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Treasury launches legal challenge to EU bank bonus cap

The Treasury has today launched a legal challenge with the European Court of Justice to fight EU rules to cap bankers’ bonuses.

As part of a capital requirements directive, CRD4, the EU passed tough new rules to cap bank bonuses at 100 per cent of salary or 200 per cent with shareholder approval.

The rules passed with 26 to 1 approval among EU member states with the UK left isolated and unable to prevent the new law.

The Treasury fears the change will undermine responsibility in the banking sector and says it has been passed without a proper impact assessment.

It argues a cap will lead to an increase in fixed salaries which create instability in the sector. It will still be implementing the rules during its challenge.

It is the third ECJ legal challenge the UK has launched this year after actions on short-selling and the financial transaction tax where it has seen some success. It has also seen off EU attempts to move Libor supervision to Paris with the European Securities and Markets Authority.

The challenge focuses on comparing the cap with the EU Treaty and powers delegated to the European Banking Authority, which the Treasury believes go well beyond its remit of setting technical standards. The Treasury will be seeking clarity from the ECJ on these points.

A Treasury spokesperson says: “These latest EU rules on bonuses, rushed through without any assessment of their impact, will undermine all of this by pushing bankers’ fixed pay up rather than down, which will make banks themselves riskier rather than safer.

“In other words, as the Chancellor has said, they may undermine responsibility in the banking system rather than promote it.

“Regulation of pay in this manner goes beyond what is permitted in the EU Treaty. That is why we are challenging these rules in the European Court, to ensure the legislation respects the EU Treaty and actually achieves what it is meant to.”

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