EU members have agreed on the need for new curbs on the trillion-dollar hedge fund industry, overriding objections by the new British government.
The issue is important for European governments, who have criticised what they see as speculators' attacks on the euro currency.
The EU said ministers had 'agreed a mandate for negotiations with the European parliament' to harmonise hedge fund regulation across the 27 nations.
Home to 80% of Europe's hedge fund industry, Britain wanted funds based in Commonwealth outposts such as the Caribbean, but managed in the City of London, to be able to sell to all of Europe's 500 million population on the strength of British regulation alone.
That is the current state of the game but in only a slight nod to London's concerns, ministers 'took note of remaining concerns expressed by delegations, for instance with regard to third country rules'.
The EU's Spanish presidency will now open negotiations with the parliament on May 31 on a new legislative text expected to make it much tougher for non-EU funds to sell their products across the single market.
To get what has been dubbed their EU 'passport', these funds will have to submit to much tougher European regulation on transparency, management and capital levels.
A European diplomat said that Britain had at least secured recognition that the 'passport' issue had still to be fully worked through.
US Treasury Secretary Timothy Geithner warned in March that the EU proposals as they stood then would amount to a protectionist onslaught on the rest of the world's financial services industry.
MEPs voted late on Monday to call for different categories of hedge funds, potentially allowing 'passports' for some of the bigger names.
