The UK government under a new Prime Minister wasted little time in moving to eliminate bonuses for bankers, as it pursues a deregulatory agenda. Credit Suisse's new COO was once subject to such a cap.

Salary caps on banker bonuses were introduced in 2014 in the European Union following the financial crisis when taxpayers had to bail out lenders. The caps were designed to limit excessive risk-taking and were limited to twice the basic salary of a banker.

Now with Britain no longer in the European Union and a new government under Prime Minister Liz Truss, those salary caps will be a thing of the past, according to a report from «Reuters».

This isn't just a local issue but has also played out in Switzerland. Earlier this year, Francesca McDonagh stepped down as CEO of the Bank of Ireland (BOI), becoming Credit Suisse's new CEO for the EMEA region, since then also assuming the mantle of Chief Operating Officer under new CEO Ulrich Koerner.

Opposed to Bonus Caps

Following a 2009 bailout by the Irish government in the wake of the European banking crisis, executive pay was capped at €500,000 in Ireland for institutions rescued by government funding, of which BOI was a recipient. As a result, McDonagh's pay was subject to the cap, although she received an exemption and subsequently earned nearly twice as much, according to a report in the «Financial Times» (behind paywall).

Like the Bank of England, McDonagh was opposed to salary caps, the argument being they merely led to higher base pay, driving bankers to the continent instead. In a rather ironic twist, the Irish government sold the last of its shares in BOI, making it the first bailed-out Irish bank to return to private ownership, as «Reuters» said in a separate report.

Britain and the Bank of England have always opposed the cap, introduced in 2014, saying it simply bumps up basic pay, and both new Prime Minister Liz Truss and Finance Minister Kwasi Kwarteng had said they intended to scrap it as part of a deregulation drive following Britain's withdrawal from the EU.

«We need global banks to create jobs here, invest here, and pay taxes here in London, not in Paris, not in Frankfurt, and not in New York,» Kwarteng told parliament, according to the report.

Singapore-on-Thames

In the wake of Brexit and idea surfaced that with Britain not shackled to EU regulations, it could create a more competitive landscape, becoming a «Singapore-on-Thames», modeled on Singapore as a laissez-faire Shangri-La. There are problems with that argument, however, according to a commentary from the RSIS at the Nanyang Technological University in Singapore, 

On one hand, it is unfortunate for Singapore because it promotes a «flawed view» of what has been economic success won over decades. This journey to success was chronicled by Singapore's first Prime Minister Lee Kuan Yew in his book «Third World to First». For the United Kingdom, this is unfortunate because the version of the «Singapore model it promotes is both undeliverable and certain to make any trade deal with the EU more difficult, if not impossible, to deliver,» according to the RSIS commentary.

A Finance Ministry said efforts aimed at deregulation will unleash the potential of the financial sector and include a government plan to repeal EU financial services laws and replace them with ones tailor-made for the UK «to free up billions of pounds for investment,» the ministry said.

The Timing is Not Great

«To many who were scarred by the consequences of the 2008 global financial crisis and the banking scandals that accompanied it, news that caps on bankers' bonuses may be abolished will trigger a response bordering on visceral,» Michael Barnett, a partner at Quillon Law told «Reuters».