Britain should welcome a cap on bankers' bonuses agreed by European Union lawmakers on Thursday as a fair response to taxpayers' anger over the huge cost of rescuing imprudent banks, Europe's top financial regulator said.
EU Internal Market Commissioner Michel Barnier said he did not believe the curbs would drive banks out of the City of London, Europe's biggest financial centre, to less regulated markets outside the European Union such as Switzerland or Singapore.
"I don't think it is likely that banks that have an interest in working today and tomorrow in the single market will take the risk of leaving the single market simply because of this reason of the remuneration of their executives," he said at a Reuters Summit on the future of the euro zone.
He was speaking hours after EU lawmakers, country representatives and the executive European Commission struck a provisional deal on new banking regulation including higher capital requirements and increased transparency by banks.
A ceiling on bonuses, the only one of its kind globally, is perhaps the most radical aspect of the new rules, and runs the risk of establishing an uneven global playing field that could put European banks at a disadvantage in attracting staff.
Barnier rejected criticism of the regulation, which will hit Europe's financial capital, London, hardest, saying it was just one aspect of a broader rulebook that would make Europe's financial system more stable and transparent.
The former French foreign minister said bankers needed to understand citizens' outrage at having to pick up the cost of reckless risk-taking encouraged by the bonus culture.
"Banks, like hedge funds, are not outside society. They are a part of society and it is in their interest to pay heed to what citizens think. The time has come for a bit of moderation."
The fact that Europe was drawing the lessons from past misbehaviour "is positive for British citizens," he said, adding that Europe was fortunate to have the City of London financial centre in its single market.
Barnier also said he hoped that other areas of the world would follow Europe's example in regulating bankers' pay but declined to be drawn on whether he wished to extend stricter bonus regime to hedge funds and private equity firms.
These investors are now excluded from such curbs, though they face curbs on pay later this year under another EU law.
Barnier's message is unlikely to satisfy his critics in Britain. They accuse the Frenchman, who is in charge of writing new EU financial laws, of driving a continental agenda to overhaul finance, shackling the City of London.
But the commissioner said he had gone to lengths to accommodate the demands of Britain and its Finance Minister George Osborne.
The change in the law is set to be introduced as part of a wider body of legislation, known as Basel III, which demands that banks set aside roughly three times more capital and build up cash buffers to cover risk such as unpaid loans.
Britain had argued successfully for additional flexibility to demand its banks set aside higher capital than that foreseen for the wider European Union.
