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EU rejects UK's bonus cap challenge EU rejects UK's bonus cap challenge
(35 minutes later)
The Advocate General of the EU Court of Justice has rejected the UK's challenge to its cap on bankers' bonuses.The Advocate General of the EU Court of Justice has rejected the UK's challenge to its cap on bankers' bonuses.
The cap restricts bonuses to 100% of banker's pay or 200% with shareholder approval.The cap restricts bonuses to 100% of banker's pay or 200% with shareholder approval.
Advocate General Niilo Jääskinen gave an opinion that the EU legislation limiting the ratio was valid.Advocate General Niilo Jääskinen gave an opinion that the EU legislation limiting the ratio was valid.
The cap is designed to reduce the incentives for bankers to take excessive risks but critics say it will push up basic pay and banks' costs. The cap on the ratio is designed to reduce incentives for bankers to take excessive risks but critics say it will push up basic pay and banks' costs.
The UK government challenged the legislation asking the Court of Justice in Luxembourg to consider six arguments challenging both the scope and the legal basis for the new rules.The UK government challenged the legislation asking the Court of Justice in Luxembourg to consider six arguments challenging both the scope and the legal basis for the new rules.
Advocate General Jääskinen said: "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."Advocate General Jääskinen said: "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."
Non-bindingNon-binding
The Advocate General's opinion is not legally binding, but the Luxembourg court may consider his reasoning in reaching its verdict.The Advocate General's opinion is not legally binding, but the Luxembourg court may consider his reasoning in reaching its verdict.
He rejected all the UK government's legal and technical arguments against the EU legislation.
A final ruling is not expected until next year.A final ruling is not expected until next year.
The UK argued that big basic salaries would be more difficult to cut when the business climate deteriorates. UK and EU banking regulators have also clashed over attempts by British banks to sidestep the bonus cap by awarding banking executives "allowances", paid alongside salaries to bolster their pay.
It also said the new rules may persuade bankers to relocate outside Europe. The UK argued that big basic salaries would be more difficult to cut when the business climate deteriorates and the new rules on bonus ratios may persuade bankers to relocate outside Europe.