Bonus Cap Challenge Withdrawn

The Government has confirmed that it is dropping its challenge to the EU cap on bankers’ bonuses.

The announcement comes after the Advocate General of the European Court of Justice Court (ECJ) gave his view that the challenge was likely to fail. George Osborne confirmed that since there appear to be minimal prospects of success the Government will no longer pursue its challenge.

Under the EU Capital Requirements Directive, bankers’ bonuses must be capped at one year’s pay, or two with shareholder approval. The Government challenged the Directive as it considered it will not achieve its intended purpose of improving stability across the banking system and will instead lead to an increase in fixed salaries which would do the opposite.

Mr Osborne will now look to the Financial Stability Board to consider how compensation schemes can still achieve the objective of supporting sound risk taking and will also ask the Fair and Effective Markets Review to consider this issue.