British regulators have confirmed the removal of the decade-old cap on bankers' bonuses, as part of a broader post-Brexit transformation of the UK's financial regulations. The Bank of England and the Financial Conduct Authority issued a joint statement on Tuesday (October 24), informing that the changes would be effective from October 31, 2023.
In their joint statement, the Financial Conduct Authority and the Prudential Regulation Authority (PRA) acknowledged that the bonus cap had "unintended consequences."
"The bonus cap has been identified as a factor in limiting labour mobility. The final policy . . .
Back in 2014, the United Kingdom found itself on the losing side of an EU decision that introduced a cap on bankers' bonuses. The cap was conceived as a safeguard to prevent the sort of reckless financial behaviour that had triggered the global financial crisis of 2008, leading to massive taxpayer-funded bailouts of lenders.
It restricted variable pay for employees of banks, building societies, and investment firms to twice their base pay.
The Bank of England has long argued that this cap had the unintended consequence of driving up fixed salaries to circumvent its restrictions.
Former Chancellor Kwasi Kwarteng proposed scrapping the cap last year as a means of enhancing London's appeal as a global business hub. Although many of his policy initiatives were reversed by his successor, this particular change survived.
Notably, this change aims to level the playing field for London in its rivalry with New York, where no such bonus caps exist.
However, for some financial institutions, it might prove to be a little too late, as adapting their systems for this year's bonus allocations, slated for early 2024, may pose challenges within the limited timeframe.
(Edited by : Pihu Yadav)
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