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(Corrects title to senior director in para 3)
By Will Caiger-Smith
NEW YORK, June 28 (IFR) - The UK's exit from the EuropeanUnion could release its banks from the bloc's onerous cap onbonuses, potentially making them more competitive in otherfinancial centers like New York, lawyers told IFR.
The bonus cap, implemented in 2014, applies to the singlemarket's largest banks, limiting bonuses to 100% of salary, or200% with shareholder approval.
But once the UK formally exits the union it could write itsown new rules, said Roger Matthews, a senior director at Dechertin London.
"It may be that the UK government will take the opportunityto ditch the bonus cap," he told IFR.
UK banks have said the cap puts them at a disadvantage inother countries with looser compensation rules, particularly theUS, where banks are not subject to a cap on bonuses.
HSBC chairman Douglas Flint in 2014 called the rule"retrograde". Barclays and the British Bankers Association havealso been vocal opponents of the cap.
"[UK banks] find it very hard to offer compensationcomparable their US counterparts in the same city," saidMatthews.
Vice presidents at the New York offices of HSBC and Barclaysearn an average salary of just over US$180,000, in line withGoldman Sachs, Morgan Stanley, JP Morgan and Citigroup,according to salary benchmarking firm Emolument.
But the US banks pay VPs an average bonus of US$155,000,compared to US$102,500 at HSBC and Barclays, according toEmolument.
Director-level bonuses are closer, but still lower at the UKbanks - Barclays and HSBC pay an average of US$305,000 comparedto US$350,000 at Goldman Sachs and Citigroup, the data shows.
Directors' salaries are comparable at those four banks, atjust over US$220,000, said Emolument.
STRIKING A BALANCE
The bonus cap rules apply to global staff of any EU-basedbank, and to the EU-based staff of any international bank.
If it were loosened or removed, UK banks could find iteasier competing with rivals in the US or Asia than their EUrivals, and London could benefit as a location for staff ofnon-EU banks, compared to other EU cities where the pay capsapply.
However, the UK faces intense political pressure to retainsome form of bonus cap, from both the EU and its own citizens.
In order to retain access to the single market, the UK willlikely need to maintain laws governing the financial sector thatare roughly equivalent to those in Europe.
Any change to the bonus cap could put that in jeopardy, saida spokesperson for an influential UK banking industry group.
"The risk is if we diverge too quickly from the EU rules, wewon't be able to secure access to the single market andpassporting rights will be withdrawn," the spokesperson said.
Moreover, the bonus cap was driven by pressure on the UKgovernment to make banks and their employees more accountableafter the financial crisis.
Softening the rule would fly in the face of post-crisispolicy towards the financial sector, said Sarah Henchoz, apartner at Allen & Overy in London.
"Our government will be under pressure from banks to make iteasier to pay and retain talent in the UK," she said.
" to remove the cap would go against the whole ethos ofwhy these things were put in place in the beginning. It will bea politically led decision."
The US's compensation rules are currently under regulatoryreview.
But while regulators have proposed increasing bonus deferralperiods, enhancing clawback provisions and expanding the numberof employees subject to the rules, there is still no outrightcap.
"This difference benefits US banks versus their EU peerswith respect to their ability to attract the most qualifiedemployees," wrote PwC analysts in a research note in April. (Reporting by Will Caiger-Smith; editing by Steve Slater andShankar Ramakrishnan)
