A cap on bonuses for bankers is set to be scrapped in a bid to make the UK a more attractive financial hub post-Brexit, financial regulators have ruled.
The decision will remove the limit on bankers’ annual payouts from the end of October, the Financial Conduct Authority (FCA) and Bank of England’s Prudential Regulation Authority (PRA) said.
Current rules limit bonuses to 100% of the salary for employees of banks or building societies, or double with shareholder approval.
The regulations were introduced by the European Union after the 2008 financial crisis.
But other leading financial centres outside the EU do not impose a cap, therefore making the UK a less competitive place when it comes to attracting top talent, the PRA found after consulting on the rule.
“The bonus cap has been identified as a factor in limiting labour mobility,” it concluded.
The PRA also said that the cap was having the opposite effect of driving up staff salaries that are not linked to the long-term performance of a firm.
Higher wages therefore cannot be reduced or “clawed back” if a failure or previous misconduct issue later comes to light, it said.
The decision comes a year after former chancellor Kwasi Kwarteng first revealed plans to change the bonus rules, which he said would encourage global banks to create jobs, invest and pay taxes in the City.
He said the bonus limit was pushing up basic salaries and driving activity outside Europe.
