As the financial landscape of the UK steers towards uncharted territories post-Brexit, a significant page was turned on October 24, 2023, when Britain officially discarded the decade-old cap on bankers’ bonuses, a legacy inherited from the European Union. The cap, which was established with the intention of reining in the extravagant bonus culture to prevent a repeat of the reckless behaviour that led to the 2008 financial crisis, has now been deemed obsolete in the evolving financial paradigm of the UK​.
The cap, introduced in 2014 at a time when Britain was part of the EU, limited the bonuses to a maximum of twice a banker’s base pay, subject to shareholder approval. However, it was often criticised for inadvertently encouraging banks to increase fixed salaries to circumvent the restriction. The Bank of England and the Financial Conduct Authority, after a public consultation earlier this year, confirmed the abolition of the cap, marking a clear divergence from the financial regulatory framework of the EU and steering towards a model that resonates more with global financial hubs like New York, where no such caps exist​.
The lifting of the cap, effective from October 31, 2023, is seen as a move to enhance the competitiveness of London as a global financial centre. It’s believed that this measure will not only make the UK a more attractive place for international banking professionals but also provide banks with the flexibility to reward performance and talent, thereby possibly attracting a pool of global talent from regions like the United States and Asia.
Critics argue that the timing is inappropriate, as many households grapple with a cost of living crisis. Trade unions and certain campaigners have voiced their discontent, labelling the move as ‘obscene’ and a ‘risky prioritisation’ of banks over public wellbeing. However, supporters counter argue by highlighting the global competitive edge it potentially bestows upon the UK’s financial sector, aligning it more with the rest of the world barring the EU, and possibly serving as a catalyst for economic growth and prosperity in the long run.
The narrative of the UK’s financial regulation is undeniably taking a bold turn. Whether this will lead to a cascade of economic benefits or unforeseen repercussions, only time will unveil. Nonetheless, the scrapping of the bankers’ bonus cap is a testament to the UK’s resolve to carve out its distinct financial identity in the post-Brexit era, fostering a milieu of competitiveness and global integration.