As expected, Coreper has recently approved the compromise text reached with the European Parliament on the "CRD 4" package amending the EU's rules on capital requirements for banks and investment firms. The negotiations on technical issues have therefore been concluded, and the Member States’ ambassadors to the EU endorsed the new rules to limit bank bonuses. The UK did not support the compromise texts. However, the cap on bankers’ bonuses will be introduced despite UK’s opposition.

From the outset, the UK Government has been against the introduction of EU legislation imposing caps bankers' bonuses. But, at the European Parliament insistence, the cap on banker’s bonuses has been inserted into the proposals. The legislative proposals amending the EU's rules on capital requirements for banks and investment firms will be adopted by a qualified majority vote, hence the UK cannot veto such proposals. The Chancellor of the Exchequer, George Osborne, tried to scrap the bonus cap from the proposals at an Ecofin meeting, but he was completely isolated.

George Osborne was not even able to gather support to water down the EU’s rules on bankers’ bonuses. He said, “I can’t support the proposal currently on the table, but I hope that if we make progress over the next couple of weeks that we can have a package that we can all support, that the finance minister of the largest financial sector in Europe can support wholeheartedly.” However, the other member states have ruled out introducing significant changes to the compromise deal reached with the European Parliament on limiting bankers' bonuses. The MEPs have to agree to any of the Council's technical changes and they have made clear that the agreement reached at the trialogue was not up for revision. As Udo Bullmann MEP said, "The parliament withstood the pressure from the British government and did not allow any change to the cap on bonus payments,".

The UK has won minor concessions but the main issues have not been addressed and there is no further negotiations.
Hence, The Member States’ ambassadors to the EU agreed “Bonuses will be capped at a ratio of 1:1 fixed to variable remuneration, i.e. no greater than equal to fixed salary.” There would be only one exception to this rule, which would allow bonuses of up to twice annual salary, if this has been authorised by at least 66% of shareholders owning half of a bank's shares, or, if there is no quorum, it is supported by 75% of shareholders present. It was also confirmed “For the purposes of applying this ratio, variable remuneration may include long-term deferred instruments that can be appropriately discounted.”

The Government has particularly raised concerns over the application of the EU proposals to limit bankers' bonuses to banks outside the EU. Hence, changing the scope of the rules was a priority for the Government. However, there was no support, among the other member states, for this and, consequently, the UK has won no concessions. In fact, Coreper confirmed, “These provisions will also apply to the staff of subsidiaries of European companies operating outside the European Economic Area and the European Free Trade Area.”

Financial institutions across Europe will be subject to the new rules, including 8,000 banks, which presently operate in Europe. Moreover, as abovementioned, such rules would apply to all European banks’ regardless they are based in or outside the EU. The bonus cap would apply to bankers employed by a EU bank but based outside Europe.
The City of London, the biggest EU’s financial capital, will be particularly hit. In fact, 90% of those that would be affect by the EU’s bonuses cap are based in London. Hence, there are serious concerns that the new rules will put the City of London at a competitive disadvantage, as they will apply to European banks globally, but their global competitors will face no bonus restrictions outside the EU. Consequently, such rules are likely to lead to banks and staff to move from London to other financial centres outside the EU. The strict limits, proposed by the EU, on the bonuses paid to bankers might undermine the City as a global financial centre. In fact, one might consider the proposed bonus cap as an “attack” on the UK.

It was also a Government’s priority to apply the cap as late as possible. The draft directive will enter into force in January 2014 but it was agreed “The first bonuses to be affected will be those paid in 2015 in respect of performance in 2014.”  This was the small concession made to the UK. The new rules will only apply after next year’s bonus season.

The package still needs to be formally adopted by the Council and by the European Parliament, before it can enter into force. The European Parliament is likely to rubber stamp the political agreement during the April plenary session (15-18 April). The EU Finance Ministers are expected to formally approve the final deal on Capital Requirement Directive (CRD IV), including banker's bonuses in May at latest. It is important to note that the Council of Ministers adopts the decisions prepared by Coreper either without debate, when an agreement has already been found ("A" item), or with debate (“B” item). As regards “A points” there is no vote at all as the agreement was reached by Coreper therefore the Council presidency simply mentions that they have been adopted. As regards “B points” usually the Presidency notes that the required majority has been achieved. Hence, if any Member State objects the act is adopted without the Council formally voting. There is a support of a qualified majority of member states in favour of the compromise deal agreed with the European Parliament on the reform of rules on capital requirements for banks. Hence, the UK would be outvoted. As all member states but the UK support the legislative package, there would be no vote and probably no further discussions at Council level.

The Government may state its positions in a formal statement, in order to voice reservations or to 'clarify' its decision to oppose or abstain. However, as Bill Cash noted, “We can express reservations and argue against the proposals, but the qualified majority voting system operates in such a way as to prevent us from exercising our much-vaunted influence.” 

The cap on bankers’ bonuses will be introduced despite UK’s opposition.
Due to QMV, the UK will be outvoted and force to accept such measures against the national interest. In the EU decision-making process, the common interest prevails over national interests. The text ultimately adopted takes into account the EU interests as a whole, which in this case, as well as many others EU’s proposals, jeopardizes the UK national interest.

The Financial services industry accounts for 12% of UK GDP. Yet, the financial services regulation belongs to the internal market and it is therefore subject to QMV and co-decision with the European Parliament. There is a EU’s ‘power grab’ over regulation of the British financial services industry. A EU supervision of the financial system has been in place since January 2011. The aim is to establish a single EU rulebook applicable to all EU financial institutions and powers have been transferred from national financial supervisors to the new European Supervisory Authorities. Consequently, the powers of the Financial Services Authority (FSA) have been reduced. In December 2011, David Cameron took the historic decision to veto changes to the EU Treaties, on the grounds that the deal was not in Britain’s interests, as it did not contain safeguards to protect the single market and the UK financial services. David Cameron's proposed safeguards were not accepted, the other Member States, particularly Germany and France, have made clear that they would never accept an opt-out for the City of London from EU financial regulation as well as to give the UK a veto over financial services regulation. It is important to note that Christian Noyer, Bank of France governor has recently said to The Financial Times “We are not against some business being done in London but the bulk of the business should be under our control.”

There is a EU tendency to legislate continuously on financial services matters. In fact, we have been seeing a shift of financial regulation from the UK to the EU, and bit-by-bit EU regulation would be taken over from national regulation, and this would be irreversible. The situation will exacerbate with the creation of a banking union. It is important to mention that Michel Barnier, Commissioner for Internal Market and Services, following the agreement in trilogue, recalled, “banking union is now underway. And we have all elements to make it happen.” The chances of the UK being able to influence EU’s policies and legislation would be even more limited not only because of the QMV but also because of “solidarity” among eurozone member states, which would vote as a block outvoting the UK in matters of national interest. Presently, the UK only enjoys 8% of the votes. From November 2014, QM will be calculated according to double majority: 55% of EU Member States (15 Member States) and 65% of the EU’s population, and the UK will enjoy 12% of the votes. However, this can hardly be seen as an increase in the UK's voting power as it will be harder for the UK to block proposals. The UK is not always able to form political alliances to stop damaging legislation, which is clearly showed by the proposed cap on bankers' bonuses.
Once a banking union is in place, the Commission, under the single market umbrella, will propose banking and financial regulations, for all EU member states. The eurozone member states, as well as other member states participating in the banking union, will vote as a block, imposing further regulations on the City of London. The eurozone member states can use their voting power at EU level to force through measures in detriment of the UK’s national interest. The UK would see itself in the position of having no choice but to accept legislation without having the chance of negotiate it.

Britain’s future is dependent upon rejecting Qualified Majority Voting, whereby Britain has been forced to accept EU measures, which it was against, as well as the Ordinary Legislative Procedure, which represents a dangerous invasion of the sovereignty of the UK Parliament. These issues can only be addressed by renegotiating all the EU Treaties and the whole relationship with the EU, and give people a say in a referendum.

David Cameron announced in his big speech “The next Conservative Manifesto in 2015 will ask for a mandate from the British people for a Conservative Government to negotiate a new settlement with our European partners in the next Parliament” and then he promised to give the British people a referendum “with a very simple in or out choice. To stay in the EU on these new terms; or come out altogether.” Britain must regain control of the City of London. Hence, as soon as David Cameron renegotiates the whole UK relationship with the EU the better. In fact, as Bill Cash has been saying, “we need a referendum, and ahead of the European elections in 2014….”