Carney defies Brussels over bonus cap
THE UK is on collision course with Brussels after defying orders to extend pay curbs across the City.
A bonus cap was introduced for big banks and fund managers across the EU two years ago.
This limits bonuses to one times salary and twice if shareholders approve. The crackdown was an attempt by European authorities to restrict the reckless, bonus-fuelled culture which contributed to the financial crisis.
So far the cap has only been applied to the biggest banks and i nvestment f i rms, which have responded by simply hiking fixed pay for top executives.
But t he European Banking Authority is now trying to force member countries to apply the pay curbs to smaller firms, not just the biggest banks.
In a statement issued yesterday, the Bank of England (led by Mark Carney, pictured) declared it will not apply the EU bonus cap across the board, meaning more than 1,000 smaller banks, fund managers, hedge funds and brokers would be let off the hook. It warned that the ‘ blanket extension’ of these restrictions would drive up fixed pay across the City and endanger financial stability, pointing out that banks are already doing this for senior executives.
Last night one Eurosceptic hit out at the latest intervention from Brussels. UKIP MP Douglas Carswell said: ‘It seems that not even the Bank of England has control over basic banking rules in the city.
‘The European authorities allowed the Greek debt crisis to assume epic proportions.
‘These are the last people we should allow to tell us how to regulate the banks.’
Both the Bank and the Financial Conduct Authority argue the bonus cap should not be applied to smaller firms because unlike big banks they do not pose a risk to the financial system if they collapse.
Having consulted with lawyers they said yesterday they had adhered to the EU’s ‘principle of proportionality’, giving them discretion over the application of rules from Brussels. They said they disagreed with the EBA’s interpretation of the rules. The refusal by the Bank and the FCA to bow to Brussels’ latest demands is supported by the Treasury. But the EBA yesterday made it clear it is does not plan to budge. The European Commission will have the final say and can take action against countries which breach directives.