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EU bonus cap could hit "10 times" more City bankers

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Up to 10 times as many City bankers as previously expected could be caught by the EU's cap on bonuses, professional services firm PwC has said.

In a statement, PwC said the European Banking Authority has approved a draft paper to cap the bonus of any bank employee whose total pay is more than £500,000.

This is the latest proposed addition to the law published in March that will require bonuses for certain bank staff in the EU to be capped at 100% of their salary.

The proposals, expected to be published this week, will be the first time remuneration levels have been published to define who the "material risk-takers" are. These risk-takers will then be subject to the bonus cap. Until now, in general banks have been able to make their own calculations as to who they view as risk-takers.

Jon Terry, partner at PwC, said: "This expansion of the definition of risk-takers will see substantially more individuals working in the banking industry being hit by tougher pay rules, including being subject to bonus caps from next year.

"If the proposals are implemented as proposed, this will mean anyone earning over €500,000 will be deemed a risk-taker irrespective of their role or impact on the risk of the firm.

"This will significantly increase the number of employees subject to the bonus capping, to perhaps as much as 10 times for some investment banks operating in London."

Terry added: "This will create a major challenge for banks as to how they reward their staff. Bringing more people into the stringent pay rules again further widens the gap between pay practices in Europe and the rest of the world.

"The final rule is likely to be adopted ahead of the 2014/15 remuneration round, meaning companies will have little time to develop their approach."

Chancellor George Osborne has attempted to stop the bonus cap since it was first proposed in March. Andrew Bailey, the head of the Prudential Regulation Authority, the City's new banking regulator, has warned that a bonus cap could push up banking salaries by £500 million a year.