Britain’s relations with the EU took another knock yesterday when its legal challenge to a limit on bankers’ bonuses was rejected by an adviser to the bloc’s top court.
The EU law aims to curb the kind of risk-taking that led to the 2007-2009 financial crisis by limiting bonuses awarded from next year to a sum no more than a banker’s fixed pay, or twice that level with shareholder approval. Britain, home to the City of London where most of the bankers hit by the cap are based, said the law would push up fixed pay and goes beyond the EU’s powers, a sensitive subject at a time of rising British anti-EU sentiment.
The adviser, whose opinions are non-binding but are generally followed at least in part by the Luxembourg-based European Court of Justice, supported the limit on banker bonuses and said it did not restrict the total amount of pay.
“Advocate general Niilo Jääskinen suggests that all the UK’s pleas should be rejected and that the Court of Justice dismiss the action,” the ECJ said in a statement. “Fixing the ratio of variable remuneration to basic salaries does not equate to a ‘cap on bankers bonuses’, or fixing the level of pay, because there is no limit imposed on the basic salaries that the bonuses are pegged against.”
Mr Jaaskinen said bonuses were an internal market matter as they relate to risk taking at banks that could affect financial stability in Europe.
Britain’s finance ministry said it was considering the opinion and its implications. The full court is expected to issue its ruling on the UK challenge in early 2015. “It doesn’t give the UK much hope of success when the court hands down its decision early next year,” said Rob Moulton, a regulatory partner at Ashurst law firm. “Some may even say it’s a clear indication of the likely winner in the power struggle between the EU and the UK.”
The opinion is a setback for Britain and gives ammunition to anti-EU campaigners. Steven Woolfe, a UKIP member of the European Parliament, said the opinion showed UK prime minister David Cameron’s attempts to reform the EU before a promised referendum on Britain’s EU membership “were dead in the water”.
Britain had said that giving the EU’s European Banking Authority powers to set the cap was illegal but the opinion said the EBA had flexibility to interpret the law.
Barclays, HSBC, and Standard Chartered have raised allowances to compensate for the impact of the bonus limit. The EBA has said most of these allowances are illegal. Bank of England governor Mark Carney and others have said that bankers’ fixed salaries may also need regulating.
The British Bankers’ Association said shareholders and not politicians should have the powers to determine pay.