Britain’s subsequent decision to scrap it – a divergence only possible after Brexit – was taken under former prime minister Liz Truss and is one of the few changes to have survived her disastrous mini-Budget in September, which caused a market rout.
At the time, Ms Truss and her then chancellor, Kwasi Kwarteng, argued that the cap had become arbitrary, with banks finding other ways to remunerate top performers instead.
The new pay rules apply to so-called “material risk-takers”, a special classification of bank staff who can pose a risk to the lender’s financial stability.
Salaries had been increased in the past few years to offset the bonus cap. But some bankers have been wary of giving up higher levels of fixed pay in exchange for variable bonus payments.
This is because there is no guarantee they will receive the same amount per year, meaning mortgage agreements can prove harder to obtain and private school fees more difficult to pay.
Mr Kwarteng argued that abolishing the cap would make London more attractive to banks, helping the City compete with New York for talent.
Wall Street companies have often been wary about moving staff from New York to London, as bankers in the US typically receive less in salary and more in bonuses.
The bonus shake-up could also give London an edge over EU financial capitals such as Paris and Amsterdam, which are vying to win more financial markets business following Britain’s exit from the EU.
Some European bank bosses have already complained that the rule changes will put them at a disadvantage to the UK.