NEW YORK ( TheStreet) -- Emboldened by a pair of recent legal victories against the European Union in the area of financial services, the U.K. government is now challenging a cap on banker bonuses before the bloc's highest court.
The lawsuit, filed with the Court of Justice in Luxembourg, challenges a plan to limit banker bonuses in the 28-nation EU as part of stricter capital requirements agreed by EU policymakers in February.
U.K. Chancellor of the Exchequer George Osborne warned at the time that the bonus restriction would backfire by inflating bankers' salaries, making it harder to scale them back in case of any misconduct.
While promising to implement the new rules, he argues that it is incompatible with the EU Treaty and goes beyond the powers delegated to the European Banking Authority."Britain has been at the forefront of global reforms to make banking more responsible, including big reductions in upfront cash bonuses and linking rewards to long-term success," a Treasury spokesman said in a statement Wednesday. He added: "These latest EU rules on bonuses, rushed through without any assessment of their impact, will undermine all of this by pushing bankers' fixed pay up rather than down, which will make banks themselves riskier rather than safer." The move comes less than six months after the European Parliament approved the bonus cap by a vote of 608 to 33. The U.K. action prompted an angry response from Othmar Karas, the Austrian legislator who acted as the Parliament's chief negotiator. "The British never came up with these arguments in the months-long negotiations," Karas said. "That they come now, is late and easy to see through." He added: "The lawsuit filed by the British government is an attempt to obstruct the necessary change in culture on financial markets, which the European Parliament initiated and will pursue. The voting results in Parliament show how isolated U.K. politics are." The case is one of several U.K. challenges to EU financial regulation. It is also fighting the proposed regional financial transaction tax, scoring an important goal earlier this month when a leaked nonbinding opinion from the European Commission's legal experts found the tax to be incompatible with existing EU laws.