Banker Bonus Cap is 'Wrong and Misguided' says BoE's Andrew Bailey

The chief executive of Britain's Prudential Regulation Authority launched a raft of criticism over lawmakers and enforcement agencies in clamping down on banker bonuses.

Speaking at Mansion House in London, Andrew Bailey, who is also the deputy governor of the Bank of England, said that the European Union's (EU) new rules to cap banker bonuses is the wrong route to go, if authorities want to prevent "reckless behaviour" in the financial markets.

"We need a system where senior people who are responsible for the performance of their firms understand that for a reasonable period of time a meaningful proportion of their remuneration is at risk of being taken away," said Bailey.

"Let me be blunt, the bonus cap is the wrong policy, the debate around it is misguided."

The EU Council pushed through the plan earlier this year to cap bankers' bonuses at a maximum of double their salary from 2015.

The measure will come in on 2014's bonuses that will be paid out at the start of 2015.

However, under draft guidelines produced by the European Banking Authority (EBA), lawmakers are debating whether to permit a bonus cap of 250% of bankers' salaries.

It also appears that bankers' pay rules could be relaxed to allow deferred payments over five years.

Meanwhile, the European Banking Authority is trying to clamp down on banks' attempts to side-step imposed bonus caps by awarding putatively fixed allowances to boost the salaries of top executives.

The regulator said some 39 lenders across Europe classify as fixed pay certain "role-based" allowances awarded to staff.