BoE says EU bonus cap will not be applied to smaller banks

New European rules governing bonuses paid at banks and investment companies will not be applied to the UK's smaller operators, the Bank of England has confirmed.

The Bank of England's Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have told the European Banking Authority (EBA) they will not apply the bonus cap to all firms recommended by the EBA's guidelines.

As a means of trying to limit risk-taking, the EBA new rules will restrict bonuses to 100% of base salary.

The Bank of England said these will only be imposed on the UK's larger banks and those financial firms which are “systemically important”, arguing a blanket ban on bonuses would push up pay and so be counter-productive.

"Since the introduction of the bonus cap, a number of firms have markedly increased fixed pay as a percentage of total pay, whilst total pay remained stable during the same period," the BoE said.

"The PRA and FCA believe that the shift to fixed remuneration makes it more difficult for firms to adjust variable remuneration to reflect their financial health, and limits deferral arrangements that put remuneration at risk should financial or conduct risks subsequently come to light."