European asset managers breathed a sigh of relief on Wednesday as Brussels ditched plans to impose a remuneration cap on fund managers that would have limited bonuses to 100 percent of their salary.
The clampdown on pay was overturned by lawmakers with a narrow margin of just seven votes, easing industry fears across Europe - especially in the U.K., where the suggested changes caused uproar in the fund management sector.
(Read More: EU Bank Bonus Cap to Put Pressure on US: Schulz)
The proposals followed a clampdown on bankers' pay to fund managers in 2010, however Member of European Parliament (MEP) Sharon Bowles, who is chair of the European Parliament's Economic and Monetary Affairs Committee, said the legislation should not be passed for the sake of an "attention-grabbing headline".
"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," said Bowles. "However, we should all know how managers are being paid so that there are not wrong incentives."
(Read More: Bank of America Paid Bonuses to Foreclose: Lawsuit)
Lawmakers should be "proportional, not reactionary" when regulating financial markets, Bowles added.
But fund groups will face some new rules from Brussels, including being required to defer bonuses by a number of years and disclose remuneration policies to clients, a move that was welcomed by U.K. industry body the Investment Management Association (IMA).
Daniel Godfey, CEO of the IMA, said the proposals "drive true alignment between asset managers pay and the interests of our clients."
(Read More: Bankers Can Easily Avoid the EU Bonus Cap)
European regulator chief, Peter de Proft, who is director general of the European Fund and Asset Management Association, said the result was a testament to the European Parliament's view on investor protection.
However, not everyone welcomed the result. Sven Giegold, the Green MEP who campaigned for tougher pay clampdowns, said it was a "black day for investor protection in Europe."
Investors "deserved better", Giegold said, but for many MEPs this was not a priority.
—By CNBC's Jenny Cosgrave: Follow her on Twitter