The bonus cap, implemented in 2014, applies to the single market's largest banks, limiting bonuses to 100% of salary, or 200% with shareholder approval.

But once the UK formally exits the union it could write its own new rules, said Roger Matthews, a partner at Dechert in London.

"It may be that the UK government will take the opportunity to ditch the bonus cap," he told IFR.

UK banks have said the cap puts them at a disadvantage in other countries with looser compensation rules, particularly the US, where banks are not subject to a cap on bonuses.

HSBC chairman Douglas Flint in 2014 called the rule "retrograde". Barclays and the British Bankers Association have also been vocal opponents of the cap.

"[UK banks] find it very hard to offer compensation comparable their US counterparts in the same city," said Matthews.

Vice presidents at the New York offices of HSBC and Barclays earn an average salary of just over US$180,000, in line with Goldman Sachs, Morgan Stanley, JP Morgan and Citigroup, according to salary benchmarking firm Emolument.

But the US banks pay VPs an average bonus of US$155,000, compared to US$102,500 at HSBC and Barclays, according to Emolument.

Director-level bonuses are closer, but still lower at the UK banks - Barclays and HSBC pay an average of US$305,000 compared to US$350,000 at Goldman Sachs and Citigroup, the data shows.

Directors' salaries are comparable at those four banks, at just over US$220,000, said Emolument.

STRIKING A BALANCE

The bonus cap rules apply to global staff of any EU-based bank, and to the EU-based staff of any international bank.

If it were loosened or removed, UK banks could find it easier competing with rivals in the US or Asia than their EU rivals, and London could benefit as a location for staff of non-EU banks, compared to other EU cities where the pay caps apply.

However, the UK faces intense political pressure to retain some form of bonus cap, from both the EU and its own citizens.

In order to retain access to the single market, the UK will likely need to maintain laws governing the financial sector that are roughly equivalent to those in Europe.

Any change to the bonus cap could put that in jeopardy, said a spokesperson for an influential UK banking industry group.

"The risk is if we diverge too quickly from the EU rules, we won't be able to secure access to the single market and passporting rights will be withdrawn," the spokesperson said.

Moreover, the bonus cap was driven by pressure on the UK government to make banks and their employees more accountable after the financial crisis.

Softening the rule would fly in the face of post-crisis policy towards the financial sector, said Sarah Henchoz, a partner at Allen & Overy in London.

"Our government will be under pressure from banks to make it easier to pay and retain talent in the UK," she said.

"[But] to remove the cap would go against the whole ethos of why these things were put in place in the beginning. It will be a politically led decision."

The US's compensation rules are currently under regulatory review.

But while regulators have proposed increasing bonus deferral periods, enhancing clawback provisions and expanding the number of employees subject to the rules, there is still no outright cap.

"This difference benefits US banks versus their EU peers with respect to their ability to attract the most qualified employees," wrote PwC analysts in a research note in April.

(Reporting by Will Caiger-Smith; editing by Steve Slater and Shankar Ramakrishnan)

By Will Caiger-Smith