The Advocate General of the EU Court of Justice (EUCJ) has has thrown out the UK government’s challenge to the EU cap on bankers’ bonuses.
Following the 2008 financial crisis, the EU implemented a number of measures, known as the CRD Directive, designed to enhance the regulation and stability of its financial institutions across the continent and reduce the risk of another similar collapse occurring in the future.
One of these measures targeted the scale of bonuses offered to bankers, which encouraged them to engage in
excessive risk taking in order to share in the banks’ short term profits, but not in the cost of their failures which, in the most serious cases, were borne by the taxpayer.
This provision stipulates that bankers’ bonuses should not exceed 100% the value of their salary, or 200% with shareholder approval.
However, the UK government has attempted to protect the freedom of banks to choose their own terms in employee contracts and challenged the legality of the directive at the European Court of Justice. It claims that the EU does not have the power to fix the ratio of variable to fixed remuneration under the Treaty on the Functioning of the European Union (TFEU) and such policies are solely under the control of individual member states. The UK also claims that the CRD Directive violates the principle of legal certainty, that the conferral of powers to the European banking Authority (EBA) is illegal, and that the regulation’s measures requiring disclosure of remuneration infringes the right to privacy and data protection rules.
The EUCJ is yet to reach a judgement, but in his opinion published today, Niilo Jääskinen suggests that “all the UK’s pleas should be rejected and that the Court of Justice dismiss the action”.
Jääskinen argues that while social policy and determining the level of pay does remain the realm of individual member states, limiting bankers’ bonuses to a ratio does not equate to a cap, as their is not limit to the salary the bonus is based upon.
He also noted that the Court has already held that measures aimed at promoting the harmonious development of the activities of credit institutions throughout the EU by eliminating any restrictions on freedom of establishment and freedom to provide services, while increasing the stability of the banking system and the protection of savers, can be based on Article 53(1) TFEU.