The European Parliament narrowly rejected proposals to ban fund managers from receiving bonuses amounting to more than their annual salary amid warnings the plan could backfire by harming pensions and savings.
Lawmakers in Strasbourg, France, defeated the proposal after some legislators argued the measure would drive up fixed costs for money managers and curtail returns. The proposed curbs were blocked by a margin of seven votes out of 695 cast.
“Strengthening the financial system is absolutely vital, but we need to do so without becoming vindictive,” Syed Kamall, a U.K. Conservative legislator who opposed the pay limit, said in an e-mail. “The bonus cap would have been hugely damaging to the European asset management industry, which looks after the pensions and investments of millions of Europeans.”
The draft rules for UCITS fund managers would have gone beyond planned EU limits on banker pay that will allow bonuses of twice fixed salary. European money management firms were concerned the proposal, which would have affected two-thirds of senior fund managers, would have led to a bidding war for top traders, increasing fixed costs and making the industry more vulnerable to market downturns.
The parliament was weighing whether to add the rules to a draft law proposed by Michel Barnier, the EU's financial services chief, to toughen UCITS regulation.
Supporters of the measure argued it was necessary to curb irresponsible risk taking, and that consistent pay rules should be applied across the financial services industry.
“It's a black day for investor protection in Europe,” Sven Giegold, the parliament lawmaker in charge of the draft law, and the architect of the rejected bonus plan, said in a telephone interview. Still, he said, the draft law contains other important measures, including rules to prevent a fraud similar to the Ponzi scheme orchestrated by Bernard Madoff.
The draft law would toughen liability rules for banks that safeguard funds' assets. It would also ensure that national regulators have the power to impose fines and other sanctions on funds and depository banks that break consumer-protection rules.