Capping Bankers' Bonuses: A Footstep Besides Far For The Eu?

Steve Peers

Bankers are never going to win a popularity contest. The collapse of international fiscal markets which started inwards 2008 as well as has led to austerity across Europe has been widely blamed on lax regulation of banks as well as irresponsible behavior past times bankers. It has led to a huge overhaul of European Union banking regulation, including the transfer of banking supervision to the European Central Bank, novel rules on depository fiscal establishment bail-outs, as well as provision for criminal police sanctions against bankers involved inwards marketplace pose abuse (discussed here). European Union police has gone farther still, as well as adopted rules which cap the total of bonuses paid to bankers.

The United Kingdom, domicile to the biggest fiscal services manufacture inwards the EU, has had reservations virtually to a greater extent than or less of these novel laws. It has opted out of to a greater extent than or less of them (the marketplace pose abuse rules, the banking supervision rules as well as aspects of the depository fiscal establishment bail-out rules), as well as has challenged others inwards the CJEU. Earlier this year, its challenge to the ban on ‘short-selling’ failed inwards the Court (see give-and-take here), as well as today’s Advocate-General’s opinion suggests that its challenge to the restrictions on bankers’ bonuses should neglect too.

These restrictions are found inwards the EU’s revised rules on upper-case missive of the alphabet requirements as well as the ascendence to accept upwardly banking services, which are laid out inwards a parallel Regulation and Directive adopted inwards 2013. In effect, they require that bankers’ bonuses cannot usually live to a greater extent than than the total of their ordinary annual salary. By way of exception, the bonuses tin live double the total of the banker’s ordinary annual salary, if depository fiscal establishment shareholders grip pursuant to a special procedure.

Advocate-General’s Opinion

The UK raised half-dozen primary complaints against the bonuses rules: lack of competence past times the European Union to regulate pay; infringement of the principles of subsidiarity as well as proportionality; violation of the regulation of legal certainty; illegal delegation of mightiness to an European Union means (the European Banking Authority); breach of European Union rules on information protection as well as privacy, due to the potential disclosure of the pay received past times bankers; as well as a breach of the principles of customary international law, due to the extraterritorial effect of the rules. Advocate-General Jaaskinen argues that all 5 complaints live rejected.

First of all, the Advocate-General argues that Article 53 TFEU (the legal base of operations for this measure) is correct, because that legal base of operations tin extend to banking regulation generally, non exactly the advertisement of the liberty of establishment for banks. The pay cap does non constitute a ‘social policy’ measure, since it does non regulate the basic salary paid to bankers, which is the ground for calculating whatsoever additional bonus.

Secondly, information protection rules are non violated, because the disclosure of bankers’ pay is only discretionary, non mandatory. In the lawsuit that Member U.S.A. brand a asking for such disclosure, they would as well as then live jump past times European Union information protection law.

Thirdly, conferring powers upon the European Union means is non illegal, because the powers create non describe of piece of work organisation the essential elements of the legislation, as well as the European Union Banking Authority does non adopt the measures itself, but but recommends their adoption to the Commission.  Fourthly, the regulation of legal certainty is non infringed past times applying the novel rules to pre-existing job contracts. Fifthly, the principles of proportionality as well as subsidiarity are non violated, because the creation of a uniform organisation of endangerment administration was ameliorate achieved at European Union level, rather than national level, as well as the European Union institutions own got slap-up discretion to assess how these principles apply. Finally, the UK has non made out its declaration that customary international police rules out the extraterritorial application of such limits.

Comments

This illustration is non virtually whether limiting bankers’ bonuses is a good idea. Rather it concerns whether it is legal for the EU to bound them. If the European Union lacks such power, in that location would inwards regulation nil to foreclose Member U.S.A. from limiting bankers’ bonuses individually, if they wished. The declaration virtually whether to create thus would as well as then live held at a national level, rather than the European Union level.

Some of the UK’s complaints are clearly unconvincing.  As the Advocate-General suggests, the declaration virtually international police is non fully fleshed out or convincing. The legal certainty declaration fails to consider that job police regulation usually impacts upon existing contracts; this is justifiable inwards calorie-free of the public-interest principles underlying the really nature of job law. Anyway, bonuses are inherently variable. As for the information protection argument, the Opinion largely follows what the CJEU established already inwards EP v Council (family reunion): if European Union police provides for options for Member States, the compatibility of those options alongside human rights police should live judged when as well as if Member U.S.A. practice those options. In whatsoever event, prior illustration police on information protection as well as salary disclosure does non laid out an absolute ban on release (see Satamedia, for instance).

The UK’s other arguments are rather stronger. While it is truthful to say that the EU’s banking means does non genuinely accept the lastly determination relating to implementation of the bonus cap, it does to a greater extent than than simply supply skilful advice on this issue. The Commission must as well as then either human activity on this advice or create nil at all: thus it does non own got total discretion to adopt the delegated acts (see the complex decision-making organisation ready past times the Regulation establishing the Banking Authority). This physical care for is fundamentally questionable because it blurs the accountability for the determination beingness taken (and moreover, it is likewise convoluted to live transparent).   

As for proportionality as well as subsidiarity, certainly the events of the lastly half-dozen years own got demonstrably indicated that a to a greater extent than decentralised organisation of managing banking risks was ineffective. Hopefully the EU-wide measures volition live to a greater extent than successful, but inwards whatsoever lawsuit the nature of the subject-matter calls for an EU-wide response, inwards calorie-free of the degree of integration betwixt European fiscal markets as well as the potential cross-border carry upon of depository fiscal establishment failures. But that isn’t the point: the UK is non challenging the entirety of the upper-case missive of the alphabet requirements rules, but only to a greater extent than or less of the handful of provisions which regulate bankers’ bonuses. In fact, it is non challenging those provisions which foreclose bankers from receiving bonuses equally a outcome of risky behaviour, but only those provisions which regulate bonuses regardless of bankers’ actions. So the persuasion should instead own got asked whether these provisions run across the requirements of the subsidiarity principle. It is difficult to see how they do.

This brings us to the biggest job alongside the Opinion: the declaration that the legal base of operations on liberty of establishment tin regulate bankers’ bonuses. The legal base of operations dot hither tin only live understood past times viewing the Treaty equally a whole. It has split upwardly provisions on social policy, which include a ban on European Union regulation of pay (Article 153 TFEU). The full general internal marketplace pose mightiness (Article 114 TFEU) specifically states that it ‘shall non apply to’ measures ‘relating to the rights as well as interests of employed persons’. The Treaty drafters’ intention was clearly to supply for lex specialis rules relating to regulation of pay.

The ban on European Union regulation of pay has been clarified inwards the case-law of the CJEU. In the Impact judgment, for instance, it ruled that the European Union could non regulate the level or components of pay, but it could institute non-discrimination rules relating to pay equally regards categories of workers. Similarly, the working fourth dimension directive provides for vacation pay, but does non regulate the degree or components of pay which a worker commonly receives (which as well as then constitute the ground on which the vacation pay is calculated).

Following the logic of these precedents, it is truthful to say that the upper-case missive of the alphabet requirements legislation does non laid the level of bankers’ pay, on the ground of which the bonuses are capped. But it does regulate the components of pay, past times determining how much of the total total of pay tin live variable. The Advocate-General’s reasoning would hateful that the European Union would live costless to regulate at to the lowest degree to a greater extent than or less aspects of workers’ pay inwards whatsoever surface area of police discipline to special rules inwards the Treaty, rather than the full general internal marketplace pose legal base. So the European Union could regulate aspects of the pay of farmers, fishermen, carry workers as well as anyone inwards other service industries.

It could reasonably live argued that aspects of pay inwards these other fields tin exceptionally live regulated past times European Union police where that is an essential factor of the regulatory framework. This could live the illustration inwards banking, for illustration if the overall total of pay could harm the existence of the depository fiscal establishment or bonuses were linked to risky behaviour. The legislation does own got rules on these issues, but the UK has non challenged them. So it follows that the persuasion is fundamentally unconvincing on the legal base of operations point.

In calorie-free of the fiscal crisis, in that location are many goodness reasons to regulate banks to a greater extent than effectively, as well as it would non live shocking if Member States wanted to react to understandable populace anger at the huge toll of depository fiscal establishment bail-outs past times limiting bankers’ income. But resentment at bankers’ pay, fifty-fifty it is alone justified, cannot authorise the European Union to practice powers which whatsoever reasonable interpretation of the Treaties suggests that it exactly does non have.


Postscript (November 21st): Like whatsoever Advocate-General's opinion, this see is non-binding, although a number of British journalists as well as politicians forgot this when the persuasion was released. In whatsoever event, the dot is moot since, next publication of the opinion, the UK's Chancellor decided to drib the legal challenge. His official ground was to salve taxpayers' money, but this is non convincing since a large bulk of the legal fees will for sure already own got been incurred, as well as in that location is yet a run a endangerment to get them reimbursed if the UK wins the case. A victory for the UK would own got non own got been improbable, given that the CJEU did non follow this Advocate-General's views inwards the lastly major banking police illustration (concerning the ban on short-selling), as well as that the analysis of the legal ground dot is non really convincing. 

 

Barnard & Peers: chapter 14, chapter 19

 

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