British bankers would have flocked to the Netherlands were it not for the country’s bonus cap rules, the CEO of Dutch challenger bank Bunq has told the Standard.
Under local rules in Holland, bankers cannot receive a bonus greater than 20% of their fixed pay, a stricter application of the EU’s bonus cap rule introduced in 2014, in which variable pay could not exceed 100% of fixed pay, or 200% with shareholder approval.
Last month, the UK financial regulator announced it would be scrapping the cap altogether following a consultation, opening banker pay up to unlimited salary multiples, in a move aimed at making banker pay more competitive internationally.
“The Netherlands, for reasons which are difficult to understand rationally, has a 20% bonus cap, and I can actually see the detrimental impact of that for consumers,” Bunq CEO Ali Niknam said.
“Fixed salaries go up and you get less performance for the equal amount of pay.
“With Brexit, everybody wants to come to the Netherlands, until they learned about the bonus cap, so that’s a gigantic opportunity cost. The UK is no longer part of the European Union so it needs to do something to stand out.”
A plan to scrap the bonus cap was unveiled last year by then Chancellor Kwasi Kwarteng in a bid to strip the City of EU red tape, and it has since become of the few measures to have survived his much-derided mini-Budget.
But hostility to the cap in the Square Mile extends back prior to its enactment in 2014. Then-Chancellor George Osborne had mounted a legal challenge to block the cap’s introduction, before subsequently backing down.
"I'm not going to spend taxpayers' money on a legal challenge now unlikely to succeed," Osborne said.
“[But] the fact remains these are badly designed rules that are pushing up bankers' pay not reducing it. These rules may be legal but they are entirely self-defeating, so we need to find another way to end rewards for failure in our banks."
Former Bank of England Governor Mark Carney had also voiced concerns about the EU measure, warning it had the "undesirable side-effect of limiting the scope for remuneration to be cut back".
Bunq is the second largest neobank in Europe by customer numbers after London’s Revolut, with a user base of 9 million customers across its EU markets and a combined $4.7B in deposits. The firm successfully completed a $111 million bridge funding round in July, making it one of the few European fintechs not to see its valuation fall since 2021. Revolut investors earlier this year cut the value of their stake by as much as 40%.
Niknam warned that smaller banks were under pressure amid current economic headwinds and some were in danger of collapsing without regulatory intervention.
“If the market is allowed to do its thing, I think the first thing that is going to happen is the poorly run and too small neobanks are likely to fail, and the mid-size banks are going to fail,” he said.
“The small banks are going to continue because they have the unique bond with their customers, and the big banks are going to continue because they have the advantages of scale. But everything in the middle is going to disappear.”