The cap is off! London to do away with the restrictive EU bonus cap for traders

For Britain to be able to continue to lead the world of institutional financial technology innovation, the cap on earnings must go

Canary Wharf

The impending exit from the European Union by the United Kingdom has enabled London’s financial markets epicenter to once again become self-determining.

The similarities between the Square Mile’s leading edge institutional financial technology, trading infrastructure and its number 1 position internationally as the largest financial markets center for the world and Europe’s non-producing continent of archaic business practices and socialism could best be described as complete polar opposites, therefore it is no surprise that London’s financial giants are poised to remove some of the counterproductive anti-business measures that had been imposed by tweed jacketed Brussels bureaucrats.

One such restriction is the cap on the bonuses awarded to traders at Tier 1 banks, the rationale for its introduction having been as part of an attempt to diminish awards for risky trading behavior post financial crisis.

Whilst the ideology may have been sound enough, the reality of the imposition of such a cap on bonuses has, as with most anti-business legislation, been more damaging than useful.

The rules imposed by the European Commission are that bonuses must be limited to double the fixed salary for what are considered to be risk takers, as well as those earning more than the equivalent of 500,000 Euros per year.

One of the downfalls of anti-free market legislation is that it creates an environment in which businesses are restricted, and talent moves on elsewhere in order to fulfill their potential without being shackled by legislation.

Ironically, it is a Spanish bank, based in one of Europe’s least financial markets-orientated nations – Spain – that has highlighted the difficulties of having to navigate laws that curb bonuses for traders.

Executives at BBVA had last week expressed concern that a bonus cap of this nature is preventing the company from hiring good quality and highly experienced executives from the technology sector, as well as preventing it from acquiring financial technology startups which specialize in moving the banking sector forward.

London is a financial technology center for the entire world, and the ability for its banks to continue a quarter-century old tradition of continuing to innovate institutional technology is vital.

Britain’s government has made substantial steps toward clearing the path for FinTech development by establishing London as a world center for new initiatives, as well as providing tax credits for companies that commit a certain amount of their resources toward research and development, as explained in detail by FinanceFeeds recently. In effect this is completely the opposite of the restrictive methodology applied by the European Union.

The cap on bonuses was introduced in 2014, and former Conservative Chancellor of the Exchequer George Osborne, the same government official that market out London as the financial technology development capital of the world, challenged this cap in court in Europe, however overturning such bureaucracy from such a heavyweight authority is not an easy task.

Instead, the exit from the European Union by Britain will make matters very easy indeed in terms of removing the rule under its own jurisdiction.

The one downside of passing a law to remove the cap would be that under European law, there are ‘equivalence rules’ which stipulate that if Britain repeals any aspect of the European bank directive, then business terms with Europe are no longer equivalent which means that single market access may be affected.

Does this matter? Not really. Far too much furore has been expressed over maintaining terms with Europe and capitulating to draconian legislation, when there is no reason for a powerhouse such as Britain, within which all of the world’s Tier 1 banks reside, providing top quality liquidity to the entire world.

Instead, Britain can continue to do what it does best – raise its bar and seek continual innovation in order to maintain its top position, its trade partners being the all important and highly advanced APAC region, North America and Australia, all of which are leading the way, rather than being part of Europe’s outmoded and moribund economy.


Read this next


Fed Policymakers Navigate a Delicate Path Amidst Inflation and National Debt Concerns

The Federal Reserve’s monetary policy has been a subject of debate in Western markets, especially regarding its approach to interest rates.

Institutional FX

PhillipCapital extends trade surveillance partnership with Eventus

“PhillipCapital has seen first-hand how Validus can scale to meet any capacity requirements as clients grow, as well as our team’s expertise in not only our customizable technology but the market and regulatory challenges facing the industry.”

Market News

Why Yellow Metal Prices are Plummeting

Gold prices have been steadily declining after failing to surpass the resistance zone at $1,650. The current price is at its lowest point in seven months. Strong economic data from the US has triggered a meltdown in the gold market.

Industry News

Nuvei enters China following licenses in Australia, Singapore, and Hong Kong

The expansion into China represents more than just a geographic milestone for Nuvei. It also adds an essential component to the company’s comprehensive suite of alternative payment methods (APMs), which currently counts 634 different options. These APMs play a crucial role in catering to local market preferences, thereby enhancing Nuvei’s value proposition for businesses looking to penetrate new markets within the APAC region.

Institutional FX

LiquidityBook launches LBX PMS 2.0 after acquiring Messer

With this rollout, LiquidityBook aims to meet the diverse requirements of its clientele, ranging from startup hedge funds and asset managers to broker-dealers and outsourced trading desks.

Institutional FX

Celoxica enters Australia to offer low latency market data and execution services in APAC

“There is a significant opportunity to deliver fast and efficient market access to APAC financial market participants, including trading firms, brokers, exchanges, and service providers. I am eager to extend our reach in this crucial market.”

Institutional FX

Cboe to launch four new Credit Volatility Indices (Credit VIX)

“The Credit VIX Indices are expected to provide new clear signals on bond market sentiment, and act as a new barometer of corporate credit risk in North America and Europe.”

Executive Moves

TradeZero hires Leo Ciccone as Chief Compliance Officer (CCO) for TradeZero Canada

“Leo brings to TradeZero broad and comprehensive experience coupled with deep business and regulatory relationships that will assist us in ensuring we meet and exceed industry best practices and to further our growth initiatives going forward,”

Institutional FX

Apex launches fractional fixed income trading for retail investors

“The ability for people – and not just high net-worth investors – to easily add fixed-income and diversify their portfolios is a game-changer.”