London’s bankers can make unlimited bonuses again as UK axes cap

The UK has abandoned a cap on bankers’ bonuses, in its latest push to boost the competitiveness of London’s financial industry following Brexit.

The rule limiting banker bonuses to two times annual base pay was introduced a decade ago in the wake of the global financial crisis when the country was part of the European Union. It will be scrapped from October 31, the Prudential Regulation Authority said Tuesday.

“A bonus cap is not routinely imposed in other leading international financial centers outside the EU,” the regulator added, noting that the cap had been identified as “a factor in limiting labor mobility.”

The UK government has long been opposed to the cap and believes that lifting it will help shore up London’s position as an international financial hub. Brexit made access to Europe’s vast market for financial services more difficult and costly for UK-based banks, and London has lost some business to cities such as Paris, Frankfurt and Amsterdam.

The EU introduced the limit on banker bonuses as part of a package of measures aimed at reducing excessive risk taking and making the financial system safer. At the time there was also residual popular anger that taxpayers had to bail out banks that were paying huge sums to their top dealmakers, stoked by the fact that many people lost their jobs and homes in the recession that followed the crisis.

The UK government unsuccessfully challenged the cap when it was put forward in 2013, arguing that it would lead to higher fixed salaries, undermining efforts to link banker pay more closely to long-term success.

Britain’s financial regulators have since echoed these concerns and the PRA said Tuesday that scrapping the cap would better align pay with performance. It would also allow firms to restructure pay faster, giving them “further flexibility over their cost base to deal with downturns,” the regulator added.

A spokesperson for UK Finance, a group representing banks, welcomed the end of the bonus cap, saying it “will ensure the financial services industry is globally competitive and make the UK a more attractive place to work for international professionals.”

However, the spokesperson added that the UK’s lengthy deferral period — which means some executives must wait seven years for their awards — “remains a disincentive to those looking to relocate” to the UK because it is longer than in the EU.

“We’re pleased to see that the financial regulators will take the deferral period into account in their wider review of the remuneration regime,” the spokesperson said.

The UK government has come under increasing pressure to deliver post-Brexit benefits for London, the center of Britain’s hugely important financial services sector. The city suffered a series of setbacks earlier this year when several British companies — most notably chipmaker ARM (ARM) — announced plans to list in New York.