Although the details of the final Brexit deal have yet to be confirmed, there’s speculation over many issues with one of them being possible changes to banking regulations. Mark Carney, the governor of the Bank of England, has now raised the idea that the EU imposed cap on bankers bonuses could be one of the changes that are made when the UK leaves the EU in March 2019.
Carney has said that the EU rule, which puts a limit on the bonuses, could be one of the regulations that could be scrapped. The cap was first introduced in January 2014 in response to the financial crisis, when bankers were receiving huge payouts despite massive losses. The cap now limits bonuses to 100% of bankers’ salaries, or a maximum of 200% with shareholders approval.
He also suggested that other changes could be made to the current EU rules, including to regulation of the insurance industry. He said in a statement that “There are areas where we would make changes, but within the context of maintaining overall levels of resilience.”
The rules were met with opposition when they were introduced. George Osborne, who was chancellor in 2014, argued that the cap would add unnecessary risk to the banking sector and that they were badly designed rules that are pushing up bankers’ pay, not reducing it”.
Carney also warned that the rules would make it difficult to monitor bonuses, and that “It is unfortunate, for example, that new European rules to cap bonuses to half, or with shareholder approval, two-thirds, of total pay have the undesirable side effect of limiting the scope for remuneration to be cut back.”
According to an analysis in 2015, fixed pay including salaries and benefits made up 50% of pay in the banking sector, compared with only 10% in 2010. This increase is due to banks introducing allowances to employees alongside their salaries to make up for the reduced bonus payments. Many chief executives of UK banks now receive shares to compensate for the loss of bonuses.
There have been calls for the UK government to reduce banking regulations post-brexit in order to retain business which could otherwise be lost to other EU nations. Major banks are preparing contingency plans if a transition deal between the EU and Britain is not reached this month, and banks have warned there’s a possibility of up to 10,000 jobs being lost next year.
Carney has not confirmed that any changes to regulations will take place, but they are under review and it’s still unclear on which financial rules will be affected. He said earlier in the year that “we’re not going to go the lowest common denominator” with regulations when the financial sector is so dominant in the UK.
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