In a move that is expected to trigger an arms race among rivals, JPMorgan Chase has become the latest Wall Street giant to scrap the European Union's cap on bonuses for its London-based staff, following in the footsteps of Goldman Sachs.

According to Sky News, the largest bank in the US is in the process of notifying its 22,000 employees in the UK, including roughly 14,000 in London, that it will preserve some elements of the remuneration packages introduced after the EU's cap on variable pay came into force in 2014.

Under the new structure, JPMorgan has decided to raise its bonus cap threshold from two times fixed pay to a multiple of 10. This means that a senior banker or trader in Britain who earns £2 million in annual fixed pay could now be eligible for a bonus of up to £20 million, rather than the £4 million limit imposed by the EU rules.

A source close to the bank speaking to Sky News revealed that maintaining fixed pay levels was desirable, even for senior staff, as it provides stability for managing monthly household expenses such as mortgages. However, the removal of the EU bonus cap is unlikely to materially impact total annual pay levels during the current financial year, as bonuses will continue to be discretionary and driven by performance on a year-to-year basis.

JPMorgan's move follows a similar decision by Goldman Sachs last month, which opted to increase its cap from 2:1 to 25:1, although the latter bank is largely removing its fixed pay allowances, meaning bonuses will be calculated from a lower base than those at JPMorgan.

The revamped pay structures are expected to fuel an arms race among rivals as they seek to remain competitive in attracting and retaining top talent in the financial services sector. A JPMorgan insider said the bank believed its new approach would be attractive both to bankers working for rivals and those it wanted to lure to Britain from outside the country.

The EU bonus cap was introduced in 2014 as part of efforts to limit excessive risk-taking following the 2008 financial crisis. However, banks have long argued against the cap, claiming it did nothing to reduce risk-taking behaviour and, in many cases, achieved the opposite by placing upward pressure on fixed salaries and allowances.

With UK regulators agreeing that scrapping the cap would aid financial stability by enabling firms to reduce pay faster during downturns or scenarios where they need to conserve capital, the removal of the cap is expected to be embraced by other major banks operating in London.

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