The chancellor launched a legal challenge to the rule which restricts bonuses to 100% of salary – or 200% if shareholders approve. The case includes arguments that the rule was imposed without any assessment of the impact and that went beyond the EU’s remit.
Rob Moulton, partner at law firm Ashurst, said: “This challenge goes to the heart of who runs Europe.”
Niilo Jääskinen, one of the advocate generals of the European court of justice, will hand down an opinion on the legal challenge, which is the next step towards a final ECJ judgment.
Lawyers at the law firm Withers said that while the chancellor had strong legal arguments, the odds were against him. “Historically the UK has done very badly. There have been two challenges this year, one about the financial transactions tax and one on short selling which have both gone against him,” said Colin Smith.
Britain’s case was heard in September and a final judgment from the court is expected by early February.
The ECJ decision will have implications for thousands of bankers in the City whose bonuses are usually determined around that time of year.
As a result of the cap – which kicked in for the first time during this year – bankers were handed extra payments alongside their salaries and bonuses, known as allowances. Those allowances attempted to spare bankers from taking a cut in pay as a result of the restrictions.
But last month, the top European banking regulator, the European Banking Authority, ruled that these allowances were breaching the bonus restrictions.
Policymakers in the UK have warned that one of the impacts of the cap also has been a rise in the fixed salaries of bankers. This promoted Mark Carney, the governor of the Bank of England, to say this week that the cap was unfortunate and suggest that bankers’ salaries should also be subject to some form of clawback. He floated an idea promoted by the US central banker Bill Dudley to pay bankers partly in performance bonds, which could be used to pay fines.
Lawyers said that Jääskinen had supported the UK challenge on the financial transaction tax but this was rejected by the ECJ. Despite the playing down of the chancellor’s chances by experts, this has raised hopes that Jääskinen could again endorse Osborne’s legal arguments.
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