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Following news that the new UK Chancellor of the Exchequer, Kwasi Kwarteng, is considering removing the bankers’ bonus cap to boost the UK economy, Matt Smith, CEO at RegTech firm SteelEye, welcomes the change and argues that capping bonuses is not an efficient way of de-risking markets:
“Kwasi Kwarteng has announced plans this week to scrap the bankers' bonus cap in a move she hopes will help attract high-quality global talent, which is currently being lost to markets like the US where bankers can be better remunerated.
“While further increasing the earning potential of existing high-earners might feel like a strange move in the middle of a cost-of-living crisis, the financial industry's contribution to the UK economy cannot be denied. In 2021, it accounted for 8.3% of total economic output, so attracting high performers could help the UK – and London in particular – to reclaim its stance as the booming financial centre it once was.
“The reason the cap was introduced in the first place was because of efforts to improve regulation of the banking sector in the wake of the financial crisis of 2008. However, capping bonuses is not an effective way of de-risking markets – the rules do not serve the intended purpose, which is why I welcome this move. Enforcing transparency and strong compliance policies and procedures within banks is the only way to reduce systemic risk – which is why regulations like MiFID II and MAR are so important.
“Allowing banks to pay for performance should be seen as a positive move.”
