FCA Lifts Bonus Restrictions
Effort to Boost Competitiveness Post-Brexit

In a significant move to enhance London's appeal as a financial center post-Brexit, the UK financial watchdog, the Financial Conduct Authority (FCA), has lifted the cap on bonus payments for bankers in the City of London. This decision takes effect on October 31st and aims to attract new businesses to the City and make it more competitive after the UK's exit from the EU.
The existing regulation, which limited bonus payments to double a banker's annual salary, dates back to the UK's EU membership. Both regulatory authorities, the FCA and the Prudential Regulation Authority, agreed that this regulation had "unintended consequences." In practice, it led many companies to raise the base salaries of their bankers. However, this reduced employers' flexibility to adjust salaries for poor performance or misconduct since the fixed salary constituted a significant portion of total compensation.
The cap on bonus payments had been controversial since its introduction. Many financial industry CEOs expressed dissatisfaction with this regulation, believing it negatively impacted London's competitiveness. On the other hand, critics warn that lifting the cap could lead to even greater income inequality, especially at a time when consumers are already experiencing economic hardships.
Interestingly, the removal of the bonus cap is one of the few initiatives by former Chancellor Kwasi Kwarteng that is actually being implemented. Kwarteng, who served during the brief tenure of Prime Minister Liz Truss, announced the abolition of this regulation about a year ago. Other financial proposals, notably the idea of financing tax cuts exclusively through new debt, resulted in an unprecedented economic crisis. This ultimately led to Truss firing Kwarteng and then resigning from office after just 49 days.
