Updated, 8:26 p.m. | Britain said on Wednesday that it had filed a lawsuit at the European Court of Justice contesting a proposed cap on bankers’ bonuses.
The step is the latest in Britain’s campaign against a decision by European lawmakers this year to limit bonus payments at Europe’s largest financial institutions to one year’s base salary.
Britain’s Treasury argued that such a cap could be incompatible with European Union law and was introduced without consideration of its effect.
“These latest E.U. rules on bonuses, rushed through without any assessment of their impact, will undermine all of this by pushing bankers’ fixed pay up rather than down, which will make banks themselves riskier rather than safer,” a spokesman for the Treasury said in a statement. “Regulation of pay in this manner goes beyond what is permitted in the E.U. Treaty.”
Britain said it would impose the cap because it was obliged to do so under European law, but was seeking clarity on its objections from the European court in Brussels.
“Britain is launching a legal challenge as we think that the legislation as currently drafted is not fit for purpose,” the Treasury said.
Amid widespread public anger over outsize pay packages at banks while many taxpayers were still affected by fallout from the financial crisis, European lawmakers moved to develop rules to address the public’s concerns. But many in London’s financial district have harshly criticized the bonus cap, arguing that it would harm the competitiveness of the city and Europe as a whole.
The bonus cap rule, which also states that a bonus can be twice the base salary with the approval of a majority of the shareholders, is expected to take effect on 2014 payouts.
The British Bankers’ Association said this month that about 35,000 employees at banks around the world could be affected. The group had requested that the tougher rules on bonuses be postponed.