated. “This would force wages to be lowered initiallysays one of them. What are we going to do ? Asking our teams to move to Birmingham, where life is cheaper, while they wait for their bonuses? »
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