European Union lawmakers have narrowly rejected a proposal to cap fund managers' bonuses, a decision which would have blocked payouts from exceeding annual salaries.
MEPs voted against the measure by 348 votes to 341, as part of a wider vote on the UCITS V directive.
However, fund groups will be required to defer bonuses by a number of years, and to disclose remuneration policies to clients, a measure welcomed by the Investment Management Association (IMA).
"Clear alignment with client interests and outcomes is fundamental to the asset management industry's ability to support savers and the wider economy," said IMA CEO Daniel Godfrey (pictured).
"The European Parliament has voted for proposals that drive true alignment between asset managers' pay and the interests of our clients.
"We look forward to continuing to work with all stakeholders as the UCITS V process progresses."
A number of British MEPs argued strongly against the proposals, claiming it would drive up costs for the European asset management industry - the majority of which is based in Britain.
Sharon Bowles, chair of the European Parliament's Economic and Monetary Affairs Committee, voted against the cap. She said the legislation would have had a disproportionate effect on fund groups.
"European UCITS are an important brand globally and possibly the only retail investment product that has not been tarnished by the financial crisis," she said.
"We should not undermine their brand for the sake of an attention-grabbing headline and the vote today acknowledges this."
"I have always maintained that banks have a monopoly on liquidity and lending, both of which are ultimately provided at public expense.
"For this reason I do not think it is appropriate to roll out the same bonus cap across all financial services legislation. However, we should all know how managers are being paid so that there are not wrong incentives.
She added lawmakers needed to "be proportional, not reactionary" when regulating financial markets.
But she expressed disappointment a clause to link a fund manager's bonus directly to performance was also rejected.
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected