Brussels has backed down on plans to impose strict bonus caps on fund managers operating across Europe in a move welcomed by the City.
The European Parliament said that fund managers should receive a higher proportion of their bonuses in shares, but stopped short of forcing the same rules on the industry that they pushed through for bankers earlier this year.
Politicians rejected original plans to ban bonuses larger than salaries by 348 votes to 341. However, talks are now set to commence with member states that could still see restrictions placed on bonuses for asset managers, many of who are based in the Square Mile.
Sharon Bowles, Liberal Democrat MEP for South East England, said: "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."
City experts welcomed the news, although Sven Giegold, a German MEP, described it as a "dark day for investor protection".
Carol Hall, head of European affairs at the Association of British Insurers, said: "While the merits of such regulation are highly questionable even in the context of banks, in the case of asset managers the arguments for imposing such a cap are even more unsubstantiated. We are pleased that MEPs have identified this and that this now sets a firm precedent for other corporate sectors."
Five months ago officials agreed that bank bonuses in the European Union should be limited to no more than base salary – or up to twice salary with the explicit approval of shareholders.
Fears had grown that the tough rules could spread to other parts of the City including the insurance sector before yesterday's vote.