A UK challenge to a cap imposed on bankers' bonuses by the European Union (EU) has been rejected by a senior figure in a European court, according to reports.
Niilo Jääskinen, advocate general of the European Court of Justice, ruled Thursday that an EU law, which restricts bankers' bonuses to 100 percent of their salary, or to 200 percent with shareholder approval, is valid, according to the BBC.
"Given that the variable component of remuneration impacts directly on the risk profile of financial institutions, it can affect the stability of financial institutions who can operate freely across the EU, and in consequence that of the financial markets of the E.U.," the advocate general said.
While Jääskinen's ruling is not legally binding, it is seen as a blow to the UK's bid to limit EU regulation on its financial sector, which is the largest in Europe. A European court, which is expected to deliver a final ruling on the issue next year, can take the advocate's decision into account. And, according to the Financial Times, the court has followed the advice of the advocate general in a majority of cases.
“As expected, it looks like the bonus cap is here to stay and that could lead to further regulation if basic, non-performance related, salaries rise as a result,” Paul Randall, head of incentives at law firm Ashurst LLP, in London, told Bloomberg.
Britain has mounted a challenge against the law on six counts, including an argument that the cap, which is the toughest restriction on bankers' pay in the world, exceeds the EU's authority, according to Reuters.
The UK Treasury, which brought the action, had also claimed that the cap undermined financial stability by forcing banks to raise salaries, which they could not alter in times of financial stress, according to The Telegraph.
The UK is currently experiencing a surge in anti-European sentiment, which the ruling is likely to feed. Prime Minister David Cameron has pledged to hold a referendum on the country's EU membership if his government is returned to power at the next election in 2015. In addition, the UK Independence Party, or UKIP, has been usurping support from the conservative government by running on an anti-EU platform.