Bank of England Deputy Governor Sam Woods said that scrapping a cap on bankers’ bonuses inherited from the European Union is not a top priority. Other curbs on remuneration that are aimed at fostering financial stability should not be weakened. Britain’s departure from the EU has raised hopes in the financial sector. Some rules might be changed.
The finance ministry is reviewing the cap, which limits bonuses. This opposed the rule when it was approved by the EU, demanding that it would simply encourage base pay to go up. Woods said that they have never been a big fan of the bonus cap. However, the bonus cap is the law and it is not near the top of their priorities to look at. Woods heads the Prudential Regulation Authority, the BoE arm that directly regulates banks. Scrapping the cap could also be politically difficult for the government. This is when millions of people are struggling financially after the pandemic.
Other types of curbs such as deferring part of a bonus, along with clawback and malus to stop or recover the remainder of a bonus if a banker is involved in misconduct. Woods don’t think that they will ever want to weaken what they are doing on pay. Deferral, clawback and malus, those are good things that they should keep. Lawmakers and bankers want regulators to help maintain London’s competitiveness as a global financial centre. Woods think that it is very important that the Prudential Regulation Authority keeps its primary focus on financial stability and safety and soundness. He added that if you dilute that primary focus, you are heading for trouble. It is very bad for competitiveness, because it damages their reputation as a financial centre.
Since Brexit, Britain’s huge financial services sector has largely been locked out of the EU. As the EU is unlikely to grant Britain access to its financial market, it sets the UK on a divergent path of tailoring rules to its own market. The hit from Brexit to the financial sector so far has been modest and it will take time to feel the upside of greater autonomy in rulemaking. With so much else going on, that Brexit effect will gradually diminish through time.
