Bankers working on Wall Street for European banks could have their bonuses capped under new rules agreed by the European Parliament this week. U.S. banks operating in Europe will also be affected, as their employees in Europe will come under the bonus cap.
A spokesperson for the European Parliament told CNBC the bonus cap, due to go into effect on January 2014, applies to all investment and credit institutions. However, it's not yet clear, whether the cap applies to only "key risk takers", senior managers and "people in control functions" or to all employees.
The provisional deal detailed in a press release on Thursday is only half an A4 size of paper, but a full deal is expected to be outlined by the end of March.
The European parliament reached a provisional deal on Wednesday to limit variable pay to salary at a ratio of 1:1, although this can rise to 2:1 with shareholder approval.
"I think the main impact [of the bonus cap] will be outside of Europe," Richard Staite, a U.S. banking analyst at Atlantic Equities told CNBC.
"Clearly it will make working for a European bank less attractive in New York, Tokyo and Hong Kong," he said, adding that bankers will be more likely to walk across the street to work for a non-EU rival.
Staite believes the bank bonus cap would be a net positive for U.S. banks as Europe generally has greater regulation to deal with.
It will also mean business trading activities will move to New York, according to Staite, but he said the rules would have to be finalized, before it becomes fully clear how banks would respond.
The political agreement must be approved by the European Parliament, which is expected to vote on the measure around mid-April.
At least 255 out of a total of 345 members of the European parliament need to vote in favor of the bonus cap.
Once approved, a majority 14 out of the 27 member states would also need to include the rules in their national laws, before it comes into effect.
"In the past, regulations have been based on the banking license. If someone works in the U.K. in banking, they must work under a U.K. license which means the bonus rules could be imposed," Ralph Silva, director of Silva Research Network told CNBC.com
"What's not clear is what happens if you work in the U.S.? What I suspect will happen is that EU governments will force EU banks to use the same rules globally, however, it's still not clear."
Joe Rundle, head of trading at ETX Capital told CNBC the move could weaken the allure of the EU for financial firms.
"(The rules) will probably see a move of business in the medium term to Switzerland and out of the EU."
Cormac Leech a banking analyst at Liberum Capital said he is yet to study the provisional deal but suggested there could be an upside.
"More broadly, I see it as a positive for bank shareholders since [it] will tend to restrain compensation costs somewhat. Although one would expect base salaries and other benefits to increase," he told CNBC.
U.K. politicians remained wary of the news, Prime Minister David Cameron said on Thursday that any regulation on bankers' bonuses must be "flexible enough" for major international banks to compete in the U.K.
London's mayor Boris Johnson called the EU deal the most deluded measure since Roman times.
"This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman empire," Johnson said in a statement.